PPG Industries cuts profit forecast for fourth quarter

PPG Industries Inc. of Pittsburgh today lowered its forecast of fourth quarter earnings about 50 percent to a range of 35 cents to 45 cents a share because of the "accelerating rate of decline in the global economy that has emerged."

A consensus of analysts had projected that PPG earnings would be about 73 cents a share, Bloomberg News reported.

PPG, a global supplier of paints, coatings, chemicals, optical products and glass, said that its industrial coatings and glass segments are expected to report losses in the fourth quarter. The fourth quarter results will reflect the benefit from falling raw material and energy costs.

The market softness initially seen in the U.S. industrial markets now is prevalent on a global basis, PPG Chief Financial Officer William H. Hernandez said today.

The business serving the industrial-end markets are experiencing significant loss of volume because customers are responding to lower consumer demand and tighter credit by cutting production and reducing inventory, Hernandez said.

PPG's commodity chemicals, performance coatings and architectural coatings segments continue to perform solidly and the company's optical products business continues to show growing volumes, Hernandez said.

The company plans to release fourth quarter results on Jan. 16.

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Economic crisis kills Beaver County ethanol plant plans

Plans to build a multimillion dollar ethanol plant in Beaver County have apparently been ditched.

Pittsburgh-based Sunnyside Ethanol LLC had proposed building the ethanol plant and waste coal electrical facility on about 80 acres in Aliquippa. The plant was to be on land that once housed a sprawling steel facility.

Chuck Betters is one of the property owners. He says the credit crisis and the drop in gasoline prices apparently played a role in Sunnyside's decision to halt its plans.

Betters says Sunnyside had a sales option for the property, but it expired.

Sunnyside officials have said they are having difficulty securing funding for the Aliquippa plant, which would have been built on land along the Ohio River that once hosted a sprawling J&L Steel plant.

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Smaller banks inking bigger business deals

When an investment banker tried to line up money to buy Boscov's stores out of bankruptcy early this fall, he ran into the credit crisis.

"The big banks, including money center banks, just blew us off," said Joseph Harenza, CEO of Griffin Financial Group in Reading.

But he got around that wall when a group of smaller, regional banks coalesced to back a nearly $300 million deal that enabled two of the retailer's top former executives to rescue Boscov's from oblivion last month.

The deal illustrates a wider trend, say bankers and other industry experts. While many large banks are freezing up these days, smaller banks are often filling the financing void for businesses.

"Some of the bigger banks are distracted, either by selling or buying (banks) or by more national issues," said David Lazare, managing director of Stifel Nicolaus & Co., Philadelphia.

"But community banks are seeing business opportunities in loan and deposit relationships that they hadn't gotten access to in the past several years," the analyst said.

Several second-tier banks around Pittsburgh are enjoying a higher profile these days, especially among business customers hungry for credit.

First Commonwealth Bank, for instance, posted its busiest quarter for new business loans over the summer that it's recorded in the past three to four years, said Mike Price, president of the Indiana, Pa.-based bank.

"Times may be tough, but not all businesses are struggling," Price said. "Their business may not be as good as last year, but they can still be profitable and pay good wages and give out a Christmas turkey each year."

Dick's Sporting Goods Inc., for instance, is forging ahead with a new, $107 million headquarters in Findlay, near Pittsburgh International Airport, which should be completed in about a year. The building is being financed by a consortium of mostly Western Pennsylvania regional banks led by First Commonwealth.

"They have been our go-to banking partners in this region," said Rodney Piatt, CEO of project developer Horizon Properties. "They clearly understand the markets they serve and understand the economics of the markets they're in."

Larger banks are still providing project financing, "but it's a lot more challenging because they are pulling in their horns," Piatt said.

"If we get a deal, we have no problem working on it with other lenders, depending on the circumstance," said Rob Jorgenson, senior vice president of marketing for S&T Bank, Indiana, which helped finance the Dick's headquarters project.

Regulators limit the size loan a bank may extend according to the institution's asset size. S&T loans, for instance, can not exceed about $20 million, Jorgenson said. So, construction of the sporting goods company headquarters required that several smaller banks band together their resources.

"Smaller banks are still staying within their strategy, however," Lazare said. "They're not being overly aggressive, or relaxing their underwriting standards or going outside their markets."

First National Bank has about $3.2 billion in outstanding business loans across Western and Central Pennsylvania, with one-third of that in the Pittsburgh region. The Mercer County-based bank added eight branches in Allegheny County to its previous 15 here with the acquisition of Iron & Glass Bank in August.

"We bring the sophistication of a bigger bank in a community bank wrapper," said Vincent Delie Jr., banking group president of First National. "Our (loan) decisions are local, and our credit officers are engaged with the companies."

Since the bank hired commercial bankers dedicated to the Pittsburgh market in 2005, First National has grown its outstanding business loans about 15 percent a year, Delie said.

First Commonwealth CEO Price attributes much of his bank's business loan growth to monthly "blitz days" this year. That's when branch managers, commercial lenders and even "the top brass" call on companies probing for business, he said.

"This is not rocket science. If you want a company's business, you go inside and ask if there's anything you can do for them," Price said.

"Our customers know who to call if they need to," he said. "They're not calling a different area code or a different state."

Smaller banks seemed to get an added chance to grow their businesses in early December. The Justice Department ordered PNC Financial Services Group to divest 61 Western Pennsylvania branches before it can complete its acquisition of National City Corp., expected by Dec. 31.

