On the last day of 2009, the state of Missouri gave $19.6 million to developer Paul McKee.
It came in the form of tax credits, from a program never before used, to pay back some of the cost of the land McKee spent five years secretly buying in north St. Louis.
It was a good day for McKee, and for his hugely ambitious $8.1 billion NorthSide project.
It was also a good day for his bankers.
Because after McKee sold the tax credits for cash, he used the money not on NorthSide itself but to pay down his debt, mostly to the small Washington, Mo., bank that is his primary lender on the project.
Yet nearly half of the $19.6 million was reimbursement for interest and fees already paid to lenders. In a sense, the bank got some added protection and a quick payback.
This is exactly how the new tax credit program was intended to work, supporters say. The credits provided the backup a bank needed to see before accepting the risk of financing a long, complex process of assembling land in beleaguered north St. Louis neighborhoods.
"We’ve got to understand, these are high-risk loan areas," said Missouri Sen. John Griesheimer, who pushed the Distressed Areas Land Assemblage tax credit in the Capitol. "This is where bankers and developers don’t want to go."
But the way the program has worked so far speaks to the heart of a lawsuit against it to be heard this week in Cole County. The tax credits won’t create jobs, said attorney Irene Smith. They won’t build buildings or generate any other public good, at least not directly.
"You’re basically just incentivizing the collection of land," she said. "You’re not incentivizing any development."
When state lawmakers established the program in 2007, they designed it to encourage lending on a speculative project such as NorthSide, something risky that might take years to pan out. Indeed, many say it was written specifically for McKee.
Griesheimer, a Republican from Washington, Mo., chairs the Senate’s economic development committee and helped author the credit. Early on in that process, he said in a recent interview, the senator consulted with McKee and with L.B. Eckelkamp, a constituent of his and chief executive of McKee’s primary lender, the Bank of Washington.
They met, Griesheimer said, "to explain what they needed." And after talking with a few other experts, he inserted the tax credit program, worth $95 million, into a massive state economic development bill. It had the vocal support of Lt. Gov. Peter Kinder, St. Louis Mayor Francis Slay and St. Louis County Executive Charlie Dooley. And it passed.
The measure included a 100 percent reimbursement for money spent on interest and loan fees to buy at least 50 acres of land in low-income neighborhoods, and a 50 percent reimbursement for the cost of land itself. It was structured that way, Griesheimer said, to protect any banker willing to take a chance on a major project such as this. It was, he said, the only way NorthSide would happen.
"It was a very high-risk area," he said. "The banks and everybody wanted to make sure that they’re going to recoup at least some of their losses, some of their money."
Indeed, beyond a $27 million loan from the Bank of Washington, McKee has struggled to attract lenders, even with the support of the tax credits. He has pitched NorthSide to a number of local banks, but none has publicly committed to him.
The Bank of Washington’s money did not come cheap. Since 2005, McKee’s NorthSide Regeneration has paid at least $9.25 million in interest and fees on loans held by the bank, according to documents obtained from the Missouri Department of Economic Development under state open records laws. Another $529,000 in interest went to a small Illinois bank that’s now defunct. Now, every cent of that has been reimbursed by the state.
In a recent e-mail, McKee acknowledged that his interest costs were high. But so, he argued, was the risk.
"The loans were unique," McKee wrote. "They were the only loans made in decades for large-scale site development in north St. Louis that were not backed by government guarantees."
Once he sold the tax credits in January, McKee used the proceeds to pay a substantial portion of his debt. The bank "required a pay down," he wrote, and it makes sense for the project. Paying off debt will reduce interest payments — which were nearly $3.8 million last year — and free up cash for actual redevelopment.
But some say all this focus on protecting lenders reflects misplaced priorities.
"Half of the money is going to pay interest on loans," Smith said. "What public benefit do we gain from a tax credit being used to pay someone’s interest?"
That question will be up to a judge.
Smith said she planned to focus her case on the constitutionality of the tax credits, an issue, she says, that’s never been thoroughly vetted in court. It’s a fairly narrow legal question, Smith said, and she expects the trial, set for Wednesday, to be brief.
In the mean time, McKee continues to buy property in north St. Louis.
