Business and Finance

The U.S. Federal Reserve on Wednesday expressed growing confidence that an economic recovery was building, even though it stuck to its commitment to keep borrowing costs near zero for “an extended period.”

As expected, the Fed kept its benchmark federal funds rate unchanged in a range of zero to 0.25 percent, and said the economy had “continued to pick up” since its last policy-setting meeting in September.

The Fed, the U.S. central bank, also said it would buy about $175 billion of debt issued by government-backed mortgage finance agencies, less than the $200 billion maximum it had originally allotted, citing limited availability.

In its closely watched policy statement, the Fed said household spending “appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.”

That was somewhat more upbeat than September’s statement, which referred to spending as “stabilizing.”

The central bank, wary of undercutting the fragile recovery by withdrawing its support too soon, is also on guard for any indication that its emergency lending efforts are fueling an unwelcome bout of inflation as the economy heals.

But top Fed officials, including Chairman Ben Bernanke, have said the U.S. recession, the most painful since the 1930s, has left a legacy of high unemployment and idle factories that should keep price pressures in check.

A private report on Wednesday showing U.S. companies cut payrolls at the slowest pace in more than a year may add to a sense that the economic numbers are moving in the right direction.

However, while the government on Friday is expected to report that the drop in employment is abating, the jobless rate is forecast to rise to a fresh 26-year high of 9.9 percent.

The world’s largest economy grew at a faster-than-expected 3.5 percent annual rate in the third quarter, which effectively signaled the end of the downturn.

Suggesting further momentum, data on Monday showed manufacturing activity hit its highest level in 3-1/2 years last month, though a report on Wednesday showed the nation’s vast services sector was growing only modestly.

In an act demonstrating confidence in the economy’s prospects, billionaire investor Warren Buffett on Tuesday said his company, Berkshire Hathaway Inc, agreed to purchase the nation’s largest rail company, saying it is poised to benefit from the recovery.

While the outlook has improved, many economists still expect the recovery to be sluggish and in need of the Fed’s easy-money policies for a while longer.

Unemployment is expected to climb into next year, damping consumer spending, which accounts for around 70 percent of U.S. output. The banking system is still under pressure from loan losses, and credit remains tight.

Most analysts at top U.S. banks have been expecting the Fed to keep interest rates on hold until mid-2010 or later. 

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Abbott Laboratories Inc said its third-quarter profit rose 37 percent on strong demand for its Humira arthritis drug and nutritional products, as well as gains from a settlement with Medtronic Inc.

The profit reported on Wednesday topped Wall Street forecasts, and revenue was in line with targets, a relief for investors on the heels of a disappointing sales report from rival diversified healthcare company Johnson & Johnson

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Shares of Abbott rose 3 percent as the company also nudged up its full-year profit forecast.

“It was a very solid quarter, and the most important thing is that Humira relieved concerns among investors that it might stall, from its previous rapid growth,” said Morningstar analyst Damien Conover.

Conover said Humira’s continued growth probably gave Abbott confidence to raise its 2009 profit forecast and that other aspects of the earnings report were much as expected.

Abbott said it had earned $1.48 billion, or 95 cents per share, up from $1.09 billion, or 69 cents per share, a year earlier. The results included a gain of $287 million from a previously announced settlement with Medtronic over heart stent technology.

Excluding special items, the third-largest U.S. healthcare company by market value earned 92 cents per share. On that basis, analysts on average expected 90 cents, according to Thomson Reuters I/B/E/S.

Sales rose 3.5 percent to $7.76 billion, in line with Wall Street expectations. Revenue would have risen 8.4 percent if not for the stronger dollar, which lowers the value of overseas sales.

Global prescription drug sales fell 1.6 percent to $4.1 billion, hurt by new generic forms of Abbott’s Depakote anti-seizure medicine. But that represents an improvement over the 4.3 percent decline seen in the second quarter.

Humira sales rose 24 percent to $1.49 billion, about $30 million ahead of Wall Street expectations, according to the average estimate of five analysts polled by Thomson Reuters I/B/E/S.

Sales of Abbott’s drug-coated stents, including Xience, rose 10 percent to about $330 million in the quarter. Company officials predicted Xience, already the market leader, will capture greater share in coming months due to new data showing advantages over rival stents used to prop open heart arteries that have been cleared of plaque.

Abbott’s nutritional business continued to show strength, with sales rising 9.8 percent to $1.39 billion despite the stronger dollar. The company, which is steadily expanding this segment, announced in July it would pay $130 million for the nutrition businesses of Wockhardt Ltd, whose brands are sold in India.

The Wockhardt transaction is among five significant deals for Abbott this year, as the company aims to lessen its dependence on Humira for future earnings growth.

