I said I Need Your 50 Cents

I need your 50 cents

First, Arthur Santa-Maria called Bank of America to ask how to check the balance of his new unemployment benefits debit card. The bank charged him 50 cents.

He chose not to complain. That would have cost another 50 cents.

So he took out some of the money and then decided to pull out the rest. But that made two withdrawals on the same day, and that was $1.50.

For hundreds of thousands of workers losing their jobs during the recession, there’s a new twist to their financial pain: Even when they’re collecting unemployment benefits, they’re paying the bank just to get the money — or even to call customer service to complain about it.

Thirty states have struck such deals with banks that include Citigroup Inc., Bank of America Corp., JP Morgan Chase and US Bancorp, an Associated Press review of the agreements found. All the programs carry fees, and in several states the unemployed have no choice but to use the debit cards. Some banks even charge overdraft fees of up to $20 — even though they could decline charges for more than what’s on the card.

“They’re trying to use my money to make money,” said Santa-Maria, a laid-off engineer who lives just outside Albuquerque, N.M. “I just see banks trying to make that 50 cents or a buck and a half when I should be given the service for free.”

The banks say their programs offer convenience. They also provide at least one way to tap the money at no charge, such as using a single free withdrawal to get all the cash at once from a bank teller. But the banks benefit from human nature, as people end up treating the cards like all the other plastic in their wallets.

Some banks, depending on the agreement negotiated with each state, also make money on the interest they earn after the state deposits the money and before it’s spent. The banks and credit card companies also get roughly 1 percent to 3 percent off the top of each transaction made with the cards.

“It’s a racket. It’s a scam,” said Rachel Davis, a 38-year-old dental technician from St. Louis who was laid off in October. Davis was given a MasterCard issued through Central Bank of Jefferson City and recently paid $6 to make two $40 withdrawals.

Neither banks nor credit card companies will say how much money they are making off the programs, or what proportion of the revenue comes from user versus merchant fees or interest. It’s difficult to estimate the profits because they depend on how often recipients use their cards and where they use them.

But the potential is clear.

In Missouri, for instance, 94,883 people claimed unemployment benefits through debit cards from Central Bank. Analysts say a recipient uses a card an average of six to 10 times a month. If each cardholder makes three withdrawals at an out-of-network ATM, at a fee of $1.75, the bank would collect nearly $500,000. If half of the cardholders also dial customer service three times in any given week (the first time is free; after that, it’s 25 cents a call), the bank’s revenue would jump to more than $521,000. That would yield $6.3 million a year.

Rachel Storch, a Democratic state representative, received a wave of complaints about the fees from autoworkers laid off from a suburban St. Louis Chrysler plant. She recently urged Gov. Jay Nixon to review the state’s contract with Central Bank with an eye toward reducing the fees.

“I think the contract is unfair and potentially illegal to unemployment recipients,” she said.

Central Bank did not return two messages seeking comment.

Glenn Campbell, a spokesman for Rep. Russ Carnahan, D-Mo., said the congressman would support a review of the debit card programs nationwide.

Another 10 states — including the unemployment hot spots of California, Florida and South Carolina — are considering such programs or have signed contracts. The remainder still use traditional checks or direct deposit.

With the national unemployment rate now at 7.6 percent, the market for bank-issued unemployment cards is booming. In 2003, states paid only $4 million of unemployment insurance through debit cards. By 2007, it had ballooned to $2.8 billion, and by 2010 it will likely rise to $10.5 billion, according to a study conducted by Mercator Advisory Group, a financial industry consulting firm.

The economic stimulus plan signed by President Barack Obama this week will increase federal unemployment benefits by $40 billion this year. Subsequently, there will be more money from which banks can collect fees. The U.S. Department of Labor allows the fees as long as states create a way for recipients to get their money for free, spokeswoman Suzy Bohnert said.

“Beyond that, the individual decides how to manage his drawdowns using the debit card,” she said in an e-mail.

