Finance Blog number 1

The chief of the International Monetary Fund said Saturday that Italy’s financial reform is key to reducing the impact of the eurozone crisis, and that no country is immune to the consequences if the efforts fall short.

After meeting in Tokyo with top Japanese financial officials, including Finance Minister Jun Azumi, IMF chief Christine Lagarde said Italy must restore political stability and implement financial reforms to provide “clarity and credibility” and restore confidence.

Italy needs “steady, solid and sustained implementation of measures,” she said at a news conference.

The eurozone financial crisis, set off two years ago by Greece’s overwhelming debt, has now engulfed Italy, which has the third-largest economy among the 17 nations that share the euro currency. The crisis has toppled Prime Minister Silvio Berlusconi, who says he will step down once reforms are passed to help Italy control its own staggering debt payday advance.

Lagarde expressed concerns about the possible consequences outside the eurozone, particularly in Asia. She urged Japan to use caution against the impact of the eurozone crisis.

“I insisted with Minister Azumi that no country can be immune under the present circumstances, no matter how developed or how emerging or how far away it is,” Lagarde said. “Japan is no more immune than other countries.”

A major exporter, Japan “would be exposed if some of its large clients are in serious difficulty,” she said.

Europe has bailed out Greece, Portugal and Ireland.

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A late rally pushed the Dow Jones industrial average back above 12,000 Monday as investors responded to the latest twists in Europe’s efforts to control its debt crisis.

U.S. indexes were down for much of the day on worries that Italy could become the next country to run into trouble. Stocks turned higher after 2 p.m. Eastern on news that Greece would receive the latest installment of emergency aid as long as the country’s two main parties commit to implementing economic reforms agreed to by the country’s previous government.

Investors again reacted to whatever was the latest headline out of Europe. The region’s problems have been offsetting optimism about strong corporate earnings in the U.S. and signs of improvement in the economy.

“Every day it seems like it’s the butting of heads between whatever the latest rumor is out of Europe with good economic data and corporate earnings,” said Karyn Cavanaugh, a market strategist with ING Investment Management. “It’s overshadowing the fact that earnings are on track to be the best year ever.”

The Dow rose 85.15 points, or 0.7 percent, to close at 12,068.39. The Dow closed near its highest point of the day and had been down as many as 102 points shortly after midday. Hewlett-Packard Co. rose 3.4 percent, the most of the 30 stocks in the Dow.

The Standard & Poor’s 500 index rose 7.89, or 0.6 percent, to 1,261.12. Last week the S&P had its first down week since September. The Nasdaq rose 9.10, or 0.3 percent, to 2,695.25.

Worries that Italy could become the next victim of Europe’s debt crisis kept investors uneasy.

Italy’s borrowing rates spiked Monday to the highest level since the country adopted the euro. Unlike Greece, Portugal or Ireland _ all of which received financial lifelines _ Italy has too much debt to be rescued by its European neighbors. Prime Minister Silvio Berlusconi has rejected suggestions that he resign to make way for more cost-cutting.

In Greece, the two main political parties agreed over the weekend to share power in a new government after George Papandreou said he would step aside as prime minister. European finance officials agreed to release the next slice of bailout money to Greece as long as leaders of the parties agree in writing to carry out austerity measures required by international lenders.

The payment has been delayed by two months and is needed to avoid a potentially disastrous default on the country’s debt, which would roil financial markets and cause losses for European banks.

The worries over Europe’s debt problems lifted the prices of assets seen as safe havens. The yield on the 10-year Treasury note fell to 2.01 percent from 2.04 percent late Friday. Bond yields fall when their prices rise, reflecting an increase in demand. Gold rose 2 percent.

In corporate news:

_ Amgen Inc. rose 5.9 percent to $58.43, the most in the S&P 500 index, after the biotech drugmaker said it would buy back up to $5 billion of its stock.

_ Dish Network Corp. rose 5 percent to $24.66 after the satellite TV provider announced a special $2 per share dividend and a 30 percent increase in net income.

_ Home Depot Inc. rose 2.6 percent to $37.34 after getting upgraded by analysts.

Rising stocks slightly outnumbered falling ones on the New York Stock Exchange. Volume was lighter than average at 3.4 billion shares.

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The French government says French President Nicolas Sarkozy and German Chancellor Angela Merkel will speak by phone later Monday to discuss an upcoming EU summit amid signs they disagree on parts of a new crisis plan.

Government spokeswoman Valerie Pecresse says that at the weekly cabinet meeting Wednesday Sarkozy emphasized that the Oct. 23 summit in Brussels “is a crucial moment, for Europe and for France.”

