Amid dismal job market, Americans grow warier of unions

Organized labor might have hoped that the heavy job losses in this deep recession would boost Americans' trust in unions as a counter-balancing force. Instead, just the opposite has happened.

A Gallup poll last month found that the public has become less supportive of unions than at any time since Gallup began asking that question in 1936.

Forty-eight percent of the 1,010 respondents in the Aug. 6-9 telephone poll said they approved of unions, down from 59% a year earlier, Gallup said.

The percentage saying they disapproved of unions jumped to 45% from 31% in the same period. (The rest had no opinion.)

Until this year, the public's general approval rate of unions had always been above 50%. In 1936, when the question was first asked, 72% of respondents approved of unions. Even as recently as 2003 the approval rate was 65%.

The slump in public support for organized labor comes as the AFL-CIO pushes hard in Congress for the Employee Free Choice Act, which would make it easier for workers to organize. As my colleague Patrick J. McDonnell notes in his story today on retiring AFL-CIO President John J. Sweeney, "Business has mounted a massive, costly campaign to derail the [free-choice] measure, labeling it a power grab by 'labor bosses.' "

The AFL-CIO's view of the act (the so-called card-check bill) is here. The U.S. Chamber of Commerce's opposing view is here.

The Gallup poll won't help the measure's chances on Capitol Hill. Gallup found that a majority of people -- 66% -- believe that unions help workers who are union members. But 62% believe that unions "mostly hurt" non-union workers, who make up about 88% of the labor force.

And 51% now say unions "mostly hurt" the economy in general, up from 36% in 2006, the last time that question was asked.

Gallup didn't speculate on the reasons behind the erosion of support for organized labor, but it isn't hard to imagine that many people who have increasingly felt less secure about their jobs are antagonistic toward union members who may have more security.

Until now, the previous low in the public approval rating of unions was 55% in 1981 and 1979 -- during the last severe recession.

The perceived generous benefit and pension packages enjoyed by unionized state and local government workers -- at taxpayers' expense -- also may be turning the public against organized labor in general.

In this economy, it's a lot to ask a private-sector worker who isn't even covered by a 401(k) plan to cheerfully support a government worker with a full and guaranteed pension.

-- Tom Petruno

Image: A pin for sale on the AFL-CIO's website.

 

Small investors forced to fight for leftovers in the muni bond market

Yield-hungry individual investors put in orders to buy $198 million of tax-free revenue bonds offered by the University of California system this week.

But most of them came up empty-handed. State Treasurer Bill Lockyer, who sold the securities for UC, had just $65.5 million of the bonds to fill individuals’ orders. The rest of the $300-million deal went to institutional investors.

The UC debt offering points up the dearth of supply of the kind of municipal bonds that individual investors traditionally have preferred: mainly shorter-term securities, maturing within 10 years.

The relative shortage of shorter-term muni debt nationwide has turned new offerings into food fights as investors try to pile in.

"Retail investors fighting for scraps," the Bond Buyer newspaper headlined a recent story on small investors’ plight in the muni market.

The situation is a boon for muni issuers such as UC (and for taxpayers) because it has pushed down the interest rates they need to offer to sell bonds -- in UC's case, to finance projects such as dorms and research facilities.

The flip side, of course, is that individual investors aren’t getting nearly as a good a yield as they would have even a few months ago.

When the California State University system sold revenue bonds in March, it paid a tax-free yield of 3.19% on the five-year debt in the offering. By contrast, the five-year securities in the UC sale this week will pay just 2.06%.

Many muni issuers, including UC, prefer to sell bonds maturing in 10 years or longer. Those also are the maturities favored by many institutional investors. So even though Lockyer routinely offers individuals the ability to place orders for muni bonds ahead of big investors such as mutual funds, the issues made available to individuals in the shorter terms they want often are limited in supply.

The shortage of tax-free bonds is worse this year because many issuers, including UC, are opting to sell long-term taxable bonds instead via the Obama administration’s Build America Bonds plan.

Under the program, states and other municipal issuers can choose to sell taxable bonds for public-works projects and have the federal government pick up 35% of the annual interest expense on the securities.