A typical contract looks like the agreement between Citigroup and the state of Kansas, which took effect in November. The state expects to save $300,000 a year by wiring payments to Citigroup instead of printing and mailing checks.

Citigroup’s bill to the state: zero. The bank collects its revenue from fees paid by merchants and the unemployed.

“If you use your card the right way, you’re not going to pay fees at all,” said Paul Simpson, Citigroup’s global head of public sector, health care and wholesale cards.

But that’s not always practical.

Santa-Maria, the laid-off New Mexico engineer, said he didn’t pay any fees the first time he was laid off, for several months in 2007. His unemployment benefits were paid by paper checks. He found a new job last year but was laid off again last fall.

This time, he was issued a Bank of America debit card — a “prepaid” card in industry lingo — but he was surprised to learn he had to pay fees to get his money. He asked the bank to waive them. It said no. That’s when Santa-Maria called back to ask how to check his account online. He logged on and saw that the call cost him a half dollar. To avoid more fees, Santa-Maria found a Bank of America ATM at a strip mall and withdrew $80 at no charge. When he got back to his car, he decided to take out the rest of his money — $250 — and deposit it in his bank account.

Afterward, Santa-Maria logged on to his account and saw a charge of $1.50 for two withdrawals in one day.

New Mexico authorities bargained with Bank of America to get lower fees for unemployment recipients, said Carrie Moritomo, a spokeswoman for the state Department of Workforce Solutions. The state saves up to $1.5 million annually by not printing checks.

Bank of America spokeswoman Britney Sheehan pointed out that the fees charged in New Mexico are similar to those charged in the 29 other states with unemployment debit cards.

“We worked with the Department of Workforce Solutions and believe the fee schedule is reasonable and consistent with similar programs,” she said.

Banks could issue unemployment debit cards with no fees for cardholders, but that would likely mean that states would have to pay more of the administrative costs, said Mark Harrington, director of marketing for Citigroup’s prepaid card services. If a state demanded no cardholder fees and could pay the difference, Citigroup might enter such a contract.

“We would be open to that,” Harrington said. “We’re not looking to structure any programs where we would lose money, but we’re definitely flexible.”

Simpson noted that the cards can save money for jobless workers who have no bank accounts. In the past, these people had to use corner check-cashing shops that charged fees as high as 2 percent, or $6 for a $300 check. Now, they can swipe their cards at McDonald’s, Wal-Mart or elsewhere for free.

Kenna Gortler, a laid-off paper mill worker in Oregon, said her union is advising members to avoid the debit cards and sign up to get their benefits through direct deposit. More than 300 of her fellow workers have lost their jobs at the mill in the last three months, and horror stories about ATM fees and overdraft charges are starting to filter back to others who are just now signing up for their benefits.

“It’s discouraging,” Gortler said. “People have limited funds and they don’t need to be giving money to the banks. They need to be keeping that money to feed their families and pay bills.”

If you made it this far…

Profit concerns worry Asia

Feb. 20 (Bloomberg) — Asian stocks fell, dragging the regional benchmark index to its biggest weekly slump in three months, on concern the deepening global recession is raising bad-loan costs and hurting corporate profits.

National Australia Bank Ltd. dropped 2.3 percent after Goldman Sachs Group Inc. cut its recommendation and the head of rival Australia & New Zealand Banking Group Ltd. said bad debts are spreading. Qantas Airways Ltd. slumped 3.1 percent in Sydney after Moody’s Investors Service cut its debt rating and as crude oil prices climbed. Bridgestone Corp., the world’s biggest tiremaker, slumped 6.5 percent after saying profit will fall 71 percent this year.

“The whole food chain is starting to feel the pain,” said Theo Maas, who helps manage about $3.2 billion at Fortis Investment Partners in Sydney. “Margins are coming down rapidly and there’s definitely worse to come. There is really no risk appetite for any investment at the moment.”