"We would love to purchase some of the National City branches that PNC has agreed to sell," said Robert McCarthy Jr., CEO of Parkvale Financial Corp., which helped finance the Dick's project. "That would be a good way to grow, with mature offices and nice deposit bases."

But as McCarthy and other local banks later discovered, antitrust authorities are requiring PNC to sell the National City branches in chunks by market. That means, all 50 offices in Allegheny County must be sold to one buyer -- a transaction too big for smaller banks to swallow, analysts say.

Extra branches or not, Parkvale has expanded its business loans more than 15 percent this year to date over last year, said chief lending officer Bob Stephens.

"It's having our loan officers be more proactive," he said.

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Nissan operation 'a great opportunity'

Pittsburgh businessman David Scaife has expanded his car sales activities in the region, recently taking over operations of a Nissan dealership near Johnstown in Cambria County.

Scaife, the owner of Auto Palace Porche on Baum Boulevard in North Oakland, is operating the Nissan franchise on Scalp Avenue in Richland under the name Auto Palace Nissan. He purchased the franchise and started operations Sept. 1, said Aaron Comstock, general manager of his dealership operations.

"We saw this as a great opportunity," Comstock said. The previous franchisee for the Nissan dealership was Team Motors, a business that owns Chevrolet and Kia dealerships in the Johnstown area.

The franchise Internet site lists just under 100 vehicles for sale, including 2008 and 2009 models, ranging in price from $15,000-plus Nissan Versa sedans and hatchbacks to Nissan SUVs running at more than $40,000.

State records show the business is owned by DNS Nissan LLC, on Baum, with Scaife shown as manager. A purchase price was not disclosed.

Despite the economic downturn and its impact on domestic automakers Chrysler, General Motors and Ford, Scaife's team is optimistic about prospects for both the new venture and its existing business in Pittsburgh, Comstock said.

Japanese automakers are in far better financial state than their American counterparts, but they are getting battered in the shrinking market.

In November, when auto sales plunged 37 percent to their worst level in more than 26 years, Toyota's sank 34 percent, Nissan's were down 42 percent and Honda Motor Co.'s fell 32 percent.

In Western Pennsylvania, Nissan has been among the Japanese brands gaining market share -- with a 1.1 percent increase over the last nine months, according to figures from the Greater Pittsburgh Automobile Dealers Association, which includes some dealers in the Johnstown area.

The brand is projected to increase new car and light truck registrations by 7.1 percent this year, the association said in its 2008 third-quarter Pittsburgh Auto Outlook report.

"The economy is causing everyone concern, and there is a downturn in auto sales across the board," Comstock said. "But we're looking forward to making it through the downturn and moving forward."

Plans are to continue to operate the Richland Nissan dealership at its location under a lease agreement until sometime next year when Scaife hopes to have a brand new complex built at a nearby site.

Comstock did not disclose the location because the purchase of the property isn't completed and plans still are being developed.

"We want to build a state-of-the-art facility. We think it will be exciting and will create a lot of customer traffic in that area," he said.

While Scaife expanded his business in Johnstown, in November he finished renovation of his existing dealership on Baum Boulevard. Comstock declined to disclose the cost of the renovation, which was completed Thanksgiving week, but said the investment was "substantial."

"We completely gutted and remodeled the showroom, and added drive-in service, he said. "It was a complete renovation."

Scaife, who is the son of Tribune-Review owner Richard M. Scaife, has owned the Baum Boulevard site since 2000 and operated the Porche franchise since 2002, said Comstock. Based there is his Spyker of Pittsburgh, a business that sells hand-built luxury vehicles.

Also located there is Scaife's Race Car Museum, a private collection of about 15 classic cars, including such makes as Porsche, Jaguar and Ferrari, that is not open to the public.

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Government officials worked to keep strip mill in Valley

Landing the $1.2 billion hot strip mill at ATI-Allegheny Ludlum's Brackenridge Works required the cooperation of state and local elected officials, who took key steps to set the stage for the project.

It happened with a sense of urgency as ATI considered putting the new mill in Kentucky, which was offering an incentive package that included cheap electricity, or on its property in Midland, Beaver County, which already had the state designation of a Keystone Opportunity Zone.

Either scenario posed the likelihood of Ludlum eventually leaving the Valley.

State legislators, including state Rep. Frank Dermody of Oakmont, state Rep. Jeff Pyle of Ford City, and state Sen. Sean Logan of Monroeville, went to work pushing legislation on two fronts. One was passing a bill that allowed businesses such as Ludlum, which uses huge amounts of electricity, to cut their long-term deal with power companies and thus lower costs.

A second bill allowed for expansion of the Keystone Opportunity Zones (KOZ) to include the ATI-Ludlum project. It will provide 10 years worth of tax abatement from the counties, municipalities and school districts on new construction related to economic development. In return, ATI-Ludlum will pledge to invest at least $750 million into new development and create or preserve 1,400 jobs, which happens to be the normal size of the work force at the Brackenridge Works.

Once the legislation was approved, it was the local officials' turn to step up and keep the relationship with Ludlum from going on the rocks.

Brackenridge Council, Harrison Township Commissioners and the Highlands School Board approved the tax abatements for the KOZ.

"It's a no-brainer," George Conroy, Harrison commissioners' chairman said at the time. "Basically, it means getting that or not getting anything because, if they don't build it here, I think they'll close Brackenridge."

