Merced Sun-Star
Gottschalks files for Chapter 11 bankruptcy
Venerable Valley retailer has until March 24 to find survival solution...TIM SHEEHAN, Fresno Bee
FRESNO -- Fresno-based Gottschalks filed for bankruptcy protection Wednesday, vowing to remain open as it searches for a buyer and seeks other ways to survive.
Creditors have agreed to give the department-store chain until March 24 to sell the company or it will have to liquidate, according to the Chapter 11 bankruptcy documents filed Wednesday in Delaware, where Gottschalks is incorporated.
"This was a very difficult, but necessary decision," Gottschalks Chairman James Famalette said in a statement, pointing to the credit crunch and disastrous economic climate facing retailers across the nation. "The persistent challenges in the economy and recent unexpected reductions to our borrowing capacity have left us with no other recourse." The company's board of directors authorized the bankruptcy action Tuesday. The filing protects the company from creditor lawsuits while allowing it to remain in business as it tries to reorganize and pay off debts.
Gottschalks reported assets of $288.4 million and debts of more than $197 million as of Jan. 3.
Gottschalks was founded in 1904 in Fresno. In addition to its 58 department stores and three specialty clothing stores throughout the western United States, the company also has its corporate headquarters in north Fresno and a large distribution center in Madera.
Gottschalks employs about 5,200 people.
Fresno Mayor Ashley Swearengin said she hopes the department-store chain pulls through and maintains a presence in Fresno.
"Gottschalks is such an important part of the fabric of this community," she said.
Swearengin said there's not much the city can do to help, however.
"It's unlikely there are any levers we can pull," she said.
The news came as no surprise -- for weeks retail industry analysts have predicted that Gottschalks would seek bankruptcy protection. In its third-quarter earnings report, Gottschalks officials themselves warned that the company could run out of money before the end of its fiscal year on Jan. 31.
The company has negotiated a $125 million "debtor-in-possession" financing arrangement with a group of creditors headed by GE Capital, Gottschalks' chief creditor. The money will allow Gottschalks to continue operations, including employee payroll and benefits, payments to suppliers and other expenses, as it tries to find a buyer, officials said.
In a telephone interview Wednesday, Famalette said the Chapter 11 filing provides Gottschalks with flexibility to continue to operate as it seeks to sell the company, find additional investors or pursue other options.
"For our customers, it should be business as usual," Famalette said. "Our employees will continue to work and be paid in the normal course of business and we will be focusing on making sure our stores are operating normally." It's not clear how Gottschalks' vendors will fare.
Famalette said any debts owed prior to the filing will be dealt with in bankruptcy court.
He said because Gottschalks will be armed with new bankruptcy credit terms from GE Capital, "we will hopefully be able to get as close as possible to running our normal business, paying our vendors for all their merchandise." Famalette said many of Gottschalks vendors have indicated willingness to continue shipping goods.
Ron Parham, vice president of investor relations for one of them -- Portland-based Columbia Sportswear -- said he knew Gottschalks' bankruptcy filing was a possibility.
Gottschalks owes Columbia $277,996, according to the bankruptcy petition.
"We have been watching the situation closely," Parham said. "But we hope they can navigate through this process and can continue to be one of our customers.." Another big creditor is The Fresno Bee. Gottschalks owes the newspaper, which is the only Valley firm among the retail chain's top 20 unsecured creditors, more than $354,000. Bee President and Publisher Will Fleet said Gottschalks was The Bee's largest advertising customer in 2008.
"Obviously things are tough all around, and this is another sign of the difficult economy we're all experiencing," Fleet said. "It's an unfortunate development for all of Fresno, but the good news is the stores remain open."
"It's never good news to have any of your accounts receivable go into bankruptcy," Fleet added. "But Gottschalks and The Bee have been good partners for many years, and I'm looking forward to us working together and working through this process."
If Gottschalks survives, it may look very different.
Gottschalks executives said they have not yet decided whether to close stores or lay off employees.
While Gottschalks lost money throughout 2008, Famalette said there are some profitable stores in the chain. He declined to spotlight any particular markets, except to say that "generally, our Fresno stores are very productive." Retail industry consultant Howard Davidowitz said he doubts Gottschalks can successfully reorganize or find a buyer for the entire company.
He questioned the terms of the loan from GE Capital. "Is it a short-term loan that bridges a period of time so creditors can maximize their return (through liquidation), or is it a loan where Gottschalks can really attempt to reorganize?" asked Davidowitz, chairman of Davidowitz & Associates, a national retail consulting and investment banking firm in New York.
Most recent debtor-in-possession loans, Davidowitz said, "were so expensive, so loaded with fees and so short term, there's no way the debtor could have a viable business." He cited Mervyns and Circuit City as cases where the loans virtually guarantee liquidation.
Davidowitz said some retail companies may be interested in cherry-picking Gottschalks better-performing stores, but the Gottschalks name may disappear. "I think that would need divine intervention," he said.
Scott Avila, a managing partner with Corporate Revitalization Partners in Los Angeles, said bankruptcy is a difficult to navigate.
"My gut tells me they're going to have to be restructured, but what that looks like nobody knows yet," said Avila, whose company helps firms reorganize both before and during bankruptcy. He said the country just has too many retail stores.
Avila said much will depend on Gottschalks' strategy. He said landlords, creditors and suppliers want to know if a company is viable: "They want to know whether the business plan makes sense."
Famalette said he's optimistic.
He said in some markets, Gottschalks stores are picking up business after rival Mervyn's liquidation late last year.
"There is reason to believe Gottschalks can be a healthy operation," Famalette said. "As the economy improves, there could be a much stronger company that emerges from this."
The bankruptcy filing is the latest financial blow to a company long considered a cornerstone of Fresno's business community.
The company went public with its stock in 1986, and in 1991 its stock climbed to a peak of more than $25 a share.
But recently, the stock sagged, sinking to an all-time low closing price of 15 cents per share Wednesday.
In October, the company's market value fell below $25 million, prompting the New York Stock Exchange to suspend Gottschalks from the Big Board. The action sent the stock onto the Pink Sheets, an electronic stock bulletin board.
Modesto Bee
West Park bears all costs of grant...Tim Moran
The Stanislaus County Board of Supervisors put PCCP West Park LLC on the hook Tuesday for all the costs related to a state grant to build a short-haul rail system and inland port near Crows Landing.
The vote makes West Park responsible for $35 million in matching funds the county needs to get a $22.5 million grant from the California Transportation Commission for the inland port and rail link to the Port of Oakland.
The rail link and inland port are part of the 4,800-acre business and industrial park West Park developer Gerry Kamilos is proposing in and around the county's Crows Landing Air Facility southeast of Patterson.
Board Chairman Jim DeMartini, a vocal critic of the project, voted against the agreement, which was approved on a 4-1 vote. The Board of Supervisors also received a letter from a citizens group, WS-PACE.org, asking the board to delay considering the agreement.
DeMartini, who represents District 5, where the West Park project is located, said opposition to the project on the West Side and lawsuits that have been filed against it are why he opposes the agreement.
"I just can't see doing this at this time," he said. "There's no way I'm going to vote for it."
Project means jobs
The approval of the agreement by the rest of the board, however, authorizes DeMartini as board chairman to sign the agreement with West Park.
The city of Patterson and WS-PACE.org both filed lawsuits last year contending that the board's vote naming Kamilos as master developer for the project required an Environmental Impact Report under the California Environmental Quality Act.
A judge in Fresno County ruled last week in the Patterson lawsuit that the county vote did not require the environmental report. The WS-PACE.org lawsuit is pending in Stanislaus County Superior Court.
County Chief Executive Officer Rick Robinson commented that the project would create jobs in a time of high unemployment. "I strongly encourage the board to move forward," he said.
The agreement committing to the funding of the matching money is one of four requirements from the California Transportation Commission, said deputy county CEO Keith Boggs. The others are completion of a California Environmental Quality Act review of the project, which is under way; submission of an operation and business plan, which has been done; and negotiation for use of rail right-of-way with Union Pacific railroad, which is expected to start in the next few months, Boggs said.