“The nutritionals business continues to do very well,” said Conover. He speculated that Abbott was trying to “entrench” those products in fast-growing emerging markets and would later move aggressively to introduce lucrative prescription drugs there. 

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DETROIT — Chrysler Group LLC is getting back into the leasing business in an effort to boost sales, but don’t expect a return to the inexpensive lease deals of the past.

The automaker announced in a statement Wednesday that it will resume leasing for all 2010 Chrysler, Dodge and Jeep models starting today, and it will offer some special deals on selected vehicles through Sept. 30.

Chrysler brand CEO Peter Fong said in the statement that leases will give more options to consumers and will be competitive with the U.S. auto market personal loans for people with bad credit. The leases will be underwritten by Chrysler’s new preferred lender, GMAC Financial Services.

But the market isn’t as competitive as it once was. As recently as last summer, automakers were using cheap lease deals to clear dealer lots of unwanted cars and trucks.

But now most automakers have cut factory production to match lower sales, and most have record low inventories.

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VANCOUVER – The B.C. government plans to harmonize its provincial sales tax with the federal GST for a single, 12-per-cent sales tax.

Premier Gordon Campbell said Wednesday that harmonizing the taxes on July 1, 2010 will boost new business investment, improve productivity, enhance economic growth and create jobs.

"This is the single-biggest thing we can do to improve B.C.’s economy," Campbell said of the harmonized sales tax or HST.

"This is an essential step to make our businesses more competitive."

British Columbia is following Ontario, which will also harmonize its provincial sales tax with the GST for a 13-per-cent tax starting Canada Day next year.

Finance Minister Colin Hansen said that compared to other provinces that have also taken steps to introduce the HST, B.C.’s will be the lowest in Canada by combining the seven per cent provincial tax with the five per cent GST.

Quebec, Nova Scotia, New Brunswick and Newfoundland and Labrador have already harmonized their sales taxes with the GST, a move that became politically unpopular for some when consumers ended up paying more for goods that were previously exempt from the provincial tax life insurance quotes.

Campbell estimated the new HST will remove over $2 billion in costs from B.C. businesses.

The new combined tax will also have exemptions similar to the provincial sales tax.

Those will include sales books, children’s clothing and shoes, children’s car seats and diapers.

"The PST is an outdated, inefficient and costly tax, some of which is hidden in the price of goods and services and passed on to and paid by consumers," Hansen said.

To ease the pain of switching to a single tax in 2010 and reduce the political fallout, Ontario will give modest income tax breaks to most taxpayers and offer government cheques totalling $1,000 for a family earning under $160,000.

Single people making less than $80,000 will receive $300.

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The Federal Reserve Bank of St. Louis named Christopher J. Waller senior vice president and director of research and Robert H. Rasch executive vice president and senior policy adviser.

Sachs Electric promoted Joseph T. Barnard to vice president, Sachs Select.

The Vandiver Group added Mike Amelung as Web developer and Kanna Taylor as a team member.

Evans & Dixon hired Eric Kukowski as of counsel in the workers’ compensation practice group.

Consolidated Design & Construction added Jessica Williams as a designer.

John R. Shivers III joined Pulaski Bank as assistant vice president and business development officer in the Florissant office.

The Sisters of Mercy Health System named Judy Akins vice president of marketing and Barb Meyer vice president of corporate communications.

Jay Wolfe Toyota hired Gerry Hogan as new-car sales manager.

Fitness Showcase promoted Rick Vemmer to president, Tammy Hauk to secretary-treasurer and Shawn Hannagan to director of sales.

Glik’s added Ashley Smith as senior assistant buyer of junior tops and dresses.

Gorman & Gorman Home Loans appointed Michelle Kuehn as processor/closer payday loans lenders.

Marketicity added Stacey Rynders as communications strategist.

Heartland Bank hired Melissa R. Wilson as senior vice president, wealth management/retail services.

Briarcrest added Theresa Rein as regional sales leader for Holiday Retirement’s Midwest operations.

Husch Blackwell Sanders added Brett D. Siglin as an associate in the banking and finance department.

Spencer Fane Britt & Browne named Thomas E. Osterholt, Jr. managing partner in St. Louis.

Weekends Only promoted David Lay as assistant manager of its Affton store.

Mark Steiner was appointed as an account executive for Eastern Missouri for Tension Envelope.

Clean The Uniform Co. named Lisa Hawthorne as customer service representative.

Compiled by Matt Fernandes

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U.S. commercial banks reported $6 billion of revenue from trading foreign exchange, interest-rate and other derivative instruments in the third quarter as credit spreads deteriorated and accounting rules inflated results, the Office of the Comptroller of the Currency said on Monday.

Revenue was up markedly from the second quarter, when banks reported $1.6 billion of trading revenue, as market disruptions led to a widening of credit spreads.

