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Rothschild names non-family CEO for first time

Baron David de Rothschild, great-great-great-grandson of Mayer Amschel Rothschild, has named a non-family member, Nigel Higgins, as chief executive of his family's banking dynasty, a first in the firm's history, the New York Times reported.

Rumors were ripe for some years in the banking industry about whom Baron David, 67, would appoint as his successor to run the group of financial advisory and wealth management companies. The Rothschild family is not short of younger family members, but only the baron's 29-year-old son, Alexandre, is currently working at the firm and considered by himself and the family as too young to take over from his father. Baron David said he felt it was time to rethink the bank's management structure, especially because he wanted to focus more on clients and less on managing the firm's 950 bankers....

 

Higgins, a 27-year veteran of the firm, is based in London and is co-head of Rothschild's investment banking unit.

The baron retained some control over the family empire by remaining executive chairman. It is the first time in the firm's history that those roles have been split.

 

Higgins told the Times:

"At the end of the day the family controls the firm and sets the culture."

(Source: New York Times, March 29, 2010.)



Russia’s Lebedev family buys second British paper

Alexander Lebedev -- a former KGB agent with wealth estimated by Forbes at $2 billion -- and his son, Evgeny, have struck a deal to buy a failing British newspaper, The Independent, according to a New York Times report. Fourteen months ago, the report noted, the Lebedevs bought The Evening Standard of London.

When the Lebedevs bought The Evening Standard, observers questioned "whether they would be an unhealthy influence on one of Britain's major newspapers," the Times article said. Reports of their latest acquisition "credited the Lebedevs with keeping alive two money losing daily papers that probably would have died without new owners, and not interfering with The Standard's news coverage."

Last October, the Lebedevs changed The Evening Standard, which serves the London region, into a free paper without paring back its content.... It also nearly tripled its circulation, to more than 600,000. Aided by the deaths of two free London dailies last year, The Standard claims that it has gained far more in advertising revenue than it has lost in reader payments.

 

Evgeny Lebedev, 29, is chairman of The Standard and will hold the same title at The Independent. "[H]e is much more closely involved than his father" in The Standard's operations, the Times article said.

Alexander Lebedev, 50, "began reading British newspapers in the 1980s, as part of his KGB work gathering intelligence on the British economy," according to the Times.

He went into business after the Soviet Union disintegrated in the early 1990s and built an empire that includes banking, airlines, hotels and manufacturing.... When other Russian tycoons were buying sports teams, Mr. Lebedev invested, along with [former Soviet leader Mikhail] Gorbachev, in Novaya Gazeta, a newspaper noted for investigative work critical of the government and powerful business interests. (it is alos know for its four journalists murdered in the last decade, including Anna Politkovskaya.)

 

(Source: New York Times, March 28, 2010.)



N.Y. Times Co.‘s Sulzberger made $5.9 million in 2009

New York Times Co. chairman and publisher Arthur Sulzberger Jr.'s total compensation, including base salary and options, was $5.9 million, the trade journal Editor & Publisher reported, citing a Securities and Exchange Commission proxy filing.

The Times Co.'s CEO, Janet Robinson, outearned Sulzberger for the third year in a row; her total compensation was $6.2 million, E&P reported.

The majority of both executives' compensation was tied to financial targets set by the company. Robinson and Sulzberger's salaries were less than their target but they both exceeded the mark with their annual bonuses: Robinson had an annual bonus target of $1 million and actually made $1.35 million, while Sulzberger had a target of $1.087 million and actually made $1.451 million. Robinson was compensated $893,750 under a four-year long-term incentive program and $1.4 million in stock options. Sulzberger was compensated $962,500 and $1.085 million, respectively.

 

The E&P report noted that in 2009, the Times Co. temporarily reduced salaries of non-union employees at the Media Group by 5%, the Newspaper Guild voted to reduce salaries by 5% and executives took a 5% cut in their base salaries.

In his Media Nation blog, Dan Kennedy quoted an e-mail message sent to members of the Boston Newspaper Guild, the largest union at the Boston Globe, owned by the Times Co. The e-mail contained a draft of a letter to Sulzberger and Robinson. The e-mail to union members said:

We want the New York Times leadership to know that we're angry and disgusted by their greed and hypocrisy.... We face contract negotiations with the New York Times company later this year and we want them to know well in advance that, if they can afford to pay executives so much, we expect similar generosity.

