Finance & Business World

Aqua America Inc. posted nearly flat income on a revenue increase in the fourth quarter, as earnings per share met analysts’ estimates and revenue did not.

The Bryn Mawr, Pa.-based water and wastewater utility holding company earned $26.7 million, or 20 cents per fully diluted share, in the quarter. The average estimate of eight analysts polled by Thomson Reuters was that it would earn 20 cents per share in the quarter. It earned $25.7 million, or 19 cents per fully diluted share, in the fourth quarter of 2008.

Aqua America’s revenue in the quarter was $167.9 million, up from $159.8 million in the fourth quarter of 2008. The average revenue estimate of six analysts polled by Thomson Reuters was $176 cash advance america.2 million.

In all 2009, the company earned $104.4 million, or 77 cents per fully diluted share, on revenue of $670.5 million. All the figures were increases from 2008, when Aqua America (NYSE:WTR) earned $97.9 million, or 73 cents per share, on revenue of $627 million.

Nicholas DeBenedictis, the company’s chairman and CEO, said in Aqua America’s earnings press release that he expected its earnings to continue to rebound in 2010, supported by an improving economy, a return to normal weather patterns and the successful completion of rate cases it has pending.

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U.K. manufacturers said credit constraints eased in the past two months as the cost of financing their debt stabilized further, according to the Engineering Employers Federation.

The proportion of British companies reporting an increase in the cost of new borrowing dropped to 40 percent from 47 percent in the previous quarter, the EEF said in a report today. The lobby group based its findings on a survey of 328 companies taken between Jan. 28 and Feb. 17.

“Evidence that credit constraints have started to calm down will help build some confidence across the sector,” Lee Hopley, chief economist at the EEF, said in an e-mailed statement. “The key question is whether the banks will be there for manufacturers as a return to growth generates greater demand for finance.”

The EEF forecast last year that the economy, which expanded 0.1 percent in the fourth quarter, will grow 0.9 percent in 2010. Prime Minister Gordon Brown is counting on the credit squeeze to ease further, aiding the recovery in time for an election which he must call by June.

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Australia’s economy has less scope than previously expected for “robust” growth that doesn’t stoke inflation, central bank Governor Glenn Stevens said.

“Monetary policy must therefore be careful not to overstay a very expansionary setting,” Stevens told lawmakers at a parliamentary committee hearing in Canberra today.

Policy makers said this week their decision to unexpectedly keep interest rates unchanged this month was “finely balanced” amid concern that European sovereign-debt risks may weaken the global economic recovery. Stevens said borrowing costs in Australia are still between 50 and 100 basis points below what the central bank considers “normal.”

“Stevens is quite bullish on domestic growth, but whether that translates into a March hike is another matter,” said Adam Carr, an economist at ICAP Australia Ltd. in Sydney. “I don’t know what more they need to see to hike again — it should already be very clear cut.”

The Australian dollar traded at 89.25 U.S. cents at 9:56 a.m. in Sydney from 89.38 cents before the governor’s testimony began. The yield on two-year government bonds rose six basis points, or 0.06 percentage point, to 4.31 percent from 4.25 yesterday. A basis point is 0.01 percentage point.

Stevens was the first central banker in the world to raise borrowing costs three times last year, taking the cash rate target to 3.75 percent in December from 3 percent at the start of October.

‘Further Adjustments’

“If economic conditions evolve roughly as we expect, further adjustments to monetary policy will probably be needed over time to ensure that inflation remains consistent” with the bank’s target range of 2 percent to 3 percent, Stevens said.

Stevens’s testimony today came after the Federal Reserve Board raised the discount rate charged to banks for direct loans by a quarter point to 0.75 percent, another step in the U.S. central bank’s gradual retreat from its unprecedented actions to halt the deepest financial crisis since the Great Depression. The Fed left the benchmark overnight lending rate in a range of zero to 0.25 percent at its meeting on Jan. 27.

Traders are betting there is a 38 percent chance of a quarter- percentage-point rate increase when the Reserve Bank of Australia next meets on March 2, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 10:02 a.m. Prior to today’s testimony, chances of a move stood at 40 percent.

Below Normal

“We’re still below normal, I would say, which hitherto has been the appropriate place to be,” Stevens said. “There’s a little distance to go before you could characterize interest rates as normal.”

Stevens said unemployment has peaked at less than 6 percent, “much lower than we or most others forecast.”

