Financial thoughts

When Don Davis first heard about the 25,000 cases of organic Italian wheat vodka sitting in a Lincoln County warehouse, he wasn’t planning to launch a liquor company.

“I like vodka, so I was interested,” said the banker and businessman. “But I was just going to flip it. Make a few bucks.”

Less than a year and a half later, Davis is selling Purus Vodka in eight states, rolling out a new pomegranate-based drink this month, and developing a pipeline of boutique spirits, all from a few offices in Clayton.

The quick rise of Davis’ new spirits company, Pure Holdings LLC, reflects the hot market for high-end vodka these days, and the opportunities that can exist in the corporate spillage of an industry giant. Purus – the contents of those 25,000 cases – was actually created by a much bigger St. Louis-based alcoholic beverage company.

Anheuser-Busch, through its now-shuttered high-end subsidiary Long Tail Libations, developed Purus in a bid to tap soaring demand for top-shelf liquor. It even sold the stuff in a few Northeastern markets in 2007 and 2008.

But when InBev bought the brewery in late 2008, it closed Long Tail down and sold off its products. Purus was bought by Fire Tail Brands, a small spirits company in Lake Saint Louis, where it sat for nearly two years.

Fire Tail owner Jon Herbik liked Purus – this week he called it “probably the best vodka ever made” – but saw the brand more as a short-term investment. He put it up for sale. Davis, whose holdings range from a homebuilder to a car dealership to a craft brewery, caught wind and checked it out. At first, he was thinking short-term, too. But when Davis started looking a little closer, he saw a business ready to pull out of the box.

“It had been up and running. It had a proven product,” he said. “It was just sitting there gathering dust.”

But Davis needed someone to run it. Then he met John Giarrante and Mark Braeckel, who’d been executives in the innovations division at A-B. In other words, they’d already spent two years creating Purus – Giarrante in brand development, Braeckel in packaging and procurement – only to see it scrapped.

Davis hired them away and revived the brand.

Purus has been back on shelves now for a bit less than a year, mostly in Missouri, but also in Arizona, Florida and Ohio. Sales, about 3,000 cases in Missouri last year, have been well ahead of projections, Giarrante said. Event sponsorships and a few industry awards have helped to build buzz.

Now Pure is expanding into four more states - Illinois, Texas, North Carolina and New Mexico. And it’s launching a second Long Tail-developed spirit: PomAcai, a vodka flavored with pomegranate and acai berries. They’ve ordered 50,000 cases.

Pure had good timing. U.S. sales of so-called “super premium” vodkas - which typically retail around $30 a bottle - have climbed 32 percent in the last two years, to $1.2 billion, according to data from industry trade group the Distilled Spirits Council. Flavored vodkas like PomAcai have grown even faster.

Pure has been riding that wave. But it also had a built-in advantage: A-B spent two years – and millions of dollars – developing Purus. It found a distillery in northern Italy, won organic certification in three countries, ran consumer tests and made a boatload of vodka.

“We developed the brand. We built the strategy. We had the resources of A-B to go out and find the best products in the world,” said Giarrante.

To keep growing beyond that seed, Pure will have to launch new brands. They plan to both grow their own and partner with existing products that are trying to find a market. They’ve started selling a third drink, Aguila Tequila, and a have desk full of prospects in the office that they’re not ready to talk about just yet.

When it comes to what’s next, Pure is being choosy. But it definitely plans to keep growing. A broader portfolio will build Pure’s name and give it more to offer wholesalers and liquor stores.

But even for now, at two brands, eight states and nine employees, Pure Holdings has come a long way from a pile of boxes, gathering dust.

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The city of St. Louis is giving a $4.7 million property tax break to the owner of one of downtown’s tallest office towers, One AT&T Center.

The local holding company, affiliated with one of the nation’s largest real estate trusts, convinced the city assessor that the building is worth far less than its purchase price in 2006 because AT&T, its lone tenant, now fills only half its office space.

MB St. Louis LLC is the owner of record for the property, which was acquired for $204.9 million by Minto Holdings Inc., of Florida and Inland American Real Estate Trust, of Oak Brook, Ill.