That view appears to clash with Germany’s recent downplaying of the summit’s importance Business Card Holders.

Earlier this week, German finance chief Wolfgang Schaeuble dampened expectations by saying that Sunday’s summit wouldn’t produce a comprehensive solution to the eurozone debt crisis that threatens to cause another global recession.

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KV Pharmaceutical Co. has filed a lawsuit against its former board chairman and chief executive, Marc Hermelin, hoping to avoid paying him about $36.9 million in retirement benefits, plus legal expenses.

The lawsuit, filed Oct. 7 in circuit court in St. Louis County, accuses Hermelin of breaching his fiduciary obligations to the Bridgeton-based company through his alleged misconduct in shipping oversize painkillers to pharmacies.

The suit asks the court to grant a declaratory judgment that KV Pharmaceutical has no legal duty to pay tens of millions of dollars in retirement and termination fees to Hermelin, nor to reimburse him for his considerable legal expenses associated with his tenure at the drug company.

KV also seeks a court order that Hermelin repay the company all the executive compensation he received during the time of his “knowing and intentional breach of his fiduciary obligations to KV,” as well as repay the company for “other things of value by which he was enriched as a result of the wrongs he committed.”

Finally, it asks that Hermelin be ordered to pay the highest allowable financial interest on the amount of damages sustained by KV “as a result of his culpable conduct.”

Hermelin, who is living in Israel, could not be reached for comment. An attorney for KV Pharmaceutical declined to comment.

By 2008, KV was considered one of the most successful publicly traded companies based in the St. Louis area, posting nearly $600 million in revenue and employing 1,700 people. But in December of that year the pharmaceutical company’s board of directors removed Hermelin as chairman of the board and also ended his tenure as chief executive after the board’s internal investigation concluded that he had not acted in good faith.

According to the company’s lawsuit, Hermelin was terminated “for cause” because of misconduct involving “his willful failure to perform his duties in the best interests of KV.”

Hermelin’s employment agreement called for retirement and termination payments to Hermelin, but not if the board concluded that he had intentionally acted against KV’s economic interests and caused significant adverse effects for the company.

Food and Drug Administration regulators shut down the pharmaceutical business of KV and its wholly owned subsidiary, Ethex Corp., in 2009 after pharmacists discovered that the company was shipping oversized morphine pills. KV’s stock price tumbled, and the company laid off about three-quarters of its employees.

In early 2010, Ethex pleaded guilty to two felony counts of criminal fraud for failing to report to the FDA that it was distributing medicines of the wrong size and shape that could be harmful to patients payday loan lenders. Ethex, which was ordered to pay $27.6 million in fines and restitution, has been dissolved.

“Hermelin knew that many of his actions were improper, and that they risked severe sanctions against KV - sanctions so severe that they could end KV’s ability to do business,” the suit alleges. “He acted solely to protect his own interests and bonus, which was, by contract, calculated as a percent of KV profit, so taking appropriate action would be costly to him.”

KV’s lawsuit describes Hermelin’s alleged misconduct as including “failure to take appropriate actions with respect to the FDA, multiple attempts to impede the work of those investigating matters at KV’s facilities, and multiple efforts to conceal critical information with respect to KV’s production facilities and processes from internal audit and quality personnel and KV’s own board and its committees.”

KV’s suit also alleges that the company has been held captive by Hermelin. According to the lawsuit, Hermelin and his family controlled the majority of the voting power of KV stock, but only about one quarter of the economic interest. Public shareholders owned the remainder.

A consent decree between Ethex and the FDA in March 2009 barred KV Pharmaceutical from permitting Hermelin to have any role in the decision-making, management or operation of the company. Nonetheless, the suit alleges, Hermelin in June 2010 “caused the re-election of himself to the board.”

In November 2010, at the demand of federal regulators, Hermelin resigned from KV’s board. Shortly after, the Office of Inspector General of the federal Department of Health and Human Services banned Hermelin from participating in any business involving Medicare, Medicaid and all other federal health care programs for 20 years.

In March, Hermelin pleaded guilty in federal court in St. Louis to two criminal misdemeanor counts of mislabeling drugs. Hermelin was initially sentenced to 30 days in St. Louis County jail, but he was released by a federal judge after serving only about half that time. Under a plea agreement, Hermelin also agreed to pay a $1 million criminal penalty and to forfeit an additional $900,000 in ill-gotten gains.