No approval obligated
The agreement approved Tuesday means that no county funds will be obligated with the state grant, according to county staff. West Park will be obligated to reimburse the county for the cost of processing the agreement.
The agreement doesn't obligate the county to approve the project at the end of the environmental review, said Steve Mattas, a consulting attorney on the project. The board can still consider alternatives, make modifications based on the review, or reject the project altogether, he said.
The lack of a firm Board of Supervisors' commitment to the project was the key reason the Fresno judge ruled last week that the project did not yet require the completion of the environmental review.
WS-PACE.org President Ron Swift, in the letter objecting to the board's action, said the agreement "further limits and narrows the alternatives" the board has in considering the project.
"We object to any future approvals which commit Stanislaus County resources to a project in advance of a CEQA review," Swift's letter said.
Economy, trends work against chain...John Holland, Eve Hightower. The Fresno Bee and The Associated Press contributed to this report
Modesto area business leaders hope Gottschalks, which has served the city for 32 years, will survive despite Wednesday's bankruptcy filing.
"Certainly, nobody wants to see a retail outlet that is so critical to this community go into bankruptcy protection," said Joy Madison, chief executive officer of the Modesto Chamber of Commerce. "A lot of people in the community count on it as a store."
Under the Chapter 11 filing, the Fresno-based chain plans to continue operating its 58 department stores. They include two in Modesto -- at Vintage Faire Mall and at Century Center on Oakdale Road -- and stores in Sonora, Merced and Tracy.
Retail experts warned that the going could be tough, with the area hard hit by unemployment and the housing collapse. The Gott-schalks filing came soon after the closure of the Mervyns chain, which failed to get back on its feet after its bankruptcy protection filing last year.
"If you look at those who have had the most difficulty, it has been regional department stores," said Ken Perkins, president of Retail Metrics, a research company based in Massachusetts.
Shoppers have traded down from midtier department stores to hunt for bargains at discounters, or they hold back spending altogether, he said.
Modesto entrepreneur Dan Costa said Gottschalks could do better if it expanded its online offerings.
"There's a big change in the way consumers are shopping today," he said. "A lot of it has to do with the economy, but a lot of it has to do with convenience."
Costa said 30 percent to 40 percent of the sales are made online at his company, 5.11 Tactical, which supplies clothing and accessories for public safety personnel.
He said change is constant in the business world: He owned the Velvet Ice Cream company in the early 1980s, but it fell victim to a trend against small producers. He then opened Mallard's, a large restaurant that would be hard to operate with today's preference for smaller eateries.
Gottschalks has been an anchor tenant at Vintage Faire since the mall opened in 1977. It moved into a larger site vacated by Weinstocks in 1996.
"Gottschalks is an amazing retailer and has been for years," said Anita Walker, spokeswoman for Macerich Co. of Santa Monica, which owns the mall. "If we were to hear anything about one of our stores leaving, we would move right away to fill the space."
The Century Center store opened in 1984 and expanded twice. Both it and the mall store are prime retail sites, the chamber's Madison said.
"Obviously, we would be under- retailed (if Gottschalks closed), and at that point we would be considered a location that would be attractive," she said.
Anchor stores help smaller ones
Large stores in a mall help their smaller neighbors, said Ham Shirvani, president of California State University, Stanislaus, whose background is in architecture and urban planning.
"Shops near anchors have higher rents," he said. "What will (a closure) do to stores near them? There will be less traffic. It's a domino effect."
In an interview with The Fresno Bee, Gottschalks Chairman James Fama-lette said some of the chain's stores are profitable, but he declined to name them.
In the past, the two Modesto stores have been among the chain's sales leaders.
But traditional department stores such as Gottschalks are getting hurt by high-end specialty retailers and big box discounters, analysts say. Smaller retail chains are particularly fragile because they can't buy goods as cheaply as their bigger competitors.
That cost disadvantage can hurt Gottschalks because its customers tend to be more price-conscious than those who shop at more upscale stores.
Another handicap for Gottschalks is geography. Running from Fairbanks, Alaska, to Indio, it primarily serves far-flung, second-tier markets. Such a network stretches a company thin, increasing distribution and other operational costs.
Still, Gottschalks was making a go of it until the recession hit, overwhelming the company with a string of operating losses. Its stock price tumbled, and Gottschalks was unable to forge an alliance that would provide a financial lifeline.
Weather: A story with a potentially unhappy ending...ERIC CAINE
Recent months have brought a deluge of news, each story among the biggest of its kind ever. We've had the Obamacalypse, corporate beggars and bailouts, an auto industry in financial free fall, the inequalities and-or iniquities of Proposition 8, the squeaky-close loss of Measure S and enough gloom-and-doom bloviators to make us want to clap our hands over our ears and run screaming from our radios, televisions, computers and newspapers until we can hear and see no more.
The local background noise includes the specter of lawsuits hanging over Gerry Kamilos' West Park project and proposals to develop Salida farmland.
Despite the clamor and din of these stories, the biggest news of all may be an easily overlooked report that, while it appears every day, occupies a space in the newspaper easily covered with a coffee mug. It's a subject so lacking in glamour that it's hard to contemplate without yawns and rolling eyes.
Usually relegated to the upper or lower corner of a back page, the weather report is most often consulted by those who want to know exactly how hot or cold the previous day was. Sometimes people planning an outing might want to know whether to bring a jacket. Unless there's been a very wet storm, it's not often we check the rainfall report. And of late, there's been almost no reason to check the rainfall report because there has been little rain.
The fact is, if we get a few more weeks without rain, we'll be almost one-half below seasonal normal. And that's a statistic among the most frightening of all recent news.
Of course, rainfall is only part of the weather story. For at least the past two years, the snowpack has also been dangerously low. Like other sources of water in the American West, including such perennial yardsticks as Lake Mead and the Colorado River, we're approaching the point where the snow melt will no longer support the farmland, cities, suburbs and ranchettes where people have heretofore turned on their faucets without a thought about where the water's coming from.
According to the experts, it's no longer feasible to think that building more dams and reservoirs will alleviate the problem. In a recent article in the New York Times Magazine, climatologist Roger Pulwarty said, "If you can't fill the reservoirs you have, I don't know how more storage, or more dams, is going to help you.
It appears that we're not just in a period of drought, but maybe even in for a long period of an entirely different climate.
Of course the weather has always been one of the last things we can predict with any accuracy, and we've all seen seasons of light rainfall followed by torrents the next year. Unfortunately, next year has arrived. The torrents better come soon or the biggest story yet will be written by Mother Nature. Right now, it does not look like a happy ending.
Fresno Bee
Settlement deal clears path for Rio Mesa work
Environmentalists, developers approve plan...Chris Collins
A huge 6,600-home development in south Madera County just west of Highway 41 is one step closer to construction now that environmentalists and developers have agreed to settle a lawsuit, an attorney said Wednesday.
The settlement allows the project to move forward in exchange for a promise from developers Castle & Cooke to donate $1 million toward improving Madera County's planning process.
Ultimately, the money may go back to the environmental group that sued the developers, and that group could use the money to file more lawsuits against future developments.
Castle & Cooke's Gateway Village project could one day house about 21,000 people near Highway 41 and Avenue 12. It is among a handful of developments that are part of a long-planned community in the Rio Mesa area where county leaders expect as many as 100,000 people eventually will live.
But the Rio Mesa plan was drawn up 14 years ago -- when Madera County leaders had hoped the University of California would build its next school there and when there were not nearly as many people on the other side of the San Joaquin River in north Fresno County. County planners, however, insist the plan is still usable.
The Madera Oversight Coalition, an environmental and health advocacy group, disagreed and sued to stop the development in 2002, said the group's attorney, Patience Milrod. The suit was settled in 2005 after developers altered their project to address the coalition's air quality and water supply concerns. The new plan was approved by the Board of Supervisors in 2007.