 

The draft letter of protest to Sulzberger and Robinson said:

We were astonished to learn that the two of you received more than $10 million in stock awards and options in 2009. During the year for which you were so richly rewarded, the 600 members of the Boston Newspaper Guild gave back almost the same amount in pay and benefit reductions --$10 million, to be exact -- after you threatened to close our newspaper, lay off hundreds of people, and strip Massachusetts of its largest newspaper.... [T]he recent SEC filings make it look like almost all of our sacrifices went to pay the two of you.

 

(Sources: Editor & Publisher, March 14, 2010; Media Nation, March 26, 2010.)



Donald Graham’s 2009 pay fell 49% at Washington Post

The Washington Post Co.'s cut the pay of its CEO, Donald Graham, by 49% in 2009, the Associated Press reported. The company also cut staff and other costs "amid a severe advertising slump."

The article noted that, according to a filing with the Securities and Exchange Commission, Graham's compensation package in 2009 was $412,740, down from $811,960 in 2008.

The drop reflected Graham's refusal to accept a bonus in 2009. He received an incentive award of $400,000 in 2008. The Post's board of directors believes Graham is underpaid, according to [the SEC] filing, but Graham wanted his salary to remain at $400,000 -- the same as in 2008. The rest of Graham's 2009 pay consisted of a $12,740 contribution to his 401(k) retirement plan.

 

The AP report noted that Graham "doesn't get annual grants of stock options or other similar incentives because he is the company's largest individual shareholder." (Source: Associated Press, March 24, 2010.)



Smucker will restructure, close two plants


Family-owned J.M. Smucker Co. "will close Folgers coffee plants in Kansas City, Mo., and Sherman, Texas, as part of a $220 million restructuring that will reduce its North American manufacturing facilities to 18 from 22," the Business Courier of Cincinnati reported. "It will also close fruit spread manufacturing plants in Memphis, Tenn., and Ste. Marie, Quebec."

Smucker plans to consolidate all coffee production at its New Orleans facility. It plans to build a new plant in Orrville, Ohio, where the company is based, and upgrade its Ripon, Wis., plant, the Business Courier article said.

The overall initiative is expected to mean the elimination of 700 jobs, about 15 percent of Smucker's work force, and about $60 million in annual savings.

 

(Source: Business Courier of Cincinnati, March 24, 2010.)



Former Samsung chairman returns to his post

Lee Kun-hee, the former chairman of Samsung Electronics and son of the founder of the Samsung Group, has returned to the chairman's post after an absence of nearly two years, the Associated Press reported. Lee, who had been convicted of tax evasion, received a pardon from South Korean President Lee Myung-bak last December. He had resigned his position at Samsung before being found guilty, fined and given a suspended three-year prison sentence, the AP report noted. He was also convicted of breach of trust.

The presidential pardon was given to allow Lee, a member of the International Olympic Committee, to participate in South Korea's bid to host the Winter Olympics. Critics have said South Korean judges are too lenient on the heads of family-controlled industrial conglomerates, or chaebol, the article said.

The decision to call Lee back as chairman came at a meeting ... of a committee of presidents of various Samsung businesses, said company spokesman James Chung. Lee has long been considered the driving force behind Samsung's rise to global prominence.

 

Kim Joongi, a professor at Yonsei Law School in Seoul, told the AP:

"I think it's a very pivotal point in Samsung's history right now. I think they really have to transform themselves to demonstrate to markets that they've really turned a corner in terms of transparency, accountability and integrity."

 

(Source: Associated Press, March 24, 2010.)



Lawsuit over Agnelli estate is dismissed

A judge in Turin, Italy, has dismissed a lawsuit filed by Margherita Agnelli de Pahlen, daughter of Fiat SpA patriarch Gianni Agnelli, that had challenged the valuation of his estate, the Wall Street Journal reported. The suit "could have placed a previous agreement regarding control of Fiat in doubt," the article said.

Agnelli de Pahlen had named three of her father's advisers plus her mother, Marella Agnelli, in the suit. She had asked the advisers for a full accounting of her father's wealth, the Journal reported.

The court case had risked shining a spotlight on the private wealth accumulated by Mr. Agnelli during his tenure at Fiat, as well as on the roles of long-time family advisers close to Fiat's current controlling shareholder, John Elkann, who is Margharita Agnelli's son and the grandson of Gianni and Marella Agnelli.

