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The Federal Reserve Board raised the discount rate charged to banks for direct loans by a quarter point to 0.75 percent and said the move will encourage financial institutions to rely more on money markets rather than the central bank for short-term liquidity needs.

“These changes are intended as a further normalization of the Federal Reserve’s lending facilities,” the central bank said today in a statement. “The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy.”

The dollar jumped and Treasuries extended losses as the Fed took another step in a gradual retreat from its unprecedented actions to halt the deepest financial crisis since the Great Depression. The Fed has provided hundreds of billions of dollars in backstop credit to banks, bond dealers, commercial paper borrowers and troubled financial institutions such as American International Group Inc.

“This is an unwinding of another unusual and exigent circumstance,” said David Zervos, visiting adviser to the Fed Board in 2009 who is now a managing director at Jeffries & Co. in New York. “They tried to go out of their way to tell people this doesn’t change their policy outlook at all.”

The dollar rose 0.7 percent to $1.3514 per euro at 5:19 p.m. in New York from $1.3607 yesterday. It touched $1.3502, the strongest level since May. The yield on the 10-year Treasury note rose seven basis points to 3.8 percent.

Maturity Shortened

The discount rate increase is effective on Feb. 19. The Board also said that effective March 18 “the typical maximum maturity for primary credit loans will be shortened to overnight.”

The Fed Board said the outlook for policy remains “about as it was at the January meeting of the Federal Open Market Committee.” The central bank also cited last month’s statement, which said economic conditions are likely to warrant “exceptionally low” levels of the federal funds rate “for an extended period.”

It was the first increase in the discount rate in more than three years, and the move widens the rate’s spread over the top range for the benchmark federal funds rate to 0.5 percentage point.

Backup Source

“The increase in the spread and reduction in maximum maturity will encourage depository institutions to rely on private funding markets for short-term credit and to use the Federal Reserve’s primary credit facility only as a backup source of funds,” the Fed Board said in a statement.

“The Federal Reserve will assess over time whether further increases in the spread are appropriate.”

Financial institutions’ reliance on Fed credit has waned as market liquidity improved. Discount window loans stood at $14.1 billion on Feb. 17, down from $65.1 billion about a year earlier.

Fed Chairman Ben S. Bernanke telegraphed the move in Feb. 10 testimony to Congress when he said investors should expect a “modest increase” in the rate “before long.” Using language similar to today’s statement, he said a move shouldn’t be interpreted as a change in policy.

The Fed’s lending programs and their May 2009 review of the capital needs of the 19 largest banks helped restore confidence and liquidity in interbank lending markets. The TED spread, the difference between what the Treasury and banks pay to borrow dollars for three months, has narrowed to 0.15 percentage point from as high as 4.64 percentage points in October 2008.

Emergency Facilities

The central bank closed four emergency lending facilities, including the Primary Dealer Credit Facility and Term Securities Lending Facility, on Feb. 1.

Primary dealer credit stood at $146.5 billion two weeks after the collapse of Lehman Brothers Holdings Inc. in September 2008. The facility had a zero balance when the Fed closed it in February.

The Federal Open Market Committee left the benchmark overnight lending rate in a range of zero to 0.25 percent at their meeting Jan. 27. Minutes from the meeting said officials “agreed it would soon be appropriate” to reduce the term of discount window loans to overnight and widen the spread over the federal funds rate.

The minutes also said that the discount window change didn’t signal an immediate change in the benchmark lending rate.

Normal Footing

Fed officials “generally agreed that such steps to return the Federal Reserve’s liquidity provision to a normal footing would be technical adjustments.”

Prior to the financial crisis, the Fed kept the primary credit discount rate 1 percentage point above the target for the federal funds rate.

The Fed increased the term on the loans to 90 days during market turmoil in March 2008, and reduced it 28 days on Jan. 14 this year.

Discount rate changes are requested by boards of directors at the 12 regional Fed banks. The Fed Board said it approved requests for the rate increase from all 12 regional Fed banks. Discount rate change requests are subject to final review and determination by the Board of Governors in Washington. Fed governors review discount rate requests about every two weeks.

