In Business and Financial News:
A Zen Starbucks…
At a Starbucks (SBUX) store you can get a cup of tea, but you can’t get a cup of coffee at the chain’s first teahouse, Teavana Fine Teas + Tea Bar. The new tea bar opens its doors on Thursday in Manhattan. Patrons expecting the new tea bar to be a clone may get disappointed. According to Starbucks CEO Howard Schultz in a phone interview the difference between a Starbucks coffee shop and a Teavana teahouse “is like night and day,” describing the new tea bars as much more Zen-like. The store looks very different from Starbucks with fashionably gray walls, light wood and museum-esque lighting. The most striking feature visually in the store is the Teavana “Wall of Tea,” with a range of loose-leaf teas and tea blends. It’s a high-profile baby step into the $90 billion global tea market for the coffee brand.
Starbucks is scheduled to open a second Teavana in Seattle around Thanksgiving. Starbucks hopes to open at least 1,000 more of its own Teavana bars in North America and many more outside the U.S. in the next 5 years.
You Are Liable…
On Wednesday, Bank of America (BAC) was found liable of fraud for a program dubbed “the Hustle,” which caused millions in losses for Fannie Mae and Freddie Mac. The civil verdict by a Manhattan federal court jury also found the bank’s Countrywide Financial unit liable and established that former Countrywide executive Rebecca Mairone committed fraud while overseeing the loan-origination program. If you remember, Bank of America acquired Countrywide in July 2008 right before the financial crisis.
The Hustle program was officially known as the HSSL (High Speed Swim Lane) in 2007, as the real estate market started to collapse and the market for subprime mortgage loans dried up. The program’s aim was to move away from handling subprime loans and towards handling prime mortgage loans, where the borrowers had higher credit ratings and could afford larger down payments. During the trial, federal prosecutors charged that the program’s design was to have loans always move forward, never backwards, and to remove “toll gates,” like fraud, that could slow the loan approval process down. Employees of the HSSL program assigned to the program received bonuses based on the volume of mortgages approved, a dramatic turnabout from previous metrics that focused more on loan quality, prosecutors charged. An internal quality review by Bank of America in January 2008 found that 57% of Hustle loans defaulted; thousands of loans approved under the program were ultimately sold to Fannie and Freddie.
Caterpillar Inc’s (CAT.N) bet on the global commodity boom came back to haunt the company on Wednesday as the heavy equipment maker posted a lower-than-expected profit. Caterpillar posted a third quarter profit of $946 million, or $1.45 a share however, the numbers were down from $1.7 billion or $2.54 a share, a year earlier. Caterpillar sales, including revenue from financing, fell 18% to $13.42 billion. The company also cut its full-year forecast (guestiment) and provided a first glimpse of 2014 when they suggested further weakness from global mining customers would continue to strain sales for the rest of this year and into next year.
In 2011 the company bet mining would soar with the $8.8 billion purchase of Bucyrus International, maker of bus-size shovels used to scoop ore. Caterpillar bought Bucyrus near the top of the mining boom and paid a premium for the company. Soon after the deal China, who accounts for nearly half of global demand for construction equipment, began to struggle. Caterpillar was forced to take a $580 million write-down on the company’s acquisition of a Chinese maker of mining machinery which the company bought for $700 million in 2012. The news sent shares of the company tumbling, closing down 6.07%.
In The Markets:
Asian markets closed in the red Thursday on news the PBOC (People’s Bank of China) refrained from pumping money into the system for the third straight session reminding investors of the tight liquidity conditions back in June.
European markets slid backward from their multi year highs on Wednesday. Investors stopped playing the taper question and instead started to realize the US economy is showing signs of sluggishness.
US markets closed down on Wednesday as a mixed bag of earnings had investors wondering if the economy has indeed started to slow down. DJIA: -54.33 15413.33 NASDAQ: -22.49 3907.07 S&P 500: -8.31 1746.36
In Dinner or Drink:
2/3 Bacardi® Limon rum
2/3 DeKuyper® Watermelon Pucker schnapps
Equal Parts of Limon and Pucker. Fill the rest with sprite. Squeeze two limes and throw away. Stir do not shake!
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