 

Agnelli de Pahlen's suit had alleged that money and assets totaling more than 1 billion euros was hidden outside Italy and was unaccounted for when her father died in 2003, according to the report.

Margherita Agnelli also asked that a 2003 transfer of her mother's stake in Dicembre, a holding company through which Mr. Agnelli controlled Fiat, to Mr. Elkann, be examined as part of the case. If the court had agreed, it could have placed Mr. Elkann's ownership of his stake in Fiat in a legal limbo.

 

Agnelli de Pahlen no longer speaks to her immediate family, the article said. (Source: Wall Street Journal, March 18, 2010.)



Extreme family feud at Zankou Chicken

The family that owns Zankou Chicken, the Southern California restaurant chain that's a favorite of critics and is mentioned in a song by Beck, is embroiled in an intense feud that has hindered the company's efforts to expand, the Los Angeles Times reported.

The company, which features Middle Eastern-inspired food and takes its name from a river in Armenia, was founded in Beirut in 1962 by Vartkes and Markrid Iskenderian, an Armenian couple, the article said. They eventually fled war-torn Lebanon and opened their first U.S. restaurant in Hollywood in 1984. There are now ten Zankou now restaurants in the region.

Rita Iskenderian and her four sons run eight of the restaurants. In 2003 her husband, Mardiros Iskenderian, the son of Zankou's founders, fatally shot his mother and sister and then killed himself, the LA Times article noted.

Mardiros had ambitious plans to expand the business internationally, but his parents balked at the idea, according to the report. On his own, he opened four Zankou branches in Southern California.

The business' patriarch, Vartkes, died in 1992. For several years, Mardiros and other members of the family fought over various aspects of the business, including the rights to the Zankou name. The fight became increasingly bitter over the years.

 

Mardiros shot his sister and mother in their home after a loud argument on Jan. 14, 2003, and then killed himself with the same handgun.

His sister's sons "inherited their mother's share of the first Zankou in Hollywood, which they continue to own with her sister, Haygan Iskenderian," the LA Times article said. They also opened a branch in Montebello.

Rita Iskenderian's family owns the Zankou restaurants that her husband opened plus four more branches. Rita "lost a court battle to take sole control of the trademark," the report noted. She owns the company's website, which does not list the Hollywood and Montebello locations. (Source: Los Angeles Times, March 18, 2010.)



Hyundai appoints heir apparent to board

Chung Eui Sun, 39, vice chairman of Hyundai Motor Co., has been appointed to the company's board, Bloomberg News reported. The report noted that the move brings Chung "a step closer to succeeding his father, Chung Mong Koo, as head of South Korea's biggest carmaker."

Chung Eui Sun was named vice chairman in August. Previously, he was president of Huyndai affiliate Kia Motors Corp. "He owns 6,445 common Hyundai shares, 1.8 percent of Kia and 32 percent of logistics unit Glovis Co., which are together worth more than $1 billion," the Bloomberg article said.

Song Sang Hoon, an analyst at Kyboo Securities Co. in Seoul, told Bloomberg that Chung Eui Sun

"may pursue short-term achievements such as expanding market share and earnings, as well as focus on advanced technology, to build up his track record to become a real leader when the time comes."

 

Another Seoul analyst, Kang Sang Min of Hanwha Securities, said Chung Eui Sun's appointment means "he's no longer an apprentice."

"He's now a manager and expected to push Hyundai forward. The training is over."

 

(Source: Bloomberg, March 12, 2010.)



Akio Toyoda apologizes on his blog

Toyota Motor Corp. president Akio Toyoda apologized on his blog for problems related to the company's recall of 8.5 million vehicles, the Wall Street Journal reported.

Writing under the handle "Morizo" and updating the blog for the first time since the quality issues occurred, Akio Toyoda said ... the company will "take seriously, accept humbly, and respond sincerely to" criticism that it had neglected efforts to listen to customers.

 

Toyoda, grandson of the company's founder, also said he decided not to participate in a 24-hour endurance race in Germany. Toyoda, who had raced in the event several times before, had said last June that he planned to continue to participate after he became the company's chief executive, the Journal reported. (Source: Wall Street Journal, March 17, 2010.)