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In its first quarterly filing since splitting from Time Warner, AOL Inc. said Wednesday that it swung to a profit in the fourth quarter from a year earlier.

The New York-based company reported net income of $1.4 million, or 1 cent per share, in the three months ended Dec. 31. That compares with a loss of $1.9 billion, or $18.52 a share, in the year-ago quarter.

Excluding certain charges, including $107.4 million for restructuring, the company said it earned 71 cents per share.

Sales fell 17% to $809.7 million, led by sharp declines in AOL’s subscriber base. Subscription revenue plunged 28%, while advertising sales were down 8%.

The company continued to lose dial-up subscribers as users flock to higher speed Internet connections. AOL’s subscription base fell 27% to about 5 million from 6.9 million a year earlier.

But the results were better than expected. Analysts surveyed by Thomson Financial had forecast earnings per share of 63 cents on sales of $700 million.

"We have made significant progress in support of the long-term vision we see in the future of AOL," said AOL Chief Executive Tim Armstrong in a statement. "But today’s results continue to reflect the need for our focus and execution on the work required in the turnaround of the company."

Flying solo

The results reflect AOL’s performance since it regained its independence from media giant Time Warner in December. It is also AOL’s first report as a standalone firm since October 2000, when the company posted a quarterly profit of $350 million.

Time Warner (TWX, Fortune 500), which owns CNNMoney.com, spun AOL off to shareholders late last year, ending what many experts said was the most disastrous corporate marriage of all time.

AOL has been trying to reinvent itself as a content and advertising company as subscribers to its dial-up Internet access business have dwindled. But the company has lagged rivals Google (GOOG, Fortune 500) and Yahoo (YHOO, Fortune 500) in key areas such as display advertising.

AOL’s global display advertising revenue declined 3% to $176.4 million in the quarter. Revenue from international display advertising plunged 22%. On the bright side, revenue from U.S. display advertising rose 1%, marking the first quarter of year-over-year growth in two years.

"The financial results, in general, were as expected. Though there was a hint of improvement in domestic advertising," said Clayton Moran, an analyst at The Benchmark Company.

Search revenue, generated when users click on text-based ads on their screens, fell 19% to $145.4 million. AOL said it expects search revenue to continue to decline in 2010 as restructuring costs offset industry improvements.

As part of its turnaround plan, AOL said it will exit some overseas markets, do away with certain products and end unprofitable partnerships. The company has also laid off thousands of workers since it separated from Time Warner.

"2010 will be a year of transition," Artie Minson, AOL’s chief financial officer told analysts in a conference call. "But we will do so with the long term vision for AOL in mind."

Looking ahead, AOL said it will continue to focus on developing content that will attract consumers and advertisers to its properties.

"We have a content plan that’s based on hitting very specific audiences with content that’s important to them," Armstrong said.

Moran said AOL’s focus on targeted content makes strategic sense because the content business is fragmented, "which is to say that it isn’t dominated by Google." But the plan has yet to bear fruit and is "easier said than done," he added.  

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A $10 million project to build 40 town homes along a once-desolate stretch of Delmar Boulevard is headed toward foreclosure.

Consider the Delmar Place town home project a casualty of the housing slide that began in 2008, said Stephen Acree, chief executive of the Regional Housing and Community Development Alliance. The foreclosure, initiated by Truman Bank, is scheduled for next Thursday.

Acree’s organization and another nonprofit, West End Community Conference, had formed Delmar Place Land Development LLC to assist the project on what had been city-owned land in the 5300 and 5400 blocks of Delmar, just west of Union Boulevard.

Town & Country Homes Inc. began construction in late 2003, but built only 24 of the planned town homes before the project stalled in 2009. A company representative declined to discuss the project or the foreclosure.

Acree said Thursday that Truman, still owed about $180,000 on a loan guaranteed by Town & Country in 2006, will try to sell the foreclosed property, perhaps to another builder fast cash. Town & Country is going out of business, Acree said.

The foreclosure affects only the 20 Delmar Place lots that remain vacant. The 24 lots on which Town & Country built homes are unaffected. Acree had helped Town & Country structure the project’s financing.

"It was a hard one to make work because of the extra infrastructure cost involved and the unproven market for that kind of residential development on DeImar west of Union," he said.