Brackenridge Council was called to go beyond that.

The Brackenridge Works belongs to that borough in name only. The mill is located in Harrison, but on its western end it abuts Mile Lock Lane in Brackenridge. ATI officials told the borough it would need to expand the mill property's footprint to fit the new project. To do that, Brackenridge Council vacated Mile Lock Lane and will reconfigure the street to allow the mill to move over about 20 feet.

After some behind-the-scenes wrangling with company officials, borough council approved the action on Sept. 9.

On Sept. 17, ATI announced that the hot strip mill would be built at Brackenridge.

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Expectations blossom with Brackenridge strip mill

Expectations blossom with Brackenridge strip mill

The ATI-Allegheny Ludlum Corporation's relationship with the Alle-Kiski Valley, like many marriages, isn't a match made in heaven but has weathered stormy times to forge something of value.

Looking back through the stainless steel producer's history marked by high profits and low profits, strikes, acquisitions, environmental problems, corporate restructuring and challenges from subsidized foreign steel producers, Ludlum and the Valley have stayed true to each other for each other's benefit.

There is no better example of that than the September decision by Ludlum's parent company, Allegheny Technologies Inc., to invest between $1.2 billion and $1.5 billion in a new hot strip mill at its Brackenridge Works.

"I think it is a long-term thing," said Dennis Davin, Allegheny County's economic development director. "What it does for us in Allegheny County and Western Pennsylvania is solidify that manufacturing presence for the future.

"Companies don't do this kind of thing lightly. They don't do it unless it is the right business model. These guys were convinced that this is the right place to do it, the right work force and it really keeps 1,400 manufacturing jobs going in the Valley."

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Nursing-home ratings called inconsistent

Area nursing home owners say the federal government's new rating system is a good first step but, by itself, could mislead the public.

The Centers for Medicare and Medicaid Services on Thursday released its first-ever nursing home rating system, which gives each home a rating of from one to five stars. About 22 percent of the nation's nearly 16,000 nursing homes received one star, the lowest rating, and 12 percent received five stars, the top grade.

In an eight-county region of Western Pennsylvania, 133 nursing homes were rated.

Stars were given based on criteria such as staffing and how well the nursing homes fared in state inspections.

Owners of two or more nursing homes particularly were perplexed with the ratings. Some of their properties received a single star, while others were awarded five stars.

"We own three care communities and operate another two in the region, and all operate under the same standards of care," said Pat Kornick, spokeswoman for Presbyterian SeniorCare, based in Oakmont.

One of Presbyterian SeniorCare's facilities -- the Willows of Presbyterian SeniorCare in Oakmont -- received a single star. But Longwood at Oakmont in Verona garnered a five-star rating.

"We fully support quality-of-care measurements, but we also believe that quality of life is important -- and this star system doesn't address quality of life," Kornick said. "To us, the truest indication of how we're doing is the daily report card that we get from our residents and their families."

In Allegheny County, 25 percent -- or 16 or 64 nursing homes -- received single-star ratings, or much-below-average performance. Two of the poorest-performing facilities within the county are owned by the University of Pittsburgh Medical Center -- Canterbury Place in Lawrenceville and UPMC Heritage Place in Squirrel Hill.

"Some of the data in this rating system is both older and unclear, with questionable methodology that may cause fear in the public," said UPMC spokeswoman Gloria Kreps. "Our concern is that this may also cause unnecessary fear among our patients and their families."

For-profit and nonprofit facilities are included in the federal rating, as were government-owned nursing homes.

Allegheny County's four John J. Kane centers received varied ratings -- a five-star rating for the nursing home in Scott, three stars for the Kanes in Ross and Glen Hazel, and two stars for the McKeesport facility.

"It's too early to make a determination as to how the criteria plays into such a complex area," said Dennis Blondo, executive director of the Kane facilities. "It's very difficult to understand how you can place a rating on something as personal as where somebody lives. There is much more that goes into quality of life for a nursing-home resident.

"Having said that, we're very pleased at the five-star ranking for our Scott facility, and I feel all our centers deserve a five-star ranking," Blondo added.

In Westmoreland County, three of 22 nursing homes were awarded one star, while two received five stars. Of Washington County's 12 nursing homes, three were given a single star, while no facilities garnered a five-star rating. In Butler County, one of 13 nursing homes received a single-star rating, while three were given five stars.

Two of Fayette County's eight nursing homes earned one-star ratings, while one facility garnered a five-star grade. Two of Beaver County's seven facilities received single stars, while none garnered five stars. None of Indiana County's five homes or Greene County's two nursing facilities were given one or five stars.

Kerry Weems, acting administrator for the Centers for Medicare and Medicaid Services in Washington, D.C., said the agency's ratings were based on data already on its Web site and were aimed at making it easier for patients and families to choose a nursing home. He said it can be difficult for people to understand all the aspects of an inspection.

Lyn Manns, administrator at Sycamore Creek Nursing Center in Kennedy, said the data used in determining her facility's one-star rating were old. Mann said the nursing home's owner, Cleveland-based Sabre Healthcare Group, has been making improvements -- the latest of which is a new name. Effective Friday, the facility now is known as Caring Heights Community Care and Rehabilitation Center.

"We invite people to come out, take a look at what we're doing," said Manns.

Even five-star facilities are somewhat cautious in acknowledging the top-notch rating.