Inland American, according to its most recent annual report, posted annual revenues last year of $1.3 billion and holds interests in nearly 1,000 properties, including hotels, office towers and retail complexes across the country. Inland reported last month that a subsidiary paid $22.6 million for the Hilton hotel at 400 Olive Street in downtown St. Louis as part of a $393.1 million deal for five hotels in Atlanta, San Francisco, Austin, and Lexington, Ky.

Inland’s affiliate, MB St. Louis, convinced St. Louis assessor Ed Bushmeyer that the AT&T tower is now worth just $135 million – about $70 million less than what it sold for in 2006.

Jerome Wallach, an attorney for MB St. Louis, argues that the building’s value plummeted because AT&T has slashed the size of its workforce there, and low occupancy cuts the building’s market value. The owner would have difficulty selling the half-full building for an attractive price when AT&T’s lease expires in 2017, he added.

But the building is not for sale now, Wallach acknowledged, nor has MB St. Louis given AT&T any rent breaks on the property because of its diminished presence. Wallach argues the rent shouldn’t factor into assessed value, which should be based on what it might sell for now in its half-full state.

Bushmeyer initially contended that occupancy levels have no effect on the structure’s value — because AT&T leases the entire 1.2 million-square-foot building, regardless of the space filled. But Bushmeyer ultimately bought the landlord’s argument that the relatively short period left on the lease, along with potential renovations needed to accommodate multiple tenants, justified the lower assessment.

The matter was resolved in a settlement approved by the State Tax Commission on March 27. The owner first appealed the assessor’s valuation to the city’s Board of Equalization, which lowered the building’s 2010 assessment to match its December 2006 purchase price, $204.9 million. MB St. Louis then appealed that ruling to the State Tax Commission on line pay day loans.

Before the state commission could issue a decision, the owner and the city assessor reached an agreement that dropped the building’s 2010 value to $155 million. The agreement also lowers the 2011 and 2012 values to $135 million from the city’s original assessment of $191.5 million.

The result is three years of tax cuts, totaling $4.7 million.

Since 2007, the annual property tax bill has been about $5.5 million, city records show. The portion of taxes MB St. Louis paid under protest in previous years will be refunded from an escrow account, Bushmeyer said.

Completed in 1986, the 44-story tower is downtown’s third-tallest structure, trailing only the 630-foot Arch and — by five feet — the 593-foot Metropolitan Square building on Broadway.

An AT&T spokesman said employment at the company’s three-building downtown complex, including the tower, is slightly less than 4,500. As recently as 2009, the complex had nearly 5,700 workers.

Another factor in the building’s lowered value is its design as a single-tenant headquarters, the owner argued. Most downtown office towers were built for multiple tenants. A new owner of the AT&T tower would likely face an expensive and time-consuming renovation to accommodate multiple tenants.

“The assessor’s office relied on sales and rental transactions involving multi-tenant buildings downtown, such as Met Square,” in its initial property assessment, Wallach said. “AT&T is used as a single-tenant building. It was, in my opinion, an apples and oranges comparison.”

The tower’s lowered assessment will mean that city public schools and other tax-supported entities will take a slight hit, Bushmeyer acknowledged. But he noted that while citywide reassessments in 2009 and 2011 produced generally lower property values — and lower tax bills — state law allows some taxing districts to raise rates to make up lost revenue.

The AT&T case illustrates the nationwide decline of real estate values during the recession, Bushmeyer said.

“I expect that, as the economy improves, we will see valuations increase,” he said.

Jim Mosby, senior managing director in St. Louis of Cassidy Turley, said Thursday that challenges to assessed valuations have been widespread over the past four years because of general declines in the value of commercial real estate.

“At some time, the market takes over, no matter what you have in your building,” he said.

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Japan has failed to create a revamped nuclear regulatory agency by the promised date _ April 1 _ amid political infighting, raising questions about its commitment to bolstering oversight after last year’s nuclear crisis.

Authorities have been accused of lax supervision of Japan’s 54 nuclear reactors after a massive earthquake and tsunami led to a meltdown of three reactors at the Fukushima Dai-ichi plant in the world’s worst nuclear disaster since Chernobyl.