Delmar Place was designed for two rows of town homes, one facing Delmar and the second behind the first. The project stalled after Town & Country built the row of homes closest to the street. Acree said if there is a "silver lining" to the project’s failure it’s the improvement to Delmar’s streetscape.

Previously on the site were derelict apartment buildings.

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The cost of living rose less than forecast in December, indicating the economic recovery is showing few signs of stoking inflation.

The consumer-price index rose 0.1 percent following a 0.4 percent gain in November, Labor Department figures showed today in Washington. Excluding food and energy costs, the so-called core index also increased 0.1 percent from a month earlier.

Companies may have little success raising prices with unemployment projected to average 10 percent this year, the highest annual rate in seven decades. Federal Reserve policy makers have said they expect “subdued” inflation in coming months, allowing them to keep interest rates close to zero to help fuel growth.

“Consumer pricing pressures remain very subdued,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, who accurately forecast the rise in the core rate. “It gives the Fed further leeway to continue keeping rates where they are well through 2010.”

Stock-index futures trimmed losses and Treasury yields fell after the report. Futures on the Standard & Poor’s 500 Index expiring in March declined 0.3 percent to 1,141.9 at 8:34 a.m. in New York after losing 0.7 percent earlier. The yield on the 10- year Treasury note dropped to 3.7 percent from 3.74 percent late yesterday.

Last Year

Americans paid 2.7 percent more for goods and services in 2009. The annual gain followed a 0.1 percent rise in 2008 that was the smallest since 1954 as energy costs plunged the most since those records began four years later.

Prices excluding food and energy rose 1.8 percent in 2009, matching the previous year as the smallest gain since 2003. Service costs, which make up 60 percent of the CPI, rose 0.9 percent last year, the smallest gain since 1945.

Economists forecast the consumer-price index would rise 0.2 percent in December from a month earlier, according to the median of 77 projections in a Bloomberg News survey. Estimates ranged from a 0.1 percent drop to a gain of 0.3 percent.

The core index was forecast to rise 0.1 percent, according to the Bloomberg survey.

Fed policy makers’ long-term forecast for their preferred measure of inflation, the Commerce Department’s index tied to consumer spending and excluding food and fuel, calls for gains in a range of 1.5 percent to 2 percent. That gauge, which is typically lower than the CPI, was up 1.4 percent in the 12 months to November.

Energy Prices

Energy costs increased 0.2 percent in December, less than the previous month as gasoline and fuel oil costs slowed.

The year-over-year gains in the consumer price index are getting bigger as crude oil prices increase from an almost five- year low in December 2008. Energy costs last year jumped 18.2 percent, the most since 1979.

Crude oil futures traded on the New York Mercantile Exchange averaged $74 need a personal loan with bad credit.60 in December, compared with $78.15 the previous month. Prices have rebounded this month, averaging $81.59 a barrel.

Gasoline prices in December averaged $2.61, compared with $2.65 a gallon the previous month, according to AAA. Prices for regular-grade gasoline at the pump have climbed to an average of $2.71 so far this month.

Food Costs

Food costs, which account for about 15 percent of the CPI, increased 0.2 percent in December, reflecting higher prices for fruits and vegetables, dairy products and cereals. The cost of food for all of last year dropped 0.5 percent, the biggest decline since 1961.

Delhaize Group SA, owner of Food Lion supermarkets in the U.S., said in a statement yesterday that revenue fell for the first time in five quarters on declining food prices. The Brussels-based company said U.S. retail food deflation accelerated to 2.1 percent in the fourth quarter and prices in its stores fell 0.92 percentage point more than the cost of goods sold.

Rents, which make up almost 40 percent of the core CPI, were unchanged. Owners-equivalent rent, one of the categories used to track rental prices, held steady last month after a 0.1 percent decline. Owner-equivalent rent hasn’t risen since August.

The CPI is the broadest of the three monthly price gauges from the Labor Department because it includes goods and services. A report yesterday showed the cost of imported goods was unchanged last month. The Labor Department is scheduled to report December wholesale prices on Jan. 20.

