Daily Finance

What to Watch This Week: RIMM, Builders, For-Profit Schools and Cards

2012-08-23T09:30:00.002-07:00

There's never a dull moment on Wall Street. Let's go over some of the items that will help shape the week that lies ahead.

1. Dark days for BlackBerry: All of the Windows Phone 8 news issued by Microsoft (MSFT) in recent days should remind smartphone fans that there once was another company that had IT departments giddy with the wireless possibilities.

Research In Motion (RIMM) has been largely forgotten in the smartphone chatter, and perhaps rightfully so. We live in a world where Android and iOS devices rule. The only reason that we're entertaining Windows as a mobile operating system is because Microsoft is an eccentric billionaire that loves to throw big money at pet projects.

Well, RIM will be back in the spotlight -- at least temporarily -- when it reports its latest quarterly results Thursday.
As you can imagine, it's going to be ugly. Analysts see revenue declining by a whopping 36%. The chunky $1.33-a-share quarterly profit that the Canadian company posted a year earlier is expected to be replaced by a mere 1 cent a share in earnings.

2. The school is in your computer: The downside to the University of Phoenix is that the online school's fraternity row is a bit of a snoozefest. Don't even get me started on the intramural program or the sorry state of the student union center.

Apollo Group (APOL) is the company behind the University of Phoenix. It's a more popular choice for folks wanting to secure college degrees than you probably think. The virtual school's enrollment in degree programs registered at 355,800 students in Apollo's most recent quarter. Unfortunately that's 12% below where it was a year earlier.

For-profit postsecondary educators have come under fire lately over the ineffectiveness of their programs, their uninspiring graduation rates, and their crummy student loan repayment rates.

Some companies are holding up better than others, but investors shouldn't be surprised to see Apollo posting declines in revenue and profitability when it reports early this week.

These Little-Noticed Tax Hikes Are Raiding Your Wallet

2012-08-23T09:29:00.002-07:00

In a tough economy, the last thing many people can afford is for the government to take more of their money. Yet at least in some places, recent tax increases have already taken a big bite out of taxpayers' wallets, and the worst may be yet to come.

The looming expiration of favorable tax rates has grabbed the lion's share of attention lately: In just over six months, much higher tax rates are scheduled to take effect. If the government does nothing, those increases would boost tax bills for people at just about every income level.

But increasingly, state and local governments have been the culprits in making life more difficult for taxpayers.

As U.S. News recently observed, states and municipalities are pulling out all the stops to try to balance their budgets in the wake of falling revenue and greater demand on services. Here are some of the things they're doing:

More than a dozen states have raised their sales tax rates in the past five years, with the majority of those doing so by at least a percentage point. According to IRS estimates, each percentage-point increase in sales taxes could cost the typical family of four with a $50,000 income an extra $100 to $200 per year, depending on where they live.
States have also hiked other taxes. Illinois pushed its income tax rate from 3% to 5%, but many states have gotten extremely creative in the places they seek higher revenue from taxes and fees, focusing on little-noticed niche sources like hotel tax or fishing licenses.
Cities and towns tend to depend on property taxes, which have gotten hurt badly by drops in home prices. That's required big hikes in property tax rates in many areas.

What's Next?

The trend toward higher state and local taxes isn't likely to change anytime soon. The reason is that unlike the federal government, states and cities don't have unlimited borrowing power. Even as they weigh big spending cuts on everything from essential services to employee pensions, state and local governments are trying to balance lower spending with higher tax revenue to balance budgets.

The 7 Safest Banks in America

2012-08-23T09:28:00.002-07:00

Moody's recent downgrade of 15 of the world's largest banks, along with JPMorgan Chase's (JPM) multibillion-dollar trading loss on risky derivatives, make it clear that certain big banks aren't as safe as depositors might have hoped. Still, consumers have to keep their money somewhere.

While the FDIC guarantees your deposits, it only insures so much, and it offers no help to investors if a bank craters. So to help consumers find the best places to stash their cash, 24/7 Wall St. has compiled a list of the safest banks. The criteria were strict, complicated ... and you're probably only interested in the results.

If you're curious about the details of their rating process, read on after the gallery. Otherwise, without further delay, here are the seven safest banks in America

401(k) Fees: What You're About to Learn Will Shock You

2012-08-23T09:27:00.002-07:00

Honesty may be the best policy, but sometimes, the truth hurts.