Selling taxable bonds means issuers can attract hefty demand from pension funds, foreigners and other investors that normally don’t buy tax-free bonds.

UC used Build America Bonds for the vast bulk of its financing this week: It sold $1.02 billion of 22-year and 34-year taxable BABs. The 34-year bonds will pay an interest rate of 5.77%. But with the 35% federal subsidy, the net interest rate to UC is just 3.75% -- far less than the system would pay on a tax-free bond of that maturity.

That's good for UC and for the BAB buyers. But as the Bond Buyer headline put it, individual investors are left fighting for the muni market's scraps.

-- Tom Petruno

CalPERS sues governor over forced staff furloughs

CalPERS, the state’s main public pension fund, sued Gov. Arnold Schwarzenegger late Wednesday, demanding to be exempted from the governor’s plan for forced employee furloughs.

The California Public Employees’ Retirement System said Schwarzenegger has no authority to order the fund’s workers to take unpaid furloughs three days each month.

CalPERS said it took legal action to protect its ability to provide timely disability and retirement checks to 1.6 million active and retired state and local government workers and their families.

The furloughs on the first three Fridays of each month also harm CalPERS’ ability to manage its $190-billion investment portfolio, including monitoring the investment firms the fund employs, the agency said.

Like other big pension funds, CalPERS suffered heavy losses in financial markets’ meltdown last fall and winter. The fund’s assets dived 23% in the fiscal year ended June 30.

Pension officials are asking a San Francisco Superior Court judge to rule that CalPERS is exempt from the governor’s order because the system’s operations aren’t funded from the state’s general budget.

"While we understand and appreciate the fiscal problems experienced in the state’s general fund, we are required under the Constitution to meet our fiduciary duty as trustees to ensure prompt, undisrupted service to our members," CalPERS Board President Rob Feckner said in a statement.

The governor’s office countered that the 2,300 CalPERS employees should share the same sacrifices as the 200,000-plus other state government workers. "Every California family has been cutting back, and state government has to do the same," said Aaron McLear, a spokesman for Schwarzenegger.

During tight economic times, the state can benefit from salary savings at CalPERS and other so-called special fund agencies, said H.D. Palmer of the governor’s finance department. "We can borrow from them for cash management," he said.

Schwarzenegger has won initial rounds in related furlough lawsuits filed by the state attorney general, treasurer, controller and other independently elected officers. The State Compensation Insurance Fund, a state-backed company whose workers are civil servants, also has sued the governor over the furlough issue.

The California State Teachers' Retirement System hasn't taken Schwarzenegger to court but said it was looking at possible legal action.

-- Marc Lifsher

 

IndyMac had a pension plan -- and managed not to ruin it

IndyMac Bancorp’s former executive team ran the Pasadena lender into the ground with their ridiculously risky mortgage lending.

Yet the company did get one financial-management job right: its employee pension fund.

The defined-benefit plan for IndyMac Bank was taken over by the federal Pension Benefit Guaranty Corp. on Tuesday, after the plan was in effect abandoned because the holding company for the bank is in liquidation.

But the PBGC said the pension plan was in much better shape than many of the funds the agency has been forced to absorb.

The IndyMac plan is 89% funded, with assets of $33 million and benefit liabilities of $37 million, the PBGC said.

The 89% coverage of liabilities "is a high number . . . it’s a well-funded plan," said Gary Pastorius, a spokesman for the PBGC in Washington. That's a good thing, considering  other challenges facing the PBGC.

It seems unlikely that the IndyMac fund owned much, if any, of the bank's stock, which now is virtually worthless.

IndyMac was declared insolvent in July 2008, and its failure is expected to cost the Federal Deposit Insurance Corp. fund almost $11 billlion. The FDIC in March sold most of IndyMac’s assets to an investor group that has renamed the successor bank OneWest.

But OneWest didn’t want responsibility for the pension plan, which covers nearly 1,900 workers and retirees of the bank. So under federal law the PBGC was obligated to step in and guarantee the promised benefits of the plan.

