C OV ER S T OR I ES
B2 Friday, April 15, 2011 • THE BULLETIN
BP gets more time to salvage Russia oil deal By Julia Werdigier New York Times News Service
LONDON — The British oil giant BP won a last-minute respite Thursday in its efforts to salvage a share exchange and Arctic exploration agreement with Rosneft, the state-controlled Russian oil company. BP said the two companies had agreed to extend by another month the deadline to complete the deal, giving BP time to try to resolve a dispute with partners in a separate Russian joint venture, TNK-BP, which have been trying for three months to block the agreement with Rosneft. BP said that it had offered its TNK-BP partners cash or a role in its deal with Rosneft, but that it would not offer a significant stake in BP as an inducement. The BP chief executive, Robert Dudley, speaking to investors at BP’s annual shareholder meeting in London, played down the severity of the dispute, saying the company’s relationship with its TNK-BP partners was “noisy” but not “dysfunctional.” “We’ve offered participation in the Arctic, we’ve offered cash, we’ve offered participation in international ventures,” Dudley said. “But we won’t offer a large amount or significant stake in BP because it’s not in the interest of shareholders.” BP’s partners in TNK-BP re-
jected Dudley’s claims and said “BP has never made a constructive proposal to turn the Rosneft deal over to TNK-BP.” The Russian partners are “not interested in the selective parts of the deal that BP feels it can give up,” Stan Polovets, a spokesman for the group, said in an e-mailed statement. “Now is the time for sensible proposals from BP to resolve the problems that have been created.” Dudley said BP would be “working to bring about a resolution,” adding that “Russia is one of the world’s most important sources of oil and gas as well as a massive market. BP needs to be there. It is part of our strategy.” BP now has until May 16 to persuade an arbitration tribunal to lift the block or settle with its partners in TNK-BP to allow the Rosneft deal to go ahead. The TNK-BP shareholders oppose the deal because they say it violates their shareholder agreement. BP’s shares fell 0.9 percent on Thursday in London. BP made clear that it remained committed to TNK-BP and its business in Russia despite recent difficulties there. “While life has not always been easy, TNK-BP has been a successful venture with superior returns,” BP’s chairman, CarlHenric Svanberg, said.
Zipcar has strong IPO, despite elusive profits By Shawn Langlois MarketWatch
SAN FRANCISCO — Zipcar Inc. shares shot 56 percent higher in their stock market debut on Thursday, marking the latest splash in what is already shaping up to be a strong year for IPOs. Zipcar’s newly minted shares closed up $10 at $28. Late Wednesday, Zipcar had priced its initial public offering at $18 — above the previously expected range of $14 to $16 a share — to raise more than $170 million. About 9.68 million shares were sold in the offering, which was underwritten by Goldman Sachs Group Inc. and JPMorgan Chase & Co. Zipcar is one of many companies going public in a resurgent year for public offerings. According to a report this week from Hoover’s Inc., 28 companies went public in the first quarter, raising
$12 billion in market capitalization. That’s more than twice the $4.5 billion raised through IPOs in the first three months of 2010. Zipcar operates a car-sharing service in 14 cities and at more than 230 college and university campuses across the U.S. and U.K. It offers self-service cars for use by the hour or by the day, and claims 560,000 members. “Zipcar has almost a cult following,” said Scott Sweet, senior managing partner at IPO Boutique. “They’re strategically located in big cities where parking is tough, as well as many universities.” To this point, however, profits have been elusive. In the most recent quarter, the company reported a net loss of $1.1 million, on revenue of $52.1 million, compared with a profit of $1.3 million, on revenue of $35.8 million for the year-earlier period, according to an SEC filing.
Geithner: U.S. has room to raise taxes without doing harm Republicans over the nation’s priorities. Obama called for endWASHINGTON — Treasury ing the Bush-era tax cuts for the Secretary Timothy Geithner said wealthiest Americans, which are Thursday that the federal gov- set to expire in 2012. ernment has room to raise taxes Financial markets have “confibecause its revenue makes up a dence” in the U.S. fiscal position, much smaller percentage of the Geithner said, adding that he execonomy than in other pected Congress would advanced economies. act to raise the debt limit “We have the capacbefore it created enough ity, with very modest uncertainty to damage fichanges in tax reform, to nancial markets. It would get ourselves in position be “deeply irresponsible” where we’ve restored to allow markets to quessustainability without tion whether the federal the risk that we’re going government can meet its to hurt future growth,” Timothy obligations, he said. Geithner said in remarks Geithner The Treasury Deat an event in Washingpartment estimated last ton sponsored by the week that the debt limit Bertelsmann Foundation. of $14.29 trillion will be reached The changes the Obama ad- May 16. Congressional action is ministration is seeking pose “no required to raise the cap, though plausible risk” to how the econ- the Treasury said it can probably omy grows or whether business stave off default until early July. will continue to invest, the TreaThere is “a lot of confidence in sury chief said. He also said he markets that the American politidid not expect any “enthusiasm” cal system will be able to get our for a U.S. value-added tax. fiscal path in a sustainable posiPresident Barack Obama on tion,” Geithner said. “If you look at Wednesday proposed cutting what we pay to borrow, the world $4 trillion in cumulative deficits basically believes that our probwithin 12 years through a com- lems are more manageable, our bination of spending cuts and system will solve it. But we want tax increases, setting the stage to make sure that we’re earning for a fight with congressional that confidence every day.”