His tax credit application says he has spent $25.1 million on 98 acres across two square miles near downtown. It estimates another $66 million in land-buying costs to come. And there’s still about $75 million in the pot of money available through the Distressed Areas credit; McKee’s financial plans project his getting nearly all of it.
Even the program’s critics express little surprise in how it’s been used so far. In floor debate three years ago, Sen. Brad Lager, R-Savannah, raised questions about so much reimbursement for borrowing costs and whether the state should spend $95 million on this sort of project. But he lost that debate.
"And right, wrong, or indifferent, they’re using the credit exactly how it was written," Lager said recently. As for whether it will work, he said: "Only time will be the judge."
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Tampa Bay Sports and Entertainment LLC is officially the new owner of the Tampa Bay Lightning.
Jeff Vinik, a Boston-based asset manager, avid hockey fan, and minority owner of the Boston Red Sox, controls the company.
Terms of the deal that closed Wednesday were not disclosed. The purchase also includes the lease to the St. Pete Times Forum and ownership of adjacent real estate, the club said in a release.
Vinik becomes the Chairman of the Lightning and the club’s Governor on the National Hockey League’s Board of Governors. Earlier Wednesday, the NHL Board of Governors approved the acquisition of the team unanimously. A purchase agreement to buy the team on Feb. 4, 2010
“The Lightning is a great franchise in a terrific community,” said Vinik in a prepared statement. “We thank [former owner] Oren Koules and his partners for beginning the turn-around of the Lightning hockey club. Our goal now is to build a world-class organization, on and off the ice.”
Vinik, 50, is the founder and chairman of Vinik Asset Management free credit score online. Prior to forming Vinik Asset Management, he managed Fidelity’s Magellan Fund, at that time the world’s largest equities mutual fund. A Phi Beta Kappa graduate of Duke University with a Bachelor of Science degree in Engineering and Economics, Vinik went on to earn his Masters of Business Administration degree from the Harvard Business School.
The team has scheduled a press conference March 5 to discuss the sale.
The Lightning was founded in 1990 by NHL Hall of Famer Phil Esposito and began play in 1992. The team won the Stanley Cup in 2004. Previous owners of the Lightning include Kokusai Green Ltd (1992-1998), Art Williams (1998-99), Palace Sports & Entertainment (1999-2008) and Lightning Enterprises LP (2008-2010).
The team currently has 20 games remaining in the 2009-10 regular season and it sits in 11th position in Eastern Conference, just two points removed from a playoff position.
Greece’s debt rating may be cut within a month as it struggles to pare the European Union’s largest budget deficit, driving up borrowing costs and renewing pressure on the euro.
Standard & Poor’s said late yesterday it may lower its BBB+ rating by the end of March and Moody’s Investors Service said today it may reduce its A2 grade in a few months. The warnings further complicate the government’s effort to persuade investors that it can slash its fiscal shortfall from last year’s 12.7 percent of gross domestic product.
The euro slumped to a one-year low against the yen, most stocks dropped and the premium on Greek 10-year bonds over German debt widened to the most since Feb. 8 on concern that the country may need EU assistance to avoid missing debt payments. Unions yesterday staged a strike to protest Prime Minister George Papandreou’s drive to slash spending.
“It’s getting more difficult than anticipated for the Greek government to implement the spending cuts it promised,” said Susumu Kato, chief economist in Tokyo at Credit Agricole Securities Asia. Further downgrades “may spread sovereign concerns through other European nations,” he said.
The country’s willingness to keep funding itself in the commercial bond market is key to S&P’s assessment, the company said. The rating could be pressured by lower profitability at the country’s banks or a decline in public support for the budget plan, it said. EU assistance could help if it was likely to lead to a “sustained reduction” in borrowing costs.
Two Grades
“We believe that a further downgrade of Greece of one to two notches is possible within a month,” S&P analysts led by Marko Mrsnik in London said in a statement.
Pierre Cailleteau, managing director of sovereign risk at Moody’s, said in an interview in Tokyo today it may act “in a few months” if policy makers appear to be deviating from their deficit-reduction plan. At the same time, Moody’s may stabilize its rating if Greece follows through with its austerity measures, he said.
“We have to let the government implement its plans,” Cailleteau said. “You can’t expect a government to be able to turn around public finances in a few days.”
S&P cut Greece’s rating in December from A- and signaled at the time it may reduce it again from BBB+. Moody’s lowered its rating by one step the same month.
