Blockbuster was once the leader in the movie rentals business but with the fast growth of digital and mail order competitors, the business found itself filing for bankruptcy last September. In February Blockbuster had to put itself up for sale when reorganization failed.
Dish Network Corp won Blockbuster Inc in a bankruptcy auction for about $320 million, a move that could see the second-largest U.S. satellite TV provider tapping the movie rental chain's online content to strengthen its offerings.
Dish, led by satellite billionaire Charlie Ergen, trumped at least three other bidders, including activist investor Carl Icahn, for the one-time leader in video rentals. A $308.1 million bid from Cobalt Video, a group of hedge funds headed by Monarch Alternative Capital LP, was the highest bid before the auction was moved to an attorney's office not open to the press. Icahn had bid $310.6 million, but his bid included less money than Monarch's for notes rolled up into a bankruptcy loan and was thus considered a lower bid.
Dish might find Blockbuster's online content appealing as the company could use it as a base for an online product to deliver movies. Blockbuster will complement Dish’s existing video offerings while presenting cross-marketing and service extension opportunities.
The deal marks the second purchase of a bankrupt company by Dish. Last month, Dish got a nod from a bankruptcy court to buy hybrid satellite and land-based communications company DBSD North America for about $1.4 billion.
The Blockbuster deal is not yet finalized. The Federal Bankruptcy Court on Thursday is expected to approve the bid submitted by Dish Network Corp.
Wednesday, April 6, 2011
Monday, April 4, 2011
Microsoft files antitrust complaint against Google in Europe
Last week, Microsoft filed complaint against Google in Europe regarding issues of antitrust. Among many distraught companies, Microsoft has reason to believe Google's practices in promoting its products are unfair to others in the industry. The underlying example that is sparking the interest of the oppositions top attorneys is how the search giant uses its Google Price Search to promote its smart phone software through its search engines.
Microsoft’s general counsel, Brad Smith, stated last week that “Our filing today focuses on a pattern of actions that Google has taken to entrench its dominance in markets for online search and search advertising to the detriment of the European consumers.” Smith added that the search giant owns 95% of the search market in Europe and that Google has targeted other firms to discontinue their ability to create a competitive search alternative. Smith also argued that since Google's acquisition of YouTube in 2006, the company has restricted other search engines like Bing and Yahoo from properly accessing YouTube videos for search results.
In a related dispute, Smith said Google does not allow Windows Phone 7 devices to adequately search content on YouTube. Conversely, the company does allow the iPhone and Android smartphones to perform such searches. For instance, a company that specializes in financial analysis software was surprised to discover only iPhone users were finding their products designed for smartphone specific searches.
Among other matters of legal interest, Google reportedly restricts access to content owned by book publishers, disables online advertisers from accessing their own data, and blocks European websites from implementing search boxes from competing search engines.
“We readily appreciate that Google should continue to have the freedom to innovate,” Smith said. “But it shouldn’t be permitted to pursue practices that restrict others from innovating and offering competitive alternatives."
Microsoft’s general counsel, Brad Smith, stated last week that “Our filing today focuses on a pattern of actions that Google has taken to entrench its dominance in markets for online search and search advertising to the detriment of the European consumers.” Smith added that the search giant owns 95% of the search market in Europe and that Google has targeted other firms to discontinue their ability to create a competitive search alternative. Smith also argued that since Google's acquisition of YouTube in 2006, the company has restricted other search engines like Bing and Yahoo from properly accessing YouTube videos for search results.
In a related dispute, Smith said Google does not allow Windows Phone 7 devices to adequately search content on YouTube. Conversely, the company does allow the iPhone and Android smartphones to perform such searches. For instance, a company that specializes in financial analysis software was surprised to discover only iPhone users were finding their products designed for smartphone specific searches.
Among other matters of legal interest, Google reportedly restricts access to content owned by book publishers, disables online advertisers from accessing their own data, and blocks European websites from implementing search boxes from competing search engines.
“We readily appreciate that Google should continue to have the freedom to innovate,” Smith said. “But it shouldn’t be permitted to pursue practices that restrict others from innovating and offering competitive alternatives."
Young professionals prefer more urban living environments
Young and educated professionals among the USA's largest metropolitan areas are moving closer to urban, downtown living spaces. The emerging popularity of city dwellers has resulted in the transformation of old, abandoned warehouses into modern historic apartments.
In almost over 70% of nation's 51 largest cities in the past decade, the population of college-educated individuals grew twice as fast within 3 miles of the urban center as in the rest of the metropolitan area. For states like Pennsylvania, that means more Philadelphia apartments for rent, with many unique living features.
Even in city of Detroit where the population decreased by 25% since 2000, the downtown area has witnessed 2,000 young and educated residents new residents, according to a Census analysis by economic consulting firm Impresa Inc.
Cities all over the nation are realizing an influx of young talent, and many developers and car moving companies are taking advantage of profitable opportunities.
Reinhold Residential is one company that specializes in architecturally unique, urban apartments designed with a luxurious and contemporary approach. Reinhold renovates historic warehouse buildings into quality living atmospheres. From luxury apartments in Chicago to glamorous pads in St. Paul, MN, the company is expanding parallel to the trends of migrating city residents.
In Cleveland, Ohio, the downtown area added 1,300 college-educated people ages 25 to 34. That growth of 49% has upped the demand for places to live.
Apartments in Pittsburgh have also been of higher demand with respect to the latter trends. More and more young professionals, especially in the fields of medicine, are seeking popular living hot-spots like Shadyside apartments, which neighbor the University of Pittsburgh Medical Center Shadyside Hospital.
David Egner, president and CEO of Detroit's Hudson-Webber Foundation, claims such data hints that they city of Detroit is on headed in the right direction. Three of the city's anchor institutions — Wayne State University, Henry Ford Health System, Detroit Medical Center — recently launched a campaign called "15 by 15." The program is designed to bring 15,000 young, educated people to the Detroit's downtown area by 2015.
The campaign boasts a powerful arsenal of cash incentives, including a $25,000 forgivable loan to buy (need to stay at least five years) downtown or $3,500 on a two-year lease.
Also seeing tremendous growth are the Loft District apartments in Baltimore. These contemporary living spaces are the ideal comfort retreat for the emerging mass of young city professionals.
As these trends continue, developers like Reinhold Residential will continue to pursue unique living spaces or potential warehouses capable of apartment makeovers.
In almost over 70% of nation's 51 largest cities in the past decade, the population of college-educated individuals grew twice as fast within 3 miles of the urban center as in the rest of the metropolitan area. For states like Pennsylvania, that means more Philadelphia apartments for rent, with many unique living features.
Even in city of Detroit where the population decreased by 25% since 2000, the downtown area has witnessed 2,000 young and educated residents new residents, according to a Census analysis by economic consulting firm Impresa Inc.
Cities all over the nation are realizing an influx of young talent, and many developers and car moving companies are taking advantage of profitable opportunities.
Reinhold Residential is one company that specializes in architecturally unique, urban apartments designed with a luxurious and contemporary approach. Reinhold renovates historic warehouse buildings into quality living atmospheres. From luxury apartments in Chicago to glamorous pads in St. Paul, MN, the company is expanding parallel to the trends of migrating city residents.
In Cleveland, Ohio, the downtown area added 1,300 college-educated people ages 25 to 34. That growth of 49% has upped the demand for places to live.