"We really weren't surprised at this. We know our staff and leadership team does a great job, and this ranking took notice of that," said Chris Newport, administrator at Covenant at South Hills in Mt. Lebanon, a five-star awardee.

"We're ecstatic we were awarded five stars, we work hard at what we do, but all nursing homes strive to do the best they can do," said Sister Bernice Fiedor, administrator at St. Anne Home in Greensburg.

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McCandless project to include offices, big-box retail, hotel

Construction of the first phase of the $120 million McCandless Crossing in McCandless will include a big box retailer, a 123-room hotel, 200,000 square feet of office space and a restaurant.

Details of the development, to span the east and west sides of McKnight Road near LaRoche College, were outlined by Jeffrey A. Mills, of Pepper Hamilton LLP, legal adviser to developer AdVenture Development LLC of McCandless, whose president is Kevin Dougherty.

"About 100,000 square feet of offices will be for a medical facility to accommodate physicians from nearby UPMC Passavant, with the remainder general office uses," Mills said.

The initial phase of the 130-acre complex, to be built on the west side of McKnight, could be completed by the summer of 2010, and the second and final phase, on the east side of McKnight, will be started either that year or in 2011, he said.

The overall development will consist of 1 million square feet and include a town center, an entertainment area with a cinema and possibly residential units.

Mills spoke before the Redevelopment Authority of Allegheny County, which on Thursday authorized the county's Department of Economic Development to seek up to a $10 million grant from the state's infrastructure improvement program.

The grant would finance debt payments on the costs of roads and other infrastructure at the site.

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Stocks open higher after automaker bailout news

NEW YORK -- Wall Street has opened higher as investors cheered the government's pledge to lend as much as $17.4 billion to the U.S. automaking industry.

The decision to help the struggling companies comes after a $14 billion bailout for Detroit automakers failed to emerge from the Senate last week.

The companies' cash flows have been dwindling to a slow trickle due to the weak economy and credit crunch. The White House will let automakers draw $13.4 billion in short-term financing, and another $4 billion will be added later.

Investors have also veen worried about broader job market ramifications of a bankruptcy of an automaker like General Motors Corp. or Chrysler LLC.

In the first minutes of trading, the Dow was up 107 points to the 8,712 level.

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Flabeg expansion plans spurs infrastructure upgrades

Flabeg Corp.'s plan to build a $33 million manufacturing facility in Findlay has prompted Allegheny County to seek up to $1.5 million from the state for infrastructure improvements.

Flabeg, which designs and engineers high-tech optical products and mirrors, said it will build a 150,000-square-foot plant and a 50,000-square-foot office annex on land leased from the Buncher Co. in the Clinton Commerce Park.

The company said the initial building will house a business unit by 2010 that will create about 300 jobs. Flabeg will continue its Brackenridge plant, where 200 are employed.

Flabeg is in line to receive a $9 million aid package from the state and county. The Redevelopment Authority of Allegheny County on Thursday approved a request for the state grant.

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5-county region's home sales plunge 20%

Sales of existing homes in the five-county Pittsburgh region declined 19.6 percent in November compared to the same month last year, marking the 20th consecutive month of falling sales.

There were 1,810 home sales in November versus 2,250 a year ago, according to RealStats, a South Side-based real estate information company.

For the 11-month period of January through November, sales are down 16.3 percent this year compared to the same period last year, the company said.

Total sales this year through November were 24,220 while the total for 2007 was 28,925.

"It should be noted that there were two fewer business days in November compared to a year ago and, factoring that in, the number of sales are off roughly 11 percent," said Daniel A. Murrer, RealStats vice president.

Not surprised by the decline is Tom Hosack, president of Northwood Realty Services.

"With all the economic distress and bad news, people are not buying houses but shopping for Christmas. The shopping malls and restaurants are packed, and November, along with December, are traditionally slow months for house sales," he said.

Hosack said the market may turn around next year, perhaps not immediately in January, but by the third quarter, thanks to government actions to stimulate the economy.

"We knew November would be down in house sales, based on the number of houses under sales agreements during October," said Howard (Hoddy) Hanna III, chief executive officer of Hanna Holdings Inc.

RealStat said the average price of homes sold in November declined about 2.5 percent, compared with last year. The average sale price was $146,121 last month compared to $149,830 a year ago.

Median sales prices also declined to $115,000 in November versus $116,750 a year ago, down 1.5 percent. The median price is the point at which half the homes sold for more and half for less.

The average sale prices in Westmoreland County increased 21.7 percent -- $155,362 last month on 285 sales compared to $127,690 on 341 sales a year ago. Prices decreased in all other counties, with Washington down 12.8 percent, Beaver down 11 percent, Allegheny down 5.3 percent and Butler down 0.3 percent.

RealStats said the average price of a new home sold in November was up 2.1 percent, at $311,171 compared to $304,722 a year ago. November new home sales declined 32.5 percent, with 166 compared to 246 a year ago.

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State prescription cards offer average 30% savings

HARRISBURG -- Pennsylvania today became the 22nd state where people can get a free prescription drug card that will provide an average savings of 30 percent on medicine.

Funded by pharmaceutical companies and pharmacies, the discounts will help 800,000 Pennsylvanians without health insurance in a difficult economy, said Thomas J. Shaw, program director for the Pennsylvania Drug Card.

Anyone can get the card, he said.