Prices of Services

Almost 60 percent of the CPI covers prices consumers pay for services ranging from medical visits to airline fares and movie tickets.

United Airlines, the third-largest U.S. carrier, discounted fares to as low as $55 each way in an effort to boost travel during the winter months. The carrier’s Chicago-based parent UAL Corp. made the announcement this month in a statement and followed one-way discounts offered by JetBlue Airways Corp.

Retailers offering discounts during the holiday shopping season to spur demand weighed on earnings for some companies.

GameStop Corp., the world’s largest video-game retailer, reported fourth-quarter earnings that fell short of estimates because of disappointing sales. The Grapevine, Texas-based company offered a $50 discount on Nintendo Co.’s top-selling Wii console from Wal-Mart Stores Inc.

“The macroeconomic environment put a damper on people buying as many video-games as we expected,” Chief Executive Officer Daniel DeMatteo said in a Jan. 8 interview. He said sales were impacted by “economic weakness.”

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The University of Wisconsin System Board of Regents on Friday unanimously approved three capital projects at UW-Milwaukee, including the purchase and redevelopment of Columbia St. Mary's Hospital to allow for expansion of the land-locked east side campus.

The capital projects are part of a broader initiative to support the institution’s research activities and to reinforce its impact as an economic driver in the state.

The approved projects include:

• The first phase of the Kenwood Integrated Research Complex;
• The purchase and redevelopment of Columbia St. Mary’s Hospital; and
• Replacement of the Neeskay research vessel.

Regent president Chuck Pruitt told the Board that UW-Milwaukee’s Research Growth Initiative is a central pillar to the UW System’s efforts to boost educational output and stimulate job creation, as advocated in its Growth Agenda for Wisconsin.

“These capital investments will ensure that we have the facilities needed to enhance the university’s impact as an economic driver for Milwaukee and all of Wisconsin,” Pruitt said in a press release from the UW-System.

In his presentation before the board, UW-Milwaukee Chancellor Carlos Santiago told Regents that the projects represent the future not only of the university, but of the city, region and state cash advance payday loans.

“We’re moving the pendulum to a more balanced perspective for a research university. We have not taken money from the fine arts or from the humanities to do this. We are providing opportunities with new dollars for the faculty, and new faculty in particular, to avail themselves of the opportunities that Milwaukee provides. That is really what this is all about,” Santiago said.

To use a flexible pool of funds provided by Gov. Doyle and the state Legislature in the 2009-11 Biennial Budget, the Regents were required to approve a detailed expenditure plan for the UW-Milwaukee Initiative, identifying specific projects and sources of funding. The Board had previously approved UW-Milwaukee’s plans to build a new facility for the School of Freshwater Sciences Research at its meeting in December.

Senior vice president Tom Anderes told the Board that, with the approval of the three projects on Friday, $176 million of the UW-Milwaukee Initiative’s $240 million in funding, including all of the taxpayer-supported borrowing, will have been committed. That leaves $64 million of approved funding capacity for future projects, including $25.6 million in program revenue supported borrowing and $38.4 million in gifts/grants.

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Italian business confidence rose to the highest in 18 months in December on expectations by manufacturers that growing exports will boost the economy’s recovery from the worst recession since World War II.

The Isae Institute’s manufacturing sentiment index climbed to 82.6, the highest since June 2008, from a revised 79.4 in November, the Rome-based research center Isae said today. That compared with a median forecast of 79.7 in a Bloomberg News survey of 8 economists.

The survey showed “a strong recovery in production expectations and in the assessment on orders, the ones from abroad in particular,” Isae said in the report. “Inventories remain stable and below levels considered normal.”

The $2.3 trillion economy expanded 0.6 percent in the three months through September after five quarters of contraction as exports grew. The economy may grow 1.1 percent in 2010, employers’ lobby Confindustria forecast on Dec. 17. Exports to non-European Union countries rose 2.6 percent in November after falling 9.1 percent in October. Economic growth in France and Germany, which emerged from the recession in the second quarter, is also supporting Italian manufacturers.

The rise in confidence in Italy mirrored gains in optimism in Europe’s largest economy. Business confidence in Germany increased to the highest level in 17 months in December as the global recovery supported exports and manufacturing growth, the Munich-based Ifo institute said on Dec. 18.