ECB Rules
If Moody’s cuts its credit rating to the same level as the other major ratings companies, it could exacerbate Greece’s financial distress at the end of this year when the European Central Bank is due to revert to old collateral rules that were loosened during the global recession. Greek government bonds would then no longer be eligible as collateral at the ECB, making it even more difficult for the nation to borrow.
The euro dropped to 120.51 yen as of 11:20 a.m. in London from 122 cash advance america.03 yen in New York yesterday. It earlier touched 120.24 yen, the lowest since Feb. 24, 2009. The single currency has fallen about 6 percent against the dollar this year on concern Greece’s fiscal woes may extend to Spain, Portugal and other European nations seeking to pare budget gaps.
Credit-default swaps protecting the debt of Greece rose 10 basis points to 392, according to CMA DataVision. The spread between 10-year Greek bonds and similar-maturity German debt widened by 13 basis points, or 0.13 percentage point, to 352 basis points.
Tear Gas
Papandreou’s government is running into opposition at home to its strategy. Air-traffic controllers, customs and tax officials, train drivers, doctors at state-run hospitals and school teachers walked off the job yesterday to protest spending cuts. Police fired tear-gas and clashed with demonstrators in central Athens after a march organized by labor unions.
Greek bonds have slumped, driving up borrowing costs, as investors fear the government will fail to meet its pledge to cut its budget gap to 8.7 percent of GDP this year. It aims to cut the deficit below the EU’s 3 percent limit in 2012.
The premium investors demand to hold Greece’s 10-year securities instead of Germany’s rose to the most in more than two weeks.
The government needs to sell 53 billion euros ($72 billion) of debt this year, the equivalent of 20 percent of GDP. The yield on the country’s two-year note yesterday rose to the most since Feb. 9.
EU governments are looking for guarantees that Papandreou will slash spending before they spell out what help they may offer. EU and ECB officials visited Athens this week to verify that budget cuts are being implemented.
Additional Measures
Under proposals adopted this month by euro-area finance ministers, the Greek government will have to take additional measures to cut its budget gap if it fails to satisfy the European Commission next month that its current strategy is on track. These may include higher value-added tax, a levy on luxury goods, higher energy taxes and spending cuts, they said.
“There will be some conditions attached” to European assistance for Greece, Cailleteau said. “I don’t see the evidence that would justify these kinds of assertions that Europe will not help Greece.”
German, French and Greek voters are “in denial” about Greece’s ability to get its deficit under control without external aid, Barry Eichengreen, an economics professor at the University of California at Berkeley and author of a 2006 history of the European economy, said in a Bloomberg Television interview yesterday.
Finance Minister George Papaconstantinou said Feb. 23 that the government will do “everything it needs to meet” its targets and that any decisions on possible new measures will be announced after talks with European governments.
Toyota is planning to suspend production at two U.S. plants as sales lag following the automaker’s massive recall of its vehicles.
Mike Goss, a Toyota spokesman, said the company will retain all of its workers during the suspensions, which will take place at plants in Kentucky and Texas in the weeks ahead.
The temporary shutdowns are aimed at adjusting production levels following a series of recalls that forced Toyota to halt sales of some of its most popular models.
"We don’t want inventory to build up for our dealers," Goss said. "We can’t keep sending vehicles to dealers until they can start moving those vehicles."
He said the company has used other methods to slow production in the past, such as limiting overtime, but that "elimination days are kind of the final step in that process."
The Kentucky plant, where Toyota’s top-selling Camry is made, will not produce cars on Feb. 26. Goss said the plant could go dark on a few more days the following week, though no official plans have been made.
The Texas plant will halt production the week of March 15 and again in mid April. The plant, where Toyota makes Tundra pickup trucks, will be modified to begin producing Tacoma trucks during the suspension, Goss said.
Toyota has recalled more than 8.1 million vehicles worldwide for problems related to sudden acceleration and unresponsive break pedals, among other things. The company has apologized for the safety lapses and pledged to repair the recalled vehicles quickly.
Meanwhile, the number of customer complaints filed with federal safety regulators has spiked in recent weeks. According to the National Highway Traffic Safety Administration, there have been a total of 34 Toyota complaints alleging fatalities since 2000.