Hermelin claims that he was not fired by KV, but instead resigned. Hermelin has demanded that he be paid retirement benefits and reimbursed for his legal expenses in connection with the criminal proceedings against him, governmental investigations, and other lawsuits. KV contends that it owes him nothing.

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NEW YORK, N.Y.

Moneyville is on your side. We help you save money at a time when living costs are rising, interest rates are falling and stress levels are going through the roof.

Readers love our intense focus on personal finance issues and tips on taming everyday costs. They often send stories about how much they saved following our advice.

Rick Romain, for example, saw my Moneyville blog post about getting a basic wireless phone without signing a contract from companies such as SpeakOut Wireless and Petro-Canada Mobility.

“You said buyers should wait for specials. Well, I waited and got a discount on a Nokia flip phone (reduced to $40), with voicemail, texting and camera. If not for you, I wouldn’t have known about this option for those who use a cellphone rarely and for emergencies.”

I always get great feedback from readers when I talk about fighting back against corporate arrogance or indifference. My blog posts about reducing your data roaming charges when you travel drew a huge response.

I also sent a steady stream of traffic to Canada’s two credit bureaus, Equifax and Transunion, when trying to help readers fix errors on their credit reports that led to their being denied a loan.

Rochelle Shalmoni moved back to Canada after 14 years abroad. When her wireless phone service was cut off because of suspected fraud, she had to contact the credit bureaus to straighten things out.

“I spent two days talking to customer service reps and no one could help,” she said.

A few days later, she sent thanks for connecting her to the right people at Equifax and Transunion to get her phones working again.

My fellow bloggers — Marc Saltzman, Krystal Yee, Sheryl Smolkin and the two Moms on Money (Madhavi Acharya-Tom Yew and Peggy Mackenzie) — get an equally strong response to their work.

In his Bucks ’n’ Bytes blog, Saltzman fuses technology with personal finance and turns geek speak into street speak.

In a popular post, he highlighted seven tech bargains found at a dollar store, such as a scientific calculator for $2. Then, he found seven more bargains, such as his wife’s $1 book light, still going after more than two years.

He told readers how to dry out a wet cellphone. (Don’t use a hair dryer.) And in a controversial blog post, he told us about free software that lets you archive YouTube videos to watch offline.

In her 20-Something & Change blog, Krystal Yee focuses on finance issues for young people — such as the right time to buy a home.

“There’s a lot of pressure for my people my age to get into the housing market, even if they aren’t ready,” Yee says.

“There’s a perception that once you become a homeowner, you’re somehow on the right path to financial independence, and that’s simply not true.”

She wrote about the four lies we tell ourselves when thinking of buying a home we can’t afford. (My favourite: It’s better to buy than rent and pay somebody else’s mortgage.)

Yee bought her first home this year and detailed every expense she faced in the first three months, adding up to $10,000. Luckily, she was prepared and had no surprises.

Sheryl Smolkin writes about employment issues in her Eye on Benefits blog, using her legal knowledge and research skills to give meaty advice.

Can the boss cancel your vacation? Can you sue an employer who cuts your pay? And how do you get a fair settlement if you’re fired?

One of Smolkin’s attention-getting blog posts was about a court awarding $25,000 in severance to an employee fired for cause (persistent lateness and making defective aircraft parts).

In their Moms on Money blog, Acharya-Tom Yew and Mackenzie talk about stretching money in busy households with young children and teens.

Beat The Fees, a Moneyville series about customers being nickel-and-dimed on miscellaneous extra charges, “struck a nerve with readers,” says Acharya-Tom Yew.

She helped an older couple recoup some of the fees paid to their bank, though they’d been eligible for seniors’ discounts for years.

Mackenzie gave 10 simple ways to live frugally, followed by 10 more tips from readers. When you take lunch to work, do you put the baggies into the washing machine before reusing them?

Her post about paying $1,900 for three “free” airline tickets with Air Miles was a hit. Many people agreed the fees to transfer points from her in-laws were too high.

You can miss out on big savings — and entertaining writing — if you don’t read the Moneyville blogs. So, get started.

Ellen Roseman writes about personal finance and consumer issues. You can reach her at eroseman@thestar.ca.

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Fifth Third Bank has opened a new branch downtown and has tapped former Cardinals player Lou Brock to make an appearance at a grand opening event Friday.

The Baseball Hall of Famer is slated to sign autographs and be available for photos free of charge for customers at the branch at 921 Olive Street from 11:30 a.m. to 2 p.m. immediately following a ribbon cutting at 10 a.m.