New rules for 401(k)s that go into effect July 1 will require more complete disclosure about retirement account fees. that means that when investors open their statements this fall, they'll be able to see in detail how those previously hidden fees are chipping away at their retirement savings.

As part of the Department of Labor's new rules, 401(k) plan administrators will have to give employers details of all of the fees they charge, and employers will be required share those details with employees; including how much they're paying in fees for every $1,000 invested.

That will help. But to really shine a light into the murky 401(k) waters, consider the following advice:

1. Avoid Ignorance and Passivity

It is a truth universally acknowledged that most us of are hands-off and in the dark when it comes to our 401(k) plans.

According to one AARP survey, 71% of people believed they didn't pay fees on their 401(k). In reality, they were getting docked for administrative services, "record keeping" and other hidden costs.

It's a major problem with the current system: the misguided expectation that people will take the time to do their due diligence.

"The [current] disclosure is only helpful for the most sophisticated individual," said Robyn Credico, senior consultant at Towers Watson. "Participants only spend about two hours a year on their 401(k) plan."

"Congress gives way too much credit to the employee to do all kinds of detailed analysis," said Ken Himmler, president of Los Angeles-based Integrated Asset Management. "Those are not the kind of people who go home and want to be research analysts at night."

And even among those with a desire to become investing wonks over their plans, the information providers offer is fundamentally unclear.

"This is one of the only industries where you're not really clearly aware of how much you're paying," said Chad Parks, CEO and founder of The Online 401(k). "Imagine you go to buy a car and they say, 'here's the sticker price but we're going to take 1% of your account each month just because.'"

2. Decode the Disclosure and Understand the Consequences

Fee disclosures prior to the new rules were full of technical jargon, with fine-print galore and incalculable totals.

"I'm pretty good at math," Himmler said, "and I read through two companies, and I had to set up a spreadsheet. I can't imagine the average employee even with a degree in finance can understand, and they're not going to take the hours to figure it out."

"A problem with these disclosures is there's so much detail and so much volume that so many people aren't reading them and paying attention," said Credico, "On top of the volume of information, it's not easy to understand to begin with."

The Department of Labor has now placed responsibility on the employer to offer employees the right choices on their 401(k)s, and this makes disclosure all the more important.

"Transparency is a good thing, " said Charlie Jeszeck, an economist at the Government Accountability Office. "And we can't afford to keep participants coddled or ignorant about fees, because it can have a negative impact on their retirement. Financial literacy is a big deal, and we need to educate them in how to invest and what can eat away at their futures."

Hedge Fund Manager to Pay $405 Million to Madoff Victims

2012-08-23T09:26:00.002-07:00

ALBANY, N.Y. -- A settlement announced Sunday will bring $405 million to victims of Bernard Madoff's (pictured, right) historic investment scam, the state attorney general said.

The clients of hedge fund manager J. Ezra Merkin (pictured, below) will receive $405 million, and New York state will get $5 million to cover the cost of the settlement worked out by Attorney General Eric Schneiderman. The victims include New York Law School, Bard College, Harlem Children's Zone, Homes for the Homeless and the Metropolitan Council on Jewish Poverty.

Schneiderman called the agreement "a victory for justice and accountability."

"Many New Yorkers entrusted their investments to Mr. Merkin, who then steered the money to Madoff while receiving millions of dollars in management and incentive fees," Schneiderman said. "By holding Mr. Merkin accountable, this settlement will help bring justice for the people and institutions that lost millions of dollars."

Merkin's attorney, Andrew J. Levander, didn't immediately respond to a request for comment Sunday.

Merkin had managed investments for hundreds of investors in four funds: Ariel Fund Ltd., Gabriel Capital L.P., Ascot Fund Ltd. and Ascot Partners L.P. Schneiderman said many of the investors are New York residents and charitable organizations. Many of them requested not to be identified.

Rich and Beautiful: World's Sexiest Billionaire Offspring

2012-08-23T09:25:00.003-07:00

These dashing youths are not only attractive, but as the children of the world's wealthiest people, they are also devastatingly rich.

Having billionaire parents has its perks, from $60 million weddings to private yachts.

But while some of these heirs have become famous in their own rights as models and business men, others have have stayed out of the spotlight, focusing on charity or private work.