French business confidence fell in December for the first time in nine months on concern that fading government-stimulus measures may slow the economy’s recovery from its worst slump in six decades, Paris-based statistics office Insee said last week.

Reduced Stimulus

Government incentives across Europe contributed to the recovery of auto and home appliance sales from a global decline caused by the recession. In Italy, they benefited Fiat SpA, whose Italian sales rose 28 percent in November from the previous year.

Italy’s government plans to reduce incentives to trade in old cars for newer models to 300 million euros ($432 million) next year, Il Sole 24 Ore reported on Dec. 27. Italy set aside about 400 million euros to spur sales of more fuel-efficient cars in 2009.

Manufacturers remain pessimistic about the job market on expectations that hiring will lag the economic recovery, today’s report showed. A sub-index measuring expectations on employment held at minus 18 in December.

The jobless rate climbed in the third quarter to the highest in four years, Istat said on Dec. 17. Rising unemployment and reduced stimulus may weigh on consumer spending in coming months.

Isae conducted its latest survey of 4,000 companies between Dec. 1 and Dec. 18. The research center revised its November reading from an initial 78.8.

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Fenton — It has been nearly six months since the last Dodge Ram rolled out of the massive Chrysler plant here.

Now, on a weekday morning, there are perhaps two dozen cars in parking lots meant for thousands. The neat rows of shiny new pickups are gone. The smokestacks stand cold.

And six months after the closure of vast twin auto plants along Interstate 44, there is a growing conversation about just what to do them, how to take this empty symbol of St. Louis’ old economy and use it to help the new one.

It’s a tough question.

There are, after all, few uses for a one-story building the size of 86 football fields, surrounded by acres and acres of asphalt. Throw in environmental question marks and a weak economy, and the options grow even fewer.

But local leaders want to take a hard look at what those options might be.

St. Louis County is applying for a federal grant of nearly $1.6 million to establish a commission to study the site. With cash from the state, the county and the city of Fenton, officials are ready to launch a two-year, $2 million effort to plan incentives, cleanup, marketing and more.

"There’s a lot of things that could happen here," said County Executive Charlie Dooley. "How do we use this land to attract the business we want?"

That question is being asked by many cities these days. At least 20 U.S. auto plants have closed in the last two years, from Delaware to Detroit to St. Louis, and most of them face the same daunting challenges of age, size and a highly specialized use that is no longer needed.

"We’re kind of new in this game right now," said Kim Hill, who heads the Automotive Communities Program at the Center for Automotive Research in Ann Arbor, Mich. "Obviously, there are a lot of facilities that shut. There’s a lot of head-scratching going on.

Chrysler alone shuttered eight plants when it filed for bankruptcy in April. It spun them off into a separate company and now must sell them one by one under court supervision. A spokesman for the automaker wouldn’t discuss any specifics about the two Fenton plants but said they were being actively marketed. He acknowledged it would take some "creativity to get them back into productive use."

So far, just one Chrysler plant has found a buyer.

Last month, the University of Delaware closed on a $24.3 million deal for the automaker’s assembly plant in Newark, Del. The 272-acre site is across the street from the university’s campus, and the school hopes to expand there, said spokesman Dave Brond.

"It provides generations of capacity for us to grow," he said. "It adds 22 percent to the size of our campus."

The university hopes to take advantage of an Amtrak line that runs by the plant to build offices and stores around a rail station, and to partner with a medical school and a nearby Army base on research and teaching facilities.

"It was an opportunity we couldn’t pass up," Brond said.

Still, he expected it would be three or four years before any buildings were complete. And Delaware officials knew the closure was coming and started talking with Chrysler 20 months ago, eight months before the plant actually closed. That’s a contrast with St. Louis, where local leaders had focused mainly on getting Chrysler to keep operating in Fenton almost until the day of the shutdown.

That may have been a long shot, but given the thousands of good-paying jobs Chrysler supported here, it was one worth taking, said U.S. Rep. Russ Carnahan, D-St. Louis.

"Unfortunately that didn’t work," he said. "Now we’re at Plan B."