But, Milrod said, the revised project still had flaws, so the coalition sued again in January 2008. The parties reached a settlement last month and a judge approved it last week, she said.
In the agreement, the coalition promises not to sue the project again. Castle & Cooke, meanwhile, agreed to give $1 million to the Oakland-based Rose Foundation, a nonprofit group that focuses on community and environmental issues.
The money must be used to advocate for effective planning in Madera County and help government agencies improve their planning process, according to the settlement. That includes possibly paying for any future lawsuits filed by the Madera Oversight Coalition, said Tim Little, the foundation's executive director.
Madera County or another government agency could also apply for the money as long as it's used to rewrite the Rio Mesa plan or improve county planning.
But that appears unlikely. Milrod said the coalition initially asked the county to accept the $1 million and use it to update the Rio Mesa plan, but the county refused to do so.
Schwarzenegger plans upset environmental groups...SAMANTHA YOUNG
SACRAMENTO, Calif. Like any head of state managing a severe budget crisis, Gov. Arnold Schwarzenegger has withstood criticism from all the usual suspects - lawmakers from both parties, anti-tax groups, advocates for the poor.
Now he's feeling heat from a group that has been among his staunchest allies: environmentalists.
As Schwarzenegger and lawmakers struggle to contain a ballooning deficit, he has insisted that any budget deal include a provision suspending state environmental review for certain public works projects.
The governor said that would fast-track infrastructure projects and put Californians back to work quickly. He said his proposal would accelerate construction on 10 road projects around the state, noting at a recent news conference: "It's about jobs, jobs, jobs."
His demand has been one of the main sticking points in budget negotiations that so far have failed to produce a solution to the state's deficit, despite three special legislative sessions. California's shortfall is expected to reach nearly $42 billion by June 2010 unless lawmakers act to close it
Last week, Schwarzenegger vetoed a Democratic budget proposal, in part because it lacked the environmental rollbacks he and many in the business community desire.
Schwarzenegger also has asked President-elect Barack Obama to exempt road construction from key federal environmental reviews as part any congressional economic stimulus package.
Democrats who oppose the scope of the governor's demand contend the projects exempted from environmental review would fail to boost the economy quickly, while environmentalists are outright puzzled by his position. They have considered Schwarzenegger an ally because of his crusades against global climate change and his advocacy of alternative energy.
"The demand by the governor to do an end-run in environmental laws just flies in the face of his environmental agenda," said Ann Notthoff, California advocacy director at the Natural Resources Defense Council.
The governor's spokesman, Aaron McLear, said Schwarzenegger has earned his reputation as a defender of the environment.
"To suggest he is anything less than one of the most passionate protectors of the environment is laughable," McLear said.
Two of the freeway projects Schwarzenegger wants to fast-track through environmental exemptions have been the subject of legal battles over air pollution concerns.
One is a freeway expansion in the Sacramento area that was blocked last year by a judge because the state failed to analyze the potential effects of the added lanes on greenhouse gas emissions. Schwarzenegger's budget proposal would override the judge's ruling.
Tom Adams, president of the California League of Conservation Voters, said the governor should not try to subvert long-standing practices for reviewing public works projects.
"We have created a separate branch of government so these disputes are decided on the facts and the law in a way that's isolated from the political process," he said. "It's completely inappropriate for the administration to go to the political branch and have them start meddling in a lawsuit."
Schwarzenegger has argued that if he and lawmakers raise state taxes, they must also employ an economic stimulus to jump-start job growth.
California's unemployment rate, at 8.4 percent, is among the highest in the nation. He and other Republicans say the state's economy will deteriorate further if the government doesn't take swift action, including faster work on road projects.
"We want to build the roads in the next two or three months without any delays of red tape and environmental holding back and lawsuits that hold you up for another two, three years," Schwarzenegger said.
Exempting the projects from the California Environmental Quality Act would accelerate construction timetables from five months to a year and put roughly 21,000 people to work earlier, said Will Kempton, director of the California Department of Transportation.
The administration also wants to speed permitting for the projects and create a special panel of cabinet members that could override or modify environmental conditions imposed by wildlife agencies or air pollution regulators.
Without those changes, most of the projects wouldn't start until 2010, Kempton said.
The Legislature has authorized environmental exemptions for levee projects in the past, but Democrats warn that what Schwarzenegger is seeking would set a harmful legal precedent and do little to solve the state's long-term financial crisis.
"We are not willing to say that a member of the public has no opportunity to challenge the environmental finding of a state agency," said Senate President Pro Tem Darrell Steinberg, D-Sacramento.
Valley Voice
Council Delays Racetrack Agreement Vote
Tulare - Final approval of a development agreement for the proposed 711-acre racetrack project is on hold until the City Council is satisfied Bud Long and his Tulare Motor Sports Complex Limited Partnership can cover the cost of the environmental impact report (EIR).
Vice Mayor Phil Vandegrift's motion to table the agreement, which received preliminary approval on Dec. 29, came after the council learned the partnership was $83,000 behind in funding an escrow account established to ensure the city eventually gets reimbursed for the cost of the environmental impact report (EIR).
Since it was established in April 2007, the developers have “religiously funded that account and on every occasion over funded it,” Long said, adding the most recent bill for $104,000 was not expected and that the balance owed would be paid this week.
He also assured the council developers would fund the final bill, which the EIR consultant is expected to submit this month and is expected to boost the total cost to about $1 million.
Prior to its vote to delay action, the council also heard from Costa Mesa attorney Michael R. W. Houston, who urged the council to reject the agreement for other reasons as well, including a lawsuit filed against the partnership by a bank that contends the developer defaulted on the repayment of $1.59 million in loans.
“It's very imprudent for the city to enter this,” said Houston, who is representing Nunes Brothers Dairy, which opposes the project.
'Good Faith Dispute’
Long told the council an on-going disagreement exists between the partnership and United Security Bank. His attorney, Jim Betts of Betts & Wright in Fresno, characterized the lawsuit as “a good faith dispute” involving attempts to purchase three letters of credit.
Three loans were envisioned and each was dependent on the other, a situation of which the bank was fully aware, Betts said.
After getting the first loan and purchasing a letter of credit, the developers went to the next stage, but “the bank rejected the very same format for the letter of credit that it had specifically approved in the first loan transaction,” he said.
City Manager Darrel Pyle said Long made the city staff aware in the spring that the line of credit had been withdrawn.
“Why wouldn't you make the council aware of his credit problems back in April?” Councilman David Macedo asked.
Pyle said he didn't recognize it as “a credit issue,” because he was having similar conversations with other developers who were reporting a line of credit was no longer a financing instrument available to them.
He also said he was unaware of a default until a copy of United Security's lawsuit was delivered to the council that evening.
Vandegrift said later “everybody's trying to make political hay and point fingers and make everything look worse than it is.”
He said the dispute resolved around a $1 million fee Long paid for the letters of commitment and which the bank refused to return when the line of credit was withdrawn.
“In this case I honestly believe he's the victim and everybody can't wait to make political hay because they don't like Bud Long,” Vandegrift said. “It's character assassination in order to shame us into voting the way they want us to vote.”
He and two other City Council members who support the project reiterated last week their position is they are voting on the project.
“All I'm doing is making decisions on the project, not the developer,” City Councilman Richard Ortega said.
Council Confusion
During last Tuesday's council meeting, it became apparent council members differed in their understanding of how the escrow account established at Citizens Business Bank for the EIR would work.
