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2011 Newsmakers

Business Alabama's wrap up of the state's 2011 news portfolio

Mile-wide tornado hits Tuscaloosa April 27.

Mile-wide tornado hits Tuscaloosa April 27.

AP Photo/The Tuscaloosa News, Dusty Compton

Tornadoes

Mother Nature was the biggest newsmaker in Alabama in 2011. Multiple trails of destruction still scar the face of the northern two-thirds of the state in the wake of violent storms and tornados April 27. More than 250 people were killed and more than 2,000 injured in a series of tornados that scraped 1,202 miles.

Entire neighborhoods were flattened. The University of Alabama Center for Business and Economic Research reports 7,300 buildings destroyed and more than 15,000 damaged.

The devastation toppled record after record. The National Weather Service in Birmingham reported that there were more tornados in April alone than in any previous entire year. There were three times as many as the average count over the past 30 years. There were more F-4/EF-4 tornadoes than in the previous 10 years. The National Oceanic and Atmospheric Administration reports that the 753 tornados in April—including two days of deadly storms in the Southeast and one in the Midwest—are almost triple the April average and 200 more than any previous month.

And the storms set fatality records. The deaths attributed to the storms as they crossed several states between April 25 and April 28 total 339 were the fourth most deadly of any outbreak in more than a century.

Damage was assessed at $14 billion, ranking fifth on a list topped by Hurricane Katrina and the 9/11 attack.

While noting that nothing can repair the human losses, CBER staff estimate that “Recovery activities will create economic impacts that exceed those of the tornado damage, injecting an estimated $2.6 billion into the Alabama economy in 2011 and an additional $1.6 to $3.2 billion in 2012.”

Want to Make a Bet?

The line on Alabama’s bingo vote buying trial is as hard to predict now as a year ago. Two defendants were completely exonerated in the lengthy federal court trial, but seven others face a repeat trial on many of the original charges.

While it didn’t produce much in the way of decisive legal action, the trial produced fascinating fallout. Sen. Scott Beason, who had been a leader among his Republican Senate-mates, was dropped like a hot potato after tapes of his conversations—while working as a snoop for the prosecution—revealed racist comments.

Since there were no guilty verdicts, defendants claimed victory and many critics of the legal system suggested that the remaining charges should be dropped. But VictoryLand owner Milton McGregor, for instance, still faces all but three of the original 17 charges against him.

While deciding to move ahead with a retrial, U.S. District Court Judge Myron Thompson made scathing comments against the state’s star witnesses, Beason and Sen. Benjamin Lewis, stating that “their motive for cooperating with F.B.I. investigators was not to clean up corruption. but to increase Republican political fortunes by reducing African-American voter turnout. Second, they lack credibility because the record establishes their purposeful, racist intent.”

Nonetheless, Thompson wrote that the government has demonstrated by a preponderance of the evidence that McGregor led and other defendants participated in a conspiracy to offer bribes to lawmakers in exchange for their vote. “McGregor had an enormous financial motive to pass SB380,”

Thompson wrote. “He had been forced to shut down the VictoryLand casino in the wake of raids on gambling venues by former Governor Bob Riley.”
Such a preponderance of evidence, Thompson wrote, does not necessarily meet the “beyond a reasonable doubt” standards that would indicate guilt—deciding whether it meets that test is the jury’s role, he says—but is strong enough to require a new trial.

A new trial is set for January.

Benchmark Auto Expansions

Pictured above: Mercedes-Benz U.S. International

Four of Alabama’s big auto plants have announced plans for major expansions during 2011—totaling more than $2.9 billion in new investment in Alabama over the next few years.

Mercedes-Benz U.S. International Inc., in Tuscaloosa County, said it will begin producing a fifth model at the Vance plant and also plans to increase the capacity for existing models. They project another $2 billion investment, equaling what they’ve already spent here, for the expansion of current lines and $350 million for the new line – rumored to be a rival for the fancy models produced by German competitor BMW.