Apartments in Pittsburgh have also been of higher demand with respect to the latter trends. More and more young professionals, especially in the fields of medicine, are seeking popular living hot-spots like Shadyside apartments, which neighbor the University of Pittsburgh Medical Center Shadyside Hospital.
David Egner, president and CEO of Detroit's Hudson-Webber Foundation, claims such data hints that they city of Detroit is on headed in the right direction. Three of the city's anchor institutions — Wayne State University, Henry Ford Health System, Detroit Medical Center — recently launched a campaign called "15 by 15." The program is designed to bring 15,000 young, educated people to the Detroit's downtown area by 2015.
The campaign boasts a powerful arsenal of cash incentives, including a $25,000 forgivable loan to buy (need to stay at least five years) downtown or $3,500 on a two-year lease.
Also seeing tremendous growth are the Loft District apartments in Baltimore. These contemporary living spaces are the ideal comfort retreat for the emerging mass of young city professionals.
As these trends continue, developers like Reinhold Residential will continue to pursue unique living spaces or potential warehouses capable of apartment makeovers.
Fashion Magazines of the Future
With magazines loosing sales they look for ways to make up revenue. Consumers are tech savvy and are going online for information and shopping. Magazines have great information, but are losing customers who prefer to go online.
Vogue and Elle have long influenced what clothes and handbags image-conscious consumers buy. Now, in a bid to reverse flagging sales and stay relevant, fashion magazines may sell the products they feature in their articles.
As Apple Inc.’s iPad and other mobile devices change the way people stay informed and shop, e-commerce is creeping onto editorial agendas. Fashion magazines that have gone as far as to add links on their websites to online vendors such as Yoox SpA, may integrate the reading and buying experience, a move that would transform the likes of Vogue and Elle from just trendsetters into virtual shopkeepers.
Gone are the days when consumers want to flip through the back of a magazine to find an index. Combining retail and editorial is natural from an economic standpoint and natural from a consumer standpoint.
Hearst Magazines, publisher of Cosmopolitan and Esquire, will introduce a series of e-commerce partnerships this year. Vogue, Conde Nast Publications’ flagship fashion title, allied last month with Yoox, the Italian Internet clothing and accessories retailer.
Fashion magazines, grappling with a slide in circulation and advertising revenue, are looking to claw back ground lost to shopping websites such as Asos Plc and Net-A-Porter, owned by Compagnie Financiere Richemont SA, that are winning sales and influence. Fashion brands are also elbowing their way into the market, introducing digital titles like LVMH Moet Hennessy Louis Vuitton SA has done with Nowness.
About $1.57 billion was spent last year on apparel and accessories ads in U.S. magazines, down from more than $2 billion in 2008, as luxury goods companies cut budgets or put funds elsewhere.
Both Hearst and Conde Nast closed magazines during the global economic crisis. At Time Inc., the publisher of InStyle and Essence, publications’ ad revenue plunged 22 percent in 2009 and rebounded only 3 percent last year. Paris-based Lagardere SCA, which owns Elle, saw a similar weak recovery in 2010 after a 24 percent drop a year earlier.
Fashion magazines’ print circulation is flat or falling as more readers move online. Vogue’s circulation fell 1.5 percent in 2010 to about 1.25 million. Elle’s slid about 0.5 percent to 1.11 million, Audit Bureau of Circulations figures show.
Meanwhile, sites such as Net-A-Porter are gaining ground. Founded in 2000 by former fashion journalist Natalie Massenet, Net-A-Porter was acquired last year by Richemont and features catwalk footage, style tips and designer interviews as well as a catalogue of clothes and accessories.
Turning into e-tailers may be challenging for magazines. In addition to logistical and technological hurdles, magazines may have to contend with an erosion of editorial independence. Fully integrating shopping into editorial content would mean allowing readers to jump from a handbag or shoe in a photo spread to a page offering it for sale in a single click, rather than forwarding them elsewhere for purchases.
Adding content to e-commerce is easier than adding e-commerce to content. EBay Inc. hired a former editor at Conde Nast’s Lucky and Heart’s Harper’s Bazaar magazines as creative director for its fashion portal. Building the logistics and technology required for e-commerce would be a substantial challenge for Vogue. Vogue isn’t built to sell products. That partly explains why magazines haven’t done more than add links to fashion brands’ e-commerce websites.
Harper’s Bazaar partnered with Net-A-Porter last fall to pick out bags, shoes and clothing available from the shopping site with a single click. Vogue Italia and Yoox followed last month, focusing on products by young designers that could be bought from Yoox’s multi-brand shopping site thecorner.com. It’s not clear how revenue from the online transactions will be divided between the partners.
Because readers trust recommendations by magazines, they have to find the proper ways to monetize that. Yoox will benefit from increasing e-commerce and luxury demand growth because of rising global wealth.
Determining who gets control of or access to user information, credit-card details, addresses, and surfing and shopping histories that can be used to target advertising and offers, may represent a major hurdle. Retaining data from a significant number of people means you’re in business for anything you want to sell.
It is too early to tell if e-commerce is the magic answer to lost magazine revenue. It is clear that this cannot be the sole initiative by magazines. They must diversify their strategies to keep up with technology and the advanced consumer.
Vogue and Elle have long influenced what clothes and handbags image-conscious consumers buy. Now, in a bid to reverse flagging sales and stay relevant, fashion magazines may sell the products they feature in their articles.
As Apple Inc.’s iPad and other mobile devices change the way people stay informed and shop, e-commerce is creeping onto editorial agendas. Fashion magazines that have gone as far as to add links on their websites to online vendors such as Yoox SpA, may integrate the reading and buying experience, a move that would transform the likes of Vogue and Elle from just trendsetters into virtual shopkeepers.
Gone are the days when consumers want to flip through the back of a magazine to find an index. Combining retail and editorial is natural from an economic standpoint and natural from a consumer standpoint.
Hearst Magazines, publisher of Cosmopolitan and Esquire, will introduce a series of e-commerce partnerships this year. Vogue, Conde Nast Publications’ flagship fashion title, allied last month with Yoox, the Italian Internet clothing and accessories retailer.
Fashion magazines, grappling with a slide in circulation and advertising revenue, are looking to claw back ground lost to shopping websites such as Asos Plc and Net-A-Porter, owned by Compagnie Financiere Richemont SA, that are winning sales and influence. Fashion brands are also elbowing their way into the market, introducing digital titles like LVMH Moet Hennessy Louis Vuitton SA has done with Nowness.
About $1.57 billion was spent last year on apparel and accessories ads in U.S. magazines, down from more than $2 billion in 2008, as luxury goods companies cut budgets or put funds elsewhere.
Both Hearst and Conde Nast closed magazines during the global economic crisis. At Time Inc., the publisher of InStyle and Essence, publications’ ad revenue plunged 22 percent in 2009 and rebounded only 3 percent last year. Paris-based Lagardere SCA, which owns Elle, saw a similar weak recovery in 2010 after a 24 percent drop a year earlier.
Fashion magazines’ print circulation is flat or falling as more readers move online. Vogue’s circulation fell 1.5 percent in 2010 to about 1.25 million. Elle’s slid about 0.5 percent to 1.11 million, Audit Bureau of Circulations figures show.