Macedo said he thought the city was using the money to pay the EIR bills, but City Attorney Steve Kabot said the account was established as a guarantee of reimbursement to the city at a later time.
Ortega said after the meeting that he was of the same understanding until about a month ago, when members of the Tulare Industrial Site Development Foundation asked about the city's ability to get reimbursed if there were foreclosure on the project.
“I don't think that was really clear in everybody's mind,” Ortega said.
Carlton Jones, who left the council late last year, said when contacted late last week that understood it the way Macedo and Ortega did.
“They [the developer] put the money in that account and the bill was paid from that account and the city was not to be out one cent.”
Both Mayor Craig Vejvoda and Vandegrift said they understood the money was collateral to make sure the city got paid.
“I believe this process has really worked,” Vandegrift said.
During the council meeting, Macedo called for the transfer of all the money in the escrow to the city's general fund.
“Tomorrow, in my opinion, is not soon enough,” he said, expressing fear the money could get tangled up in a bankruptcy proceeding if ever that should happen.
Kabot said the immediate transfer of the funds was not possible and the timing of the release was “still somewhat up in the air.”
The reason for all this is complicated.
Kabot explained the money was put in the escrow account instead of paid directly to the city because the city initially intended to create a Community Facilities District, a tool that would allow bond sales to help the developers pay for infrastructure improvements and the EIR.
If the developers paid EIR bills before the CFD was created, it was thought they would forfeit the possibility of getting partially reimbursed for EIR costs when the CFD bonds were sold.
After learning more about CFDs, the city realized it was not a good idea to use that financing tool until later in the project. It also learned that if the council adopts a resolution of reimbursement, then the developers could partially reimburse themselves when the bonds sold.
Prior to the Dec. 29 Council meeting, Kabot and the developers amended a memorandum of understanding regarding the escrow account that says the developer cannot take out money from the account without the city's approval.
When Macedo and Councilman Wayne Ross asked when the money would be released to the city, Long said that will happen once his bridge loan to construct the infrastructure was in place.
Vandegrift — who said he thinks the developers could have a bridge loan as early as this week — said the council should wait until the EIR reimbursement is in the general fund before approving the development agreement.
“The main thing is the city gets made whole,” he said.
Sacramento Bee
UC Davis battles squirrel population explosion...M.S. Menkoji
If your life centered on foraging for nuts and neat places to hide them, wouldn't the woodsy confines of a placid college campus seem divine?
No natural enemies to speak of for miles around.
Lots of trees to scurry up and down.
Occasional tasty handouts from people, just for swishing your bushy tail and looking cute.
That's what about 400 Eastern fox squirrels must be thinking as they make themselves at home on the rambling campus of the University of California, Davis.
"The population is exploding," said Sal Genito, the school's director of buildings and grounds.
UC Davis has a scientific project under way to reduce the population – the squirrels, after all, are pests – and it won't involve either firearms or poison.
"Nobody gets hurt; everybody's happy," Genito said.
The squirrels, unlike the Western gray squirrel, are not natives of the campus; they're not even native to the West, hence the name Eastern fox. They have taken up residence in cities on the West Coast, though.
In the past few years, on the Davis campus, they've multiplied so that they've worn out their welcome.
Speed-racing up tree trunks is damaging bark on 100-year-old grand dames. On occasion, some of the emboldened varmints will saunter into campus buildings, causing a stir. One apparently zoomed across the path of a bicycle going full tilt, causing a nasty spill.
A burgeoning population could upset the environmental balance, overrun the school's research orchards and even injure people if the squirrels start grabbing for food.
Wildlife experts at the school have launched a birth-control project that should reduce the population within a decade to a smaller, more manageable population.
Scientists and students have set cage traps to capture the squirrels, mark them with black dye and release them. To understand how the squirrels behave, scientists are observing the marked squirrels as they romp across lawns.
In the summer, the squirrels will be recaptured. Some will be injected with a hormone to stop reproduction, and others will get a placebo. If the hormone works without problems, the squirrel population will taper off and a new method will be born to use on other mammal pests.
Genito, whose duties make him something of a park director, is familiar with every creature on campus.
Aboard a golf cart, he motored down walkways canopied by trees this week in search of those twitching, auburn tails.
A fifth of the 5,000-acre campus is essentially parkland, complete with streams, meadows and, of course, nut-bearing trees.
Stopping before a thick-waisted redwood, he pointed out deep furrows in the bark caused by squirrel traffic.
He passed under heavy branches where, at times, some of the culprits would peer down, watchful but relaxed.
Clearly, they're too comfortable in their adopted home, Genito said.
So are bats, rabbits, mice, rats and feral cats.
They could be next.
San Francisco Chronicle
Mandatory water rationing considered in Sonoma Co….Wednesday, January 14, 2009
Sonoma County water off.icials are warning residents that mandatory water rationing might be need later this year if the area doesn't get more rain soon.
Officials say Lake Mendocino is at its lowest point in 20 years. Lake Sonoma also is far below normal amid a statewide drought.
Heavy, prolonged rainfall over the next few months is the only way officials see avoiding stricter water use rules.
The Sonoma County Water Agency is already asking customers to conserve.
It plans to formally update the Board of Supervisors later this winter, and officials say an announcement on rationing could happen in early spring.
UC regents vote to limit fall 2009 enrollment...Patricia Yollin
The University of California Board of Regents did something Wednesday that it found unsavory but inevitable.
Regents voted to limit enrollment next fall to help cope with an ongoing budget crisis plaguing both UC and the state.
"We're going to try to be as equitable as possible, but it will not be painless," said UC President Mark Yudof, who recommended reducing by 2,300 the number of new California resident freshmen.
The regents, meeting through a teleconference, also agreed to freeze salaries of 285 top administrators and senior managers.
Curtailing enrollment was a harder sell, though only Eddie Island and D'Artagnan Scorza, the student regent, cast "no" votes.
Island said the reduction would disproportionately affect African Americans.
"We ought to find another path," he said. "This is shortsighted and the wrong solution."
Gov. Arnold Schwarzenegger's recent budget proposal offers no money for growth in enrollment. UC already has about 11,000 students for whom it gets no state funding - creating a $122 million shortfall.
Yudof said a systemwide cap on the number of freshmen would save about $20 million.
"I think the price is too high and the savings are too small," Island said.
Although Yudof said curtailed enrollment meant that about 150 black students might not get in, he noted that community college transfers next fall would increase by 500 systemwide - to a total of 13,223 - producing a better racial, ethnic and class mix.
"I tried to be sensitive to diversity and socioeconomic issues," said Yudof, who added that he has asked Boalt Hall School of Law Dean Christopher Edley to take charge of a community college initiative to attract more transfers.
There are now 220,000 students at the 10-campus system, which also includes UCSF Medical Center.
"The goal is that one-third of students would be community college students," said Nina Robinson, UC director of policy and external affairs in the division of student affairs at the university, after the meeting, which in San Francisco was held at UCSF's Mission Bay campus.
Yudof described the limits on enrollment - which will spare UC Berkeley and UC Merced - as "very modest and very circumspect."
He said, "I vehemently disagree with this whole language of closing the portal. We're on a collision course and we need to make a decision."
Service workers at the meeting chanted at length in their continuing quest to get higher wages: "Living in poverty is not fun. Yudof, regents, get it done."
Regent Norman Pattiz said, "We cannot look to the lowest-paid employees of the university to bear the brunt of the kind of financial turmoil we're going through right now."
Service workers at the meeting repeatedly mentioned the bonuses, perks and lavish compensation of top officials.
Not a soul protested the salary freeze approved by the regents.
"It's a time for sacrifice," Yudof said.
Fewer freshmen for next fall
The University of California will admit 2,300 fewer freshmen for the next fall semester than it did this fall. Not all nine undergraduate campuses will share in the enrollment cuts. The following is a campus-by-campus breakdown of the current resident freshmen enrollment and the projected increase or decrease for next fall