Honda Motor Manufacturing of Alabama LLC, across the state in Lincoln, announced plans for a $94 million expansion to increase production capacity and flexibility of its manufacturing processes by upgrading equipment.

Hyundai Motor Manufacturing Alabama LLC plans to invest $173 million to update and expand the capabilities for manufacturing engines at the plant near Montgomery. The plant will build engines for Hyundai Elantra, which also is built at the Alabama plant.

Finally, Toyota Motor Manufacturing Alabama Inc. announced plans for a $640 million expansion, adding a line of four-cylinder engines at the plant. The Huntsville plant already produces V-6 and V-8 engines and now becomes the only Toyota plant producing all three varieties.

Austal’s Ship Came In

Austal USA, in Mobile, is poised to double its workforce to 4,000, which would make it nearly twice as big as the next largest manufacturing employer in Mobile, on news that it has won a contract for 10 more of the military’s Littoral Combat Ships.

The contract for more LCS ships ushered in the New Year for Austal, with the announcement coming on Dec. 29, 2010. Austal already was at work on an order for 10 of the military’s Joint High Speed Vessels.

Austal’s ship set sail this year, too. The first of its Joint High Speed Vessels for the U.S. Navy, the Spearhead, was christened and launched in September.

Mobile’s Ship Went Out

Grand designs for tourism sailed into Mobile Bay seven years ago, when Carnival Cruises made the city a homeport. The city responded with a new $20 million cruise terminal, property for overflow parking and later a new, $2.6 million gangway to accommodate bigger ships.

In March, with not so much as a heads-up to the city, Carnival announced it was moving out. Though every ship was fully booked, the cruise line said it could make more money cruising from other ports that carry higher per passenger price tags.

The last ship left Mobile in October and the city continues to pay about $2 million a year on the facilities it built for Carnival. Meanwhile, city officials are working to bring another company to fill the empty berth.

Drummond Closes Deal with Japanese

After months of speculation among energy industry experts, Alabama’s Drummond Co. International LLC sold 20 percent of its Colombia coal operations to Japanese trading company Itochu.

Drummond gets $1.5 billion from the deal, and Itochu gets 7 million tons of coal annually.

Though Japan has been challenged in efforts to meet energy needs since the March earthquake that damaged nuclear reactors, energy experts speculate that most of the coal will actually feed energy needs in India and China, since Japanese interests prefer higher-grade coal.

Faucet Check: Atlanta May Guzzle Our Water After All

In the continuing war of words and water lines, Alabama took a hit this year. A federal court judge ruled two years ago that Atlanta, Ga. had no innate right to Lake Lanier water—it didn’t even help pay for the dam that created it—but an appeals court panel said this year that the U.S. Army Corps of Engineers must come up with a plan to divvy up the drinks among Alabama, Florida and Georgia, and that a tap needs to stay open for Atlanta.  Alabama, Florida, the Alabama Power Co. and the city of Apalachicola, Fla., appealed almost immediately.

Alabama also is working to protect its share of the Alabama, Coosa and Tallapoosa rivers from thirsty neighbors in Georgia. The two states have been in court-ordered talks for several years, but this summer Alabama asked the judge’s permission to bring the matter back to court.

Fish That Got Away Is Back on the Line

BASS LLC was spawned in Alabama in 1968 by Ray Scott. It fed in Alabama waters while he owned it and continued to grow here under the leadership of Helen Sevier, who bought it in 1986.

But when ESPN bought the 500,000-member fishing organization, it swam over to Florida.

In 2011, Alabama native and retired Time-Warner Chairman Don Logan and some partners bought the group and moved its headquarters and 50 staffers back to Birmingham, near the waters where it was spawned. Along with the organization come three magazines, two fishing tournaments and more.

Investment Bank Blows up Jefferson County

Jefferson County filed for Chapter 9 bankruptcy on Nov. 9, the largest municipal bankruptcy in U.S. history.

