Wednesday PM October 7th, 2009

Consumers continue to reduce borrowing…Property managers preserve value by maintaining assets during slow economy…Airlines add surcharges for holiday travel…

Consumers reduced their borrowing for the seventh straight month in August, as households trim spending and banks reduce credit card limits. The Federal Reserve says total consumer debt outstanding fell in August by $12 billion–a 5.8 per cent annual rate. That follows a downwardly revised drop of $19 billion, or 9.1 per cent, in July. Wall Street economists expected a $10 billion decline in August. Most of the cut was in credit card and other revolving debt, which dropped $9.9 billion, or 13.1 per cent. Auto loans and other debt fell by $2.1 billion, or 1.6 per cent. Consumers are spending less and saving more in response to widespread job losses, stagnant wages and dwindling home values. Banks also are reducing credit limits on millions of credit cards.

Anheuser-Busch Inbevsays it’ll sell its ten theme parks, including its three Seaworlds and two Busch Gardens across the country. One of the Seaworlds is in San Antonio. The brewer is selling the parks to private equity firm Blackstone Group for at least $2.3 billion. The Belgium-based world’s largest brewer is selling the parks to private equity firm Blackstone Group for at least $2.3 billion. Anheuser-Busch Inbev has been shedding assets to help pay for Inbev’s $52 billion takeover of St. Louis-based Anheuser-Busch last year. New York-based Blackstone will pay $2.3 billion in cash and give Anheuser-Busch Inbev the right to up to $400 million of Blackstone’s initial returns. Blackstone’s other investments include Universal Studios Orlando and Madame Tussauds wax museums.

CB Richard Ellis says property management revenues within Houston are really not that bad. Foreclosures in Class C buildings now being seen in Houston, for example, were seen in other markets 18 months ago. Mark Nicholson is Managing Director of Asset Services for CB Richard Ellis.


“Well, for property management, the buildings don’t go away. The deals may go away and some of the money’s going away, but the asset remains. And so whether it’s in foreclosure or whether it’s half-occupied or full-occupied, the building still has to be maintained to preserve value either for the owner, for the receiver, the courts, or whoever has it, so asset services typically does better in these kinds of situations because if the developer can’t contain it or can’t control it, if somebody takes it back, then they have to have somebody to manage it.”

CB Richard Ellis has taken over only one foreclosure this year.

Flying around the holidays is already more expensive and could get more so. Several big airlines have added $10 surcharges for busy days around the holidays. Last month airlines added a $10 each-way surcharge for November 29th (the Sunday after Thanksgiving) and January 2nd and 3rd. Now, CEO Rick Seaney notes that the same airlines have added ten more days: November 30th; December 19th, 26th and 27th; March 14th, 20th, 21st, 28th; April 11th; and May 28th. He said the surcharges have been added by Delta Air Lines and Northwest, American Airlines, United Airlines, Continental Airlines and US Airways. Seaney said discounters such as Southwest and jetBlue appear to be avoiding the surcharges.

Southwest Airlines said its September traffic rose 8.8 per cent, as the airline cut capacity but filled a greater percentage of its seats. The Dallas-based airline flew a total of 5.8 billion revenue passenger miles, or one seat flown one mile with a paying customer, up from 5.3 billion in September 2008. Available seat miles, or capacity, fell 7.8 per cent to 7.7 billion from the 8.4 billion. Load factor, or occupancy, rose to 74.7 per cent from 63.4 per cent in the year-ago period. For the first nine months of the year, revenue passenger miles rose 0.1 per cent to 56.3 billion, while available seat miles fell 4.3 per cent to 74.5 billion and load factor rose 3.3 percentage points to 75.6 per cent.

A $13 million contract from the Army Aviation and Missile Life Cycle Management Command has been awarded to BAE Systems. BAE in Sealy will make 64 increased crew protection cab upgrades for the High Mobility Artillery Rocket System, according to the Houston Business Journal. The order also includes 65 cab up-armor appliqué kits and spares to replace unarmored cabs on Army and Marine vehicles. BAE Systems is challenging the army’s decision to switch a multimillion-dollar vehicle manufacturing contract to a Wisconsin competitor.