Prime Minister Yoshihiko Noda’s Cabinet has endorsed a bill to create a more powerful and independent regulatory body that would unify various nuclear safety and regulatory agencies.

But progress has been slowed by disagreements over how much independence it should have and by other disputes.

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Myanmar next week holds the most inclusive elections since the military rejected an opposition victory in 1990, as the potential for economic ties with western nations encourages the leadership to relax control.

By-elections for 43 of the national legislature

The Federal Reserve has the tools to keep inflation under wraps despite the huge increase in its balance sheet in recent years, a top Fed official said on Tuesday.

“The Fed can rein in inflation by raising interest rates at the appropriate time,” Minneapolis Fed President Narayana Kocherlakota said in answer to an audience question after a speech at Washington University in St. Louis.

Rather than simply raising its target policy rate, he said, the Fed will do so by raising the interest it pays on excess reserves held by banks same day payday loans.

Kocherlakota also said he sees the unemployment rate, now at 8.3 percent, falling slightly below 8 percent this year and to the “low sevens” by the end of next year.

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Cambridge police on Friday arrested two people ahead of a speech by Dominique Strauss-Kahn, the former International Monetary Fund chief whose career collapsed after he was charged with sexual assault.

Cambridgeshire Constabulary spokeswoman Sarah Redman said a man and a woman, both in their early 20s, were arrested on suspicion of vandalizing the university’s debating society building with messages critical of the 62-year-old French politician.

The Cambridge News website displayed photos showing the walls of The Cambridge Union Society defaced with messages including “DSK GO AWAY” and “WOMEN DESERVE BETTER.”

Strauss-Kahn was scheduled to speak at the society later Friday despite protesters’ calls for the event to be canceled.

Strauss-Kahn resigned as head of the IMF after allegations last May that he sexually assaulted New York hotel maid Nafissatou Diallo. Prosecutors later dropped criminal charges against Strauss-Kahn, but Diallo has brought a civil case against him.

Her lawyer, Douglas Wigdor, was scheduled to speak on Diallo’s behalf at a rival event Friday.

A statement posted Friday on the debating union’s website states that the invitation was made before Strauss-Kahn’s controversial departure from the IMF.

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Americans spent $50.96 billion on their pets in 2011.

That’s an all-time high and the first time in history more than $50 billion has gone to the dogs, cats, canaries, guppies and the like, the American Pet Products Association said in a report issued Thursday.

Food and vet costs accounted for about 65 percent of the spending. But it was a service category — one that includes grooming, boarding, pet hotels, pet-sitting and day care — that grew more than any other, surging 7.9 percent from $3.51 billion in 2010 to $3.79 billion in 2011.

APPA President Bob Vetere said 2012 should be another banner year for services, predicting it would grow 8.4 percent to an estimated $4.11 billion in 2012.

Owners are taking care of their pets, said Dr. Jessica Vogelsang, a San Diego veterinarian and author of pawcurious.com. “They are planning ahead. When they go on vacation, they want to make sure their pets are well cared for,” she said.

Spending in 2011 was up 5.3 percent from 2010, when it totaled $48.35 billion, Vetere said. He estimated 2012 sales would total $53 billion.

In 2011, people spent $19.85 billion on food, $13.41 billion on vet care, $11.77 billion on supplies and over-the-counter medicines, $3.79 billion on other services and $2.14 billion on live animal purchases.

In 2010, they spent $18.76 billion on food, $13.01 billion on vet care, $10.94 billion on supplies and over-the-counter medicines, $3.51 billion on other services and $2.13 billion on live animal purchases.

Food sales did slow, Vetere said, even though the 5.8 percent growth exceeded projections of 4.1 percent growth.

APPA numbers indicate that animal sales and adoptions are flattening out and the number of people who switched over to high-end food products is topping out.

Pet ownership is becoming less of an impulse decision, Vogelsang said. “I am seeing a lot of people saying, ‘This isn’t the time for us.’ People are more interested in pets than ever before but they are taking their time, once they make the commitment, to do it right.”

“I don’t think this is a bad thing. I am proud of the owners,” she said.