Fresh off the Cardinals’ win against the Houston Astros Wednesday night, giving the team a playoff berth, Fifth Third Bank’s Senior Vice President and Retail Executive Tony Manisco said Brock’s appearance is good timing. “We could not have planned this any better,” he said.

The downtown location, which opened in the Syndicate Trust building on Aug. 29, is the Cincinnati-based bank’s 14th local branch since entering the St. Louis market in 2005.

In the last two weeks, Fifth Third Bank has started banking relationships with more than 100 households from the downtown branch, Manisco said. “The density of people downtown during the daytime was very compelling,” he said.   

The new branch won’t be Fifth Third Bank’s last in the area. “We do have bigger plans for the St. Louis area,” Manisco said.

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A person briefed on the new contract between General Motors and the United Auto Workers union says it will increase the company’s fixed costs by only a small amount.

The tentative agreement on the four-year deal was reached late Friday. It includes a $5,000 signing bonus and the possibility of sweeter profit-sharing checks for GM’s 48,500 factory workers. Most of them aren’t like to get any pay raises.

The person says that because recurring costs were contained, GM still will be able to break even in a depressed U.S. auto sales market of around 10.5 million vehicles. The person did not want to be identified because the terms of the deal haven’t been released to union members.

Members will vote on the pact in the next week or so.

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Educated at an exclusive school in a picturesque patch of English countryside, Ghana-born trader Kweku Adoboli was known to neighbors as a polite and well dressed young man who mixed grueling hours in London’s financial district with a lavish social life in the capital’s nightspots.

But even the 31-year-old Adoboli, who was charged Friday with fraud and false accounting, appeared to foresee his work hard, play hard lifestyle unraveling. “Need a miracle,” he posted on his Facebook page, just hours before his arrest early on Thursday.

Analysts and regulators were left questioning why Swiss banking giant UBS and its monitoring systems had failed to spot Adoboli’s alleged fraud, which will cost about $2 billion in losses.

“Nobody blames the tiger for stalking its prey, but you do blame the zookeeper for leaving the tiger’s cage open,” said Stephen Brown, professor of finance at New York University’s Stern School of Business.

Between 1992 and 1998, Adoboli was a boarder at Ackworth School, founded in the late 18th Century by Quakers, the religious organization which asks followers to develop a personal approach to religion.

Also known as the Religious Society of Friends, the Quaker faith stresses the importance of honesty and, according to the school’s website, students are asked to observe periods of “reflective silence before meals,” and attend regular worship meetings.

According to Vida Yeboah, a member of staff at the United Nations office in Ghana’s capital Accra, John Adoboli, Kweku’s father, had worked at the U.N. and was know by colleagues as a gentle, humble man.

The Times of London reported that Adoboli’s father’s worked in Ghana, Israel, Syria and Iraq _ sending his son away to England to be educated.

At Adoboli’s $31,500-a-year school, set in rolling countryside close to the town of Pontefract, about 180 miles (290 kilometers) north of London, Adoboli would have been taught the value of a peaceful, simple lifestyle.

Despite the childhood schooling in prudence, Adoboli lived in an expensive loft apartment in a trendy corner of east London _ close to the capital’s financial district _ and discussed on his Facebook profile a fondness for fine dining.

Philip Octave, Adoboli’s former landlord, said he left the 4,000 pounds ($6,300) per month apartment four months ago. “He was a very nice guy, very polite. He would speak to anybody. I haven’t got a bad word to say about him,” Octave said.

“He was very well spoken and dressed very smartly. He was a very quiet chap, actually,” he added.

According to his social media profiles, Adoboli embraced his bustling and ethnically diverse area of east London _ once downtrodden, but now home to well-paid traders and bankers working at nearby financial firms poor credit personal loans.

A favorite local nightspot was The Boundary, a swank rooftop bar and restaurant with views across London’s banking district, known for its $1,200 magnums of champagne and pricey menu of seafood and traditional British game.

Adoboli also listed interests including expensive wine, photography and the gritty U.S. crime drama “The Wire” on Internet profiles, and disclosed he had been dating a nurse for at least a year. The banker said he enjoyed traveling to France, the U.S. and returning to Ghana to visit his parents.

After he graduated from the University of Nottingham in 2003 with a degree in e-commerce and digital business, Adoboli won a job with UBS as trainee investment adviser in 2006 _ rising through the company to join its equities desk.

The trader’s LinkedIn profile confirmed he worked on a desk known as Delta One and worked with exchange-traded funds _ which track different types of stocks or commodities, such as precious metals. Adoboli and colleagues performed similar work to Jerome Kerviel, who gambled away $6.7 billion at French bank Societe Generale.