The MSCI Asia Pacific Index dropped 1.5 percent to 76.53 as of 12:31 p.m. in Tokyo, taking its loss this week to 6.4 percent. The measure slumped 15 percent this year, extending 2008’s record 43 percent tumble, as the credit crisis sent the world’s biggest economies into recession.

The Nikkei 225 Stock Average fell 1.4 percent to 7,455.40, while Hong Kong’s Hang Seng Index dropped 2.1 percent. All benchmark indexes in the region declined except China.

Caltex Australia Ltd., the nation’s largest oil refiner, tumbled 9.7 percent after saying full-year profit plunged 95 percent. Samsung Electronics Co., the world’s largest memory- chip maker, lost 1.3 percent in Seoul as semiconductor-equipment orders in North America fell to their lowest level since 1991.

Rising Defaults

Futures on the Standard & Poor’s 500 Index dropped 0.9 percent. U.S. stocks declined yesterday, sending the Dow Jones Industrial Average to a six-year low, as Hewlett-Packard Co. cut its profit forecast and concern about rising credit-card defaults dragged financial shares to the lowest level since 1995.

National Australia Bank slid 2.3 percent to A$17.97 after it was reduced to “hold” from “buy” at Goldman Sachs on the prospect of rising bad debts. Separately, National Australia said today that Ahmed Fahour, who headed the company’s Australian and Asian banking units, will leave the lender.

ANZ Banking fell 1.8 percent to A$12.37 as Chief Executive Officer Michael Smith said bad debts in Australia are spreading from “high-risk” businesses and customers to “mainstream” clients.

“We’ll see more write-offs and bad debts as the recession deepens,” said Jason Teh, who helps manage $3.5 billion at Investors Mutual Ltd. in Sydney. “It’s still so uncertain when the cycle will turn.”

Government Action

In Tokyo, Mizuho Financial Group Inc., Japan’s second- largest bank, lost 2.6 percent to 191 yen.

The Bank of Japan yesterday said it will buy corporate bonds from financial institutions and extend lending programs to prevent a shortage of credit. It was the latest in a series of government measures across the world to stem the worst global slowdown since World War II.

Stock declines in the past year brought about by the deepening financial crisis has wiped $27 trillion from the value of global equities. The average valuation of companies on MSCI’s Asian gauge has dropped 9 percent to 13 times reported profit in that time.

Qantas, Australia’s largest carrier, slumped 3.1 percent to A$1.695. after Moody’s lowered its long-term debt rating to Baa2, the second-lowest investment grade, from Baa1 because of plunging air-travel demand.

Slumping Orders

Bridgestone sank 6.5 percent to 1,263 yen after saying net income will probably fall 71 percent to 3 billion yen ($32 million) this year as demand for new cars wanes.

Caltex plunged 9.7 percent to A$8.67. The Sydney-based company said net income sank to A$34 million ($22 million) in the year ended Dec. 31 as production fell and lower crude-oil prices cut the value of stockpiles.

Samsung dropped 1.3 percent to 474,500 won. Advantest Corp., the world’s biggest maker of memory-chip testers, lost 1.1 percent to 1,302 yen in Tokyo. Taiwan Semiconductor Manufacturing Co., the world’s largest maker of customized chips, slid 2 percent to NT$44.50.

North American orders for semiconductor equipment dropped to $285.6 million last month from $1.14 billion in January 2008, the trade group Semiconductor Equipment & Materials International said. Orders dropped 51 percent from December.

Bailouts costing over 1.5 trillion L

A slump in tax receipts caused by the recession has driven the Government’s finances farther into the red than at any time for 15 years.

Official figures confirmed mounting strains on the Treasury, with Alistair Darling forced to borrow £67.2 billion in the first ten months of this financial year. This was almost three times as much as the same period last year.

The news was followed by warnings from the City that the Chancellor’s full-year forecast for public borrowing of £78 billion would prove to be far from accurate. Economists said that the figure for this year could rise to £100 billion, with borrowing set to surge still higher in 2009-10.