Pastorius said he didn’t know if former senior executives of IndyMac were covered by the pension fund, though he said such plans "tend to cover rank-and-file workers." Though many companies halted enrollment in their defined-benefit pension plans years ago, IndyMac's plan wasn't frozen until May 2007.

For pension plans terminated in 2008, including the IndyMac plan, the maximum annual pension guaranteed by the PBGC is $51,750 for workers at age 65. Many beneficiaries, of course, will get much less, depending on their plan's original rules.

The PBGC also noted that, in general with plans it takes over, "Certain early-retirement subsidies and benefit increases made within the past five years may not be fully guaranteed." So future IndyMac retirees may not yet know exactly what their benefits will be.

But current IndyMac retirees "will continue to receive their monthly benefit checks without interruption," the PBGC said.

-- Tom Petruno

Photo: IndyMac's former headquarters building. Credit: Al Seib / Los Angeles Times

CalPERS to put less in stocks, raise bet on private equity

Hoping to recoup steep investment losses, the California Public Employees' Retirement System plans to rejigger its portfolio to pull back from the stock market while boosting its stake in private-equity deals.

With the shift, CalPERS will be locking up more money in investments that often take many years to pay off.

In the wake of financial markets’ meltdown, a new asset allocation plan approved by the pension fund’s board today reduces the percentage of publicly traded foreign and domestic stocks in the $184-billion portfolio to a target of 49% of total assets, from the current target of 56%.

At the same time, the target percentage for private-equity investments jumps to 14% of assets from 10%. Private equity deals include stakes that CalPERS takes in private companies, such as via venture capital investments or by helping to fund leveraged buyouts. The goal is to eventually sell the stakes at a fat profit.

Sacramento-based CalPERS invests with many of the titans of the private equity business, including Apollo Management, Kohlberg, Kravis Roberts & Co. and Carlyle Group. The fund’s close ties to Apollo have raised some eyebrows on Wall Street.

Among other changes in the portfolio, CalPERS’ target for cash reserves rises to 2% from zero, while the percentage of fixed income instruments, such as corporate bonds, floats up 1 percentage point to 20%. The target allocation for investments in real estate holds steady at 10%, and commodities remain at 5%.

Private equity offers "a chance to add some value over public equities," said Andrew Junkin, a principal at Los Angeles-based Wilshire Consulting, which provides investment advice and analysis to CalPERS.

Although many big pension funds suffered losses on private equity deals in the late 1990s, such investments have performed better over time than pension portfolios as a whole, said Stephen Nesbitt, chief executive at Cliffwater LLC, a Los Angeles consulting firm that also does business with CalPERS.

"It’s generally true that after a recession, it’s a good time to be investing in private markets," he said. "They tend to be the most depressed and tend to be the best bargains."

CalPERS’ private equity holdings lost 7.4% in the first quarter of this year and 19% in the 12 months ended March 31, according to a Wilshire report. By contrast, the fund’s public stock portfolio lost 9.9% in the quarter and 40.9% in the 12 months.

CalPERS’ private equity portfolio has trounced its public stock holdings over the last 10 years, the fund says. Private equity deals generated an average annual return of 8.8% over the last decade, compared with an average annual loss of 0.9% for public stocks.

-- Marc Lifsher

BlackRock to buy Barclays unit, forming $2.7-trillion titan

Money management giant BlackRock Inc. late Thursday agreed to buy Barclays Global Investors -- including the iShares exchange-traded funds -- creating the world’s biggest asset manager.

The deal would boost BlackRock’s assets to more than $2.7 trillion from $1.3 trillion, vaulting it well above its nearest rival, State Street Corp., which manages about $1.4 trillion.

The takeover is a potential coup for 56-year-old BlackRock Chairman Larry Fink, a UCLA grad who founded the company in 1988. The New York firm is best known for its fixed-income funds, a business that puts it head-to-head with Newport Beach-based Pimco.

With the purchase of San Francisco-based Barclays Global, which pioneered index-fund investing nearly 40 years ago, BlackRock would gain a much larger presence in the stock fund business, including via Barclays’ exchange-traded funds. Barclays' iShares unit is the industry leader in developing and managing popular stock and bond ETFs.