Brown said that banks have shown a tendency to fail to spot cases where ambitious and intelligent employees run into difficulty.

“These top banks hire the best and brightest ambitious young people and when they outperform everyone else the bankers want to believe in their brilliance so they look the other way,” said Brown. “That’s exactly what happened at UBS.”

Brown drew parallels with the case of Nick Leeson, the Singapore-based trader who brought down British bank Barings in 1995 after he made around $1.4 billion of losses in unauthorized trades. Law firm Kingsley Napley, which represented Leeson, confirmed on Friday that it had been hired to represent Adoboli.

Kimberly Krawiec, a law professor at Duke University, in Durham, N.C., agreed that the culture inside UBS would need scrutiny following Adoboli’s arrest.

“In the Kerviel case all the blame went to the rogue trader and Societe Generale got away with a slap on the wrist,” Krawiec said. “That was a disappointing outcome because you have to accept there are broader forces at work when traders take on positions that are large enough to threaten large institutions and markets.”

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The government on Friday sued 17 financial firms, including the largest U.S. banks, for selling Fannie Mae and Freddie Mac billions of dollars worth of mortgage-backed securities that turned toxic when the housing market collapsed.

Among those targeted by the lawsuits were Bank of America Corp., Citigroup Inc., JP Morgan Chase & Co., and Goldman Sachs Group Inc. Large European banks including The Royal Bank of Scotland, Barclays Bank and Credit Suisse were also sued.

The lawsuits were filed by the Federal Housing Finance Agency. It oversees Fannie and Freddie, the two agencies that buy mortgages loans and mortgage securities issued by the lenders.

The total price tag for the mortgage-backed securities sold to Fannie and Freddie by the firms named in the lawsuits: $196 billion.

The government didn’t say how much it is seeking in damages. It said it wants to have the securities sales canceled and wants to be compensated for lost principal, interest payments as well as for attorney fees.

The government action is a big blow to the banks, many of which have seen their stock prices fall to levels not seen since the financial crisis in 2008 and 2009. Until now, the stocks have been undermined mostly by unrelated worries about the U.S. and European economies.

It is particularly damaging to Bank of America, which bought Countrywide Financial Corp. in 2008 and Merrill Lynch in 2009. All three are being separately sued by the government for mortgage-backed security sales totaling $57.5 billion.

After Bank of America, JPMorgan Chase was listed in the lawsuits with the second-highest total at $33 billion. Royal Bank of Scotland followed at $30.4 billion.

Bank of America has already paid $12.7 billion this year to settle similar claims. Last month insurer American International Group Inc. sued the bank for more than $10 billion for allegedly selling it faulty mortgage investments.

In a statement Friday, Bank of America rejected the claims in the government’s lawsuits.

Fannie and Freddie invested heavily in the mortgage-backed securities even after their regulator said they didn’t have the needed risk-management capabilities, the bank said. “Despite this, (Fannie and Freddie) are now seeking to hold other market participants responsible for their losses,” it said.

Bank stocks fell sharply on Friday as news of the government’s lawsuits emerged. Bank of America tumbled 8.3 percent, JP Morgan Chase fell 4.6 percent, Citigroup lost 5.3 percent, Goldman shed off 4.5 percent and Morgan Stanley’s ended down 5.7 percent.

Residential mortgage-backed securities bundled pools of mortgages into complex investments. They collapsed after the real-estate bust and helped fuel the financial crisis in late 2008.

The FHFA said the mortgage-backed securities were sold to Fannie and Freddie based on documents that “contained misstatements and omissions of material facts concerning the quality of the underlying mortgage loans, the creditworthiness of the borrowers, and the practices used to originate such loans.”

The FHFA filed a similar lawsuit in July against Swiss bank UBS AG, seeking to recoup more than $900 million in losses from mortgage-backed securities.

Also sued Friday were are Ally Financial Inc., formerly known GMAC LLC, Deutsche Bank AG, First Horizon National Corp., General Electric Co., HSBC North America Holdings Inc., Morgan Stanley, Nomura Holding America Inc., and Societe Generale.

JPMorgan, Goldman, Citigroup and Morgan Stanley declined to comment on the lawsuits. Ally Financial said in a statement said the government’s “claims are meritless, and the company intends to defend its position aggressively.” A spokeswoman for First Horizon said the bank intends to “vigorously defend” itself.

Ken Thomas, a Miami-based banking consultant and economist, said he expects the banks to settle soon with the government.

“This will be nothing but a distraction to them and the quicker you settle something like this the better,” he said.

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