Some, such as Carnahan, say Plan B might be a next-generation automaker’s moving into Fenton, something like Fisker Automotive’s decision to buy a GM plant in Wilmington, Del., to build plug-in hybrid vehicles.

But those opportunities are few, and the longer the plant sits empty, the less appealing it becomes payday loan.

So when it comes to finding a new use, Dooley said, pretty much everything is on the table.

He will have the commission study cleanup costs and potential incentives for a developer, the prospect of breaking the 5-million-square-foot building up for several tenants, or knocking the thing down and starting over.

"We will do everything we possibly can to make something happen there," Dooley said. "That’s too much space to leave undone."

But one thing that won’t happen is the county’s taking over the site itself. It’s just too complicated, Dooley said. A private company will have to lead any project.

That’s what has happened in Hazelwood, where Ford Motor Co. closed a plant in 2006. California-based Panattoni Development Co. bought it two years later and has since demolished the 3.5-million-square-foot structure. It plans to turn the 160-acre site into Aviator Business Park, an 11-building, $200 million complex of office and warehouse space.

Site work is basically complete, said Mark Branstetter, a senior vice president in Panattoni’s Clayton office, and the company will start marketing it to tenants in early 2010. It will have some nice things to offer, he said: a good location on Lindbergh Boulevard near Lambert-St. Louis International Airport and Interstate 270, a rail line, tremendous power and water connections, and a 25-year tax abatement negotiated with the city of Hazelwood.

Even with all that, Branstetter said, it made no sense for Panattoni to keep the old buildings in place. The plan was always to tear them down.

"These buildings really aren’t made for any sort of adaptive reuse," he said. "They’re simply an envelope around a bunch of equipment. And once that equipment goes out, it has no use."

Then there’s what lies beneath the envelope.

Most auto plants made cars for decades. The ground underneath may include metals, dangerous chemicals, all sorts of things. Often, no one is quite sure what is there, or who would be liable for pollutants two or three owners down the road.

If the concrete slab is taken up, cleanup costs could easily run $10 million or $20 million, Hill said. That makes buying one without some sort of insurance or cleanup fund a risky proposition.

"That is probably the No. 1 issue in moving these properties," he said.

In Hazelwood, Branstetter said, Panattoni did extensive testing when it took over the property. It thinks it knows what is in the ground. In Delaware, Brond said, the state took on the risk and factored it into the price.

In Fenton, that is still in the future. It will be part of the task of Dooley’s commission — if it gets funding. The county executive said he hoped to hear on that by the end of the year. Carnahan, who is supporting the application, said it might be January. Either way, they want to get started.

Meanwhile, the bankruptcy court is in the process of hiring a broker to market the site, and several people close to the process say a number of potential buyers are taking a close look.

"There’s been enough interest that (advisers for the bankruptcy court) believe it’s going to be sold, probably sooner rather than later," said Fenton Mayor Dennis Hancock.

If it is, the challenge will become what happens next, and how this place that may well have put out its last-ever vehicle six months ago can find a new reason for being.

"The obstacle is in people believing that something is going to go there," Dooley said. "To a lot of people, a church is a church and a school is a school and a plant is a plant. We’ve got to figure out how to turn it into something else."

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As President Barack Obama said in his recent jobs summit, future jobs will be found in cultivating alternative energy sources to create a cleaner environment. According to the Renewable Energy Policy Project, efforts to rein in Missouri’s carbon emissions have the potential to generate more than 22,000 manufacturing jobs in wind, solar, geothermal and biomass industries.

In addition to job creation, carbon reduction and energy savings are among the key reasons green training is important.

The potential for new jobs in Missouri spurred the IBEW/NECA Electrical Industry Training Center to consolidate 70 courses into one comprehensive green curriculum to keep pace with rapidly changing technology that includes greater understanding of energy-conversion rates of solar panels. Traditional solar cells are comprised of crystalline silicon, which has a relatively poor light absorption rate, requiring considerable thickness just to harness 11 percent to 16 percent of the sun’s rays. With silicon accounting for half the cost of a solar cell panel, we are now training on "thin film" technology installment payday loans. "Thin film" panels are less expensive, easier to install, more durable and have the potential to capture up to 35 percent of the sun’s rays.