"There are no restrictions to membership, no income requirements, no age limit and no applications to fill out," Shaw said.

The card, available at www.padrugcard.com, offers discounts of up to 75 percent.

"We encourage all residents to take advantage of the opportunity to help offset the rising prices of prescription drugs purchased in Pennsylvania," said former Gov. Mark Schweiker, now CEO of the Greater Philadelphia Chamber of Commerce.

Schweiker backed the plan Wednesday in Philadelphia. Shaw made an announcement Thursday in the state Capitol Rotunda.

California, New Jersey, Florida, Georgia, Colorado and Virginia are among states offering the card, according to Shaw.

All drugs are included, he said.

"There is medicine manufactured that is not sold," said William H. Gutches, the program's pharmacy business development director, when asked why drug companies would do this.

That doesn't mean companies are selling drugs near or over the expiration dates, Gutches and Shaw stressed.

"On the face of it, it looks great," said Chuck Ardo, a spokesman for Gov. Ed Rendell.

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LeNature CEO Podlucky accused of $110M bait-and-switch

It was a skim that would have made the Mafia proud.

Two men running a business out of a house in North Carolina allegedly handled millions of dollars for former LeNature's CEO Gregory Podlucky and helped him skim $110 million in financing that Podlucky used to enrich himself by building a mansion and purchasing $30 million worth of gems and jewelry.

The scheme, detailed in a lawsuit filed in U.S. District Court in Pittsburgh against Podlucky, former company officers, family, friends and investment bankers, could serve as the blueprint for money laundering, bank, wire and mail fraud charges being considered by a federal grand jury in Pittsburgh.

The funds were part of more than $500 million allegedly looted by Podlucky as part of a fraud that kept the failing company afloat through forgery, deceit and questionable loans.

Evidence uncovered by forensic auditors has since been turned over to the U.S. Attorney's Office, postal inspectors and the Internal Revenue Service for use in the criminal probe, according to bankruptcy court records that detail the investigation.

Also named as defendants are Podlucky's brother, Jonathan, who was the company's COO; David Getzik of Washington, Pa., the former CFO; Robert Lynn of Ligonier, vice president; and Drew Murin, formerly of Derry, who is a friend of Podlucky's and served as a company consultant.

None of the defendants would comment on the allegations.

Here's how the scheme worked, according to Trustee Marc Kirschner's filing, which is seeking more than $1.5 billion in damages.

Podlucky hired The Pollinger Co., of Charlotte, N.C., to act as an intermediary in arranging the financing and purchase of bottling equipment that Podlucky wanted to use to expand his Latrobe plant and a sprawling plant he built in Arizona.

Podlucky and owners Donald and Paul Pollinger used a simple bait-and-switch to run the scam.

The Pollingers ordered an expensive line of equipment, then switched to cheaper machinery after the financing was in place. The company leasing the equipment ended up paying Pollinger Co. more than the Pollingers had to pay the company manufacturing the equipment, according to the suit.

When LeNature's auditors in 2006 wanted to confirm that Pollinger had the equipment deposits in a bank, the Pollingers confirmed that they held more than $200 million in deposits for Podlucky. The money was supposed to be transferred to a German company making the equipment.

As a result, "tens of millions of dollars" were funneled to Podlucky, according to Kirschner.

The suit alleges the Pollingers also helped Podlucky obtain financing for machinery that did not exist.

Kirschner said no one raised alarms when it was discovered that Pollinger was a small, two-man operation with little or no assets or credit rating. More importantly, no one bothered to check where the money was deposited, he said.

In each instance, the leasing company paid too much in financing and Pollinger sent the excess to Podlucky. In 2003 and 2004, more than $8.1 million in excess financing was transferred to Podlucky, according to the lawsuit.

The lawsuit also details Wachovia Bank's role.

Wachovia Bank and its affiliates, Wachovia Capital Markets and Wachovia Securities, are named as defendants in the lawsuit. Wachovia, which arranged a total of $600 million in financing for LeNature's, knew the company was teetering financially yet it continued to provide LeNature's "with a steady stream of capital" by issuing more debt, according to Kirschner.

Kirschner said LeNature's should have failed financially as early as 2002 but Wachovia's steady stream of money kept the company in business, piling up even more debt, until late 2006.

Despite Wachovia's own misgivings about LeNature's financial affairs, the bank kept loaning the company more money.

Using internal company e-mails, Kirschner shows that Wachovia's investment bankers were at odds with their own analysts who had serious doubts about LeNature's and Podlucky.

One Wachovia analyst questioned why LeNature's earnings did not match its reported growth projections since its line of water and juice products were not being carried by the major stores. Its products were disappearing from shelves at places like Wal-Mart, Target, Pathmark and Kroger's.

Another analyst in Wachovia's food and beverage division asked how LeNature's could be making money by selling its product for 99 cents.

Finally, it got to the point where Wachovia analysts said LeNature's financial information was "frankly worthless" even though brokers had put out a "buy rating" on a series of junk bonds for the company.

Wachovia was able to reduce its liability to nothing by selling its debt to other financial institutions and hedge funds who never were told about LeNature's financial problems.

In the process, the bank earned more than $7.1 million in fees "for a few days' work." Wachovia's actions in that instance also are the subject of a lawsuit in federal court in Pittsburgh.

Pat Huddleston, the former chief of enforcement for the Securities and Exchange Commission, said corporate corruption "is all about the money."