By Rebecca Christie and Ian Katz Bloomberg News
Report details Washington Mutual’s ‘troubling compensation practices’ By James Sterngold, Carter Dougherty and Donal Griffin Bloomberg News
Washington Mutual Inc., once the largest U.S. thrift, rewarded bankers for overcharging customers on subprime mortgages and selling the worst-performing loans to investors, a Senate panel has concluded. The lender gave its top producers free trips to places like Hawaii and the Bahamas in return for increasing mortgage volume, even as performance of the loans deteriorated, according to the Senate Permanent Subcommittee on Investigations report on the financial crisis. “Loan officers and processors were paid primarily on volume, not primarily on the quality of their loans, and were paid more for issuing higherrisk loans,” the panel found. “Loan officers and mortgage brokers were also paid more when they got borrowers to pay higher interest rates, even if the borrower qualified for a lower rate — a practice that enriched WaMu in the short term, but made defaults more likely.” The report of more than 600 pages, released Wednesday, is based on internal documents and testimony from executives and regulators. The subcommittee concludes that WaMu’s
Housing Continued from B1 But the median prices for those first-quarter sales were less than half the median prices in 2007. Distressed sales — either foreclosures or short sales — made up the majority of the transactions in the first three months of this year. Data from the Bratton Appraisal Group released this week showed the median price for a single-family home in Bend in March reached $189,000, an increase of $19,000 over February’s median price. But December’s median price was $168,000, and two months before that Bend’s median price had hit $205,000, according to the Bratton Report. Nearly all real estate experts agree the market will not stabilize until the bulk of foreclosed properties, which hold prices down, work their way through the system. Nationally, foreclosure filings dropped 27 percent in the first quarter of this year compared with the first quarter of 2010, RealtyTrac, a California company, reported Wednesday. In Deschutes County, default notice filings have dropped for five straight months, and more than 50 percent for the first three months of this year compared with the same period in 2010. That seems to suggests the worst is over, but experts say not so fast. Foreclosure filings have dropped because banks — under scrutiny from federal regulators and, separately, state attorneys general — have dramatically slowed their foreclosure efforts. Many homeowners are still in financial distress, Friedman said. Filings have fallen because banks are under pressure. “The banking industry has been taken to task for its actions,” he said. But the delay could be beneficial for financially strapped homeowners, Friedman said. It could give them time to improve their finances or prompt banks to offer loan modifications. “Anything that delays the foreclosure of properties for people in distress, gives people more time to get (help or work things out,)” he said.
primary regulator, the Office of Thrift Supervision, identified hundreds of the lender’s failings without taking effective action and impeded the Federal Deposit Insurance Corp. from ordering corrective steps. Kerry Killinger, the former chief executive officer of WaMu, and another executive were sued by the FDIC last month. They were accused of taking extreme risks with the bank’s mortgage portfolio, causing billions of dollars in losses. Barry Kaplan, Killinger’s attorney, declined to comment yesterday when asked about the Senate report. WaMu’s “troubling compensation practices went right to the top,” the panel found. Killinger received a $15 million severance payment in 2008 “when he was asked to leave the bank that failed under his management,” according to the report. The Seattle-based lender was sold to JPMorgan Chase in September 2008, as it collapsed. “The activities described in the subcommittee staff’s report obviously took place before we purchased Washington Mutual’s assets,” Joseph Evangelisti, a spokesman for JPMorgan, said Wednesday. WaMu, which had $300 billion of assets and 2,300 branches when it collapsed, began a strategy of emphasizing high-
risk loans in 2004, the subcommittee said. The panel found that the bank’s efforts to boost loan volume involved fraud. “WaMu management was provided with compelling evidence of deficient lending practices in internal e-mails, audit reports and reviews,” the panel said. “Internal reviews of WaMu’s loan centers, for example, described ‘extensive fraud’ from employees ‘willfully’ circumventing bank policy.” An internal audit of a Washington Mutual subprime subsidiary in 2005 identified “predatory” lending practices and found that staff sometimes failed to provide proper documentation. The review of early-default cases found that fraud should have been “easily detected,” the panel said. WaMu officers who had responsibility for loan quality tried to reject some loan applications, and found that their decisions were sometimes overridden, according to the report. Diane Kosch, a quality-assurance officer in Dublin, Calif., told the panel about “enormous” pressure to keep up with loan volume. “Often, when she tried to stop the approval of a loan that did not meet quality standards, it would be referred to management and approved anyway.”