Pet insurance is another area that is expected to grow briskly, Vetere said. Included in the veterinary care category, insurance was estimated to be $450 million in 2011 and expected to grow to more than $500 million in 2012.

The pet industry is also a major attraction for entrepreneurs and investors looking for creative and innovative products, Vetere said.

Vogelsang believes the trend is toward “very specific items geared to the specific needs of pets. We are seeing a lot of puzzle feeders for dogs — not just toys but ones that are geared toward the mental needs of the animal. Then there are bionic toys for destructive chewers, a lot of very niche items,” she said.

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Employment will improve more this year than economists previously estimated, helping the world

A second, euro130 billion ($172 billion) bailout and a deep debt write-off for financially stricken Greece will ward off a financial disaster in Europe.

Economists, however, only give the deal a slim chance of putting the country on the path to economic recovery _ and steadying its place in Europe’s currency union.

Agreement on the bailout, reached early Tuesday after an all-night summit of finance ministers seven months after it was first proposed, will give Greece euro130 billion in loans through 2014 from other eurozone governments and the International Monetary Fund. It’s the country’s second bailout, following a euro110 billion rescue secured in 2010 that didn’t return the country to solvency.

The agreement also assumes that banks and investors owed money by Greece will take new bonds that reduce their holdings by more than half.

In return for the second bailout, Greece has agreed to painful and humiliating measures imposed by its mistrustful partners which also use the euro, annoyed after two years of what they say are broken promises to reform. Athens agreed to cut spending and wages, and to permit outsiders to supervise its finances through the presence of European Union and International Monetary Fund officials permanently stationed in Greece. The rescuers also demanded a separate account for the aid money and legal guarantees that creditors get paid before teachers, doctors and police do.

The finance ministers from Greece and the other 16 countries that use the euro wrangled until the early morning over the details of the rescue, squeezing last-minute concessions out of private holders of Greek debt who agreed to lose 53.5 percent of the face value of their investment to avoid even more severe losses expected if Greece fails to pay euro14.5 billion in debt coming due March 20.

The fear is that an uncontrolled bankruptcy could unleash market panic across the rest of the continent, further unsettling other struggling other debt-stricken countries such as Ireland, Portugal or the much bigger Italy or Spain.

Serious risks of failure include the chance that Greece’s economy remains in a deep recession _ where it’s been for four straight years _ instead of returning to growth in 2013 as the deal assumes. That would undermine chances of paying even the reduced debt load, estimated at a still-high 120 percent of annual economic output in 2020, down from 160 percent now.

Additionally, political outrage over the cutbacks could lead Greece politicians to balk at the tough conditions. That could push rescuer countries _ led by Germany _ to cut off further funding.

Elections in Greece are expected in April. The leaders of the two main parties have committed to the cuts and reform program, but anti-bailout parties have been gaining in the polls.

Growth is the key. But Greece’s economy shrank 7 percent in the fourth quarter of last year and unemployment is 19 percent, a consequence of cuts in public wages and increased taxes inflicted during a downturn.

If that keeps up, even the rescuers acknowledge the reduction goal of 120 percent of GDP is long gone.

Success “really depends on the assumptions you make in terms of growth and interest rates,” said Diego Iscaro, an economist at IHS Global Insight. “The risks are clearly on the downside. The main risk comes from the economic situation, the economic dire straits.”

“By austerity alone, Greece will not solve the problems it has at the moment. We don’t know when the economy will return to growth and how it will grow.”

Unless something breaks the cycle of austerity and contraction “something will have to give.”

Even if it later balks at the conditions for the bailout, Greece would have difficulty writing down the new debt it issued to private bondholders, who demanded stronger legal protections. Official creditors _ the IMF, the eurozone countries and the European Central Bank _ would also have difficulty accepting more writedowns. Inability to pay _ or unwillingness to accept the harsh conditions _ could lead to a non-negotiated “hard” default that could end in Greece leaving the euro.

The eurozone and the International Monetary Fund hope the new program will eventually put Greece back into a position where it can survive without external support. Both private and official creditors went beyond what they had said was possible in the past. On top of the new rescue loans, Athens will also ask banks and other investment funds to forgive it some euro107 billion ($142 billion) in debt, while the European Central Bank and national central banks in the eurozone will forgo profits on their holdings.