After three years of struggling for a solution to its $3.1 billion sewer authority debt, the county seemed close to an agreement with its chief creditor, J.P. Morgan. But the investment bank balked at yielding $140 million in benefits Jefferson County officials claim disappeared from a preliminary agreement, and the deal fell apart.

The first issue before the federal bankruptcy judge was the status of the receiver in charge of the Jefferson County sewer authority. Bankruptcy status, say county officials, takes away from the receiver the power to further raise rates. Rates already have risen 400 percent in the last 15 years.

J.P. Morgan and two lesser investment banks refinanced Jefferson County’s sewer debt in 2005, selling county officials on a complex package that included auction rate credit default swaps. Several county officials were convicted of taking bribes in that deal, including former County Commissioner Larry Langford. Two J.P. Morgan officers are under investigation by the SEC for the parts they played in the deal, and the SEC separately settled with the bank for $722 million.

Jefferson County’s refinanced sewer bonds blew up in the 2008 financial crisis when the market for auction rate securities disappeared, triggering hundreds of millions in fees and ballooning interest rates.

New regulations called for by the Dodd-Frank financial reform act seek to protect municipal officials from being induced into obscure, high-risk derivatives deals.

Sen. Richard Shelby, ranking Republican member of the Senate Banking, Housing, and Urban Affairs Committee, and Rep. Spencer Bachus, chairman of the House Committee on Financial Services, have opposed such regulations. (See “Real Men Don’t Regulate,” June 2011 Business Alabama.)

Jefferson County officials say they intend to continue with their own litigation against J.P. Morgan.

Superior Tops U.S. 2011 Bank Failures

The largest U.S. bank that failed in 2011 was Birmingham-based Superior Bank, a $2.9 billion-asset institution shut down by the FDIC on April 15.

On the same day, fed controllers also pulled the plug on Birmingham-based Nexity Bank, which closed with $793.7 million in assets, making it the 12th largest of the 90 U.S. banks that failed in 2011. Total assets of failed U.S. banks was $34.6 billion in 2011.

Since the start of the recession, six Alabama banks number among the 335 U.S. banks that have been shuttered since the start of the recession in 2008.

First Lowndes Bank in Fort Deposit, with $35.3 million in assets, was the only Alabama bank to fail in 2010, ranking 102 on the list of 157 U.S. banks that failed in 2010. Total assets of failed U.S. banks for that year were $78.2 billion.

Colonial BancGroup was the largest bank in the country to fail in 2009, shut down with $25.4 billion in assets. Two other Alabama banks failed in 2009. New South Federal Savings Bank in Irondale went down with $1.4 billion in assets, and CapitalSouth in Birmingham failed with $586.5 million in assets. Across the nation, 140 banks, with total assets of $169.7 billion, failed in 2009.

No Alabama banks were among the 25 banks, with $234 million in assets, which failed in 2008.

Colonial is the third largest bank failure in the U.S. since 2008, behind $307 billion Washington Mutual Bank in Henderson, Nev. and $30.7 billion Indymack of Pasadena, Calif., both of which got the recession off to a rocking start in 2008.

Can I Get an “Amen?”

Pictured right: Gov. Robert Bentley / AP Photo/Montgomery Advertiser, Lloyd Gallman

When he’s high stepping is when a politician is apt to step in it, Gov. Robert Bentley learned last year, just hours after his inauguration.

Stoked to a fine fervor as he addressed the congregation of the Dexter Avenue King Memorial Church, Bentley averred, “Now I will have to say that, if we don’t have the same daddy, we’re not brothers and sisters. So anybody here today who has not accepted Jesus Christ as their savior, I’m telling you, you’re not my brother and you’re not my sister, and I want to be your brother.”

You can tell by the beseeching tone of that last clause, Bentley had braked and begun earnestly to back peddle, too late.

His words were broadcast around the world several times. Reporters sought out Jews, Muslims, Buddhists, atheists, agnostics, yogis and Muggletonians to record their dismay—more often their amusement.