Jamie Dimon Quickly Filets the London Whale's Costly Trades

2012-08-23T09:24:00.001-07:00

After all the media, regulatory, and congressional commotion surrounding JPMorgan Chase's (JPM) $2 billion-plus loss on a massive derivatives bet made in its London office, it now looks like CEO Jamie Dimon's infamous "tempest in a teapot" comment may have been accurate after all.

Financial Times is reporting that JPMorgan has already exited 70% of the "London Whale" derivatives positions that had gotten the bank into such hot water.

Such a quick exit isn't what anyone had expected, including maybe Dimon himself, making a case for the superbank being far more nimble than its critics give it credit for.

The London Whale Surfaces

Press reports first surfaced in April that a JPMorgan trader based out of the bank's chief investment office in London had taken such massive positions in the derivatives market that they were "moving the market," causing hedge fund managers there to nickname the then-unknown trader "the London Whale."

Dimon initially wrote off the press reports as "a tempest in a teapot," but a month later he was making the press rounds himself, forthrightly acknowledging that the initial reports had been right and apologizing for what he termed an "egregious" mistake caused by "sloppiness and bad judgment."

Since Dimon broke his own story, hardly a day has passed without him or the bank being somewhere in the news.

On the regulatory side, three separate federal agencies jumped almost immediately into the fray, including the Federal Bureau of Investigation. And Dimon has now testified twice before Congress on the matter.

Those baying for further regulation of the banks have used this incident as an opportunity to bay for more. Never mind that there's a raft of post-crisis U.S. legislation already coming into effect. Or that the global Basel III banking rules are also making their presence felt domestically. Or that there's a bill currently making the rounds in Congress calling for the outright breakup of JPMorgan, along with five of America's other biggest banks.

Critics say that Dimon should have seen this coming. And that if he didn't, then maybe JPMorgan and similarly sized banks are not only "too big to fail" but also too big to manage.

Consumers to Get $1 Billion in Health Insurance Rebates

2012-08-23T09:23:00.001-07:00

NEW YORK (CNNMoney) -- Health insurers will dole out a total of $1 billion in rebates to 12.8 million Americans this summer -- an average of $151 per family --as a result of the 2010 health care reform law, the government said Thursday.

The rebates announced by the Department of Health and Human Services come from a provision of the law that punishes insurers who spend too much of policyholders' premiums for boosting company profits instead of paying for their medical care.

The rule mandated that, beginning in 2011, insurance companies would have to spend 80% to 85% of the premiums they collect on medical care instead of toward their own profits and overhead costs.

Insurers that didn't increase that allotment to the new federal standard would have to give customers a rebate for the difference beginning in 2012.

HHS said insurance companies that failed to meet the required "medical loss ratio" must provide a rebate for the difference to their customers no later than Aug. 1.

"The rule helps ensure consumers get fair value for their health care dollar," HHS Secretary Kathleen Sebelius, said in a statement.

HHS said consumers owed a rebate could get it as a check in the mail, a lump-sum reimbursement to the same account that they used to pay the premium if by credit card or debit card, or as a reduction in their future premiums.

For affected policyholders who are insured through their employers, their companies could provide them with the check or reimbursement, or employers could apply the rebate in another manner that benefits their employees, the agency said.

You're a Responsible Borrower? 'So What?' Say Credit Card Banks

2012-08-23T09:22:00.000-07:00

Lately, the banks that issue credit cards have seen some significant improvement in the way their customers have been treating them.

But it probably comes as no big surprise to discover that the card companies aren't repaying the favor.

Last week, several card issuers released May figures on the health of their credit card lending. Specifically, each bank spelled out the percentage of their loans that they don't expect to be able to collect (known as the charge-off rate) as well as the percentage of accounts that have payments that are at least 30 days late (the delinquency rate).

Turns out, the numbers of deadbeats and slackers are dwindling. Most issuers saw substantial improvements on both measures. American Express (AXP), Bank of America (BAC), Capital One (COF), JPMorgan Chase (JPM), and Citigroup (C) all saw declines in both charge-offs and delinquency rates. Discover Financial (DFS) also saw delinquency fall, although charge-offs rose slightly.