Fall 2008 enrollment


UC Berkeley


+ 80

UC Davis


- 385

UC Irvine


- 550



- 35

UC Merced


+ 155

UC Riverside


- 435

UC San Diego


- 520

UC Santa Barbara


- 275

UC Santa Cruz


- 335



- 2,300

Source: University of California
Activist group sues UC, claiming illegal search...Bob Egelko
An activist group in Berkeley sued the University of California and law enforcement agencies Wednesday over an August raid in which officers trying to trace alleged threats by animal-rights advocates broke into the group's offices and seized its computers and records.
The searches of Long Haul and East Bay Prisoner Support, an unaffiliated organization in one of the offices, were illegal intrusions on groups that were not suspected of any wrongdoing and also violated their constitutional rights as publishers of their own newspapers, said the suit, filed in U.S. District Court in San Francisco.
Long Haul operates a library, a bookstore, public computer terminals and meeting rooms at a two-story storefront on 3124 Shattuck Ave. UC Berkeley police, accompanied by one or more sheriff's deputies and FBI agents, entered the building with a search warrant on Aug. 27, breaking in while the office was closed, the suit said.
A judge had issued the warrant the previous day based on a UC police detective's sworn statement that animal researchers at Berkeley had received threatening messages from a computer at the storefront. The messages were sent after arsonists had targeted researchers at other UC campuses. The detective said computer signup sheets or other records might identify the sender.
The suit says the officers broke open locked doors and cabinets, seized all 14 computers in the building, combed through library and bookstore records, and took computer drives and other items from both Long Haul and East Bay Prisoner Support. The computers were later returned, but the organizations have reason to believe their files were copied, the suit said.
"The police should have treated us with the same respect due to any library whose public-access computers they suspected had been used for improper activity," said Jessy Palmer, a Long Haul volunteer named in the detective's affidavit as the subscriber to the computer where the messages were sent. "Instead of asking for our assistance, they used their investigation as an excuse to break into Long Haul."
The suit contends the search warrant was invalid because UC police offered no evidence that the two organizations were involved in illegal acts and also failed to tell the judge that both groups publish newspapers, a status that requires special justification for law enforcement searches.
Represented by lawyers from the American Civil Liberties Union and the Electronic Frontier Foundation, the two groups seek unspecified damages and court orders requiring police to destroy all copies of material they seized.
Janet Gilmore, a UC Berkeley spokeswoman, said any comment would be premature because the university hadn't seen the suit yet.
Los Angeles Times
Southern California water rationing may be on the way...Bettina Boxall and Jordan Rau, Greenspace
Doing some winter planting? Looks like drought-tolerant varieties should be at the top of your list.
An official of the Metropolitan Water District of Southern California said Wednesday that there is a 50% chance the agency will ration deliveries to local water districts this summer. "We are now at a 1 out of 2 probability of needing to allocate water in Southern California," said Roger Patterson, Metropolitan's assistant general manager. If that occurs, it would be the first time since the state drought of the early 1990s.
A number of factors are drawing down the region's water reserves. If this winter turns out to be another dry one, water managers who have been urging conservation will start taking more forceful steps. Patterson said a decision of whether to allocate supplies will likely be made in April.
Environmental protections have cut pumping from the Sacramento-San Joaquin delta, a source of about 30% of the Southland's water. The state has gone through two consecutive years of below-average precipitation and may be headed for a third. And a long-term drought in the Colorado River basin has eliminated surplus deliveries to Southern California.
Gray wolves to lose endangered status
The Bush administration will remove wolves in Wisconsin, Minnesota, Michigan, Idaho and Montana from the endangered species list. Environmentalists hope Obama will reverse the action, or they'll sue...Jim Tankersley
Reporting from Washington — Bush administration officials said Wednesday that they would remove gray wolves in the Midwest and the northern Rocky Mountains from the endangered species list -- the latest, but probably not last, chapter in the wolf's on-again, off-again federal protection.
The Interior Department decision would apply to wolves in Wisconsin, Minnesota, Michigan, Idaho and Montana. It would maintain protections for wolves in Wyoming, where the department says state officials haven't done enough to ensure the wolves' continued recovery.
An Interior Department official told reporters that the decision represented a victory for conservation efforts.
But the move, less than a week before President Bush leaves office, could be short-lived. Environmental groups hope President-elect Barack Obama will quickly reverse it after his inauguration. If he doesn't, the groups, which have blocked previous efforts to delist the wolf in court, say they'll sue again.
Obama spokesman Nick Shapiro said Wednesday that the president-elect "will review all 11th-hour regulations and will address them once he is president." A Senate committee could shed more light on the issue today when it questions Obama's choice for Interior secretary, Sen. Ken Salazar (D-Colo.).
The gray wolf, a symbol of the nation's wild heritage to some but the bane of ranchers and livestock, is fiercely debated in the West. The wolves once roamed most of the continental United States but had largely vanished before the Clinton administration began reintroducing them in the mid-1990s, starting in Yellowstone National Park.
Populations grew quickly, and a decade after reintroduction, Bush officials tried several times to remove the wolf from the endangered species list but were thwarted by court rulings.
"It's kind of the Guantanamo Bay of wildlife management," said Jonathan Lovvorn, chief counsel of the Humane Society of the United States. "These guys have tried over the last eight years to come up with a reason that it's legal, but they still can't do it."
Environmentalists said Wednesday's decision wouldn't survive a challenge either. The wolf population in the northern Rockies isn't large enough to be considered "recovered," said Andrew Wetzler, director of the endangered species program for the Natural Resources Defense Council.
And, he added, "as a legal boundary, they can't be not endangered in Idaho and Montana but endangered in Wyoming."
The wolf is perhaps the highest-profile example of a continuing court battle between environmentalists and the Bush administration over endangered species.
On Wednesday, the Center for Biological Diversity fired a final shot of sorts, suing or declaring its intent to sue over the handling of 19 species, including the San Bernardino kangaroo rat and the Colorado River cutthroat trout.
UC cuts freshman enrollment for fall by 6%
The hardest-hit campuses, Irvine and San Diego, will see 12% reductions. Berkeley's class will grow 1.7% and Merced's 17%. Numbers of community college transfers will be allowed to rise...Larry Gordon
Saying they could not avoid a painful decision, University of California regents voted Wednesday to trim freshman enrollment for next fall by 2,300 students, or about 6%, as a response to reduced state funding during the worsening budget crisis.
"None of us likes this," regents Chairman Richard Blum said of the student cut. But he placed responsibility for the action on state legislators, particularly Republicans opposed to tax increases. "For those who want to yell, go yell at Sacramento," Blum said.
Under the plan, six of UC's nine undergraduate campuses will see significant cuts to their ranks of California freshmen in the fall. UC Irvine and UC San Diego, the hardest hit, are slated for reductions of about 12%, or 550 and 520 slots respectively, because they enrolled more than their targeted number of students in recent years, officials said. At four other campuses, the cuts range from about 10% at UC Riverside to 6.6% at UC Santa Barbara.
The campuses that attract the most applications, UCLA and UC Berkeley, will stay close to current levels, with Berkeley growing by 80 freshmen, or about 1.7%, and UCLA declining 35 spots, or less than 1%. UC Merced, the newest and smallest school, will grow by 155 freshman, a 17% rise.
While making freshman admissions a bit tougher, the regents encouraged more students to transfer as juniors to UC from California community colleges. They boosted the number of such transfers by 500, or about 4%, for the fall. No change was made to graduate student numbers, or to the percentage of out-of-state undergraduates, which runs about 6%.
The governing board voted 19 to 2 for the enrollment changes during a meeting held by teleconference. Regent Eddie Island and student regent D'Artagnan Scorza voted against the changes.
The regents also unanimously approved a salary freeze for 285 top UC administrators and an end to bonuses for those and other employees. Most of those affected by the salary freeze earn more than $200,000 a year, and some twice that.
Island, in a passionate statement, said the enrollment cut would damage public support for UC and disproportionately hurt African Americans. He questioned whether the $20 million in projected savings is "a big enough number to justify the harm that is going to result from this reduction."
But UC President Mark G. Yudof, who presented the plan, described it as "very moderate" and said delays would cause more painful cuts in the future. He said that UC receives no state money for the equivalent of 11,000 of its 226,000 students and that cuts proposed for next year's budget would worsen matters.
"If I had my way, the decrease in admissions would be zero," Yudof said. But with funding reductions looming, he added, "there is no free lunch."
Despite an expected slight decline in the number of high school graduates, UC freshman applications are about 3% higher than last year. Experts say the financial crisis is pushing more families to the public university rather than to more expensive private schools.