Australia is experiencing its biggest jobs boom in five years. Employers added 194,600 workers in the five months through January, cutting the unemployment rate to an 11-month low of 5.3 percent, almost half European Union and U.S. levels.

The jobs surge should help spur the economy, one of the few to skirt last year’s global recession after Prime Minister Kevin Rudd distributed more than A$20 billion ($18 billion) in cash to households and began spending another A$22 billion on roads, railways and schools.

The central bank forecast on Feb. 5 that gross domestic product will rise at an annual pace of 3.25 percent in the three months through December 2010, up from 2 percent in the final quarter of 2009.

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A Greek government inquiry uncovered a series of swaps agreements with securities firms that may have allowed it to mask its growing debts.

Greece used the swaps to defer interest repayments by several years, according to a Feb. 1 report commissioned by the Finance Ministry in Athens. The document didn’t identify the securities firms Greece used. The government turned to Goldman Sachs Group Inc. in 2002 to obtain $1 billion through a swap agreement, Christoforos Sardelis, head of Greece’s Public Debt Management Agency between 1999 and 2004, said in an interview last week.

“While swaps should be strictly limited to those that lead to a permanent reduction in interest spending, some of these agreements have been made to move interest from the present year to the future, with long-term damage to the Greek state,” the Finance Ministry report said. The 106-page dossier is now being examined by lawmakers.

European Union leaders last week ordered Greece to get its deficit under control and vowed “determined” action to staunch the worst crisis in the euro’s 11-year history. Standard & Poor’s and Fitch Ratings are questioning Greece over its use of the swap agreements, said two people with direct knowledge of the situation, who declined to be identified because the talks are private.

“Greece used accounting tricks to hide its deficit and this is a huge problem,” Wolfgang Gerke, president of the Bavarian Center of Finance in Munich and Honorary Professor at the European Business School, said in an interview. “The rating agencies are doing the right thing, but it may be too little too late. The EU slept through this.”

Euro Criteria

Lucas van Praag, a spokesman for New York-based Goldman Sachs, the most profitable securities firm in Wall Street history, didn’t respond to e-mails seeking comment.

Greece, whose burgeoning budget deficit caused it to fail the criteria for joining the single European currency in 1999, joined the Euro in 2001. Member nations had to reduce their budget deficit to less than 3 percent of gross domestic product and trim national debt to less than 60 percent of GDP.

Greek Prime Minister George Papandreou, who came to power in October after defeating two-term incumbent Kostas Karamanlis, more than tripled the 2009 deficit estimate to 12.7 percent. Greek officials last month pledged to provide more reliable statistics after the EU complained of “severe irregularities” in the nation’s economic figures free business cards.

‘Political Interference’

The Finance Ministry report blamed “political interference” for the collapse of credibility in Greece’s statistics. There were “serious weaknesses” in data collection, especially with spending figures, as information often came from second-hand sources, the report found.

The Goldman Sachs transaction consisted of a cross-currency swap of about $10 billion of debt issued by Greece in dollars and yen, Sardelis said. That was swapped into euros using a historical exchange rate, a mechanism that implied a reduction in debt and generated about $1 billion of funding for that year, he said. Eurostat, the EU’s Luxembourg-based statistics office, and the rating companies were both aware of the plan, he said.

Officials for Eurostat couldn’t be reached for comment. Officials for Fitch, Moody’s and Standard & Poor’s didn’t return calls seeking comment outside regular office hours yesterday.

‘Deal Restructured’

Sardelis said the agreement was restructured “a couple” of times while he was still in office. He left in 2004 and joined Banca IMI, the investment-banking unit of Italy’s Intesa Sanpaolo SpA’s. He said the fees, or the spread that Goldman Sachs was paid on the contract, were “reasonable.” The New York-based firm made about $300 million from the agreement, the New York Times reported Feb. 14.

Goldman Sachs bankers including President Gary Cohn traveled to Athens in November to pitch a deal that would push debt from the country’s health-care services into the future, the newspaper reported, citing two people briefed on the meeting. Greece rejected the offer, the New York Times said.

The government met with major international banks over the last month in order to explore options and discuss their involvement in financing Greek national debt, said an official at the Greek finance ministry who declined to be identified. Debt-financing operations are conducted transparently in order to be fully Eurostat-compliant, the official said.

Goldman Earnings

Goldman Sachs reported net income of $13.4 billion in 2009’s fiscal year, outpacing the $11.6 billion profit in 2007, its next-best year. The shares doubled last year to $168.84.