"There is always a battle between the compliance department and people who make money for the investment banking firms -- the investment bankers," said Huddleston, who now operates Investors Watchdog, a Web site in Atlanta that tracks financial fraud.

"Voices get drowned out by investment banking fees, which are pretty hefty. Some officials just don't have the courage to insist that people take a harder look at these things out of fear for their job," Huddleston said.

"On one hand, you have someone raising red flags. On the other, you have someone saying, 'I can make $20 million on this deal.' "

He said creating bogus financial records and forging documents are nothing new in corporate America. Corrupt businessmen are willing to go to any length to conceal fraud.

He said he tracked a recent scam involving a company official who creating a non-existent accounting firm so it could issue fictitious financial opinions on behalf of the company to hide the businessman's misdeeds.

"Truth is stranger than fiction," he said.

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California firm pays $34 million for O'Hara software company

A California software company said Wednesday it will pay $34 million to buy Algor Inc. of O'Hara, which makes computer-aided engineering software used to design products ranging from mobile phones to oil pipelines.

Autodesk Inc. of San Rafael, Calif., said acquiring Algor will strengthen its own digital prototyping software, by adding advanced simulation functions.

Michael Bussler, Algor's president and founder, said his company has "enjoyed a longstanding partnership with Autodesk, and the combination of our proven technologies will be an exciting new chapter for our customers worldwide."

Autodesk, with more than 7,000 employees and $2 billion in annual revenue, said it intends to integrate Algor into its manufacturing solutions business unit, while continuing to sell and develop Algor's core product line.

Algor, founded in 1976 and incorporated in 1980, has 75 employees and the acquisition's effect on its local operations is uncertain.

Autodesk spokeswoman Clay Helm said because the agreement was just signed, "it would be premature to talk of facilities plans, long-term." The acquisition could close by late January.

Customers of Algor, according to its Web site, include the GM Powertrain unit of General Motors Corp., Hewlett-Packard Co. and Solar Power Industries Inc., of Belle Vernon.

Autodesk software is used in a wide range of products. The company announced this week that "Mortal Kombat vs. DC Universe" and many other top video games in stores this holiday season were built with its products.

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Pittsburgh home prices hold despite nationwide slump

Despite the nationwide slowdown in housing starts and sales, the Pittsburgh region is one of the brighter spots in Pennsylvania and the nation, home builders said Wednesday.

"Although production of new housing is down 50 percent from the peak construction years of 2003 and 2004, the region is one of the few markets not seeing a decline in overall pricing levels," said Frank Thompson, president of Sweetwater Builders Inc. of Cranberry.

Thompson spoke during a conference call Wednesday, hosted by the Pennsylvania Builders Association, that included Ken Kurtz, president of Ken Kurtz Builders in Jermyn, Lackawanna County, and Dave Seiders, consultant to the National Association of Home Builders.

Thompson said new housing prices have not declined in the region and the inventory of unsold new houses is slowly decreasing. But that has not spiked sales because buyers are concerned about whether they can sell their current home, job security and whether new housing prices will decline, he said.

In October, the median new home price in the five-county Pittsburgh region was $273,607, up slightly from $267,050 in October 2007, according to RealStats, a South Side-based real estate information service. The median price is the point at which half the homes sold for more and half for less.

Housing starts have held up in the region until recently, said Jeff Burd, president of Tall Timber Group, which monitors the local construction industry.

"It has only been the last two months -- October and November -- that the numbers have really dived," Burd said. There were 115 starts in October and 81 in November, he said. He had forecast 1,700 to 1,800 starts this year.

In October, there were 236 sales of new homes and townhomes, down from 284 last year, according to RealStats. Money spent on new homes in the five-county area dropped 15.5 percent from $85.7 million to $72.4 million with the sharpest declines in Beaver and Westmoreland counties where the activity was off by more than 50 percent. Allegheny County had the only increase in sales during October. Also included were Butler and Washington counties.

Nationally, housing starts fell 18.9 percent from October to November -- what some experts are calling the worst month since record-keeping began in 1947 -- the Commerce Department reported Tuesday.

"Some builders are able to weather the current economic crisis but others have been devastated and either have gone into home improvement or temporarily suspended operations," said Thompson, a former president of the Builders Association of Metropolitan Pittsburgh. "Several customers I have been working with for awhile agreed to buy a house, but have also asked construction be delayed until the spring, in hope that prices will decline," he said.

Kurtz said the picture was worse in the eastern part of the state.

A builder of two to five homes annually, Kurtz said he had five solid buyers recently and four of the five decided to delay construction start until spring, citing the economy and worry that their investment will maintain its value.

Housing starts are down two-thirds from the peak years, he said.

"Our message to Congress is to fix housing first. That's a key component to turning the economy around," Seiders said.

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Longtime Oakland restaurant Duranti's closing Friday

Duranti's Restaurant in the Park Plaza condominiums in Oakland will close at 9 p.m. Friday.

An investor working to acquire the space plans to lease it to the University of Pittsburgh. The university's Office of Institutional Advancement signed a 10-year lease, starting in May, at an initial cost of $492,678 to occupy 20,965 square fee in the building.

Theodora Duranti, the restaurant owner, declined to identify the investor but said she hopes to reopen Duranti's at a new location.

Duranti's has been in the building at 128 N. Craig St., since 1979. A Stouffer's restaurant was there previously.