GM negotiating with some dealers

General Motors, which earlier announced it would keep nearly 700 of the 1,200 dealers it had originally planned to drop from its network, is negotiating with some and making concessions "in an attempt to avoid hundreds of arbitration hearings nationwide," the Los Angeles Times reported.

Many dealers still don't know whether they are staying open, the report noted. "Dealers don't want customers to know they might close, which could chase away potential buyers of vehicles still on the sales lot," the article said.

Bill Hatfield, owner of Hatfield Buick GMC in Redlands, Calif., has not heard from GM. The company is no longer sending him new vehicles, but he is obtaining cars from other dealers, the article said. He told the LA Times:

"We have been here 97 years and we are profitable and we are hoping like heck we can show in arbitration that they need to keep us."

 

Paul Taylor, chief economist of the National Automobile Dealers Association, told the LA Times that the average dealer employs close to 50 people and contributes $16.5 million a year into the local economy, including payroll, taxes, payments to vendors, advertising and charitable giving. (Source: Los Angeles Times, March 17, 2010.)



New York Times hires family member

David Perpich, 32, a fifth-generation member of the family that controls the New York Times Co., has been hired as executive director for nytimes.com, the Wall Street Journal reported.

Perpich is the nephew of Times Co. chairman and New York Times publisher Arthur Sulzberger Jr. Previously, Perpich worked for Booz & Co., a management consulting firm.

Other fifth-generation members involved with the company are Carolyn Greenspon, recently nominated for a seat on the board, and reporters Samuel Dolnick and A.G. Sulzberger, the Journal report noted.

Keeping the younger generation engaged in the business is seen by people close to the family as a way to make the Sulzbergers less vulnerable to fissures.

 

(Source: Wall Street Journal, March 15, 2010.)



Family-owned Coke, Pepsi bottlers face pressure

Small, family-owned bottlers for PepsiCo Inc. and Coca-Cola Co. are facing pressure related to the giant soda companies' recent acquisitions of their largest bottling companies, the Wall Street Journal reported. Some of these independent bottlers may be acquired, the report noted.

One concern for some smaller bottlers is that the big cola makers might now push for more price promotions in the regions they control, a move that could also drive down prices and profit margins at smaller bottlers.

 

The article said that smaller bottlers can produce traditional carbonated soft drinks and will have to invest in new manufacturing systems for new products developed by the giant companies. (Source: Wall Street Journal, March 15, 2010.)



Prada may be planning IPO

Miuccia Prada and her husband, Patrizio Bertelli, are reviving plans for a stock market listing for the Prada fashion house in order to raise money for future growth, according to the Wall Street Journal magazine, WSJ.

If Prada is one of the most influential designers in the world, Bertelli is the driving force behind her. Ever since 1977, when the couple first met at a trade fair in Milan, Bertelli has encouraged his wife to take risks that have transformed the company into a global fashion conglomerate with $2.4 billion in sales, four labels -- Prada, Miu Miu and shoemakers Church's and Car Shoe -- and 267 stores from San Francisco to Seoul.

 

Bertelli, Prada and her siblings own nearly 95% of the company. Bertelli is CEO; Prada is chairman. "[T]he two are notorious for their violent arguments," the article said.

The Bertelli-Prada duo is so important to the business that when the company was preparing a stock market listing nine years ago -- an initial public offering that never happened -- banking advisers laid out as a "risk factor" for investors any eventuality that the two might decide not to work together anymore, according to a person who was involved in the IPO preparations.

 

Bringing in outside investors could "put pressure on Bertelli to hire more outside managers to help him run the firm," WSJ reported.

Bertelli's extra-large ambitions have left the company in need of funds. During the rapid-growth years of the 1990s, Bertelli ... spent more than half a billion dollars to buy several small fashion houses with the intention of turning them into global brands. The purchase of Jil Sander, Helmut Lang and others meant Prada had racked up more than a billion dollars in debt by the end of the decade (on sales of around $1.5 billion at the time) -- a burden Prada has been struggling with ever since. The couple are also big real-estate spenders, dishing out more than $137 million a year to open new boutiques and them having them fitted by prominent architects....

 

Designers Jil Sander and Helmut Lang both left the company, and Bertelli sold the brands. He also sold 5% of Prada to an Italian bank, according to the report.