Another part of green training is the study of advances in geothermal energy, which taps the steady flow of heat from the Earth in winter and displaces heat in the summer. This advanced training is applied to geothermal pump installations that can reduce utility costs up to 70 percent, compared with conventional systems.

Also key is understanding the dynamics of energy transfer in wind turbines, which convert the wind’s kinetic energy into electricity for homes and businesses.

The next phase of green training will be smart grid technology. It will produce a network among electric utilities to distribute power more efficiently while modifying consumer use to control energy costs.

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Bernard Madoff’s investors aren’t the only ones suffering through the aftershocks of his epic fraud. A cloud of suspicion hangs over the financial planning industry, forcing even longtime veterans adjust their business practices and reassure skittish clients.

"In the wake of that scandal, people don’t know whom to trust," says Michael Garry, who runs his own wealth management firm in Newtown, Penn.

For Roger Balser, managing partner of Balser Wealth Management in Avon, Ohio, the Madoff mess unleashed an avalanche of new paperwork demands.

Soon after the scandal broke, Balser met with representatives from a firm that had referred customers to him in the past. The accountants — whom Balser had known for some time — grilled him for 90 minutes about how their clients’ assets were protected from him.

"I explained that the only things I can do are execute trades and take management fees from their accounts after notifying the custodian in writing," Balser says. "The CPAs were adamant that we cease this practice of having access to the client account to withdraw management fees."

Now Balser’s firm bills the clients every quarter and waits for a mailed check to pay the fees. It’s been a big hassle for the small company, sucking up extra administrative hours and expenses.

The Madoff fallout is worst near the fraud’s epicenter. "We serve a number of higher-end North Shore clientele and have felt the ripple effects of Bernie pooping in our sandbox," says Benjamin Chafitz, a partner with The Signature Group of Companies in Garden City, N.Y. He’s seen clients affected by Madoff losses move out of homes, cancel insurance policies and change their lifestyle.

"On the investment end, we are being quizzed like never before about who the custodians are and where the assets are invested," Chafitz says. "Across the board, clients are rethinking their relationship with their advisers. It is no longer adequate to be friends; you need to be able to demonstrate that you have the ideas, resources and staff to achieve your clients’ goals."

New skepticism

Spooked by Madoff’s crimes, some clients are seeking safety in brand names.

Garry met recently with a prospect referred by a longtime customer of his. After a phone conversation, they followed up with a two-hour consultation that Garry felt went very well. But the potential client chose instead to go with a financial planner from Morgan Stanley (MS, Fortune 500). Her reason: An accountant friend told her to avoid small firms in the wake of the Madoff scandal.

"Of course, I don’t think that is necessarily good advice because Madoff was hardly a tiny enterprise, and he was able to commit the fraud because he was an investment adviser and broker, just like the other large brokerage firms," Garry says. "The problem for me and others in my position is that if people aren’t sure who to trust, they tend to go with names that they have heard of, like the Merrill Lynches and Smith Barneys."

Customers are more skeptical than ever before, says Ron Reuven, CEO of Reuven Enterprises in New York City.

"It seems like just a year ago, these same people did not even know some of these loopholes existed, and now they question everything that comes to mind," he says.

When pitching for new business, he runs into a Catch-22: Clients don’t want to do business with an investment manager who isn’t the very best, and they’ll shop around to find the most successful advisers. But if you present a plan for generating above-average returns, clients are dubious — is it another Madoff-like scheme?

The blame for this new wariness doesn’t lie only with Madoff, Balser says. If industry regulators did a better job at reigning in bad operators, customers wouldn’t need to be so guarded.

"The SEC and the government have not done a good enough job when the warning signs were there," he says.

Damage control

It’s not all doom and gloom, says Paul Tran, president of Focal Point Financial & Insurance Services in Monrovia, Calif. He thinks the combination of the Madoff debacle and the economic wipeout have created new opportunities for the best money managers.

When news of Madoff’s misdeeds broke, Tran leapt into action. His staff phoned clients to explain to them why Madoff’s investors fell and why they weren’t going to suffer the same fate. They also took the opportunity for a check-in on how customers were weathering the recession.