As credit spreads widened, the value of banks’ trading liabilities declined and trading revenue increased.

Kathryn Dick, deputy comptroller for credit and market risk, said the value of trading revenue was inflated during the third quarter because of fair value accounting rules that went into effect at the end of 2007.

The rules require banks to mark derivative contracts to current market values each quarter.

"I don’t think they had a really strong quarter; they had a good quarter," Dick said about the banking industry’s trading revenue. "(The gain) was largely due to accounting purposes, not necessarily due to client flow or customer demand."

Dick said credit spreads have significantly narrowed during the fourth quarter as investor confidence in credit quality has increased.

"Credit spreads have come in dramatically, which means those (third-quarter) gains will be reversed," she said.

The comptroller’s office, which oversees most big U.S. commercial banks, also said the notional amount of derivatives held by the industry — the amount that generally does not change hands — decreased by $6 payday cash loans.3 trillion in the third quarter to $176 trillion.

However, credit derivative contracts increased 4% to $16 trillion.

"The uncertain credit environment created demand for credit hedges, particularly for counterparty credit risks," Dick said.

The OCC said the net current credit exposure for the industry increased $30 billion, or 7%, in the third quarter to $435 billion.

The agency uses that figure as the primary means to measure credit risk in derivatives activity. It said the largest five U.S. banks hold 97% of the total notional amount of derivatives.

The OCC said national banks reported strong client demand and increased client revenues due to wider bid/offer spreads and market disruptions such as the U.S. government takeover of mortgage giants Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) in September and the failure of Washington Mutual (WAMUQ) in the same month.

The agency also said derivative contracts remain concentrated in interest rate products, which account for about 78% of total derivative notional values.

(Reporting by Karey Wutkowski; Editing by Steve Orlofsky and John Wallace) 

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Mascoutah — As the sun rose early Thursday over MidAmerica St. Louis Airport, a rousing version of Reville blared over the public-address system.

The airport begins each day with a rendition of Reville, but on this day, the wake-up call added a little fanfare to a landing that was more than just a landing.

With an audience of about 60 people applauding, a DC-10 cargo plane carrying roughly 15 tons of flowers landed here from Bogot

The grid is beginning to get some love.

In the past month or two, it has become fashionable to highlight the shortfalls of our electrical grid, with high-profile names like Al Gore, Barack Obama and T. Boone Pickens calling for increased investment in our power-carrying highways.

Last week, two big Gs – Google and General Electric – announced a plan to collaborate on new technologies and policy initiatives that would expand transmission capacity and push development of the “smart grid.

"The current regulatory and economic model is failing to drive the innovation and investment we need in today’s electric grid," the companies said in a joint statement.

Without dramatic improvements in grid infrastructure, they said we won’t be able to tap the full potential of renewable energy and electric transportation.

Here in Ontario a similar message is being heard and promoted. The Independent Electricity System Operator has already created a smart grid forum, composed of industry executives and experts who plan to come out with a white paper this fall, recommending ways to move forward on smart-grid development.

Last Thursday, Energy and Infrastructure Minister George Smitherman directed Ontario’s power authority to review and "fine tune" its 20-year power system plan through attempts to add more renewables – wind, solar, biomass, geothermal – to the mix. Part of this review will look at "improvement of transmission capacity" in parts of Ontario where grid infrastructure is holding back development of renewable-energy projects.

Smitherman, speaking to a crowd of energy-industry officials in Niagara Falls, Ont., made it clear that we have to do things differently to tap the full benefits of green power. "Make no mistake. We are in the midst of an energy renaissance," he said. "We aren’t just overhauling the infrastructure of our energy system, but the very philosophy of how we will power our homes, our businesses, our communities, indeed our cars, for decades to come."

The energy minister emphasized: "We want to get it right."

This is potentially good news for inventors like Jovan Bebic, an expert in FACTs, or Flexible AC Transmission Systems. Without going into too much detail, FACTs are power electronics devices connected to the transmission system as a way to better control the flow of electricity through the grid.

Some FACTs devices are used on the grid today, but they are either limited in what they can do or come at considerable cost and size. Bebic saw a problem that needed solving, so from 1999 to 2003 he earned his PhD at the University of Toronto trying to design a better, cheaper device for controlling power flows on the grid.

He ended up inventing the Hybrid Power Flow Controller, which has the capabilities of a high-end FACTs device but can be added to the transmission system as a retrofit – making existing, more common devices with names like “switched shunt capacitors” or “static VAR compensators” behave like FACTs devices, but at far less cost.

It’s not sexy like solar or wind generation, but eye-glazing descriptions aside, this is important stuff easy payday loan. Bebic’s device gives utilities more control over how power flows on their transmission systems, but as an affordable retrofit rather than an expensive add-on.