Two more IPO attempts have been postponed, and Prada's holding and operating companies are still loaded with more than $1.51 billion in debt. But creditor banks have extended the due date on expiring loans to 2012, giving the company breathing space.

 

(Source: WSJ, March 2010.)



Family-owned Guatemalan chain restaurant making inroads in U.S.

Pollo Campero, a family-owned chain of fried-chicken restaurants considered the "McDonald's of Guatemala," has opened 53 stores in 15 U.S. states since 2002, Business Week reported. The company aims to reach 1,750 franchises over the next decade and to grow tenfold in the U.S. alone, the article said.

The Guatemala City-based company, whose name means "country chicken," was founded in 1971 by Juan Bautista Gutiérrez and is now managed by two of his grandsons. It now operates 325 restaurants in 13 countries.

Revenue hit $400 million last year, or almost a fifth of the $2.2 billion generated by the family's businesses, which range from flour milling and meat processing to lumber, construction, and hydroelectric power, says CEO Juan José Gutiérrez.

 

(Source: Business Week, March 22-29, 2010.)



Columbia Sportswear embarks on retail expansion

Columbia Sportswear, the outdoor apparel maker from Portland, Ore., known for its ad campaign featuring chairman Gertrude Boyle and her son, CEO Timothy Boyle, has opened its fifth branded, full-priced retail store, on Chicago's Magnificent Mile, the Chicago Tribune reported. The company also operates outlet stores and in the past two years has tripled the number of outlets, from 14 to 39, the Tribune article said.

Columbia, founded in 1938 as a hat distributor, has had trouble creating a clear-cut identity, in part because its wide range of products are old in thousands of diverse stores, from Kohl's to Nordstrom to Bass Pro shops.... While retail was a small portion of the company's $1.24 billion in 2009 sales, it is taking on a critical role.

 

The report said Columbia's wholesale customers are consolidating, going out of business or concentrating on their own in-house brands.

The Tribune noted that Columbia's competitors, including Patagonia, North Face, Nike and Adidas, "have been quicker to roll out their own shops." (Source: Chicago Tribune, March 12, 2010.)



Nina Wang’s family will consider listing Chinachem

Kung Yan-sum, the brother of the late Nina Wang, told the Financial Times that the family-run charitable foundation that won control of her assets in a sensational legal case will consider listing the company that she and her husband founded, though there are no immediate plans to do so. The company, Chinachem Group, is Hong Kong's biggest private developer, the FT report noted.

Nina Wang died of cancer in April 2007. In February 2010, a Hong Kong court awarded all of her fortune to the Chinachem Charitable Foundation. Kung, who had been a doctor, heads the property developer. He said Wang's estate was worth between $5.1 billion and $6.4 billion.

In a long-running and high-profile case, the court rejected claims by Tony Chan, a feng shui master, who said he was Ms. Wang's secret lover and that she had wanted to leave her estate to him.

 

The FT report noted that Chan's lawsuit

echoed the inheritance battle between Ms. Wang and her father-in-law, who vied for control of Chinachem after her husband Teddy was declared legally dead in 1999, nine years after he was abducted. Ms. Wang won that battle in 2005, making her Asia's richest woman.

 

Kung told the FT that all major business decisions regarding Chincachem must be discussed with accountants from Deloitte Touche Tomatsu, appointed by the court as administrators of Wang's estate in 2007. They are still overseeing the company because Chan said he would appeal the verdict, the article said. (Source: Financial Times, March 9, 2010.)



Judge approves Freedom Communications’ bankruptcy plan

A federal judge has approved Freedom Communications Inc.'s reorganization plan, Freedom News Service reported. The company filed for bankruptcy on Sept. 1, 2009. It is expected to emerge from bankruptcy by the end of March.

The court action gets the Irvine, California-based media company and parent of The Orange County (Calif.) Register out from under 58 percent of its debt -- from $775 million to $325 million. The company's unsecured creditors will share in $32.2 million compared with the $5 million Freedom originally offered.

 

In a separate action, the judge approved the sale of the East Valley Tribune, a Phoenix-area publication, and Freedom's other East Valley publications, to 1013 Communications LLC.

The company will emerge from bankruptcy with its interim CEO Burl Osborne at the helm and a new board of directors that for the first time will not include a member of the founding Hoiles family. R.C. Hoiles bought the Register in 1935 as a platform for his libertarian views.... [I]t formed the core of the media group that later became Freedom Communications.