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Gas-drilling permit fees in Pa. set to skyrocket

The Pennsylvania Environmental Quality Board on Tuesday approved rules that would sharply increase permitting fees for companies drilling into the natural gas-rich Marcellus Shale formation.

For the average Marcellus Shale horizontal well that stretches 10,000 feet down and then across the shale formation, the permit cost next spring would jump to $2,600. That's up from the $100 fee, regardless of depth, that was adopted in 1984.

"Due to technological advances in drilling and rising natural gas prices, gas exploration in the commonwealth has increased significantly with 40,000 new drilling permits anticipated during the next three years," said John Hanger, acting secretary for the state Department of Environmental Protection.

DEP estimates the new fee structure will bring in an additional $3 million a year for the department. Proceeds will be used to hire 37 DEP staff to review Marcellus Shale permit applications and monitor drilling activities statewide.

Sixteen of the new employees are to be based in Pittsburgh, DEP spokesman Tom Rathbun said yesterday.

"We'll be hiring oil and natural gas inspectors, water quality specialists, environmental engineers, technical staff like geologists and office permitting staff," Rathbun said. Oil and natural gas inspectors will be paid between $41,017 and $62,338, the DEP said.

Trade associations and independent oil and natural gas exploration-production companies doing business in the Marcellus formation generally were supportive of the fee increase.

"The additional fees will help the DEP expand its resources to match increased activity in the Marcellus," said Matt Pitzarella, spokesman for Fort Worth-based Range Resources Corp., with an office in Cecil in Washington County. "Ultimately, this should help foster Marcellus development, which will add good-paying jobs in Pennsylvania and boost the state's economy."

Steve Rhoads, president of the Pennsylvania Oil & Gas Association, said his organization generally supports increased fees -- those pertaining strictly to Marcellus Shale drilling, and others for different types of oil and gas drilling programs.

The 20-member Environmental Quality Board, chaired by the DEP secretary, is an independent board that decides on all DEP regulations.

Rathbun said now that the board has approved the increase, it goes to the Independent Regulatory Review Commission, which considers whether all agency regulations are in the public's interest. Finally, the state attorney general must approve the increase.

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National City OKs settlement for shareholder lawsuit

National City Corp., the Cleveland-based bank being acquired by PNC Financial Services Group Inc., agreed to release more data and pay $1.2 million in legal fees to settle lawsuits challenging the fairness of the deal.

In one of eight Delaware Chancery Court lawsuits, shareholder Arthur Klein alleged Oct. 27 that National City directors were duty-bound to get a higher price. A hearing to block the transaction had been scheduled for yesterday.

"Counsel for the parties have concluded that a settlement" on the claims "is fair, reasonable and adequate and in the best interests" of National City stockholders, lawyers said in court papers filed in Wilmington Dec. 12.

Pittsburgh-based PNC said Oct. 24 it would buy National City, Ohio's largest bank, for $5.2 billion to create the eighth-largest U.S. bank by assets, after receiving $7.7 billion in funding from the U.S. Treasury.

Under the buyout agreement, National City investors will receive 0.0392 share of PNC common stock for each of their shares, according to court papers. National City shareholders will vote on the deal Dec. 23.

In a memorandum of understanding filed with the court, National City officials denied wrongdoing and agreed to pay the legal fees and expenses for plaintiffs' lawyers.

They also disclosed information about the buyout process, including a planned $25 million transaction fee to be paid by National City for work by Goldman Sachs Group Inc. and $56 million paid by PNC to Citigroup affiliates related to the merger.

The settlement terms must be presented to Judge William B. Chandler III for approval at a later hearing.

The buyout plan won approval from the U.S. Federal Reserve yesterday and may close by the end of the year.

National City joined Wachovia Corp. and Washington Mutual Inc. in takeovers after losses tied to subprime-mortgage loans. National City was once among the nation's top 10 subprime lenders. Its stock price has fallen 88 percent this year.

National City rose 20 cents to $1.93 at 4 p.m. in New York Stock Exchange composite trading. Pittsburgh-based PNC rose $3.20, or 7 percent, to $49.20.

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Bankruptcy sales hurt business for other retailers

Brian Koerber and Jim Perez are the kind of shoppers bankrupt retailers love and solvent chains these days seek to entice.

Both shoppers walked out of Steve & Barry's discount clothing store at Century III Mall this week with bags of deals, courtesy of the Port Washington, N.Y., chain's going-out-of-business sale.

"It absolutely impacts where I'm shopping, with a sale like this," said Koerber, 33, of South Park. "You can't beat the deals. For $20, I got two pairs of jeans and three T-shirts."

With a week left until Christmas, retailers are doing all they can in an ailing economy to entice consumers with half-off or buy-one-get-one offers. But with bankrupt retailers such as Steve & Barry's, Circuit City, Linens 'n Things and Whitehall Jewelers hoping to dump as much merchandise as quickly as possible this season, solvent stores have an additional challenge, experts say.

"The bankruptcies are impacting other retailers tremendously," said Howard Davidowitz, chairman of retail consultant/investment bank Davidowitz & Associates Inc. of New York.

"Look at Bed Bath & Beyond. It's really being hurt by Linens 'n Things' bankruptcy, but the impact is for the short-term. Next year, Linens 'n Things will be gone."

Shoppers are waiting to make purchases, particularly when dealing with bankrupt retailers. They know that as the time nears for the doors to close forever, the markdown percentages increase.