The widely publicized safety issues have taken a toll on sales. Earlier this month, Toyota said January sales fell 16% from a year earlier, worse than a forecast of a 12% year-over-year decline from sales tracker Edmunds.com.
To help revive sales, the automaker is considering a variety of incentive options aimed at drawing customers back into its showrooms.
At the same time, Toyota has launched a public relations campaign aimed at salvaging the company’s once-sterling reputation.
Toyota’s president, Akio Toyoda, and other company executives will take questions about the recall efforts Wednesday at a press conference in Tokyo.
The company has been ramping up lobbying, consulting and attorney teams ahead of appearances on Capitol Hill. Toyota is scheduled to go before two House committees next week and a Senate committee next month.
Money is overrated: In fact, pay has little, if anything at all, to do with motivation in the workplace. That’s the controversial argument put forth by best-selling author Daniel Pink in his new book, Drive: The Surprising Truth About What Motivates Us (Riverhead Books). "Pay for performance has to be exposed as folklore," he says.
Pink contends that, provided employees receive a baseline level of compensation, three other factors matter more than moola: a sense of autonomy, of mastery over one’s labor, and of serving a purpose larger than oneself.
One case in point: the results-only work environment at Best Buy’s Richfield, Minn., corporate offices. Beginning in 2008, salaried workers there were allowed to shape their work day, putting in only as many hours as they felt necessary to get their jobs done. Productivity increased by 35% and turnover fell sharply, according to The Harvard Business Review.
Hmmm. There may be something in all this — but the executives at Goldman Sachs (GS, Fortune 500) aren’t exactly busting a gut to adjust. Like others on Wall Street, the banking giant, which is expected to earn $6 per share in the fourth quarter, argues that fat bonuses are crucial to making its numbers.
Responds Pink, in a now common refrain: That’s precisely the attitude that led to the recent financial meltdown, as traders and mortgage brokers focused on short-term rewards that encouraged "cheating, shortcuts, and unethical behavior."
Moreover, the 45-year-old author and former Al Gore speechwriter cites social-science experiments and experiences at such workplaces as Google (GOOG, Fortune 500), JetBlue (JBLU), 3M (MMM, Fortune 500), online shoe retailer Zappos, and software companies Meddius and Atlassian.
In one 2005 experiment he describes, economists working for the Federal Reserve Bank of Boston tested the power of incentives by offering monetary rewards to those who did well in games that included recalling a string of numbers and tossing tennis balls at a target. The researchers’ finding: Over and over, higher incentives led to worse performance — and those given the highest incentives fared worst of all.
From this and other cases, Pink deduces that monetary inducements remove the element of play and creativity, transforming "an interesting task into a drudge." It’s even possible, he elaborates, for outsized rewards to have dangerous side effects, like those of a drug dependency in which a recipient requires ever larger doses. He cites neuroscientific testing that shows the promise of cash rewards activates a chemical surge in the brain similar to that brought on by cocaine or nicotine.
Pink says his approach isn’t just for knowledge workers — it can motivate even those doing less creative work. He points to Zappos, where call-center employees are not given scripts and are instead instructed to handle relations with customers in whatever way they think best. Turnover, ordinarily high at call centers, is minimal at Zappos.
Pink is aware that his company examples — no GE, no IBM, no Microsoft — hardly represent the commanding heights of the economy. But he thinks his approach will catch on, even in the biggest outfits. "Executives tend to be pragmatic, and in time they will respond," he says.
The Raleigh-Cary metro area was one of the few regions in the country to show job growth in the third quarter, signaling the area may be among the better performers pulling out of recession, according to a report released Tuesday by the Brookings Institution.
Unemployment in Raleigh-Cary was 8.6 percent in the third quarter, a 0.1 percent improvement compared to the second quarter. The modest growth is better than most of the top 100 metros evaluated by the Washington, D.C., think tank. Just 13 of the top 100 metros experienced job growth in the third quarter. The U.S. average for the top 100 metros was 9.6 percent unemployment, a 0.5 percent increase in unemployment in the third quarter compared to the second quarter.
Raleigh-Cary was also one of just 10 metro areas to show faster growth in jobs and gross metropolitan product in the third quarter compared to the second quarter, according to Brookings. Raleigh-Cary GMP increased by 1.1 percent in the third quarter compared to the second quarter instant payday loan.