"You can tap into more renewables, and you can tap into more distant generation with it,” he says. “If you put a substantial quantity of wind on the system, you will have flows you’ve never seen before (so) … you want to see higher controllability of that power."

The bottom line "is that it provides muscle for the smart grid."

Problem is, like any small venture trying to do business with the big boys – especially ultra-conservative transmission utilities – it’s tough to find someone to test out such devices. "Utilities are fast followers but they’re not very good at doing things first," Bebic says.

This contrasts with power generators, which in an environment of mandates and incentives – and likely carbon pricing – have more aggressively pursued new generation technologies, such as solar.

But that could soon change with the realization that we’ve massively underinvested in our transmission infrastructure. What needs to happen now, says Bebic, is to come up with a market model for valuing "controllability" much like we place a value on generation in the electricity bidding marketplace.

For example, it’s 4 p.m. and energy consumption is reaching its peak. What usually happens is the market operator – who buys and sells electricity so that supply and demand is balanced – will pay a premium to fire up a natural gas "super peaker" plant.

Bebic says a potentially cheaper option is to pay for better controllability by using power flow devices on an otherwise crowded transmission line to direct more wind and hydroelectric power from, say, Northern Ontario to Toronto.

It’s not unlike how the Internet can choose an alternative path to deliver data if one path is too congested. If those who owned "control" and those who owned "generation" bid into the market equally, "you could create an entire market for these power electronics devices, and it would let us run the system more efficiently."

It might also defer the need to spend billions of dollars on new transmission lines, which as we move toward renewables and more distributed generation will need a lot more muscle, flexibility and smarts.

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John Sacke got a surprise when he bought an item online at eBay for $27.99 (U.S.).

After charging it to his PayPal account, linked to his CIBC Visa card, he got a message from PayPal saying he would pay $29.92 in Canadian dollars.

Just after his email arrived, I heard from Ray Ho with a similar complaint. Not only did PayPal convert his eBay purchase into Canadian dollars, but he found an extra markup once he checked his credit card statement.

If you check PayPal’s website, you can find information about its fees for Canadian users.

Here’s what it says about currency conversion:

"The exchange rate is the retail foreign exchange rate as determined by PayPal at the time a transaction is completed. The exchange rate is adjusted regularly, based on market conditions, and includes a 2.5 per cent fee above the rate at which PayPal obtains foreign currency. The 2.5 per cent fee is retained by PayPal. This fee only applies when PayPal performs the currency conversion."

You’re usually given the choice of using PayPal’s currency conversion or your credit card company’s conversion.

So, check with the credit card issuer to see whether it has a foreign exchange fee – most do – and whether it’s less than 2.5 per cent.

The other difference is that when PayPal converts the currency, you can see the rate at the end of your transaction.

If you were making a U.S. dollar purchase yesterday, you would have seen PayPal’s rate as $1.05 (Canadian) for $1 (U.S.).

If you don’t use PayPal’s conversion, you won’t know how much you will be charged until you check your credit card statement.

Is there a way to avoid such fees? I had to track down someone in San Jose, Calif., to get an answer.

"PayPal customers have the ability to add a U.S. bank account to their Canadian PayPal account," says Sara Gorman, a spokesperson for PayPal, which is owned by eBay.

"So, if a Canadian customer wants to make a payment in U.S free instant credit score estimator. dollars, there would be no currency exchange fee for payments originating from a U.S. dollar account."

Just in case you’re confused by the last sentence, she’s saying you have to open a bank account in the United States – not a U.S. dollar account at a Canadian bank.

If you buy occasionally at eBay, you may find it’s not worth the trouble. But check with your Canadian bank to see if it’s affiliated with a U.S. bank and if it can help.

Personal note: As an occasional eBay buyer, I made a winning bid last month on a 1,000-page book, How to Cook Everything Vegetarian by Mark Bittman.

I won it for $11 (U.S.), compared to the Canadian list price of $41.99.

My glee disappeared when I got an invoice from the seller, located in Michigan, for $47.70 (U.S.).

That included shipping and handling via U.S. first class mail ($26.20) and shipping insurance ($10.50).

I asked the seller if there was a cheaper way to ship the book and she said no. "All of this was explained in the listing," she said.

I hadn’t seen any such details – and if I had, I wouldn’t have bid for the item. But not wanting to get negative feedback, I went ahead.

My cookbook arrived last week, packaged beautifully. The final bill was $50.31 (Canadian) after using PayPal’s currency conversion.

The lesson: Always ask about shipping costs to Canada. And find a local source if you can, especially for heavy items.

Write to onyourside@thestar.ca or check the On Your Side blog at www.ellenroseman.com.

 

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