"This is my third time shopping (the liquidation sale) at Linens 'n Things," said Angie Bedilion of Greensburg, as she entered the store Tuesday at Greengate Centre in Hempfield.

"I came here with my Mom because I was interested in a chair cushion, but it was only 10 percent off. I waited and finally bought it for half off, which I felt was a good price." Bedilion was back yesterday to check out some some exercise equipment.

While retail bankruptcies aren't unique, so many store chains selling off all of their inventory weeks or even days before year's end is somewhat out-of-the-ordinary, experts said.

The economic downturn has caused many consumers to pull back on spending, and for some retailers on the edge, even the prospect of increased holiday revenues couldn't fend off going-out-of-business sales. No fewer than 15 major retail chains filed for bankruptcy in the year's third quarter alone, including Circuit City and Linens 'n Things.

"The liquidation sales definitely are taking consumers away from solvent retailers," said George Whalen, president of Retail Management Consultants of San Marcos, Calif. "Linens 'n Things definitely is impacting Bed Bath & Beyond's sales, and Circuit City is impacting Best Buy."

The latest major retailer to seek U.S. Bankruptcy Court protection and hang huge going-out-of-business signs is KB Toys. The company is in its second trip to bankruptcy in four years.

KB Toys, which operates some 460 stores, has said it will try to find a buyer for its wholesale distribution unit as it conducts going-out-of-business sales.

Carol Dailey of Munhall wasn't aware KB Toys was closing until she got to the Century III store this week, saw the signs and enjoyed the 30 percent markdown.

"I didn't know they were closing until I got here, but I found some really good deals," Dailey said.

KB Toys, which started in 1922 as a family-owned business, previously filed for bankruptcy protection in 2004 and emerged one year later after selling itself to Prentice Capital Management Inc.

Bankruptcy sales notwithstanding, the overall tenor this holiday shopping season is, in a word, "horrendous," Davidowitz said. "We'll close 8,000 stores this year and 12,000 stores next year," he said. "Business is terrible."

The longtime retail watcher sees no quick solutions to the downturn and subsequent bankruptcy filings. "We have exploding consumer debt and exploding unemployment," Davidowitz said. "The consumer never has been in this much debt before."

Both Whalen and Davidowitz believe a number of other retailers will be hoisting liquidation sale signs after totaling their holiday sales.

"We'll see a significant number of retailers going out of business in February and March," Whalen said.

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One bank must take 50 National City branches

The government told PNC Financial Services Group to sell 50 National City Bank branches in Allegheny County as one block to one buyer, a move that could introduce a big new competitor to Pittsburgh, industry sources said Tuesday.

The federal mandate is part of the Justice Department's order on Thursday that PNC divest 61 branches throughout Western Pennsylvania before it may acquire National City Corp.

"All of the Pittsburgh divestitures have to go together. All of the (50) branches must go to the same buyer," said PNC spokesman Fred Solomon, confirming details of the order.

The 50 National City branches represent $3.35 billion in deposits in Allegheny County. The other 11 branches represent $750 million in deposits.

Analysts said a 50-branch bunch would cost somewhere between $160 million and $335 million -- too rich for a smaller bank to handle, but not for other, bigger banks outside this region.

Candidates include M&T Bank of Buffalo and Fifth Third Bank of Cincinnati, said Bob Wagner, senior vice president at Ferris Baker Watts' office in Mt. Lebanon.

M&T operates more than 700 branches in seven states, including 227 branches in Pennsylvania, plus Washington, D.C., and has more than $65 billion in assets. Spokesman Kent Wissinger said the bank would not comment on industry speculation.

Fifth Third already has a dozen branches in Allegheny County and "intends to continue to build out our presence in Western Pennsylvania," said James "Jay" Ferguson III, Western Pennsylvania president. But he declined to say whether Fifth Third, which has nearly 1,300 branches and $116 billion in assets, would want to buy all 50 branches.

Other candidates might include investment banks Morgan Stanley and Goldman Sachs, which recently created holding companies that could accommodate commercial banking franchises, said Wagner.

"I don't think you'll see any of the super-community banks in our region swallowing 50 branches at once," said Wagner.

"It appears the Justice Department is trying to bring another good-sized bank into the region. It would have to be a fairly big bank to buy that many branches," said Robert McCarthy Jr., CEO of Parkvale Financial Corp., which has less than $1.9 billion in assets.

The government required PNC to spin off branches to "resolve competitive concerns raised in the proposed merger," the agency said in a statement without elaborating.

"We understand (the mandate) but are disappointed by it," said McCarthy. Parkvale would otherwise be interested in buying some of the National City branches, he said.

PNC received approval from the Federal Reserve on Monday to acquire Cleveland-based National City in a $5.6 billion deal announced Oct. 24. The only remaining step is for each bank's shareholders to approve the deal in votes scheduled for Tuesday.

The merger will make PNC the nation's eighth-largest bank by assets ($288.5 billion), fourth-largest by branches (2,747) and fifth-largest by deposits ($180 billion).

A single buyer could purchase the remaining 11 branches in Erie, Meadville, Titusville and Warren, said Solomon. PNC expects to strike sales agreements, or even one deal for all 61 branches, around the time the National City acquisition is completed around Dec. 31, he said.

It was not clear yesterday what would happen if PNC were not able to sell the 50 Allegheny County branches in one transaction, said Solomon. The Justice Department could not be reached for further comment.

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