The Chancellor has already pencilled in borrowing of £118 billion for next year — equivalent to 8 per cent of gross domestic product and the highest since at least the early Sixties. Under the Conservatives the previous peak in public borrowing during recent decades was at 7.7 per cent of GDP in 1993-94, in the aftermath of the recession of the early Nineties.

European Insurers Licking Their Wounds

European insurers were yesterday counting the cost of the credit crunch as Swiss Re and Axa suffered what the Swiss group called “extreme financial market turbulence”.
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Swiss Re, the world’s second-biggest reinsurer, swung to a Sfr864m (£518m) loss last year from a profit of Sfr4.2bn in 2007, following huge losses in its sales and trading division. This followed a record loss of Sfr1.7bn in the fourth quarter.

The group slashed its dividend and could look to raise Sfr2bn from investors just days after Warren Buffett made a multibillion-franc investment.

Swiss Re’s new boss, Stefan Lippe, said the results were “clearly disappointing”, adding that while some divisions had been robust, the numbers had “been impacted by investment losses”. Writedowns on its assets came in at Sfr5.89bn.

Axa avoided falling into a loss, but profits were smashed by 82 per cent. The group announced profits of €923m (£818m) for 2008, down from €5.6bn after it was hit by fair-value adjustments on assets and mark-to-market losses. Henri de Castries, the chairman of Axa, said: “The 2008 financial market turmoil was unprecedented and had a significant impact upon our industry. In this adverse environment, Axa was not immune.”

The French group’s outlook for the industry remained bearish. “2009 will be another challenging year, in light of the current global economic environment,” according to Mr de Castries.

Brazil will supply 100kb per day to China

RIO DE JANEIRO, Feb. 19 (Xinhua) — Brazil has agreed to supply up to 100,000 barrels of oil per day to China, the head of Brazil’s state-owned oil and gas giant Petrobras announced Thursday.

Petrobras has agreed with China’s state-owned oil company Sinopec to supply 60,000 to 100,000 barrels of crude per day to Chinese refineries, CEO Jose Sergio Gabrielli said in Brasilia.

The Brazilian company also signed an agreement for a 10 billion U.S. dollar loan from the China Development Bank. The loan will be used to finance the exploration for oil in Brazil’s pre-salt layer reserves. The agreements were signed during the official visit to Brazil of Chinese Vice-President Xi Jinping.

Negotiations for the loan may be concluded in May, so that the final contract could be signed during President Luiz Inacio Lula da Silva’s visit to Beijing. The loan will be financed over 10 years.

Despite the international financial crisis and low oil prices, Petrobras has decided to increase its investments. Last month, the company released its business plan for the 2009-2013 period, which foresees investments of 174.4 billion dollars, of which 92 billion dollars will be used for exploration and production.

Japan is alarmed and wants to free up credit

The Bank of Japan on Thursday stepped up measures to help embattled companies suffering in the credit crisis, with plans to buy up to Y1,000bn ($10.6bn) in corporate bonds and extend its emergency purchases of other assets from financial institutions.

In a sign of its alarm over the economic outlook, the BoJ said it would buy corporate bonds rated A and higher from next month. It will extend its programmes to buy commercial paper and provide unlimited collateral-backed loans to financial institutions.

The moves highlight growing concerns that a spreading credit squeeze could deepen the downturn of the Japanese economy, which suffered its biggest contraction in 35 years in the last three months of last year.

“Economic conditions have deteriorated significantly and are likely to continue deteriorating,” the BoJ said in a statement after a monetary policy meeting at which it kept its key policy interest rate at 0.1 per cent. The BoJ added that Japan was likely to see prices falling by the spring.

The cabinet office later cut its assessment of the economy’s direction for a fifth consecutive month. It said: “The economy is worsening rapidly and is in a severe state.” In January, it said only that the economy was “worsening rapidly”.

The BoJ said: “If financial conditions should tighten further, pressures acting to depress economic activity from the financial side may become more marked and the adverse feedback loop between financial and economic activity may intensify.”