In the end, Bentley crafted a sincere enough apology.

Boeing Stretches to Keep EADS out of U.S., Alabama

A groaning disappointment struck early in the year, with the Feb. 28 announcement that the Air Force picked Boeing Co. for a $35 billion contract to replace its aging fleet of refueling tankers, instead of the European aerospace giant EADS.

Had EADS been selected, the planes would have been built in a new, $600 million plant in Mobile.

Boeing won the contract after protesting an earlier 2008 award that went—to the astonishment of most aerospace industry analysts—to EADS, the first major U.S. military contract to go to a foreign company.

Boeing underbid EADS just barely, and analysts and EADS officials agreed that Boeing wouldn’t make a profit at the price.

Turns out they were right. A government study reported by Bloomberg last month says Boeing will lose $500 million on the first 18 tankers, which it contracted to build for $5.3 billion.

Some analysts say the loss is what Boeing is willing to pay to keep EADS locked out of its U.S. military back yard. Others say Boeing also was eager to keep EADS from building a commercial line of A330s that could have threatened Boeing’s commercial market share in the U.S. Speculation goes that those also would have been built in Mobile.

State Recovery Problematic

This was the third year of reduced appropriations in the state budget. The 2012 budget calls for a mild recovery, but that could be overly optimistic considering reduced federal stimulus money and increased disaster recovery spending.

At the close of the fiscal year in October, the Education Trust Fund was expected to spend $5.35 billion in fiscal 2011. The Legislature approved a bigger budget, but Gov. Robert Bentley trimmed it by 3 percent because of lower-than-expected revenues.

The General Fund was expected to spend $1.58 billion in fiscal 2011. Lawmakers approved more, but Bentley cut that budget by 15 percent.
Finance Director Marquita Davis told the Birmingham News in October, “Right now, it’s too early for us to tell” whether the 2012 budget will see even more cuts.

Some $235 million in federal stimulus money that supplemented the 2011 general fund isn’t expected to be available this year.

David Perry, Bentley’s chief of staff and former finance director, noted that $15 million to $40 million in continuing tornado-recovery costs could put even more pressure on the fiscal 2012 budget.

The budget approved for 2012 calls for the General Fund to spend $1.77 billion, an increase of 12.2 percent from fiscal 2011’s estimated spending.

The Education Trust Fund is budgeted to spend $5.59 billion in the 2012 fiscal year, an increase of 4.4 percent from fiscal 2011’s estimated spending.

Canadians Pull Bacon out of U.S. Financial Fire

RBC Bank, in June, announced plans to be acquired by PNC Financial Services for $3.62 billion. The deal is expected to be complete in March of 2012, when the RBC branches will take on the PNC name.

With $3.7 billion in deposits, Raleigh, N.C.-based RBC holds a 4 percent share of the Alabama market, ranking sixth in Alabama deposits.

North Carolina-headquartered RBC Bank is the U.S. commercial bank subsidiary of the Royal Bank of Canada, Canada’s largest bank. RBC entered Alabama in 2007 when it bought, for $2.5 billion, 39 former AmSouth branches that federal regulators required AmSouth to divest in the Regions-AmSouth merger. In 2008, RBC bought Alabama National Bancorp. for $1.6 billion.

The Canadian pull out from the U.S. market was a quick turnabout for RBC. As recently as March, Royal Bank of Canada CEO Gordon Nixon told Bloomberg Television he was looking to buy more U.S. banks. Royal Bank spent at least $4.6 billion in the past decade to buy consumer lenders in the U.S. Southeast. Royal Bank took a $1 billion write-down on its U.S. subsidiary in April 2009, after losses on impaired loans during the U.S. mortgage meltdown.

Pittsburgh, Pa.-based PNC is the sixth largest bank in the country, with assets of $261 billion.

Chris McFadyen is the editorial director and Nedra Bloom is the copy editor of Business Alabama.

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