Nationally, gross domestic product increased at a 2.8 percent annual rate in the third quarter. That was the first increase after four consecutive quarters of contraction. Brookings said the growth, along with other indicators such as increasing housing prices, are a sign that recovery is under way.
But Brookings cautioned that the recovery “seems fragile.”
“The output increase may have resulted largely from the replenishment of manufacturing inventories and from temporary federal policies: the ‘cash-for-clunkers’ program, the first-time home buyer tax credit, and the American Recovery and Reinvestment Act’s economic stimulus,” the report states. “As the effects of these policies recede, the recovery could slow or give way to yet another recession or a prolonged period of economic stagnation.”
Tampa-St. Petersburg hotel occupancy rates and revenue per available room were up for the week ending Nov. 5, while the U.S. hotel industry posted declines, according to national lodging research firm Smith Travel Research.
Tampa-St. Petersburg’s occupancy rate increased 11.8 percent to 52.2 percent, ranking the region among the top three out of 25 markets measured, a release from STR said.
The occupancy rate in Oahu Island, Hawaii, climbed 15.3 percent to 74.7 percent, and the rate in New Orleans, La. rose 13.1 percent to 67.6 percent, the release said.
The industry’s occupancy fell 4.9 percent to end the week at 47.6 percent in year-over-year measurements, the release said no faxing payday loan.
Along with Oahu Island and New Orleans, Tampa-St. Petersburg was one of only three markets to report an increase in revenue per available room for the week. The increase in Tampa-St. Petersburg was 1.8 percent increase to $44.70.
New Orleans posted a 42.4 percent increase to $101.72, and Oahu Island posted a 7.1 percent increase to $105.87.
The industry’s revenue per available room decreased 11.9 percent to $45.86, and the average daily rate dropped 7.3 percent to $96.25, the release said.
Bank of America said late Wednesday it planned to return the entire $45 billion in bailout money it received from the government over the past year.
The move would allow Bank of America, the nation’s largest lender, to wriggle free from a variety of government restrictions it has had to abide by, including pay caps for its top executives.
It could also smooth what has been a difficult search for a new chief executive.
Outgoing CEO Ken Lewis is scheduled to depart by year end. Bank of America’s board of directors originally hoped to select a successor by Thanksgiving.
"We believe that this is good news, not only for the U.S. taxpayer and our company, but for the country as it is a milestone indicating that public policy has succeeded in helping our industry and the economy begin to recover," Lewis said in a statement.
The payback would be made largely through the sale of $18.8 billion of securities that would convert into common stock, according to the company. The stock sale will be put to a shareholder vote in coming months.
In addition, the bank said it would supplement the $18.8 billion with $26.2 billion in cash.
Last fall, as the government tried to stabilize the financial markets, Bank of America received $25 billion in aid under the Troubled Asset Relief Program, or TARP.
That number grew to $45 billion in the following months as the bank sought to cover losses it absorbed through its purchase of Merrill Lynch at the height of the crisis in September 2008 payday loan online.
There had been speculation earlier this fall that the company was exploring options to pay back part of the money it had received from the government.
But many believed that it would be at least several more months before the Charlotte, N.C.-based lender could get completely out from under the government’s thumb.
The move, of course, will save Bank of America from having to make any further dividend payments on aid it received from the government. So far this year, the company has paid out $2.54 billion to the Treasury Department.
But exiting TARP won’t come without a cost. The company said it would reduce its fourth-quarter results by $4.1 billion as a result. The company is expected to report a loss of $524 million in the current quarter.
Bank of America noted however, it did not plan to exercise its right to repurchase warrants, or rights to purchase company shares, owned by the government.
Bank of America (BAC, Fortune 500) shares finished more than 1% lower in regular trading Wednesday, but jumped more than 3% on the news after the bell.
The U.S. economic recovery will extend into next year as manufacturing expands and the pace of firings abates, reports today indicated.
The Conference Board’s index of leading indicators, a gauge of the outlook for the next three to six months, rose 0.3 percent in October, preserving a string of gains that began in April. Other reports showed claims for jobless benefits held at a 10-month low and Philadelphia-area manufacturing accelerated.