Reuters has some interesting factoids on Barclays Global and its historical connections to Wells Fargo & Co. and UC Berkeley. Go here.

Barclays Global is being shed by British banking titan Barclays as the latter seeks to raise capital to offset soaring loan losses.

BlackRock agreed to pay $6.6 billion in cash and 38.7 million of its shares for Barclays Global. The deal would give Barclays a 19.9% stake in BlackRock, which plans to rename itself BlackRock Global Investors.

BlackRock’s shares closed at $182.60 on Thursday, up $4.08, before the deal was announced, although it had been expected. The stock is up 36% this year.

Pimco, which is owned by Germany’s Allianz, manages about $800 billion. Pimco just this month launched its first bond ETF and plans at least six more, competing directly against iShares’ offerings.

-- Tom Petruno

Photo: BlackRock CEO Larry Fink. Credit: Carolyn Cole / Los Angeles Times

Money manager TCW Group loses CEO Beyer

L.A.-based money manager TCW Group, which hopes to launch itself as a publicly traded firm in the next few years, won’t be doing so under current Chief Executive Robert D. Beyer.

In a surprise, the 49-year-old Beyer will step down at the end of this month after less than four years in the job, TCW announced today.

In a letter to some of his colleagues, Beyer said he was leaving because he believed the company would need a different style of management as it makes the transition to being an independent firm. He said the decision to depart was his alone.

It ought to be an interesting job opening for the growing universe of restless Wall Streeters, as the financial industry continues to shrink: TCW, parent of Trust Co. of the West, manages about $100 billion in stocks and bonds, mainly for institutional clients such as public pension funds, companies and universities.

The company has been majority-owned by banking giant Societe Generale of France since 2001, when TCW founder Robert A. Day sold Societe a controlling stake.

But like many banks, Societe Generale has been rethinking its long-term business plan amid the upheaval in the global financial system. In January, Societe agreed to merge its European and Asian money management operations with those of rival Credit Agricole.

Although TCW will remain part of Societe for now, the plan announced in January calls for TCW to be spun off as its own company within five years.

The 65-year-old Day, who has remained chairman of the company, said Vice Chairman Marc I. Stern would take over as interim CEO on July 1. Stern, also 65, had been president of the firm from 1990 to 2005.

Beyer follows William Sonneborn out the door. Sonneborn, 39, stepped down as president of TCW last year to become CEO of KKR Financial Holdings.

-- Tom Petruno

Photo: Robert D. Beyer. Credit: TCW

Clock ticks louder on Medicare and Social Security

The deep recession will mean a faster road to insolvency for Medicare and Social Security, the programs' trustees warn today in their annual reports on the plans.

Their findings won’t shock anyone, and we’ve all been reading the same grim headlines about Medicare and Social Security for decades, to the point of numbness. The only difference is that the day the money theoretically runs out is getting ever closer -- particularly for Medicare.

Social Security now is expected to begin paying out more in benefits than it collects in taxes in 2016, one year sooner than projected last year, and the trust fund will be empty by 2037, four years sooner.

As for Medicare, it's already paying out more in benefits than it collects in taxes, and the trustees estimate the program will be insolvent by 2017, two years sooner than projected in last year's report.

Read the summary of the trustees' reports here.

With the government already racking up unprecedented budget deficits to bail out the economy and the financial system, the prospect of funding shortfalls in Medicare and Social Security becomes even more daunting. Will the Chinese pay for our retirement, too?

Unless some huge portion of the 76 million aging baby boomers decide to leave the country (for, say, Canada?), the options for keeping the programs solvent aren’t going to change: raise taxes or cut benefits spending, or both.

In a statement, Treasury Secretary Timothy F. Geithner said President Obama "explicitly rejects the notion that Social Security is an untouchable politically and instead believes there is opportunity for a new consensus on Social Security reform."

As the trustees’ report notes:

Social Security could be brought into actuarial balance over the next 75 years with changes equivalent to an immediate 16% increase in the payroll tax (from a rate of 12.4% to 14.4%) or an immediate reduction in benefits of 13%, or some combination of the two.