 

Freedom's CFO, Mark McEachen, told Freedom News Service that there is "a little bit of sadness in that we're leaving behind the Hoiles family legacy so we have to be very mindful of that." (Source: Freedom News Service, March 9, 2010.)

 



New England furniture co-preneur goes public with her illness

Phyl Rubin, co-founder with her husband of Bernie & Phyl's, one of New England's largest furniture stores, is publicly acknowledging her 40-year battle with multiple sclerosis, the Boston Globe reported.

Phyl has guarded her condition for decades, putting the company before her personal problems, but now the 70-year old Roxbury native is speaking out. Starting [March 10], she will appear with her husband, Bernie, in public service announcements in the hope of using her local fame to raise awareness and help others with the disease. In May, she will be honored by the local chapter of the National Multiple Sclerosis Society.

 

The Rubins have been turning over their business to their three children and now spend most of their time in Florida, the Globe reported. Their oldest son, Larry, who joined the business in 1989, is now its president. The report noted that Phyl is more comfortable speaking about her illness now that she is semiretired. Bernie and Phyl still appear in TV ads for the company, though less often, the article said. (Source: Boston Globe, March 9, 2010.)



Cablevision-Disney dispute disrupts Oscars for N.Y.-area viewers

A dispute between Cablevision Systems Corp. and Walt Disney Co. over monthly subscription fees resulted 3.1 million New York-area TV viewers missing some of ABC's Oscar broadcast as Disney pulled its ABC stations from Cablevision, the Wall Street Journal reported.

The two companies reached a deal 12 minutes into the broadcast, according to a Reuters report. The dispute "had become increasingly bitter and personal between Cablevision's Dolan family and Disney chief executive Bob Iger," the Reuters article said.

According to the Journal, Cablevision spokesman Charles Scheuler said before the dispute was resolved:

"We remain deeply disappointed that ABC Disney has put their own financial interests above their viewers and pulled the plug on ABC."

 

The Journal report noted that general manager of New York's ABC station retorted:

"It's time for Jim Dolan and the Dolan Family Dynasty to step up, be fair, and do what's right for their customers."

 

(Sources: Wall Street Journal, March 8, 2010; Reuters, March 7, 2010.)



Wolfgang Porsche admits brand has suffered

Wolfgang Porsche, chairman of sports car maker Porsche, "conceded that the brand had suffered from its financial troubles and the subsequent agreement to be taken over by Volkswagen in the past year," the Financial Times reported.

Porsche said the company's 918 Spyder plug-in hybrid concept car, unveiled at the Geneva motor show,

"is the right statement to demonstrate that Porsche will remain an independent brand and will not simply be absorbed by a large corporation."

 

According to the FT report:

Porsche's brand appeal in its home market suffered after it almost went bankrupt last year, when its heavy bets with VW stock options turned sour and it agreed to be taken over by Europe's largest carmaker. A survey by a German car magazine showed that customers were fretting that mass market carmaker VW could damage the Porsche brand identity.

 

(Source: Financial Times, March 4, 2010.)



Akio Toyoda blames ‘some people’ at Toyota for excessive profit focus

Speaking at a news briefing in Beijing, Toyota Motor Corp. president Akio Toyoda "said a key reason for [Toyota's] quality problems was an excessive focus on market share and profits among ‘some people' in the company," the Wall Street Journal reported.

According to the report, Toyoda, grandson of the company's founder, said the company's rapid expansion

"attracted much praise from outside the company, and some people just got too big-headed and focused too excessively on profit."

 

The Journal article said:

Mr. Toyoda said he isn't out to find sacrificial lambs, and repeated earlier statements that "ultimate responsibility for mistakes we made now and in the past lies with me." Still, two executives close to Mr. Toyoda said the executive had several particular former top executives in mind in his comments. They declined to make the names public. The statement ... suggests the effort to assign blame within Toyota may be picking up."

 

The Journal report noted that some Toyota managers

have questioned whether Mr. Toyoda, who became president last June, is best equipped to lead [the company] though the current crisis. The Toyoda family scion's allies have responded forcefully. Jim Press, Toyota's former top U.S. executive ... said the company's problems were caused by "financially oriented pirates" opposed to the founding family who "didn't have the character to maintain a customer-first focus."

 

(Source: Wall Street Journal, March 2, 2010.)