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Former Federal Reserve Chairman Alan Greenspan said a U.S. economic recovery is “going to be a slow, trudging thing,” and that he “would get very concerned” if stock prices continue to fall.

A drop in stock prices is “more than a warning sign,” Greenspan said yesterday on NBC’s “Meet the Press” program. “It’s important to remember that equity values, stock prices, are not just paper profits. They actually have a profoundly important impact on economic activity.”

U.S. stocks on Feb. 5 finished a fourth consecutive weekly decline, the longest such stretch since July. The Dow Jones Industrial Average through Feb. 5 had fallen 4 percent in 2010.

Unemployment likely will stay around 9 or 10 percent for most of this year, Greenspan said. “It’s very difficult to make the case that unemployment is coming down any time soon,” the former Fed chief said.

The U.S. has lost 8.4 million jobs since the recession, the deepest since the Great Depression of the 1930s, began more than two years ago. Unemployment topped 10 percent in October — the first time that’s happened in a quarter century — before retreating to 9.7 percent in January, according to Labor Department statistics.

Greenspan, who served as Fed chairman from 1987 until 2006, said the most useful step Congress could take to create jobs at this point would be to enact tax cuts for small businesses.

“They are the big creator of jobs,” he said. “But they won’t hire anybody if they don’t have any business.”

Economic Growth

Greenspan said the fourth-quarter’s economic growth rate was helped by inventory rebuilding, suggesting the U.S. economy “shot our ammunition” at the end of 2009. That means economic growth now “doesn’t have the strong momentum I hoped it would have,” Greenspan said.

The economy grew at a 5.7 percent annual rate during the last three months of 2009, the fastest pace in six years, according to Commerce Department data. That was the second quarterly increase in gross domestic product following four consecutive declines, the longest stretch of losses since records began in 1947.

In the residential property market, Greenspan said home prices are “bottoming out.” The housing market was the epicenter of the recession, and foreclosures are projected to set a record this year, according to private forecasts.

Regarding the federal budget deficit, which the Obama administration projects at more than $1 trillion for the second consecutive year, Greenspan said a tax increase will be needed and that the budget shortfall threatens the country’s standing in financial markets.

Tax Increase

“I have no doubt that we have to raise taxes in order to close this huge deficit, but we cannot do it wholly on the tax side, because that would significantly erode the rate of growth in the economy and the tax base, and the revenues that would be achieved would be far less” than one would expect, Greenspan said.

On Feb. 4, Congress approved increasing the federal debt limit by $1.9 trillion, to $14.3 trillion, enough to prevent lawmakers from having to raise it again before November’s midterm elections. The increase was more than twice the size of any of the four previous debt increases approved in the past two years.

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Spanish Prime Minister Jose Luis Rodriguez Zapatero defended his country’s budget deficit and urged more U.S. investment in Spain during a meeting with U.S. business leaders, as investor concerns caused stocks to plummet in Spain.

Zapatero told a closed-door gathering at the U.S. Chamber of Commerce in Washington yesterday that Spain’s deficit was a consequence of stimulus spending that has peaked, and will be reduced through an aggressive austerity plan, according to an aide to the Spanish leader who briefed reporters and asked not to be identified.

Zapatero told the U.S. executives that his government will reduce spending by 50 billion euros ($68.7 billion) by 2013, the aide said. Spain, with a budget shortfall equivalent to 11.5 percent of gross domestic product, must bring its deficit down to 3 percent of GDP by 2013 to conform to European Union rules, the prime minister noted.

Spain’s benchmark IBEX 35 Index fell 5.9 percent yesterday day to 10,241.7, the steepest decline since Nov. 6, 2008. Stocks also fell in neighboring Portugal on concerns that the two nations will face difficulties like Greece has experienced in shrinking deficits.

Rating Agencies

Zapatero defended Spain’s debt as reasonable, according to the aide who attended the meeting. The prime minister said he was confident rating agencies would maintain a positive assessment of his economy.

Standard & Poor’s cut its rating on Spanish debt to AA+ from AAA in January 2009, and changed the nation’s outlook to “negative” from stable last December. S&P said Spain will experience a “more pronounced and persistent deterioration” in its budget and a “more prolonged period of economic weakness” than expected a year ago.

Speaking later yesterday to the Atlantic Council, a Washington-based public-policy group, Zapatero stressed that Spain’s debt-to-GDP ratio is 20 points lower than the average among EU countries.