Meanwhile, sites such as Net-A-Porter are gaining ground. Founded in 2000 by former fashion journalist Natalie Massenet, Net-A-Porter was acquired last year by Richemont and features catwalk footage, style tips and designer interviews as well as a catalogue of clothes and accessories.
Turning into e-tailers may be challenging for magazines. In addition to logistical and technological hurdles, magazines may have to contend with an erosion of editorial independence. Fully integrating shopping into editorial content would mean allowing readers to jump from a handbag or shoe in a photo spread to a page offering it for sale in a single click, rather than forwarding them elsewhere for purchases.
Adding content to e-commerce is easier than adding e-commerce to content. EBay Inc. hired a former editor at Conde Nast’s Lucky and Heart’s Harper’s Bazaar magazines as creative director for its fashion portal. Building the logistics and technology required for e-commerce would be a substantial challenge for Vogue. Vogue isn’t built to sell products. That partly explains why magazines haven’t done more than add links to fashion brands’ e-commerce websites.
Harper’s Bazaar partnered with Net-A-Porter last fall to pick out bags, shoes and clothing available from the shopping site with a single click. Vogue Italia and Yoox followed last month, focusing on products by young designers that could be bought from Yoox’s multi-brand shopping site thecorner.com. It’s not clear how revenue from the online transactions will be divided between the partners.
Because readers trust recommendations by magazines, they have to find the proper ways to monetize that. Yoox will benefit from increasing e-commerce and luxury demand growth because of rising global wealth.
Determining who gets control of or access to user information, credit-card details, addresses, and surfing and shopping histories that can be used to target advertising and offers, may represent a major hurdle. Retaining data from a significant number of people means you’re in business for anything you want to sell.
It is too early to tell if e-commerce is the magic answer to lost magazine revenue. It is clear that this cannot be the sole initiative by magazines. They must diversify their strategies to keep up with technology and the advanced consumer.
CHINA'S INCREASE IN LUXURY YACHTS HELPS AN ILLINOIS BUSINESS
China's increasing wealth means more money spent on luxury items like yachts. This is great news for the Brunswick Corporation, owner of the Boston Whaler and Sea Ray brands. They forecast sales growth of 25 percent in China this year as boating gains popularity.
They believe the long-term potential in the marine business is larger than anywhere else in the world. With unique wealth, the boating culture is expected to take hold very strongly.
Government attempts to clean up the country’s lakes, a growing appreciation of family-oriented leisure pastimes and rapidly increasing prosperity are driving demand for vessels from dinghies to yachts.
Lake Forest, Illinois-based Brunswick sold about 55 boats in China last year, accounting for 35 percent of the 180 boats shorter than 40 feet long (12 meters) imported into the world’s second-biggest economy. This makes Brunswick the Chinese market leader in that class.
Brunswick, whose share price has surged 37 percent this year, expects sales growth in China this year to match the 25 percent posted in 2010. The stock rose 0.6 percent to $25.59 on April 1 in New York trading.
Demand for larger boats is growing in China, and the company plans to introduce its Meridian and Hatteras yachts that are as long as 100 feet.
Princess Yachts, owned by French luxury goods maker LVMH Louis Vuitton Moet Hennessey SA, started selling in China in 2009. It’s already sold five luxury boats in China, including a 95-foot yacht bought by a Dalian property developer last year.
China had 447,000 millionaires in 2009, a 31 percent increase from the year before ranking it behind the U.S., Japan and Germany.
A Brunswick vessel such as a 47-foot-cruiser, the Meridian 441, sells in China for 7.8 million Yuan ($1.2 million) inclusive of taxes. China imposes a 43 percent levy on imports of boats. The nation accounts for 1 percent to 2 percent of global yacht sales of $3.4 billion in 2010. Brunswick entered the Chinese market in 1998 and has sold over 600 private luxury yachts to Chinese customers.
With Brunswick’s past success in China, the future economy in China holds even more promise.
They believe the long-term potential in the marine business is larger than anywhere else in the world. With unique wealth, the boating culture is expected to take hold very strongly.
Government attempts to clean up the country’s lakes, a growing appreciation of family-oriented leisure pastimes and rapidly increasing prosperity are driving demand for vessels from dinghies to yachts.
Lake Forest, Illinois-based Brunswick sold about 55 boats in China last year, accounting for 35 percent of the 180 boats shorter than 40 feet long (12 meters) imported into the world’s second-biggest economy. This makes Brunswick the Chinese market leader in that class.
Brunswick, whose share price has surged 37 percent this year, expects sales growth in China this year to match the 25 percent posted in 2010. The stock rose 0.6 percent to $25.59 on April 1 in New York trading.
Demand for larger boats is growing in China, and the company plans to introduce its Meridian and Hatteras yachts that are as long as 100 feet.
Princess Yachts, owned by French luxury goods maker LVMH Louis Vuitton Moet Hennessey SA, started selling in China in 2009. It’s already sold five luxury boats in China, including a 95-foot yacht bought by a Dalian property developer last year.
China had 447,000 millionaires in 2009, a 31 percent increase from the year before ranking it behind the U.S., Japan and Germany.
A Brunswick vessel such as a 47-foot-cruiser, the Meridian 441, sells in China for 7.8 million Yuan ($1.2 million) inclusive of taxes. China imposes a 43 percent levy on imports of boats. The nation accounts for 1 percent to 2 percent of global yacht sales of $3.4 billion in 2010. Brunswick entered the Chinese market in 1998 and has sold over 600 private luxury yachts to Chinese customers.
With Brunswick’s past success in China, the future economy in China holds even more promise.
Friday, April 1, 2011
BANK ARE NOT TAKING ADVANTAGE OF BUSINESS LENDING
The Obama administration announced in September that it would set aside $30 billion for a program to revive small-business lending. But only 7% of banks have participated in it.
About 526 community banks have requested $7.6 billion in funds from the program, which is available to the nation's nearly 7,700 lenders that have less than $10 billion in assets. That is far short of the amount allocated by the Treasury Department. The program, the centerpiece of Small Business Jobs Act, included enticements such as low interest rates to encourage banks to get money into the hands of small-business owners.
But relatively few community banks, which had until March 31 to apply for the program, signed up. Earlier this week, the Treasury Department extended Thursday's deadline to May 16.
The extra time may still not be enough incentive for banks to sign up. Many say they have plenty of capital but little demand from small businesses. Banks have also long complained that increased scrutiny from regulators has made it difficult to underwrite risky small-business loans. A government program, especially one with strings attached, may not be the solution.
Small banks that draw from the fund will make repayments at different interest rates, ranging from 1% to 5%. Banks that increase their small-business lending by at least 10% would pay the lowest rate, while banks that increase lending by less than 2.5% would pay the highest rate. That will require detailed and continuing paperwork, which some bankers say they don't have the resources to handle.
The Treasury says that the program has received support. The goal is to spur as much small-businesses lending and create as many jobs in communities across America as possible. The deadline was always meant to be extended, and the agency wants to ensure that every interested bank has the information they need to apply. The Treasury also says the application process was developed to be straight-forward, and the application is less than a page in length.
But some community bankers say they already have sufficient capital to meet loan demand from qualified borrowers, which tend to be the larger and well-collateralized small businesses.