Dell says it will close a desktop computer manufacturing plant in Winston-Salem, North Carolina by the end of January. The computer maker said that 905 people will be laid off, with around 600 to be let go next month. The plant closure is part of a plan to save $4 billion a year at Dell by 2011. In June, Dell sold its Lebanon, Tennessee, remanufacturing plant to Genco. In January, Dell said the company would move its Ireland manufacturing operations to Poland, a process that is still ongoing. Dell has plants in Miami; Nashville; Austin, Texas, Brazil; Ireland; Poland; China; Malaysia and India. It also partners with other manufacturers to make certain products.

ConocoPhillips is selling $10 billion of assets over the next two years, as it cuts capital spending in 2010 to reduce debt. The Houston-based company is cutting capital spending 12 per cent to $11 billion—down from $12.5 billion this year. ConocoPhillips is trying to cut its debt-to-capital ratio from 34 per cent to a range of 20 to 25 per cent.

ExxonMobil has bought Kosmos Energy’s stake in oil blocks offshore the West African country of Ghana. The Wall Street Journal reports the blocks are in an area that contains huge crude discoveries. It reports the deal would be the first by one of the world’s largest oil companies in the area. Bankers have put a value on the stake at $3 billion to $4 billion. Irving-based ExxonMobil declined to comment on the report. A message seeking comment was left with Dallas-based Kosmos Energy. The country’s jubilee field plus a separate discovery off Sierra Leone last month have signaled the potential for multibillion-barrel finds in an area that stretches through the waters of the Ivory Coast and Liberia. Ghana’s president said nearly two years ago that offshore oil reserves totaled three billion barrels.

The Securities and Exchange Commission says it plans to appeal a federal judge’s dismissal of the agency’s insider-trading lawsuit against Mark Cuban. The SEC filed a notice that it plans to take its case to the 5th U.S. Circuit Court of Appeals in New Orleans. The outspoken billionaire owner of the NBA’s Dallas Mavericks was accused in a civil lawsuit of selling his shares and avoiding a $750,000 loss after receiving confidential information about the Internet search engine company in 2004. U.S. District Judge Sidney A. Fitzwater dismissed the case in August. He said the agency didn’t allege that Cuban had agreed not to trade on confidential information.

The Senate has approved an amendment prohibiting government contracts with companies that require employees to resolve sexual assault allegations and other claims through arbitration. The measure sponsored by Democratic Senator Al Franken of Minnesota was attached to a larger defense spending bill. It passed on a vote of 68-30. Franken says he sponsored the measure in response to the case of former KBR employee Jamie Leigh Jones. Jones alleges she was raped by coworkers while working in Iraq. She went public with her story in 2007. Jones is suing Halliburton and its former subsidiary KBR. The company says her employment agreement requires her to resolve the claim through arbitration.

Regulators and investor advocates have been voicing support for a proposal that addresses consumer protection and would bring investment funds under government supervision as part of Congress’ efforts to revamp the U.S. financial rule book. Republicans objected to key elements of the plan and said the Democrats crammed too many complex topics into one sparsely attended hearing of the house financial services committee. The draft bill would also give the federal government some oversight over the insurance industry now regulated by the states. It calls for the creation of a federal insurance office within the Treasury Department to monitor the industry and watch for potential risks. Insurance industry players at Tuesday’s hearing were split over the proposal. Meantime, House Democratic Majority Leader Steny Hoyer says the entire package of changes is designed to prevent another financial meltdown. He says it could be put to a House vote next month.

Used vehicle prices rose to an all-time high in September, spurred by falling used car inventories. The Manheim Used Vehicle Value Index jumped 6.9 per cent to an all-time high of 188.5 in September. In the index, 100 represents January 1995’s used vehicle prices. The index reflects wholesale vehicle values, or trade-in values. But Tom Webb, chief economist with Manheim Consulting, says retail used vehicle prices rose “in lockstep.” Webb says that’s because used vehicle inventories remain low. As fewer people buy new cars, they trade in fewer used cars, pushing prices higher. New vehicle sales tumbled 23 per cent in September and are down 27 per cent all year.