Officials emphasize that students whose high school grades and test scores meet UC's eligibility standards will still be offered places somewhere in the UC system. Yet students will find it harder to gain entrance to their first choices, and the plan assumes that many will then decide to attend non-UC schools.
UC Student Assn. President Lucero Chavez said her group is worried that lower enrollments will particularly hurt low-income and minority students, but decided not to oppose the regents' action. Instead, she said, the association will urge the Legislature to provide money to restore enrollments to previous levels.
She said, however, that the group would fight a proposal to raise basic fees for the coming school year by 9.4%, or about $662, for most in-state undergraduates. That would bring their average bill to $8,670, not including housing, books and other expenses.
State Assemblyman Anthony Portantino, the La Cañada-Flintridge Democrat who is chairman of the assembly's higher education committee, said he was pleased about the pay freeze for top UC administrators, which is similar in spirit to his bill to freeze salaries for many state workers who earn more than $150,000.
But Portantino, whose daughter is applying to UC and other schools this year, said enrollment trims would make California weaker in the long run. "The harder we make it for Californians to go to school and get an education, the harder it is to meet the demands of the economy," he said.
Cal State, California's other public university system, has already moved to reduce its overall 450,000-student enrollment by about 10,000 next year.
JPMorgan plans expansion in California
It will rebrand Washington Mutual branches it acquired last year and expects to open 20 new ones...Tiffany Hsu
After buying Washington Mutual Bank last fall in a government-backed deal, JPMorgan Chase & Co. intends to discard the giant thrift's brand name in the spring and to add branches in California this year despite the ailing economy.
New York-based JPMorgan, which currently has no retail presence in California, will rebrand the 708 WaMu branches in California with Chase's octagonal blue logo on March 30, JPMorgan Chief Executive Jamie Dimon said in Los Angeles on Wednesday.
"WaMu's name itself is a little tainted," he said. "We're trying to do this very gently for the customers."
Calling the California locations, including the 241 in the Greater Los Angeles area, the "crown jewel" of the acquisition, Dimon said Chase, JPMorgan's consumer banking business, would spend $75 million to open 20 new branches in the state in 2009. An additional $300 million will be spent to refurbish WaMu's existing locations and 1,900 ATMs in the state, he said.
No California branches are targeted for closure.
"We've always wanted to be in the retail business out here," Dimon said. "California has been one of the best and fastest-growing markets in America. It's at the forefront of the country. As a national company, you want to be everywhere."
Chase has relationships with more than 13 million Californians via credit cards, mortgages and other loans, the company said.
The California makeover is JPMorgan's first step in rebranding more than 5,000 WaMu retail locations in 23 states that is expected to take the rest of the year.
The combination with WaMu is predicted to be complete around October, when the California branches are to be fully integrated with Chase's computer systems, Dimon said. His remarks came at a news conference in Universal City and in an interview with The Times.
Some cafe-style branches that WaMu staffed with "concierge-tellers" will be converted into more traditional Chase outlets, Dimon said.
Although no Washington Mutual branches are being closed in California, 4,200 of the 9,000 WaMu jobs that JPMorgan said last month it would eliminate are or were in California, including 1,600 in San Francisco, JPMorgan said.
Half the job cuts have taken place. The rest are expected to occur by the end of the year.
Seattle-based Washington Mutual grew rapidly during the housing boom to become the largest U.S. savings and loan and one of the country's biggest mortgage lenders. But it was brought down by surging defaults on loans made without sufficient collateral or proof of borrowers' ability to make payments.
JPMorgan Chase bought Washington Mutual for $1.9 billion in September, immediately after the failed bank had been seized by federal regulators. Six months earlier, JPMorgan had acquired failed brokerage Bear Stearns at the behest, and with the help, of the Federal Reserve.
Dimon said he would be reluctant to take on any more such deals.
"We're pretty busy, and we can't do too many things all at once and do it well," he said. "So we're not looking, but if something came our way that was so unbelievable, we'd consider it."
Dimon said JPMorgan estimated that it would record nearly $30 billion in losses on nonperforming WaMu loans it had acquired, but he said the acquisition would be worthwhile even if those losses were bigger.
"If we have to spend $10 billion more on it in the end, we will have done the right thing for the long term," he said.
As part of a previously announced two-year plan to reduce foreclosures, Dimon said JPMorgan would open nine regional counseling centers in California this year for customers struggling with mortgage payments.
Washington Post
Bank Losses Complicate U.S. Rescue
Pressure Grows on Obama to Allocate More Money for Distressed Financial Firms...David Cho, Binyamin Appelbaum and Lori Montgomery. Staff writer Paul Kane contributed to this report.Staff writer Paul Kane contributed to this report.
A new wave of bank losses is overwhelming the federal government's emergency response, as financial firms struggle with the souring U.S. economy, the rapid deterioration of global markets and the unexpectedly high costs of shotgun mergers arranged by federal officials last year.
The problems are intensifying the pressure on the incoming Obama administration to allocate more of the $700 billion rescue program to financial firms even as Democratic leaders have urged more help for distressed homeowners, small businesses and municipalities. Senior Federal Reserve officials said this week that the bulk of the money should go to banks.
Some Fed officials suggested that even more than $700 billion may be required, and financial analysts at Goldman Sachs and elsewhere say banks will have to raise hundreds of billions of dollars from public or private sources.
This year is expected to be worse for banks than last year, senior government officials and analysts say. The money from the first half of the rescue program helped banks replace most of the money they lost during the first nine months of 2008. But the firms are beginning to report fourth-quarter losses that are larger than analysts expected, and the economic environment continues to worsen quickly.
The markets got a taste yesterday of just how badly the year ended. European giant Deutsche Bank revealed an unexpected estimated loss of about $6.3 billion for the fourth quarter. HSBC, which has not yet raised capital during the financial crisis, may need $30 billion from investors, according to Morgan Stanley analysts.
Global stock markets reacted by plummeting, with financial shares falling the hardest. The Dow Jones industrial average dropped nearly 3 percent.
Meanwhile, Bank of America was on the verge of receiving billions more in federal aid to help it absorb troubled investment bank Merrill Lynch, whose losses had outpaced expectations, according to people familiar with the matter. That money would come on top of the $25 billion the government has already invested in Bank of America, including $10 billion specifically in connection with the Merrill Lynch deal.
Senior economic advisers to President-elect Barack Obama have said that restoring health to financial markets and the slumping economy requires the second half of the $700 billion rescue program as well as a massive stimulus package with a price tag approaching $850 billion.
On Tuesday, Federal Reserve chairman Ben S. Bernanke, suggested that more help for banks could be needed. "History demonstrates conclusively that a modern economy cannot grow if its financial system is not operating effectively," he said, adding that both the stimulus and the rescue package were essential to restoring health to financial firms.
Yet it remained unclear yesterday whether Congress would approve the release of the last $350 billion in the program known as the Troubled Asset Relief Program, or TARP. Obama's transition team asked lawmakers to do so Monday, saying it was urgently needed. But Democrats are growing increasingly concerned about their ability to quickly deliver the money to Obama.
In the Senate, Republican support for release of the funds has evaporated in the face of public anger over the Bush administration's management of the program. With more than a handful of Democrats also opposed, Senate leaders scrambled yesterday to rally support.
The Senate is set to vote today on a resolution to block the release of the money.
Late yesterday, Lawrence H. Summers, Obama's top economic adviser, and Rahm Emanuel, Obama's incoming chief of staff, met with Senate Republicans to try to persuade them to come aboard. But even many Republicans who voted to create the bailout program in October now say they are unlikely to back the release of the money.
If Congress votes to block the cash, Obama has the power to veto the resolution, all but ensuring the money would be in place early in his administration. Some Republicans said they see no point in casting an unpopular vote simply to spare Obama the discomfort of issuing a veto against the Democratic Congress as one of his first acts as president.
"The Republican base hates this. So a lot of people are saying why anger the base in the name of good policy when it's going to happen anyway?" said Sen. Robert F. Bennett (R-Utah), a senior member of the Senate Banking Committee, which was at the center of negotiations during the TARP's creation.
Republicans -- and many Democrats -- also say they are dissatisfied with Obama's pledges to dramatically reshape the rescue package to more directly assist distressed homeowners, small business and other consumers in search of credit, as well as to bolster oversight.