Phila.-area homebuilder files for bankruptcy

Orleans Homebuilders Inc. of Bensalem Pa., filed for bankruptcy protection in Wilmington, Del., after failing to receive an extension of a $350 million credit facility, the Philadelphia Inquirer reported.

While operating under an extension granted by its 17 senior secured lenders in mid-December, Orleans found a potential buyer for the company but was unable to complete a sale before the new loan maturity date of Feb. 12, Orleans said in a news release. That is when Orleans, hammered by the housing downturn ..., defaulted on the loan. Some of the senior lenders had refused to agree to another extension, forcing the company to attempt to reorganize or sell the firm under Chapter 11 of the bankruptcy code.

 

Orleans has an agreement for $40 million in financing to use while in bankruptcy and will continue operating, the Inquirer reported. The company was founded in 1918; Jeffrey P. Orleans, grandson of the founder, is chairman and CEO.

Orleans shrank dramatically as the housing market collapsed. Its current workforce is about 300, down from 990 in June 2006.

 

(Source: Philadelphia Inquirer, March 2, 2010.)



Bank owned by Senate candidate’s family faces collapse

The family of Alexi Giannoulias, Illinois' treasurer and a Democratic candidate for U.S. Senate, must raise at least $85 million by the end of April to prevent a government seizure of Broadway Bank, a financial institution it owns, the Chicago Tribune reported.

The bank is headquartered in Chicago's Edgewater neighborhood. Giannoulias, who faces U.S. Rep. Mark Kirk, the Republican nominee, in the race for the seat formerly held by President Barack Obama, "has repeatedly said he hasn't worked at the bank for four years," the Tribune article said. His older brother Demetris Giannoulias is the bank's CEO.

The family, which has owned the bank since the mid-1990s, took out about $70 million in dividends during 2007 and 2008, the article said. Demetris Giannoulias told the Tribune that the family's other business investments, primarily real estate, also have posted losses, but the family is trying to find a way to contribute 10% to 20% of the $85 million.

The predicament is a huge turnabout for the family. From 2004 through 2006, Broadway was one of the country's most profitable community banks, according to SNL Financial, which collects bank industry data. But then the recession hit, shell-shocking both borrowers who were suddenly unable to make payments on loans and the bank itself. Broadway relied almost strictly on real estate deals to make money, and the financial crisis wreaked havoc on that market as business activity dired up and real estate values plummeted.

 

According to the Tribune, Demetris Giannoulias said that 9% of the value of the bank's more than $240 million in seriously delinquent loans and foreclosed real estate originated during Alexi Giannoulias' tenure as the bank's chief loan officer from 2002 to 2006.

The report said that during Alexi Giannoulias' tenure at Broadway, the bank approved loans to Michael Giorango, "a convicted bookmaker and prostitution ring promoter who has become a political albatross in Alexi Giannoulias' campaigns." Some properties tied to Giorango are in foreclosure, the article said.

Demetris Giannoulias said Broadway Bank could raise money through private-equity firms, the Tribune reported.

But that won't be easy. For one thing, many private-equity firms won't bother doing deals of less than $100 million, he said. For another, banking regulations make it unappealing for private-equity firms to take more than, say a 25 percent ownership stake. Exceeding that threshold would force such firms to register as bank holding companies. That would open up a typically secretive industry to more scrutiny in the highly regulated banking world.

 

The report also noted:

A purchase of Broadway by another bank is virtually off the table, Demetris Giannoulias said. That's because many healthy banks believe it makes more sense to wait until a lender fails before swooping in for the deposits, assets and branches. That way, the acquiring bank can usually strike a deal with the Federal Deposit Insurance Corp. that limits its losses. Also, with only four branches .... Broadway has scant franchise value, providing little incentive for another institution to fashion a deal before its collapse.

 

According to the Tribune article, Demetris Giannoulias said most of the dividend money was used "to pay corporate taxes and for estate planning after the 2006 death of the family's patriarch, Alexis Giannoulias.

As recently as June 2008, "we still felt things were going OK," Demetris Giannoulias said. "When we made the dividend, we still thought our income would be up."

 

Broadway did not apply for the Troubled Asset Relief Program in late 2008 because "We had enough capital" at the time, Demetris Giannoulias told the Tribune. (Source: Chicago Tribune, Feb. 28, 2010.)



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