The rally in stock prices, low short-term interest rates and slowing job losses that propelled the leading index signal consumer confidence and spending are likely to stabilize, limiting the risk the economy will retrench. The data supported Treasury Secretary Timothy Geithner’s forecast today that the emerging expansion will be sustained into 2010.
“It’s very clear that the economy is now expanding, but I don’t see it being a vigorous expansion,” said Michael Moran, chief economist at Daiwa Securities America Inc. in New York, who correctly forecast the leading index. “We are seeing a gradual improvement, but the key word is ‘gradual.’”
Stocks extended a global drop as concern grew that the rally outpaced the prospects for economic growth and Bank of America Corp. downgraded chipmakers. The Standard & Poor’s 500 Index fell 1.3 percent to close at 1,094.9, with Intel Corp. and Texas Instruments Inc. losing ground.
Economists forecast the leading indicators index would increase 0.4 percent, according to the median of 58 estimates in a Bloomberg News survey.
Geithner Forecast
“We expect continued growth in the fourth quarter and ahead in 2010,” Geithner said today in testimony before the Joint Economic Committee of Congress.
He urged Congress to pass a financial regulation overhaul intended to strengthen the banking system and guard against “market-driven excess,” to avoid a repeat of the worst crisis since the Great Depression. Congress is considering a plan that includes changes to oversight of large banks, consumer protection and derivatives.
Federal Reserve Chairman Ben S. Bernanke last week said “significant economic challenges remain” due to a weak labor market and reduced bank lending.
The number of Americans filing claims for unemployment benefits held at 505,000 in the week ended Nov. 14, matching the prior week’s reading as the lowest since January. The number of people collecting unemployment insurance dropped in the prior week, while those getting extended payments jumped.
‘Glacial Pace’
“The labor market is improving, but at a glacial pace,” said Tom Porcelli, a senior economist at RBC Capital Markets in New York, who had forecast claims at 503,000 . “People are having a hard time finding a job as companies remain wary of the economic recovery.”
President Barack Obama on Nov. 6 signed into law a plan to extend jobless benefits, expand a tax credit for first-time homebuyers, and provide tax refunds to money-losing companies. The measure gives jobless people as many as 20 additional weeks of unemployment assistance.
The president has also announced plans to convene a jobs summit at the White House next month.
Manufacturing in the Philadelphia region expanded in November at the fastest pace in more than two years, reflecting gains in orders and sales, figures from the Fed Bank of Philadelphia also showed today.
Factory Rebound
The bank’s general economic index rose to 16.7 this month, exceeding the median forecast of economists surveyed and the highest level since June 2007, from 11.5 in October. Readings greater than zero signal growth.
Six of the 10 components in the leading index contributed to last month’s increase, led by the difference between short- and long-term borrowing costs, fewer jobless claims and higher equity prices. A longer factory workweek, a rise in money supply and an increase in factory orders for consumer goods also helped. Weaker consumer expectations, fewer building permits, shorter delivery times and a drop in orders for business equipment limited the advance.
Manufacturers that export to China and other emerging economies are among companies profiting from growth abroad. Caterpillar Inc., the world’s largest maker of bulldozers and excavators, posted third-quarter earnings that beat analysts’ estimates and issued a full-year forecast that exceeded the highest prediction.
“We are seeing encouraging signs that indicate a recovery may be under way,” Chief Executive Officer Jim Owens said in a statement Oct. 20. “When it comes, it can come quickly, and we, our dealers and our suppliers will be prepared.”
The world’s largest economy probably expanded at a 3 percent annual pace from October through December after growing at a 3.5 percent rate in the prior quarter, according to the median estimate of economists surveyed earlier this month. That followed a 3.8 percent contraction in the 12 months to June, the economy’s worst performance since the 1930s.
A spate of attacks in Pakistan’s Punjab as Islamic militants work more closely with the Taliban has raised business concern in the province that generates more than half of the country’s economic growth.
Forty-two people were killed last month in Punjab, home to Pakistan’s largest bank and companies producing clothing for retailers Levi Strauss & Co. and Gap Inc. Recent increases in surveillance and arrests are unlikely to reverse the violence that killed more than 220 people in the province in the first 10 months of this year, 20 percent more than 2008, said Ayesha Siddiqa, a Punjabi researcher on military and security issues.
The Karachi Stock Exchange 100 Index fell 2 percent last month, the most since January and only the third negative month this year, as bombings and militant assaults in major cities nationwide hurt investor confidence.