Compared to recent years, fewer small-business owners are receiving loans—and many complain that they are still being rejected despite healthy financial statements. The total value of small-business loans declined by $43 billion last year. Community lenders, which hold 52% of all small-business loans, were accountable for nearly half of that drop.
The Treasury estimates that about $17.4 billion will ultimately be borrowed from the fund. The Independent Community Bankers of America, a lobbying group that supports the fund, has projected that the funds could amount to $170 billion in loans because for every loan that banks make, they need to hold only a small fraction of capital.
Some community banks applied for funds to be prepared in case the economy improves more quickly than anticipated.
Detractors of the fund say some banks are applying for money to refinance outstanding government debt rather than to boost their small-business lending. Some members of Congress, including Sen. Olympia Snowe (R., Maine), have been critical of the program.
Ms. Snowe, who is the ranking member of the Senate Committee on Small Business and Entrepreneurship, has said other actions, such as expanding existing Small Business Administration programs, would better help small-business owners.
On Tuesday, Ms. Snowe filed an amendment to improve the fund's oversight, administration and accountability.
She continues to oppose this fund, which she believes had not been fully vetted before it was signed into law. She also feels it risks taxpayer funds and provides a perverse incentive for banks to make poor lending decisions in order to reduce the interest rate on the money they receive.
The Treasury says the program is designed to motivate banks to maintain high-quality underwriting standards and that it won't share in loan losses banks would incur by making bad loans. It will also consult with each bank's regulators to ensure the bank can repay the funds.
The program was meant to help banks that were already financial stable. It would only consider banks that had the ability to repay funds in the event that a business loan was not repaid.
About 526 community banks have requested $7.6 billion in funds from the program, which is available to the nation's nearly 7,700 lenders that have less than $10 billion in assets. That is far short of the amount allocated by the Treasury Department. The program, the centerpiece of Small Business Jobs Act, included enticements such as low interest rates to encourage banks to get money into the hands of small-business owners.
But relatively few community banks, which had until March 31 to apply for the program, signed up. Earlier this week, the Treasury Department extended Thursday's deadline to May 16.
The extra time may still not be enough incentive for banks to sign up. Many say they have plenty of capital but little demand from small businesses. Banks have also long complained that increased scrutiny from regulators has made it difficult to underwrite risky small-business loans. A government program, especially one with strings attached, may not be the solution.
Small banks that draw from the fund will make repayments at different interest rates, ranging from 1% to 5%. Banks that increase their small-business lending by at least 10% would pay the lowest rate, while banks that increase lending by less than 2.5% would pay the highest rate. That will require detailed and continuing paperwork, which some bankers say they don't have the resources to handle.
The Treasury says that the program has received support. The goal is to spur as much small-businesses lending and create as many jobs in communities across America as possible. The deadline was always meant to be extended, and the agency wants to ensure that every interested bank has the information they need to apply. The Treasury also says the application process was developed to be straight-forward, and the application is less than a page in length.
But some community bankers say they already have sufficient capital to meet loan demand from qualified borrowers, which tend to be the larger and well-collateralized small businesses.
Compared to recent years, fewer small-business owners are receiving loans—and many complain that they are still being rejected despite healthy financial statements. The total value of small-business loans declined by $43 billion last year. Community lenders, which hold 52% of all small-business loans, were accountable for nearly half of that drop.
The Treasury estimates that about $17.4 billion will ultimately be borrowed from the fund. The Independent Community Bankers of America, a lobbying group that supports the fund, has projected that the funds could amount to $170 billion in loans because for every loan that banks make, they need to hold only a small fraction of capital.
Some community banks applied for funds to be prepared in case the economy improves more quickly than anticipated.
Detractors of the fund say some banks are applying for money to refinance outstanding government debt rather than to boost their small-business lending. Some members of Congress, including Sen. Olympia Snowe (R., Maine), have been critical of the program.
Ms. Snowe, who is the ranking member of the Senate Committee on Small Business and Entrepreneurship, has said other actions, such as expanding existing Small Business Administration programs, would better help small-business owners.
On Tuesday, Ms. Snowe filed an amendment to improve the fund's oversight, administration and accountability.
She continues to oppose this fund, which she believes had not been fully vetted before it was signed into law. She also feels it risks taxpayer funds and provides a perverse incentive for banks to make poor lending decisions in order to reduce the interest rate on the money they receive.
The Treasury says the program is designed to motivate banks to maintain high-quality underwriting standards and that it won't share in loan losses banks would incur by making bad loans. It will also consult with each bank's regulators to ensure the bank can repay the funds.
The program was meant to help banks that were already financial stable. It would only consider banks that had the ability to repay funds in the event that a business loan was not repaid.
Thursday, March 31, 2011
LOWER PROPERTY TAXES ARE FINALLY CATCHING UP TO MUNICIPALITIES
The lag time between property tax values and the true reality prices causes shortfalls in local governments. Cities, counties and school districts had been sheltered from the full impact of the slump because of the lag between when realty prices fluctuate and values are reset by local tax assessors. That’s changing as property rolls are adjusted to the current market and residents push to have their taxes cut.
Local officials are now facing the consequences. Property- tax revenue dropped in the last three months of 2010 at the fastest pace since home prices slipped from their peak more than four years ago. The decline may continue as values fall further, adding strains to cash- strapped localities that already fired workers, halted projects and cut spending because of the recession that began in 2007.
The decline for local governments contrasts with a recovery for U.S. states led by income and sales taxes. Collections in the fourth quarter climbed by $13 billion to $177.8 billion. This is the biggest jump since 2006.
In Maricopa County, Arizona, it was reported last month that values of all property dropped by 12 percent for the next tax year, the second straight double-digit decline. In Los Angeles, the second most-populous U.S. city, property taxes for the year ending June 30 are projected to fall 1.7 percent to $1.42 billion.
The strain may mean credit-rating cuts this year for local- government debt, which trades in the $2.93 trillion municipal bond market.
Local and state property-tax revenue slid $5.3 billion, or 2.9 percent, in the fourth quarter from a year earlier to $177.1 billion. All but $3.7 billion went to municipalities.
The slump in the most-active period for real estate revenue outpaced a
2.5 percent drop in the first quarter of 2010, the only other significant decline since prices peaked in 2006.
Residential real estate prices in 20 U.S. cities dropped by the most in more than a year in January. Property values fell 3.1 percent from January 2010, the biggest year-on-year decrease since December 2009. That’s prompting homeowners to seek reductions in the assessed value of their properties.
A symptom of a depressed real estate market has been a proliferation of successful tax appeals. This causes problems because a municipality has already assessed a property, collected taxes and made payments to local school boards and county governments.
Montclair, New Jersey, officials had to remake their budget when tax appeals reduced revenue to $51 million from an expected $53 million in the current budget year. They were forced to make large changes in library services, abolish community pre-kindergarten and lay off 12 municipal workers.
Only 15 percent of counties raised property taxes to make up for the lost revenue. Such a strategy can draw voters’ ire, as Carlos Alvarez, the former mayor of Miami-Dade County, Florida, found out. He was thrown out in a recall election on March 15 after he boosted property-tax rates last year to make up for a drop in home values.
Many local governments have been anticipating the revenue slide and cutting budgets to compensate. They’ve eliminated 377,000 jobs, or 2.7 percent of payrolls, since employment peaked in September 2008. The usual cost cutting has already happened and now deeper cuts are being made to compensate for the loss of revenue.