As LowCards.com CEO Bill Hardekopf commented, "Fewer delinquencies and smarter lending practices are good for banks." Credit card users, though, aren't seeing much of a break from the improvement in delinquencies and charge-offs.
We're getting punished for good behavior

Over the past several years, the interest rates on credit cards have moved higher, even as interest rates on savings accounts gradually fell. And more recently, card rates have barely budged, with fixed-rate cards not having moved since March, and variable-rate cards falling by just 0.03

Fed Extends 'Twist' Program to Drive Interest Rates Lower

2012-08-23T09:20:00.001-07:00

WASHINGTON (AP) - The Federal Reserve is trying again to jolt an economy that's being held back by a weakened job market.

To spur borrowing and spending, it's extending a program designed to lower long-term U.S. interest rates.

At the end of a two-day policy meeting Wednesday, the Fed also sharply reduced its forecast for U.S. growth and said it's prepared to act further to bolster the economy. It reiterated its plan to keep short-term interest rates at record lows until at least late 2014.

"If we're not seeing a sustained improvement in the labor market, that would require additional action," Bernanke said at his quarterly news conference later in the day.

Wall Street wasn't impressed by the Fed's limited response Wednesday. Stock prices barely budged. And analysts questioned how much benefit the Fed's latest economy-boosting effort would have, in part because interest rates are already near record lows.

If the Fed's more pessimistic outlook proves accurate, President Barack Obama's chances in an election that will turn on the economy would likely suffer.

Bernanke noted that the economy is under threat from Europe's debt crisis and the prospect of sharp spending cuts and tax increases that would take effect at the end of the year without a congressional agreement.

European leaders will be seeking a breakthrough at a summit next week in Brussels. Bernanke said he's in regular touch with the head of the European Central Bank.

The Fed said in a statement around 12:30 p.m. EDT that it will continue a program called Operation Twist through year's end. Under the program, the Fed has been selling $400 billion in short-term Treasurys since September and buying longer-term Treasurys. It said it will extend the program through December using $267 billion in securities.

But extending Operation Twist might not provide much benefit. Businesses and consumers who aren't borrowing now might not do so if rates slipped slightly more.

"This move is largely symbolic," said David Jones, chief economist at DMJ Advisors.

Jones estimates Operation Twist will lower long-term rates by only about one-tenth of a percentage point.

At his quarterly news conference later Wednesday, Bernanke said the Fed would consider more aggressive action, such as another bond buying program. The Fed has completed two such programs. It bought more than $2 trillion in Treasurys and mortgage-backed securities, expanding its portfolio above $2.8 trillion.

The yields on Treasury bonds finished the day only slightly below where they were before the announcement. The Dow Jones industrial average finished down about 13 points.

John Canally, investment strategist at LPL Financial, says the Fed delivered just what investors expected and offered a hint at further easing.

"If there's another misstep somewhere - in Europe ... more weak data - the Fed's going to do more," Canally said.

For now, he said, the Fed wants to keep "some powder dry" in case there's a meltdown in Europe. Canally also suggested that the Fed may be reluctant to be aggressive in an election year out of concern it could be seen as affecting the election.

But in a comment on Twitter, Justin Wolfers, an economics professor at the University of Pennsylvania's Wharton Business School, suggested that the Fed might be on the cusp of going further.

Wolfers characterized their view as: "One more bad jobs report and we'll do more."

The Fed now thinks the economy will grow no more than 2.4 percent this year. That compares with its forecast in April that the economy could grow up to 2.9 percent.

And it thinks the unemployment rate, now 8.2 percent, won't fall much further in 2012.In its statement, the Fed noted that oil and gas prices have fallen. Lower prices give the Fed room to take further action without igniting inflation.

The Fed's statement was approved on a 11-1 vote. Jeffery Lacker, president of the Richmond Regional Fed Bank, dissented for the fourth straight meeting. The statement said he opposed the continuation of Operation Twist.

Josh Feinman, global chief economist at DB Advisors, said the extension of Operation Twist allows the Fed to do something without expanding its portfolio of securities. Launching a new bond-buying program would have likely incited criticism that the Fed was escalating the long-term risks to the economy.

In part, that's because Fed would eventually find it harder to shrink its portfolio without driving interest rates back up and possibly threatening the economy.

"The downside risks have increased enough that they felt they needed to do something," Feinman said. "Extending Operation Twist was the path of least resistance."