Republicans, in particular, want assurances that the money would be reserved to help ease the credit crisis in the financial system. They do not want the funds to go to other sectors, such as the faltering auto industry, which last month won a small share of the money from the Bush administration. That decision, said Sen. Bob Corker (R-Tenn.) turned the program into a "$350 billion slush fund."
After an hour-long meeting with Summers and Emanuel, many Republicans, even those who supported the TARP last fall, said they remained skeptical.
"They probably haven't said quite enough yet for most Republicans," said Minority Leader Mitch McConnell (R-Ky.).
Lawmakers were initially swayed to vote for the bailout program in October because of evidence that some banks were in extreme trouble. At that time, the government pushed healthier banks to acquire faltering rivals.
Now the buyers, which included Bank of America, J.P. Morgan Chase and other major banks, are struggling to make the mergers work. The prices they paid seemed like bargains at the time, but losses have been greater than the banks expected.
J.P. Morgan Chase will be the first of several major U.S. institutions to report earnings in coming days. Last year, it acquired two troubled firms, Bear Stearns and Washington Mutual. Analysts expect J.P. Morgan to report a narrow profit after a very tough year-end quarter.
Citigroup, which has received $45 billion in government aid, is expected to report a loss of more than $3 billion on Friday. The company also plans to announce that it will sell several major units to raise capital.
Bank of America, which reports earnings next week, has had enough capital to support its own operations but not enough to absorb Merrill Lynch's losses, according to two people familiar with the situation. Losses at Merrill Lynch have outpaced expectations since the merger was announced in September.
The banks closed the deal Jan. 1 after the Treasury Department committed in principle to making an additional investment, the sources said.
Bank of America and the Treasury declined to comment.
In total, banks raised about $456 billion in 2008, of which 41 percent came from the U.S. government, according to investment bank Keefe, Bruyette & Woods. But most of the money from private sources was raised in the first half of the year. As the crisis has worsened, the institutions have come to rely almost entirely on government help.
CNN Money
Foreclosures up a record 81% in 2008
Filings continued to soar through the end of the year - and there's no relief in sight for 2009...Les Christie
NEW YORK (CNNMoney.com) -- U.S. foreclosure filings spiked by more than 81% in 2008, a record, according to a report released Thursday, and they're up 225% compared with 2006.
A total of 861,664 families lost their homes to foreclosure last year, according to RealtyTrac, which released its year-end report Thursday. There were more than 3.1 million foreclosure filings issued during 2008, which means that one of every 54 households received a notice last year.
"Clearly the foreclosure prevention programs implemented to date have not had any real success in slowing down this foreclosure tsunami," said James Saccacio, CEO of RealtyTrac in a statement.
And despite those efforts on the part of both the government and the banking industry to quell the housing crisis, defaults continued to climb as 2008 came to an end. Foreclosure filings were up 17% in December over November, and rose 41% compared with December of 2007.
"The big jump in December foreclosure activity was somewhat surprising given the moratoria enacted by both Freddie Mac (FRE, Fortune 500) and Fannie Mae (FNM, Fortune 500), along with programs from some of the major lenders and loan servicers aimed at delaying foreclosure actions against distressed homeowners," said Saccacio.
Both of the government-sponsored mortgage giants suspended foreclosures starting November 26, 2008 through January 31, 2009.
The devastating numbers are unlikely to improve soon.
"I don't see how we can avoid three million foreclosures again in 2009," said Rick Sharga, a RealtyTrac spokesman. His company now has nearly a million sales listings for bank-owned homes.
Huge foreclosure inventory
And what's worse,Sharga thinks that as many as 70% of the bank-owned homes listed on RealtyTrac's site have not yet been posted on multiple listings services (MLS), the industry databases of homes for sale. Those homes are less likely to be sold because most real estate agents won't know they're available.
"Either banks are overwhelmed and can't get the houses on the MLS quickly, or they're deliberately slowing down so they don't have to take markdowns to actual home values on their books," Sharga said. Either way, it has the effect of underestimating the foreclosure inventory problem.
Banks also seem to be slowing the foreclosure process, according to Sharga. They are not sending out foreclosure filings as quickly when homeowners fall behind on payments.
Part of that is because some new state regulations require banks to notify delinquent borrowers of their intent to file notices of default, and to offer help to borrowers who want to get their finances back on track. Banks simply lack the manpower to track down so many delinquent homeowners with the required notifications. This creates a delay between the time that borrowers first miss payments and when they go into foreclosure.
After one such rule took effect in California this past summer, notices of default fell by half, to 21,665 from 44,278. But they jumped back to more than 44,000 again in December, probably because banks caught up on many of the postponed notices.
"The recent California law, much like its predecessors in Massachusetts and Maryland, appears to have done little more than delay the inevitable foreclosure proceedings for thousands of homeowners," said Saccacio.
Falling home prices
Foreclosures are closely tied to home prices - they tend to rise as prices fall. And nationally, home prices have fallen more than 21% from their peak, according to the S&P/Case-Shiller Home Price index. In many areas, the decline has been much worse.
In Los Angeles, San Francisco and Miami prices are down 30% or more. They've fallen more than 40% in Phoenix and nearly that much in Las Vegas.
Declining prices put many homeowners "underwater" on their mortgages, owing more than their homes are worth, which makes them more likely to default.
And adding a flood of bank-owned homes to already slow markets further outstrips demand and dampens prices, creating a spiral of lower prices and higher foreclosures.
As a result, more homeowners who fall behind on their mortgage payments end up losing their homes, according to Jay Brinkman, the chief economist for the Mortgage Bankers Association
In California and Florida 80% of the homeowners who miss a payment end up in foreclosure, according to the MBA. That's a much, higher percentage than in the past.
"The number of mortgages 30 days past due are still below what they were during the 2001 recession," said Brinkman. But the proportion of those loans that went into foreclosure was much lower, he added - about 10%.
"Delinquency itself has become a much clearer predictor of foreclosure," said Sharga.
If home prices keep plunging, the foreclosure scourge will likely continue.
And S&P's chief economist, David Wyss, expects home prices to continue to decline, bottoming in early 2010 roughly 33% below their 2006 peak.
Worst hit areas
The three states hit hardest by foreclosure in 2008 were Nevada, Florida and Arizona. In Nevada, 7% of homes received a foreclosure filing - such as a notice of default, auction sale notice or foreclosure sale - during the year, up 126% from 2007.
Florida filings soared 133%, hitting more than 4.5% of all households, while Arizona filings jumped 203%, also to about 4.5%.California had the highest total number of filings for any state, 523,624, more than double 2007 levels.
Stockton, Calif. had the highest rate of foreclosures of any metropolitan area, at 9.5%. Las Vegas was second with 8.9% and Riverside/San Bernardino Calif. was third with 8%.
Of the top 20 cities for foreclosures, most are in the Sun Belt, with the exception of Detroit at number 10, Memphis, which ranked 18th and Denver which was 19th.
Jobless claims surge
Number of Americans filing for unemployment benefits breaks half-million mark for first time in 2009...Lara Moscrip
NEW YORK (CNNMoney.com) -- The number of Americans filing for first-time unemployment benefits rose more than expected last week to 524,000, breaking the half-million mark for the first time in 2009, according to a government report released Thursday.
The Labor Department said that initial filings for state jobless benefits rose 54,000 for the week ended Jan. 10.
Economists polled by Briefing.com expected the reading to rise to 501,000 claims.
Jobless claims were revised upward to 470,000 from 467,000 for the week ended Jan. 3.
The last time jobless claims exceeded the half-million mark was the week that ended Dec. 20, when claims surged to a 26-year high of 589,000.
Ian Shepherdson, an economist with High Frequency Economics in New York, said that the impact of the Christmas and New Year's Day holidays continue to cloud the data of the weekly report.
However, he thinks that that jobless claims will rise and he doubts that the peak in claims will be reached before fall.
"The weekly numbers are always volatile, but we think a peak above 750,000 is a reasonable, if very depressing, expectation," Shepherdson wrote in a research note.
Joshua Shapiro, an economist at Maria Fiorini Ramirez Inc., said the data should begin to show the data should begin to show the direction of the job market by early next month. But he said the report, despite the seasonal volatility, points to more hard times.
"Both initial and continuing claims point to a significant rate of deterioration in labor market conditions," Shapiro said in a statement.
A four-week average of new unemployment claims fell by 8,000, to an average of 518,500 a week from 526,500 the week prior.
The four-week moving average is designed to smooth out some of the week-by-week fluctuations, and give a broader view of the U.S. job market.
The number of people continuing to collect unemployment insurance for one week or more fell by 115,000 to 4.49 million in the week ended Jan. 3, the most recent data available.
Over the previous four weeks, the number of people on unemployment for one week or more increased by 27,500 to an average of 4.49 million a week, the government said.