Local officials are now facing the consequences. Property- tax revenue dropped in the last three months of 2010 at the fastest pace since home prices slipped from their peak more than four years ago. The decline may continue as values fall further, adding strains to cash- strapped localities that already fired workers, halted projects and cut spending because of the recession that began in 2007.
The decline for local governments contrasts with a recovery for U.S. states led by income and sales taxes. Collections in the fourth quarter climbed by $13 billion to $177.8 billion. This is the biggest jump since 2006.
In Maricopa County, Arizona, it was reported last month that values of all property dropped by 12 percent for the next tax year, the second straight double-digit decline. In Los Angeles, the second most-populous U.S. city, property taxes for the year ending June 30 are projected to fall 1.7 percent to $1.42 billion.
The strain may mean credit-rating cuts this year for local- government debt, which trades in the $2.93 trillion municipal bond market.
Local and state property-tax revenue slid $5.3 billion, or 2.9 percent, in the fourth quarter from a year earlier to $177.1 billion. All but $3.7 billion went to municipalities.
The slump in the most-active period for real estate revenue outpaced a
2.5 percent drop in the first quarter of 2010, the only other significant decline since prices peaked in 2006.
Residential real estate prices in 20 U.S. cities dropped by the most in more than a year in January. Property values fell 3.1 percent from January 2010, the biggest year-on-year decrease since December 2009. That’s prompting homeowners to seek reductions in the assessed value of their properties.
A symptom of a depressed real estate market has been a proliferation of successful tax appeals. This causes problems because a municipality has already assessed a property, collected taxes and made payments to local school boards and county governments.
Montclair, New Jersey, officials had to remake their budget when tax appeals reduced revenue to $51 million from an expected $53 million in the current budget year. They were forced to make large changes in library services, abolish community pre-kindergarten and lay off 12 municipal workers.
Only 15 percent of counties raised property taxes to make up for the lost revenue. Such a strategy can draw voters’ ire, as Carlos Alvarez, the former mayor of Miami-Dade County, Florida, found out. He was thrown out in a recall election on March 15 after he boosted property-tax rates last year to make up for a drop in home values.
Many local governments have been anticipating the revenue slide and cutting budgets to compensate. They’ve eliminated 377,000 jobs, or 2.7 percent of payrolls, since employment peaked in September 2008. The usual cost cutting has already happened and now deeper cuts are being made to compensate for the loss of revenue.
Tuesday, March 29, 2011
CONSUMER SPENDING ON THE RISE
The economy appears to be recovering as consumers start to spend again despite higher gasoline prices. U.S. consumer spending rose 0.7% in February, the largest increase since October and the eighth straight month of gains. This has eased some worries about the economic recovery.
Markets will likely point higher after consumer spending figures rose more than expected.
After adjusting for inflation—factoring out such things as the jump in gas prices—consumption rose 0.3%, the Commerce Department said Monday.
Consumers could have endured higher gasoline prices by cutting back on discretionary purchases, but they did not.
The pickup in spending came as personal income rose by 0.3% last month, though higher prices sapped the gains. The saving rate, meanwhile, slid to 5.8%.
Congress and the Obama administration in December agreed to extend income tax cuts for Americans. The tax relief has fattened paychecks, providing consumers a cushion against rising gasoline prices.
Despite rising commodity prices, inflation at the consumer level is tame. A gauge closely watched by the Federal Reserve rose in February but only slightly, the Commerce Department reported. The core price index for personal consumption expenditures, which excludes food and energy prices because of their volatility, increased 0.9% on a year-over-year basis, after climbing 0.8% in January. The overall index rose 1.6% from a year earlier largely due to gasoline prices.
Separately, the National Association of Realtors on Monday said its index for pending sales of existing homes increased 2.1% to 90.8 in February from January. Year over year, sales were down 8.2% from their level in February 2010.
The trade group's index tracks agreements to purchase previously owned homes. A sale is considered pending when the contract has been signed but the transaction hasn't closed. Pending sales typically close within one or two months of signing.
The housing market is trying to recover from its collapse after a long boom. Durham homes sales soared during the boom, lifting prices, but began sliding in 2006, leading to the bursting of the bubble. Demand has been weak since.
Sales rebounded slightly early in 2010 thanks to the home-buyer tax credits but collapsed again when those incentives expired, and there has been little talk in Congress of reviving the incentive.
There are many signs that the market remains weak. High rates of joblessness and elevated foreclosures continue to depress home values. Although the Cary homes housing market has a long way to go the signs of an improving market have started.
Markets will likely point higher after consumer spending figures rose more than expected.
After adjusting for inflation—factoring out such things as the jump in gas prices—consumption rose 0.3%, the Commerce Department said Monday.
Consumers could have endured higher gasoline prices by cutting back on discretionary purchases, but they did not.
The pickup in spending came as personal income rose by 0.3% last month, though higher prices sapped the gains. The saving rate, meanwhile, slid to 5.8%.
Congress and the Obama administration in December agreed to extend income tax cuts for Americans. The tax relief has fattened paychecks, providing consumers a cushion against rising gasoline prices.
Despite rising commodity prices, inflation at the consumer level is tame. A gauge closely watched by the Federal Reserve rose in February but only slightly, the Commerce Department reported. The core price index for personal consumption expenditures, which excludes food and energy prices because of their volatility, increased 0.9% on a year-over-year basis, after climbing 0.8% in January. The overall index rose 1.6% from a year earlier largely due to gasoline prices.
Separately, the National Association of Realtors on Monday said its index for pending sales of existing homes increased 2.1% to 90.8 in February from January. Year over year, sales were down 8.2% from their level in February 2010.
The trade group's index tracks agreements to purchase previously owned homes. A sale is considered pending when the contract has been signed but the transaction hasn't closed. Pending sales typically close within one or two months of signing.
The housing market is trying to recover from its collapse after a long boom. Durham homes sales soared during the boom, lifting prices, but began sliding in 2006, leading to the bursting of the bubble. Demand has been weak since.
Sales rebounded slightly early in 2010 thanks to the home-buyer tax credits but collapsed again when those incentives expired, and there has been little talk in Congress of reviving the incentive.
There are many signs that the market remains weak. High rates of joblessness and elevated foreclosures continue to depress home values. Although the Cary homes housing market has a long way to go the signs of an improving market have started.
CAPITAL EXPENDITURES MAY IMPROVE THE ECONOMY BUT ARE THEY CREATING JOBS
People need to spend to get out of recession but companies are not increasing jobs just productivity.
The government works on a plan to benefit companies looking to make capital expenditures, but not on plans to help with the labor market. Capital expenditures, also called CAPEX, are expenditures creating future benefits. Companies are accelerating equipment purchases to boost productivity, reinforcing an unprecedented gap between capital spending and employment in the U.S. that’s restraining a labor-market rebound.
Corporate investment will rise 11 percent this year as sales pick up, following a 15 percent gain in 2010. Employment will grow just 1.7 percent, after a 0.7 percent increase last year.
Inventory rebuilding, low borrowing costs and government policies that include a new tax break on equipment purchases are powerful spurs for capital spending.
But with a huge pickup in capital spending, there isn’t a meaningful increase in employment.