Ensuring that the system remains solvent on a sustainable basis beyond the next 75 years would require larger changes because increasing longevity will result in people receiving benefits for ever longer periods of retirement.

-- Tom Petruno

CalPERS says it will vote to oust Bank of America's board

California's biggest pension fund today turned up the heat on the Bank of America Corp. board, saying it will vote its 22.7 million shares against all 18 directors at Wednesday's annual meeting.

The California Public Employees’ Retirement System joined with other activist shareholders who are aggravated by BofA’s failure to tell shareholders about the financial woes of Merrill Lynch & Co. before the bank bought the brokerage last year.

The California State Teachers' Retirement System also has said it would vote against all BofA directors.

New York Atty. Gen. Andrew Cuomo last week disclosed that BofA Chief Executive Ken Lewis said he was pressured by the federal government to go through with the takeover, despite BofA’s alarm over Merrill’s rising losses.

The deal required BofA to seek a second large infusion of government capital in January. The bank’s stock is down 42% this year, compared with a 28% drop in the BKX index of 24 major bank shares.

"The entire board failed in its duties to shareowners and should be removed," CalPERS Board President Rob Feckner said in a statement.

CalPERS cited "the poor condition of the company, the failure by directors to disclose the extent of Merrill Lynch’s losses prior to consummation of the merger, the payment of billions of dollars to Merrill executives in bonuses for failure, and the failure of the board to act in the best interests of shareowners in overseeing management."

The Service Employees International Union, which has its own agenda against BofA, has already been organizing protests in front of some of the bank's branches, in advance of the annual meeting.

A separate shareholder measure on the BofA ballot seeks to split the chairman and CEO jobs at the bank, in what amounts to a referendum on Lewis.

Although nobody really expects the entire BofA board to be ousted, CalPERS’ opposition could help turn other shareholders against management, resulting in a symbolically significant minority of "no" votes.

CalPERS’ stake in BofA is less than 0.4%. For the move to jettison BofA’s board to succeed, it would have to garner votes of much bigger stakeholders, including Vanguard Group, Capital Group (parent of the American Funds) and Fidelity Investments.

Historically, it has been much harder to gain dissident support from investment firms than from public pension funds.

-- Tom Petruno

Photo: Protesters outside a BofA office in New York today. Credit: Emmanuel Dunand / AFP/Getty Images

FDIC seeks pension funds' interest in toxic-loan purchases

Major pension funds today are getting pitched to participate in the Obama administration's plan to buy banks' toxic mortgage assets.

Federal Deposit Insurance Corp. Chairman Sheila Bair was scheduled to brief the funds, including the California Public Employees’ Retirement System, on the program. The California State Teachers Retirement System also was invited.

A CalPERS spokeswoman said one of the questions the fund had was whether it could buy loans directly from banks under the program, rather than using a money manager to handle and manage the purchases.

After suffering severe losses on so much of their stock market and private-equity assets over the last year, it’s not surprising that pension funds would be looking for opportunities elsewhere. The Obama administration’s loan-purchase program is aimed at enticing big investors by offering to have the Treasury and FDIC shoulder much of the risk.

From Bloomberg News:

The invitation-only meetings [with Bair] are taking place at the New York office of the FDIC’s financial adviser, Perella Weinberg Partners.

"Sheila really wanted to get input as this program is refined," said Peter Weinberg, a partner at the New York-based firm. "She’s listening and seeking advice from market participants."

Bair is drumming up support for a $1 trillion plan Treasury Secretary Timothy Geithner unveiled last month to help rid U.S. banks of the loans and securities clogging their balance sheets. The FDIC is in charge of a program that would form investment pools to buy devalued loans from banks.

Under the Legacy Loans Program being set up by the FDIC, private investors would buy equity in loan pools, with any contributions matched dollar-for-dollar by the Treasury. The equity then would be supplemented through the sale of debt guaranteed by the FDIC.

-- Tom Petruno

Photo: FDIC Chairman Sheila Bair.Credit: Brendan Smialowski / Bloomberg News