Zapatero told U.S. executives in the private meeting that labor reforms would be announced today in Madrid that would reduce public spending, and said Spain is looking to the U.S., the biggest investor in Spain’s economy, to maintain confidence, his aide said.

Senior Executives

Zapatero was joined at the meeting by senior executives from Spanish bank BBVA SA, construction giants Acciona SA and Ferrovial SA, and Iberdrola SA, Spain’s biggest power company, according to the Spanish Embassy and Zapatero’s aides.

In his speech to the Atlantic Council, Zapatero said the Spanish financial system is “strong and solid,” and the country’s banks “have proven to be resilient.”

Spain has shown “its ability to grow and its ability to handle its public resources well,” the prime minister said.

“We know the reforms we need to make and I am certain Spanish society will be with us,” he added.

Zapatero recently announced tax increases and a rise in the retirement age as part of the package to cut Spain’s deficit.

Zapatero in his speech also underscored Spain’s commitment to the NATO-led security effort to stabilize Afghanistan, noting that his country had “heeded the call” of President Barack Obama and would be adding 500 new Spanish soldiers. Spain has lost 90 soldiers in Afghanistan, the fourth-largest number of casualties among the NATO nations.

“It’s a very difficult mission,” he said, adding, “we know what’s at stake in Afghanistan.”

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JEFFERSON CITY — Missouri officials say they can’t prevent a tax dodge used by some wealthy investors in the state-sponsored college savings plan.

So instead of trying to police it, officials want to legalize it.

At issue is how long money invested in the Missouri Saving for Tuition program — MOST for short — must stay in an account to earn a state tax deduction.

Missouri set up the program a decade ago to give working families a low-cost way to save for college. Accounts can be opened directly through the state for as little as $25.

Investors pay no federal or state taxes on profits when they withdraw money to pay for college. The program is known as a 529 plan, after the section of federal law that authorized such plans in 1996 and spurred their growth.

MOST has attracted 123,000 accounts holding $1.3 billion in investments.

Like most states, Missouri sweetened the deal by adding a state tax deduction. Families can shield up to $16,000 a year in contributions from Missouri income taxes.

That money is supposed to stay put at least 12 months to be eligible for the tax break. Sen. Delbert Scott, R-Lowry City, sponsored the restriction in 2006.

"I found out that there were people who would deposit the money the last day of December, use it to pay tuition the first day of January, and take the tax deduction," Scott said.

For example, a parent who routed $8,000 through a MOST account at year’s end could save about $480 by avoiding the state’s 6 percent income tax. A married couple taking the maximum deduction could save twice that, or $960.

Scott said that wasn’t the Legislature’s intent.

"This was set up to be a savings account rather than an automatic tax deduction for those who can pay cash as they go," he said.

But the restriction has never been enforced.

"Some people would view it as a loophole," said Joe Hurley, founder of savingforcollege.com, a respected website that rates all 529 plans. "But just about every state that has a deduction has no minimum holding period, so it’s a loophole in pretty much every state."

State Treasurer Clint Zweifel, whose office oversees the MOST program, said it would cost MOST $360,000 to set up a tracking system to make sure accounts didn’t violate the 12-month rule. That oversight could discourage investors, he said.

"It’s creating an administrative burden and red tape that puts government as some sort of Big Brother, telling people how to save for college," Zweifel said.

"Who are we to tell them, when they make a contribution, whether it has to sit for 10 months or 22 months?"

Zweifel said few people used the loophole anyway.

He estimates that about 65 people used it last year to shield $219,000 in contributions. That analysis is based on the number of Missourians who opened new accounts in December 2008 and made a withdrawal in January 2009.

MOST attracted $198 million in investments in 2008, so "we’re talking about a tenth of a percent of contributions," Zweifel said.

Even Scott agrees. He now sponsors the bill repealing the rule he authored in 2006. Scott said a 2008 change in the MOST program made it counterproductive to enforce the restriction.

Missouri extended its deduction to college savings plans sponsored by other states. Most states don’t require money to be held a certain length of time, so Missourians could invest their money elsewhere and claim Missouri’s deduction.

"I think the ultimate message is, we want people to save for their kids’ college," Scott said. "This is just one of the incentives that comes along, if you’ve got the money to do it. It’s kind of an unintended consequence."

If the restriction isn’t repealed, the Missouri Department of Revenue plans to finally try to enforce it next year.

The agency added a note to its 2010 tax form instructions, warning taxpayers not to take the deduction for contributions and earnings withdrawn after less than 12 months.

Scott’s bill is SB772.

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