The Institute for Supply Management’s manufacturing index has risen for seven consecutive months, surging in February to the highest level since May 2004. While the labor market is improving gradually, unemployment remains high. The jobless rate may hold at 8.9 percent in March for a second month, the lowest since April 2009.
Investors are focusing on a factory-driven recovery, with the Standard & Poor’s 500 Super composite Machinery Index rising 44 percent since March 2010, compared with a 13 percent increase in the broader S&P 500 Index.
The capital-spending booms is expected to continue this year and into next year, helped by emerging markets, however, after a recession, business are leery to make large investments in more labor.
Another example of capital expenditures lowering available jobs is an initiative that Kohl’s, a Wisconsin-based company, is pursuing. They plan to reduce labor input as part of an increase in capital spending this year to $1 billion from $761 million in 2010. The department-store retailer is installing electronic signs in 500 locations, up from 100 in 2010, in a program that will cover the entire chain by the holiday season of 2012. This means payroll savings, because they don’t have to change several thousand signs in each of their stores anytime they run a new promotional event.
Some companies are hesitating to hire permanent staff which means temporary staffing firms, especially those in information- technology and engineering may outperform this year. Unsteady markets and insurance costs are driving these decisions.
This helps explain why productivity last year climbed 3.9 percent, the most since 2002, while labor costs fell 1.5 percent after a 1.6 percent drop in 2009, the first back-to-back declines since 1962-63, government data showed.
As demand strengthens, corporate spending is going to be the heart of the recovery and will unleash favorable second-round effects in the labor market.
Corporations hit by the financial crisis recoiled to a greater extent than ever before and would benefit to take advantage of record amounts of cash generated by healthy profits and faster growth overseas.
The economy already has added jobs for five consecutive months, and economists predict another gain for March. Small businesses also are joining the transition.
In addition, the unintended consequences of policy changes indicate the government may undercut its own principal aim of job creation. While the tax bill President Barack Obama signed Dec. 17 allows businesses to write off 100 percent of some purchases in 2011, there’s no similar incentive to speed up hiring. The Fed’s commitment to keep its benchmark interest rate near zero for an extended period also facilitates lower-cost financing for machines.
The administration’s goal to double overseas sales of American-made goods is another plus for investment over hiring since the U.S. export sector is capital intensive rather than labor intensive.
The policy environment appears to be giving incentives to firms to limit job creation. Capital expenditures do not seem to need incentives, unlike the labor market.
Rising sales are causing companies to rebuild inventories after slashing them by a record amount during the recession, which ended June 2009. There’s plenty of room to expand: Machinery and software assets are growing at the slowest pace since World War II, and capital expenses as a share of GDP still are below pre-slump levels.
In other words, government will give incentives to businesses that make capital expenditures, businesses will increase productivity but not labor. The expectation is that as consumer spending continues to rise that the market will stabilize. Once employers can start to feel comfortable in anticipating the market they will begin to increase labor, or so we hope.
The government works on a plan to benefit companies looking to make capital expenditures, but not on plans to help with the labor market. Capital expenditures, also called CAPEX, are expenditures creating future benefits. Companies are accelerating equipment purchases to boost productivity, reinforcing an unprecedented gap between capital spending and employment in the U.S. that’s restraining a labor-market rebound.
Corporate investment will rise 11 percent this year as sales pick up, following a 15 percent gain in 2010. Employment will grow just 1.7 percent, after a 0.7 percent increase last year.
Inventory rebuilding, low borrowing costs and government policies that include a new tax break on equipment purchases are powerful spurs for capital spending.
But with a huge pickup in capital spending, there isn’t a meaningful increase in employment.
The Institute for Supply Management’s manufacturing index has risen for seven consecutive months, surging in February to the highest level since May 2004. While the labor market is improving gradually, unemployment remains high. The jobless rate may hold at 8.9 percent in March for a second month, the lowest since April 2009.
Investors are focusing on a factory-driven recovery, with the Standard & Poor’s 500 Super composite Machinery Index rising 44 percent since March 2010, compared with a 13 percent increase in the broader S&P 500 Index.
The capital-spending booms is expected to continue this year and into next year, helped by emerging markets, however, after a recession, business are leery to make large investments in more labor.
Another example of capital expenditures lowering available jobs is an initiative that Kohl’s, a Wisconsin-based company, is pursuing. They plan to reduce labor input as part of an increase in capital spending this year to $1 billion from $761 million in 2010. The department-store retailer is installing electronic signs in 500 locations, up from 100 in 2010, in a program that will cover the entire chain by the holiday season of 2012. This means payroll savings, because they don’t have to change several thousand signs in each of their stores anytime they run a new promotional event.
Some companies are hesitating to hire permanent staff which means temporary staffing firms, especially those in information- technology and engineering may outperform this year. Unsteady markets and insurance costs are driving these decisions.
This helps explain why productivity last year climbed 3.9 percent, the most since 2002, while labor costs fell 1.5 percent after a 1.6 percent drop in 2009, the first back-to-back declines since 1962-63, government data showed.
As demand strengthens, corporate spending is going to be the heart of the recovery and will unleash favorable second-round effects in the labor market.
Corporations hit by the financial crisis recoiled to a greater extent than ever before and would benefit to take advantage of record amounts of cash generated by healthy profits and faster growth overseas.
The economy already has added jobs for five consecutive months, and economists predict another gain for March. Small businesses also are joining the transition.
In addition, the unintended consequences of policy changes indicate the government may undercut its own principal aim of job creation. While the tax bill President Barack Obama signed Dec. 17 allows businesses to write off 100 percent of some purchases in 2011, there’s no similar incentive to speed up hiring. The Fed’s commitment to keep its benchmark interest rate near zero for an extended period also facilitates lower-cost financing for machines.
The administration’s goal to double overseas sales of American-made goods is another plus for investment over hiring since the U.S. export sector is capital intensive rather than labor intensive.
The policy environment appears to be giving incentives to firms to limit job creation. Capital expenditures do not seem to need incentives, unlike the labor market.
Rising sales are causing companies to rebuild inventories after slashing them by a record amount during the recession, which ended June 2009. There’s plenty of room to expand: Machinery and software assets are growing at the slowest pace since World War II, and capital expenses as a share of GDP still are below pre-slump levels.
In other words, government will give incentives to businesses that make capital expenditures, businesses will increase productivity but not labor. The expectation is that as consumer spending continues to rise that the market will stabilize. Once employers can start to feel comfortable in anticipating the market they will begin to increase labor, or so we hope.
Friday, March 25, 2011
UNIQUE FOOD COST SAVINGS FOR OHIO PRISONERS AND STUDENTS
Ohio State University, one of the nation’s largest universities, and the Ohio state’s corrections department are investigating if whether buying food jointly and in bulk will save money. With budget cutbacks, the State is reviewing many avenues to cut costs. This unique concept to decrease spending has not been attempted in any other states leaving Ohio to blaze the way for others if the plan succeeds.
Ohio State and the prison system are in the early stages of drafting a proposal, so it's unknown which foods they could buy together. But both parties contend that a purchasing partnership wouldn't make the meals less tasty or snacks less savory.
Although the menus are quite different, the food used to prepare them may not be. Tacos, pasta and pizza are dished out in the cafeterias of prisons and the university alike, with some overlapping ingredients even though the recipes probably differ.