The greatest number of layoffs were reported in New York, North Carolina, Georgia and South Carolina.
Many economists believe that in order to create demand for goods and services, the government needs to revamp the economy with stimulus and deficit spending.
President-elect Barack Obama is trying to gain support for his plan to save or create 3 to 4 million jobs by the end of 2010.
His proposal includes an expansion of safety net programs, including help to cash-strapped states to pay for unemployment benefits.
For BofA, nothing fair about Merrill deal
Investment bankers made $20 million for a weekend's work blessing a deal that has gone bad, dragging down BofA and the whole banking sector...Colin Barr, senior writer
NEW YORK (Fortune) -- Bank of America's reported plea for more federal help has dealt another black eye to both the entire banking sector and the badly bruised financial advisory business.
Shares of Charlotte-based Bank of America (BAC, Fortune 500) plunged 20% to a 14-year low Thursday morning. According to several news reports, the government is likely to be forced to provide BofA with a new round of taxpayer funding due to rising losses tied to the bank's acquisition of Merrill Lynch.
The news overshadowed the fact that BofA rival JPMorgan Chase (JPM, Fortune 500) reported a surprise fourth-quarter profit Thursday morning, and raised more fears about how dire the financial conditions may be for many leading banks.
The KBW Bank index tumbled 8% to its lowest level since 1995. Citigroup (C, Fortune 500), which is widely expected to report its fifth-consecutive quarterly loss and a major reorganization Friday morning, plunged 17% Thursday. And Wells Fargo (WFC, Fortune 500), which has been considered by analysts to be one of the better-run banks during the credit crunch, slipped nearly 13%
But BofA's latest problems also add to the questions that have been swirling about the bank's decision, reached early on the morning that Lehman Brothers collapsed in mid-September, to pay billions of dollars to acquire Merrill. The big brokerage firm has been hit hard by bad bets on mortgage-related securities.
BofA completed the Merrill deal Jan. 1 - but only after receiving assurances that the government would help defray losses tied to the Merrill deal, The Wall Street Journal reported late Wednesday.
But CEO Ken Lewis' decision to buy Merrill isn't the only thing that looks questionable now. So does the advice he and the BofA board got on the hastily arranged Merrill deal from the bank's advisers, Fox-Pitt Kelton and J.C. Flowers & Co.
The financial advisers offered opinions calling the deal fair to Bank of America shareholders. But that conclusion seems to be undermined by the plunge in Bank of America's shares in the months since the deal was announced, and the bank's apparent need for another capital infusion from the government.
BofA already has received $25 billion, including $10 billion as part of the Merrill Deal, from the Treasury Department via the Troubled Asset Relief Program, or TARP.
What's more, the bank's shareholders paid the advisers $20 million for the opinions - which the firms formulated after investigating Merrill Lynch's condition over a single, hectic weekend.
BofA and J.C. Flowers didn't return calls seeking comment, and Fox-Pitt Kelton declined to comment.
Anatomy of a hurried deal
The proxy documents mailed to the banks' shareholders this past fall describe the background of the hastily arranged deal.
According to the proxy documents, Merrill chief John Thain called Lewis the morning of Saturday, Sept. 13 to propose a possible partnership in which BofA would take a stake in Merrill. Lewis replied that he wasn't interested in taking a minority interest in the brokerage firm but would consider a full-fledged takeover. They agreed to continue to talk.
"Following that afternoon meeting, and in view of the need to move expeditiously in light of the apparently imminent bankruptcy of Lehman Brothers and deteriorating market conditions," the proxy states, "both companies began to arrange meetings among members of management and their advisors to discuss the challenges and benefits of a transaction and to undertake their respective business, financial, operational and legal due diligence investigations."
Among the firms summoned by the BofA board were Fox-Pitt Kelton and J.C. Flowers. The next day, according to the proxy documents, BofA senior management and the advisory firms offered the bank's board the findings of their due diligence investigation.
BofA management presented the board with a proposal to buy Merrill in an all-stock deal that, at the time, was valued at nearly $50 billion.
J.C. Flowers and Fox-Pitt found that the proposed price was "fair, from a financial point of view, to Bank of America," the proxy document says.
The Bank of America board approved the deal on the morning of Monday, Sept. 15. "Acquiring one of the premier wealth management, capital markets, and advisory companies is a great opportunity for our shareholders," Lewis said in a press release issued that day.
For their work that weekend, Fox-Pitt Kelton and J.C. Flowers got "an aggregate amount" of $20 million from BofA, the proxy filing said, in addition to reimbursement for out-of-pocket expenses and indemnification "for certain liabilities that may arise out of its engagement by Bank of America and the rendering of its opinion."
Lewis has been second-guessed about his decision to pay a premium price for Merrill ever since the deal was announced. Because BofA shares fell so sharply between the Sept. 15 announcement and the Jan. 1 close, the transaction was worth $19 billion when it was completed.
"Some think that we should've waited till Monday and see if they would've gone bankrupt," Lewis said an interview aired on CBS' "60 Minutes" on Oct. 19. "Some think we would've gotten it for, you know, dirt cheap. But my point is, you would have a tarnished brand. You would've had chaos."
Considering that BofA's stock has lost three-quarters of its value in the four months since the Merrill deal was announced, and that the bank is likely to need more help from the government, it seems Lewis and his investors may be getting their chaos anyway.
Financial Times (UK)
Foreclosures surge 81 per cent in 2008...Alan Rappeport in New York
Foreclosure activity among US properties surged last year as the number of default notices, auction sales and bank repossessions jumped by 81 per cent, according to new figures from RealtyTrac.
The number of foreclosures grew to more than 3m in 2008 and 1.84 per cent of all US homes received at least one filing. There were 225 per cent more filings than in 2006, before the housing market collapsed.
”Clearly the foreclosure prevention programmes implemented to-date have not had any real success in slowing down this foreclosure tsunami,” said James Saccacio, RealtyTrac’s chief executive.
Foreclosure filings jumped by 17 per cent in December from the month before, in spite of new laws in states such as California, Massachusetts and Maryland which required lenders to warn residents a month before issuing a default notice. Democratic policymakers have asked for at least $40bn of the next tranche of the troubled asset relief programme to be used to help struggling homeowners stave off foreclosure.
States with the highest rates of foreclosure included Nevada, Florida and Arizona. California had the most foreclosure of any state last year with 523,624.
The number of homes that were lost to foreclosure also more than doubled last year, jumping from 404,000 in 2007 to 861,000 in 2008.
According to a report from PMI Mortgage Insurance, US home prices will continue to fall until the third quarter of 2010. Prices have dropped by 23 per cent since peaking in mid-2006.
“This doesn’t bode well entering 2009,” said Rick Sharga, senior vice president of RealtyTrac. “I think we’re going to hit a new peak in foreclosure activity.”
JPMorgan chief attacks mortgage plan...Francesco Guerrera in New York
Jamie Dimon, JPMorgan Chase’s chief executive, on Thursday attacked a proposed law to allow judges to modify mortgages, saying it would have a “chilling effect” on consumer lending and lead to an increase in personal bankruptcies.
Mr Dimon’s criticism of the planned legislation, which has received the surprise backing of Citigroup, came as JPMorgan reported a slump in fourth-quarter earnings to $702m – 76 per cent below last year’s levels.
The results were in line with analysts’ expectations and JPMorgan shares were flat in late morning trading in New York, bucking sharp falls in other banking stocks.
However, Moody’s downgraded the bank’s credit rating, saying the credit crunch and the US recession could lead to a series of quarterly losses in 2009.
Under the planned mortgage law, which has the backing of congressional Democrats, judges would be allowed to modify the principal and interest rates on mortgages in an effort to stave off a wave of defaults.
But Mr Dimon said the proposal would leave banks at the mercy of “the vagaries of the courts”, making them less willing to lend to consumers for fear that their loans would be significantly modified or never repaid.
“If this is not done the right way, it will have a chilling effect not just on mortgages but on consumer lending,” he said.
Banking lobby groups have also opposed the proposed law, but Citi, which has been rescued by the government in exchange for the rights to a large stake, surprised the industry last week when it backed the plan.
In the fourth quarter, JPMorgan, which has navigated the crisis better than most rivals, was hit by a $2.9bn mortgage-related writedown in its investment bank and a $4.1bn increase in reserves against future loan losses. These were partially offset by a $1.1bn gain from last year’s purchase of the stricken lender Washington Mutual, a $627m gain on the sale of a payment systems joint venture and an $854m profit from its mortgage servicing operation. For the whole of 2008, JPMorgan reported net income of $5.6bn, 64 per cent lower than in 2007.
People close to the situation said JPMorgan’s investment bank, which recorded a $2.4bn loss in the quarter, would have at least broken even had it not been for the losses incurred on assets acquired when it bought Bear Stearns last year.
1-20-09 Merced City Council Redevelopment Agency agenda..Tuesday...7:00 p.m.
1-21-09 Merced City Planning Commission meeting...Wednesday...7:00 p.m.
Agendas are posted the Monday before a Wednesday Planning Commission Meeting.
1-22-09 LAFCo agenda...10:00 a.m.