The nation’s largest farm worker union has filed a lawsuit on behalf of ten eastern Washington dairy farmers who contend they’ve been fired for trying to unionize. It’s just the latest action from a union looking to increase ranks among tens of thousands of farm workers in Pacific Northwest agriculture. The union already represents 150 vineyard workers at the region’s largest winery and 250 workers at a Boardman, Oregon, dairy–marking it the first unionized agricultural operation in that state. And the union reached an agreement this summer with Beef Northwest to represent about 100 workers at cattle feeding yards in two states. The union says it’s held four major organizing campaigns in the northwest in the last five years and membership has quadrupled to about 600 workers.

A Portsmouth company that makes control valves for the biopharmaceutical industry is leaving New Hampshire and taking 90 jobs to Texas. The Fisher Controls Division of Emerson Process Management told its employees of the plan on Tuesday. The Pease International Tradeport Facility will close on December 31st. The company was founded by Rye resident Hans Baumann in 1977. It was acquired by Emerson in 1995. It moved to the Tradeport in 2002. The operation will be relocated to Sherman, Texas. The Portsmouth Herald says some New Hampshire employees will be able to move to Texas. The company says the shift is due to changing market dynamics and the need to streamline operations.

Silicon Valley investors say if something called cleantech catches on, it could be the next big economic driver. Cleantech involves alternative energy, more efficient power distribution and new ways to store electricity, all with minimal impact to the environment. Despite last fall’s financial meltdown, public and private investments are pouring in, fueling startups and reinvigorating established companies. Experts point out some of the biggest booms first blossomed during recessions. The Obama administration is pledging to invest $150 billion over the next decade. Jack Brown of the University of Virginia says the government’s push for these developments parallels the expansion of railroads in the 19th century. Back then, the government granted blocks of land to companies laying track.

A judge in Frankfort has upheld the constitutionality of Kentucky’s law against price gouging. The ruling by Franklin Circuit Court Judge Thomas Wingate allows a lawsuit by Attorney General Jack Conway against Marathon Petroleum to continue. The Lexington Herald-Leader reported marathon petroleum and its subsidiary Speedway Superamerica–both divisions of Marathon Oil–challenged the statute after the suit was filed in May 2007. Conway alleged the company jacked up wholesale and retail prices of gasoline during declared states of emergency during Hurricanes Katrina and Rita. The attorney general is seeking $89 million in damages plus penalties against the companies.

Microsoft may be nearing the end of a long and costly antitrust battle with European Union regulators. The deal would give windows users a choice of Web browsers. Microsoft promised the changes after the EU charged it with monopoly abuse for tying the Internet Explorer browser to the Windows operating system installed on most of the world’s desktop computers. The European Commission says it will formally seek feedback from computer manufacturers, software companies and consumers on Friday. They have a month to respond to regulators. Microsoft’s offer would allow users to pick one of 12 browsers when they install Windows. They have a month to respond to regulators. If the feedback is positive, that could see Microsoft’s offer turned into a legally binding settlement to last five years.

AT&T will begin allowing users of Apple’s popular iPhone, to use Internet calling services on its wireless network. The exclusive wireless provider for iPhone previously allowed Internet calling services to work on the popular device only over wi-fi connections. Those connections generally have limited mobility and therefore present less of a competitive threat to AT&T’s core wireless calling business. The move comes amid a Federal Communications Commission inquiry into competition in the wireless industry. Among other things, that inquiry will examine handset exclusivity deals, such as AT&T’s deal with Apple giving AT&T exclusive access to the iPhone. is cutting the price of its Kindle e-book reader yet again and introducing a version that can wirelessly download books outside the U.S. The online retailer hopes to spur more sales and keep the Kindle ahead of a growing field of competitors. Amazon is dropping the Kindle’s price by $40 to $259. Amazon last lowered the price to $299 from $359 in July. Amazon also said it will start selling a $279 version of the Kindle that will work in 100 countries and be sold outside the U.S.

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