Median sales price — Bend and Redmond (measured monthly) $400K
Bend
$300K $189K $200K Redmond $100K
$115K
S O N D J FMAM J J A S O N DJ FMAM J J A S O N D J FMAM J J A S O N DJ FM
2008
’07
2009
2010
’11
Median sales price — Sisters, Sunriver, La Pine, Jefferson County and Crook County (measured quarterly) $700K
Sunriver
$500K $300K
Sisters
$330K
La Pine Crook Co.
$173K La Pine $75K, Jefferson Co. $73K
$100K Jefferson Co.* Q3 Q4 Q1
’07
Q2 Q3
Crook Co. $71K
Q4 Q1
2008
Q2 Q3
Q4 Q1
Q2 Q3
2009
2010
Q4 Q1
’11
Number of homes sold — Bend and Redmond (measured monthly) 200 150
152
Bend
100 61 50 Redmond
0
S ON D J F M AM J J A S O N D J F M A M J J A S O N D J F M A M J J A SO N D J F M
’07
2008
2009
’11
2010
Number of homes sold — Sisters, Sunriver, La Pine, Jefferson County and Crook County (measured quarterly) 80 60
Crook Co. Sisters
50
Jefferson Co.*
Jefferson Co. 25 Sisters 25
40 20
Sunriver La Pine
0 Q3
’07
Q4
Q1
Q2 Q3
Q4
2008
Q1
Q2 Q3
Q4 Q1
2009
Q2 Q3
2010
21 17 Q4 Q1
’11
Goldman Continued from B1 A day later, he wrote to a Goldman Sachs counterpart: “One day I hope I get the real reason why you are doing this to me.” It turns out, Senate investigators revealed this week, that Goldman Sachs had plenty of reasons to delay a selloff. The investment banking giant had secretly wagered on the default of the securities around which the $2 billion deal was structured. The farther their value dropped, the bigger Goldman Sachs’ profits. Ultimately, a Morgan Stanley lawyer lodged a formal protest, charging that Goldman Sachs had breached its contractual duty to sell off downgraded securities, and that the delays had already cost Morgan Stanley $150 million. Known as Hudson-Mezzanine-2006-1, the deal totally collapsed in November 2008, barely more than two years after its creation. Goldman Sachs reaped $1.35 billion. Morgan Stanley lost $930 million. The story of the deal, which drew outrage from Democratic Sen. Carl Levin of Michigan at a news conference Wednesday, is unveiled among hundreds of newly disclosed documents released by his Senate Permanent Investigations Committee, culminating a two-year inquiry into the financial crisis. It provides another closeup glimpse of how Goldman Sachs deftly scaled back its risks as the housing market crested in late 2006 and then, at the expense of its investor clients, earned billions of dollars from a full-scale blitz of secret bets that the value of home mortgage securities would crash. Goldman Sachs was the only major Wall Street firm to escape relatively unscathed from the nation’s economic meltdown. The subcommittee reported that Goldman Sachs packaged at least four offshore deals with a total value of $4.5 billion that were rife with conflicts of interest, including one for which the firm paid $550 million in fines to the Securities and Exchange Commission last summer to settle a civil fraud suit. Levin charged that Goldman Sachs deceived investors on the Hudson deal by failing to disclose that it was betting the other way. And, he alleged, the company misled the subcommittee during a marathon hearing last year in which he repeatedly pressed Chief Executive Lloyd Blankfein and a halfdozen other current and former Goldman Sachs execs to acknowledge the firm bet massively on a housing downturn in 2006 and 2007. A spokesman for Goldman Sachs, which says its executives testified truthfully, declined to comment on the Hudson deal. Sylvain Raynes, an expert in structured products, said the Hudson deal was “full of conflicts of interest,” including Goldman’s dual role as liquidation agent. “This deal should never have gone to market, due to the lack of transparency and the fact that Goldman was holding both ends of the deal,” he said. However, Goldman Sachs could mitigate liability due to standard language in the contract documents informing investors that it may initially take the short position and that it may have conflicts of interest. For its role as liquidation agent, the subcommittee said, Goldman Sachs collected an additional $3.1 million in fees.
* Includes Jefferson County and Crooked River Ranch Source: Bratton Appraisal Group Greg Cross / The Bulletin
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