"That part is crucial, because people are talking about their account balances and the economy more than anything nowadays, and for people to hear that their financial adviser took measures to insulate them from fraud and do the right thing — expect referral calls," Tran says. "Even though account balances may have gone down with the economic downturn, bad news is almost always better than uncertain news. It’s all about communication."

Joseph Sarappo, owner of Retirement Planning Specialists in Philadelphia, sees that as the silver lining in this year’s streak of financial frauds.

"With Madoff and other pyramid schemes in the news, there was an overall a feeling of unease among some investors, especially those at or close to retirement age," he says. "As a result, most wealth managers will tell you that they’ve taken to more consistent communication with their clients."

In the long run, this year’s disruptive effects could pay off for independent managers, say Seth Asher Rabinowitz, senior vice president of investor relations for Silicon Associates in Beverly Hill, Calif. His take: "It makes long-established wealth managers’ clients question their relationships, and consider giving new guys a chance." 

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Boeing Co. defense chief Dennis Muilenburg said demand for helicopters, logistics support and cyber-security services will more than make up for recent losses of Army, missile defense and satellite programs.

"No question there’s downward pressure on our revenue profile," Muilenburg, 45, said in an interview Thursday in Bloomberg’s New York headquarters. "But what we are seeing is that upside opportunities are more than offsetting some of the visible program reductions."

Boeing, the second-largest defense contractor, was hurt in the Pentagon’s 2010 budget as programs such as a missile-defense laser and an $87 billion portion of the Army’s Future Combat Systems were canceled or curtailed.

Muilenburg said Boeing is speeding efforts to enter new markets such as energy grids and expects a boost from add-on orders for Chinook helicopters and F-18 Super Hornet fighters, along with increased demand as the U.S. places more troops in Afghanistan.

"I’m not sure I buy into growth, but I don’t have a precipitous drop forecast for Boeing’s defense business either," Howard Rubel, an analyst at Jefferies & Co. in New York, said in a phone interview. "They also need to work pretty hard to keep their current book sold and to get a couple of breaks in the international market."

In military airplanes, U.S. production of Boeing’s C-17 transport aircraft may be extended through at least 2012 if Congress approves a $2.5 billion plan to buy as many as 10 extra planes in the final 2010 budget and as international interest picks up, Muilenburg said. Foreign militaries also are seeking Chinook and Apache rotorcraft.

Defense accounted for about 52 percent of Chicago-based Boeing’s $60.9 billion in revenue and 76 percent of operating income in 2008. Boeing Integrated Defense Systems is based in Hazelwood.

The plan that President Barack Obama unveiled this week to increase U payday loans with no fax.S. forces in Afghanistan by 30,000 will mean higher usage of Boeing’s transport aircraft such as the C-17 and Chinooks, as well as increased deployment of the F-18 fighter, Muilenburg said.

That will lead to more revenue from support services and spare parts, he said.

Muilenburg said his first three months on the job have made it clear to him that the repositioning efforts the company began under Jim Albaugh, who was named head of Boeing’s commercial unit on Aug. 31, need to be accelerated as an offensive move.

Boeing is working on a "regional-scale, real-world demonstration" of the power-grid protection technology it hopes to transfer from defense projects to the commercial energy market. The company won an $8.6 million grant for the pilot project last month from the U.S. Department of Energy.

The company also sees opportunities to provide large-scale integration skills to improve security across multiple weapon systems and government agencies, as the U.S. government formulates an acquisition strategy for cyber-security programs, Muilenburg said.

Potential delays to Lockheed Martin Corp.’s F-35 Joint Strike Fighter may leave the Navy as many as 250 jets short of its war-fighting requirements, and Boeing will be ready to fill the gap with its F-18 Super Hornet, which is assembled in Hazelwood. Muilenburg said. Bethesda, Md.-based Lockheed Martin is Boeing’s only larger military-contracting rival.

Lockheed must "get it on cost, get it on schedule or I have to do something to mitigate" the potential gap that may arise from any delays of the F-35 plane, Vice Admiral Barry McCullough, deputy chief of naval operations for resources, said Thursday.

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