“The implications of this war spreading to Punjab are pretty severe,” said Standard Chartered Plc economist Sayem Ali in Karachi. Punjab represents 55 percent of Pakistan’s gross domestic product, he said. With foreign direct investment down by 60 percent in the three months to September, “our domestic security problems cloud companies’ strategies for coming back into Pakistan any time soon.”
Since the army began its biggest anti-Taliban offensive on Oct. 17 near the border with Afghanistan, bombings have killed about 350 people nationwide, mostly civilians.
Cricket Ambush
While Punjab has seen fewer terrorist attacks than Pakistan’s ethnic Pashtun northwest, guerrillas in Lahore attacked three police headquarters last month and ambushed the Sri Lankan national cricket team’s bus in March. Militants last month raided the army headquarters in Rawalpindi, also in Punjab. The province is home to about half of the country’s 180 million people.
The government must continue to stand up to the guerrillas or “the violence will continue to spread and investors will not feel safe anywhere” in Pakistan, said Habib-ur-Rehman, who manages $48 million of stocks and bonds at Karachi-based Atlas Asset Management Ltd.
Punjab is home to much of Pakistan’s textile sector and the nation’s largest bank by market value, MCB Bank Ltd. Textiles account for two-thirds of the country’s exports in a $165- billion economy.
Pakistan’s overseas direct investment fell 58 percent to $463 million in the three months ended Sept. 30, from $1.1 billion a year ago, according to data from the central bank.
Surveillance Cameras
“We have to keep so many security guards, set up surveillance cameras at the factories,” said Raza Mansha, chief executive of D.G. Khan Cement Ltd., Pakistan’s second-biggest cement maker, based in Lahore, Punjab’s capital and the country’s second-largest city. It “adds to our non-productive expenses and gives foreign visitors a bad impression guaranteed online payday loans.”
D.G. Khan Cement and MCB Bank are part of the Nishat Group, Pakistan’s largest industrial group. D.G. Khan shares fell 16 percent in October and have risen 4.3 percent this month. MCB was down 4 percent in October and is up 7 percent this month.
The benchmark share index has gained 56 percent this year after losing 59 percent in 2008. It rose 2.6 percent yesterday.
Interior Minister Rehman Malik told reporters last month that at least two Punjab-based groups — Jaish-e-Muhammad (Soldiers of Muhammad) and Lashkar-e-Jhangvi (the Army of Jhang, a southern Punjab city) — were operating jointly with the Taliban and al-Qaeda to attack the Pakistani state.
Limited Crackdown
Still, Pakistan’s crackdown on jihadist groups in the province has been limited, and won’t reverse the decades of growth that have made the militant groups a durable part of the political landscape, said Siddiqa.
“The state’s response really has been business-as-usual — selective pressure” rather than a systematic campaign against Islamic radicalism, Islamabad-based Siddiqa said in a phone interview.
For Umer Mansha, chief executive officer of Lahore-based Nishat Mills Ltd., that’s a worrying message. His company produces garments for San Francisco-based Levi-Strauss, the closely held maker of blue jeans and Dockers pants, and Gap, based in the same U.S. city and operator of the Old Navy and Banana Republic chains.
“Textile buyers like to come, see and feel the product,” Mansha, whose company is also part of the Nishat Group, said in an interview Nov. 12. “Buyers are simply not willing to come here. It’s very hard to get new clients.”
More Than Last Year
More than 10,000 Pakistanis — civilians, security forces and militants — have died in the country’s violence this year, a rate 75 percent higher than last year’s record, according to the New Delhi-based Institute for Conflict Management.
“The tactics used in recent attacks in Punjab, plus the literature recovered by police in making arrests, shows that there is more coordination and contact now between Punjab militants and the Arabs of al-Qaeda,” said Muhammad Amir Rana, director of the Islamabad-based Pak Institute for Peace Studies.
Punjab Home Ministry and police officials didn’t respond to phone calls and e-mail messages asking how many alleged perpetrators have been detained in the province.
The “poverty of southern Punjab in particular, and the covert support and funds that militants have had” from Arab donors and Pakistan’s military, “have let them build durable organizations,” said security researcher Siddiqa. “Militancy in Punjab is now a fixture.”
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