Students have expressed concerns that the quality of food may decrease as more canned and preserved items might make their way to the school’s cafeteria. Many students commented on how great the current food is and are leery of a change. The University explains that many items such as milk, bread, and eggs are all the same, they just cost different. This is the concept they are working with as they draft a partnership with the state’s corrections department.
The Ohio Department of Rehabilitation and Correction could save $2 million a year by jointly buying its food with Ohio State University and changing its menus. It is unclear the savings the university would experience.
This idea along with another to use inexpensive cafeteria and breakroom tables, were two of more than 1,000 suggestions made when the prison system asked its staff for ways to save money. This agreement helps cut costs because it would allow all the institutions to buy food as a unit instead of separate entities. That way, they could negotiate a better deal because they're buying bigger quantities for more people. Currently, the correction department pays another state agency to buy most of its food. But the department and some prisons buy some food directly.
Although the inmate population of 48,700 is thousands smaller than the student body, the food budget is higher because the audience is, well, captive. The more than 56,000 students at Ohio State's main Columbus campus can ditch university dining for fast food any time.
As a result of the partnership, the prisons will look at changing their menu to replace unpopular items with cheaper, more-favored entrees. The University does not plan to change any of its menus based on the new partnership.
Ohio State and the prison system are in the early stages of drafting a proposal, so it's unknown which foods they could buy together. But both parties contend that a purchasing partnership wouldn't make the meals less tasty or snacks less savory.
Although the menus are quite different, the food used to prepare them may not be. Tacos, pasta and pizza are dished out in the cafeterias of prisons and the university alike, with some overlapping ingredients even though the recipes probably differ.
Students have expressed concerns that the quality of food may decrease as more canned and preserved items might make their way to the school’s cafeteria. Many students commented on how great the current food is and are leery of a change. The University explains that many items such as milk, bread, and eggs are all the same, they just cost different. This is the concept they are working with as they draft a partnership with the state’s corrections department.
The Ohio Department of Rehabilitation and Correction could save $2 million a year by jointly buying its food with Ohio State University and changing its menus. It is unclear the savings the university would experience.
This idea along with another to use inexpensive cafeteria and breakroom tables, were two of more than 1,000 suggestions made when the prison system asked its staff for ways to save money. This agreement helps cut costs because it would allow all the institutions to buy food as a unit instead of separate entities. That way, they could negotiate a better deal because they're buying bigger quantities for more people. Currently, the correction department pays another state agency to buy most of its food. But the department and some prisons buy some food directly.
Although the inmate population of 48,700 is thousands smaller than the student body, the food budget is higher because the audience is, well, captive. The more than 56,000 students at Ohio State's main Columbus campus can ditch university dining for fast food any time.
As a result of the partnership, the prisons will look at changing their menu to replace unpopular items with cheaper, more-favored entrees. The University does not plan to change any of its menus based on the new partnership.
Tuesday, March 22, 2011
THE DOW IS BACK ON THE RISE AFTER THE CRISIS IN JAPAN
As the crisis in japan starts to stabilize and announcements of two large US companies buying their competitors, the Dow sees big gains in stocks this week. The Dow Jones industrial average closed above 12,000 for the first time since the Fukushima Daiichi nuclear power plant failed following a massive earthquake and tsunami.
In the United States, AT&T said it would buy rival T-Mobile USA for $39 billion, creating the largest U.S. cell phone company. Charles Schwab said it would buy online brokerage services provider OptionsXpress for $1 billion. The deals raised hopes that more corporate buyouts could be on the way as businesses become more confident in the economic recovery.
The Dow Jones industrial average rose 178.01 points, or 1.5 percent, to 12,036.53. The index has gained 3.6 percent over the past three trading days, its largest jump over the same amount of time since September.
The S&P 500 index gained 19.18, or 1.5 percent, to 1,298.38. The Nasdaq composite rose 48.42, or 1.8 percent, to 2,692.09.
Energy stocks led the market higher after oil prices climbed back above $103 a barrel. Schlumberger, which helps companies drill for oil and gas, rose 4.4 percent to $89.73. ConocoPhillips rose 2.9 percent to $77.55.
Worries about Japan's stricken nuclear reactors eased after the Nuclear Regulatory Commission said the situation at the Fukushima Daiichi plant appeared to be stabilizing. Containment at three of the plant's six reactors was intact, the commission said.
Tiffany rose 5.1 percent to $60.22 after reporting higher-than-expected earnings. The jeweler said Japan's earthquake could hurt its earnings because of store closings and limited hours. The company does 18 percent of its business there.
The violence in Libya and Japan's earthquake have led to many large swings in the Dow since late February. The Dow rose or fell by 100 points or more during three days last week. Eight of the 15 trading days since the start of March have had swings that large.
In the latest signs of trouble in the U.S. housing market, the National Association of Realtors reported that sales of previously occupied homes fell 10 percent last month. The supply of unsold homes remains relatively high at 3.5 million.
Five stocks rose for every one that fell on the New York Stock Exchange. Consolidated volume came to 4.5 billion shares.
In the United States, AT&T said it would buy rival T-Mobile USA for $39 billion, creating the largest U.S. cell phone company. Charles Schwab said it would buy online brokerage services provider OptionsXpress for $1 billion. The deals raised hopes that more corporate buyouts could be on the way as businesses become more confident in the economic recovery.
The Dow Jones industrial average rose 178.01 points, or 1.5 percent, to 12,036.53. The index has gained 3.6 percent over the past three trading days, its largest jump over the same amount of time since September.
The S&P 500 index gained 19.18, or 1.5 percent, to 1,298.38. The Nasdaq composite rose 48.42, or 1.8 percent, to 2,692.09.
Energy stocks led the market higher after oil prices climbed back above $103 a barrel. Schlumberger, which helps companies drill for oil and gas, rose 4.4 percent to $89.73. ConocoPhillips rose 2.9 percent to $77.55.
Worries about Japan's stricken nuclear reactors eased after the Nuclear Regulatory Commission said the situation at the Fukushima Daiichi plant appeared to be stabilizing. Containment at three of the plant's six reactors was intact, the commission said.
Tiffany rose 5.1 percent to $60.22 after reporting higher-than-expected earnings. The jeweler said Japan's earthquake could hurt its earnings because of store closings and limited hours. The company does 18 percent of its business there.
The violence in Libya and Japan's earthquake have led to many large swings in the Dow since late February. The Dow rose or fell by 100 points or more during three days last week. Eight of the 15 trading days since the start of March have had swings that large.
In the latest signs of trouble in the U.S. housing market, the National Association of Realtors reported that sales of previously occupied homes fell 10 percent last month. The supply of unsold homes remains relatively high at 3.5 million.
Five stocks rose for every one that fell on the New York Stock Exchange. Consolidated volume came to 4.5 billion shares.
Tuesday, March 15, 2011
Disasters in Japan to impact the global bottom line
According to early estimates, Japan's recent devastation could result in the most expensive hit for the global insurance industry since Hurricane Katrina.
The impact from the earthquake and tsunami could cost the worldwide insurance sector as much as $60 billion.
Global insurance stocks plunged this week as investors reacted to news stories and broadcasts of water-filled towns and destroyed businesses. However industry analysts noted some mitigating factors, including the fact that residential property damage is covered by a state-supported insurance system and that damage due to nuclear is excluded from policies.