The deal “closes the door to an uncontrolled default that would be chaos for Greece and Greek people,” said European Commission President Jose Manuel Barroso.

But despite those unprecedented efforts, it was clear that Greece was at the very best starting on a long and painful road to recovery. It is being pushed to make its economy more business-friendly and productive by opening access to closed trades and professions; halting rampant tax evasion; allowing more flexibility in wage bargaining between companies and unions; simplifying starting a business; and cutting its bureaucracy.

But those measures will take years to work _ if Greece’s politicians are willing or able to push them through.

“It’s not an easy (program), it’s an ambitious one,” said Christine Lagarde, the head of the IMF, adding that there were significant risks that Greece’s economy could not grow as much as hoped.

Including Greece’s first bailout worth euro110 billion ($146 billion), the new deal means every Greek man, woman and child will owe the eurozone and the IMF about euro22,000 ($29,000).

In Athens, the reaction to the news was a mixture of relief the country has avoided financial catastrophe and fear of a dark future.

“I don’t see it with any joy because again we’re being burdened with loans, loans, loans, with no end in sight,” architect Valia Rokou said in the Greek capital.

Greek politicians nevertheless greeted the package as a turning point for their battered country.

“It’s no exaggeration to say that today is a historic day for the Greek economy,” said Greek Premier Lucas Papademos, who had rushed to the finance ministers’ meeting to lend weight to his country’s pleas for help.

For those who Greece owes money, the bond swap will lop euro107 billion off Greece’s euro352 billion load. On top of that, investors will be asked to give Athens 30 years to repay them, compared with just under 7 years.

Average interest rates would fall to 3.65 percent from around 4.8 percent.

Overall losses for private bondholders would be above 70 percent when accounting for the new bonds’ longer repayment period and lower interest rate.

Private investors weren’t the only ones having to give ground. The eurozone countries will reduce the interest that Greece has to pay for its first package of bailout loans to 1.5 percentage points over market rates from between 2 percentage points to 3 percentage points currently.

At the same time, the European Central Bank and the national central banks in the countries that use the euro will forgo profits on their Greek debt holdings, again reducing the costs for Greece.

But several hurdles remain before Greece will see any of the money or other benefits of the new program.

Apart from the implementation of more than 30 different savings and reform measures by Greece, the new bailout has to be debated by parliaments in several member states, including Germany, the Netherlands and Finland.

The IMF also still has to decide how much of the euro130 billion bill it is willing to stump up. Going into the meeting, the Washington-based fund had indicated its contribution will be lower than the one-third of the total it has provided in previous bailouts.

IMF chief Lagarde said the fund’s board would decide on its contribution in the second week of March.

“In doing so it will have in mind the overall program, but also additional matters such as the proper setting up of a decent firewall,” Lagarde said with reference to Europe’s current and future bailout funds.

At the moment, the overall ceiling for eurozone rescue loans has been set at euro500 billion ($663 billion), much of which has already been committed to Ireland, Portugal and now Greece. Euro leaders will decide at their summit in early March whether that ceiling should be increased.

On top of that, it will also take some time to see how many private creditors will participate in the debt relief and how many will have to be forced to sign up through new legal clauses. The representatives of the private bondholders said they were confident that investors would find the deal attractive, but some analysts fear that imposing losses on even some bondholders may destabilize markets.

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Iraq’s prime minister says all intelligence or tips about weapons smuggling and insurgent travel from Iraq to Syria must be investigated _ no matter how weak the information may be.

Nouri al-Maliki on Saturday ordered a review of Iraq’s 363 miles (605 kilometers) of border with Syria to clamp down on illegal traffic between the two counties.

Last week, U.S. intelligence chief James Clapper said a series of bombings against the Syrian regime in recent months in Damascus and Aleppo bear the hallmarks of al-Qaida instant payday loan lenders. Iraqi and U.S. officials believe some of the terror fighters may be coming to Syria from Iraq.

In a statement, al-Maliki identified weapons smuggling as a top problem.

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