Insurance analysts claim such factors will keep the costs of insurance from reaching levels of Hurricane Katrina's aftermath in 2005.
Damage control costs will accumulate from ongoing aftershocks from last week's earthquake off the coast of Japan and continuous shutdowns are happening at fabric factories and auto transport companies.
"Given the enormity of the earthquake that struck Japan... it is still in the very early aftermath of the event," said senior vice president of research and modeling at AIR Worldwide, Jayanta Guin. AIR has calculated insurance costs estimates to range from $15-35 billion.
"Search and rescue efforts are still underway and damage assessment has only just begun, while considerable uncertainty still remains in the seismic parameters that define the event," Guin added.
An insurance analyst at Panmure Gordon & Co. in London cautioned that the cost to the global insurance industry could exceed $60 billion dollars with the tsunami bill added in.
The analyst added "The loss will be so large that it will probably provide the trigger to ensure a re-rating of the non-life sector - a similar impact happened post 9/11."
The high end of those ranges would make deem the disaster the second most expensive hit to the global insurance industry since 1970, just behind Hurricane Katrina.
"We are most interested in the commercial repercussions of the disaster. It is clear that the market is already realizing and responding [to the disaster]", said a St. Louis corporate lawyer.
Moody's said the possible factor that influences the overall bottom line was the potential for "business-interruption losses," which are affected by destruction done to the country's power and transportation infrastructure.
"We believe that estimating claims will be a protracted process, as the size and scope of the event will place significant strain on insurers' claims adjustment resources," said Moody's in a report. "Moreover, aftershocks could last for weeks, causing additional insured losses."
Ambiguity over damage costs greatly influenced some of the world's largest reinsurers early this week.
On Monday, Munich Re shares were trading at 107.65 euro, 7.7% down from Thursday's close - the day before the disaster, while Hannover Re close at 37.68 euros, down 7.6 percent from the close on Thursday.
Christian Muschick, an analyst at Silvia Quandt & Cie. in Frankfurt said the "market has probably overreacted this morning." And while it's still early to forecast legitimate estimates, the issue could result in first quarter losses, Muschick said. "If the losses exceed what is set aside for natural disasters, then they will likely be unable to achieve their guidance for the year," he added.
Yet the affect on big reinsurance agencies will be less severe compared with the pitfalls from the global financial crisis. Analyst foresee that most insurers will be able to hike up their rates to counter the financial concerns of the disaster.
Aflac said that although it expects insurance claims to be high and large, it was well-prepared to cover them. The New York-based insurer provides health and life insurance to one out of every four individuals in Japan.
Aflac also mentioned its sales in Japan will take a small blow, with less than 5 percent of the company's new Japanese sales and in-force premiums spawning from the hard-hit Iwate, Miyagi and Fukushima regions.
In addition, Japanese households and businesses outside cities such as Tokyo or Osakathere are less likely to buy insurance compared to Western societies. "With respect to matters of insurance law, U.S. companies operate through a different approach to risk unlike some Eastern cultures. Insurance coverage as always been an investment that only some of the more metropolitan corporations take up." added a Nashville business lawyer who did not disclose his name.
The Japanese government will absorb the cost of earthquake-related damage to a nuclear power facility 240 kilometers north of Tokyo.
An analyst at London insurer Chaucer, one of the largest insurance providers of nuclear risk in the world, said the Japanese Nuclear Act of 1961 absolves nuclear power operators of liability from damage caused by major natural disasters. Together, those factors will limit the expense to insurers.
The impact from the earthquake and tsunami could cost the worldwide insurance sector as much as $60 billion.
Global insurance stocks plunged this week as investors reacted to news stories and broadcasts of water-filled towns and destroyed businesses. However industry analysts noted some mitigating factors, including the fact that residential property damage is covered by a state-supported insurance system and that damage due to nuclear is excluded from policies.
Insurance analysts claim such factors will keep the costs of insurance from reaching levels of Hurricane Katrina's aftermath in 2005.
Damage control costs will accumulate from ongoing aftershocks from last week's earthquake off the coast of Japan and continuous shutdowns are happening at fabric factories and auto transport companies.
"Given the enormity of the earthquake that struck Japan... it is still in the very early aftermath of the event," said senior vice president of research and modeling at AIR Worldwide, Jayanta Guin. AIR has calculated insurance costs estimates to range from $15-35 billion.
"Search and rescue efforts are still underway and damage assessment has only just begun, while considerable uncertainty still remains in the seismic parameters that define the event," Guin added.
An insurance analyst at Panmure Gordon & Co. in London cautioned that the cost to the global insurance industry could exceed $60 billion dollars with the tsunami bill added in.
The analyst added "The loss will be so large that it will probably provide the trigger to ensure a re-rating of the non-life sector - a similar impact happened post 9/11."
The high end of those ranges would make deem the disaster the second most expensive hit to the global insurance industry since 1970, just behind Hurricane Katrina.
"We are most interested in the commercial repercussions of the disaster. It is clear that the market is already realizing and responding [to the disaster]", said a St. Louis corporate lawyer.
Moody's said the possible factor that influences the overall bottom line was the potential for "business-interruption losses," which are affected by destruction done to the country's power and transportation infrastructure.
"We believe that estimating claims will be a protracted process, as the size and scope of the event will place significant strain on insurers' claims adjustment resources," said Moody's in a report. "Moreover, aftershocks could last for weeks, causing additional insured losses."
Ambiguity over damage costs greatly influenced some of the world's largest reinsurers early this week.
On Monday, Munich Re shares were trading at 107.65 euro, 7.7% down from Thursday's close - the day before the disaster, while Hannover Re close at 37.68 euros, down 7.6 percent from the close on Thursday.
Christian Muschick, an analyst at Silvia Quandt & Cie. in Frankfurt said the "market has probably overreacted this morning." And while it's still early to forecast legitimate estimates, the issue could result in first quarter losses, Muschick said. "If the losses exceed what is set aside for natural disasters, then they will likely be unable to achieve their guidance for the year," he added.
Yet the affect on big reinsurance agencies will be less severe compared with the pitfalls from the global financial crisis. Analyst foresee that most insurers will be able to hike up their rates to counter the financial concerns of the disaster.
Aflac said that although it expects insurance claims to be high and large, it was well-prepared to cover them. The New York-based insurer provides health and life insurance to one out of every four individuals in Japan.
Aflac also mentioned its sales in Japan will take a small blow, with less than 5 percent of the company's new Japanese sales and in-force premiums spawning from the hard-hit Iwate, Miyagi and Fukushima regions.
In addition, Japanese households and businesses outside cities such as Tokyo or Osakathere are less likely to buy insurance compared to Western societies. "With respect to matters of insurance law, U.S. companies operate through a different approach to risk unlike some Eastern cultures. Insurance coverage as always been an investment that only some of the more metropolitan corporations take up." added a Nashville business lawyer who did not disclose his name.
The Japanese government will absorb the cost of earthquake-related damage to a nuclear power facility 240 kilometers north of Tokyo.
An analyst at London insurer Chaucer, one of the largest insurance providers of nuclear risk in the world, said the Japanese Nuclear Act of 1961 absolves nuclear power operators of liability from damage caused by major natural disasters. Together, those factors will limit the expense to insurers.
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