A long winter held back construction activity in Germany, which contributed to a sharper than expected drop in first quarter output across the Eurozone. German barely avoided recession at the start of this year, but its return to growth was not enough to prevent the Eurozone economy from contracting for a record sixth quarter in a row. 

Gross Domestic Product in the 17-country Eurozone dropped by .2 percent in the first quarter, largely due to France’s recent struggles. This compared to a decline of .6 percent in the fourth quarter. 

The region’s economy has failed to grow since the third quarter of 2011, making this the longest stretch of declining output in the history of the Eurozone. 

The pace of contracted eased up slightly in struggling Spain and Italy, but both economies still contracted by 0.5 percent in the quarter.

The prospects of a second consecutive year mired in a recession and tumbling inflation prompted the zone’s central bank to slash interest rates earlier this month to a record low of 0.5 percent. 

“An interest rate cut to 0.25 percent looks probable while the European Central Bank will also continue to evaluate the case for a negative deposit rate and ways of securing more credit to smaller companies,” said Howard Archer, the chief European economist at HIS Global Insight. 

The euro continue to slide against the dollar, and European stocks were weaker in early trading hours before recovering to roughly even. The recession has hurt business confidence, blown attempts to slash government debts, and has sent unemployment to record numbers. Many leaders within the European Union have signaled their willingness to ease austerity in the hope of shoring up a recovery that the majority of economists are still forecasting for later this year. 

However, Wednesday’s GDP estimate was far worse than economists were forecasting, largely due to poor growth in Germany. If the estimate proves to be accurate, the news could increase pressure on the European Central Bank to take further action to stimulate activity. 

Germany, which accounts for roughly 30 percent of Eurozone output, grew by only 0.1 percent in the quarter, as an unusually cold winter impacted construction activity. Analysts were expecting growth of roughly 0.3 percent in Europe’s largest economy. Investment and exports also dropped, underscoring the impact of the Eurozone recession and poor global growth. 

Source: Congressional Budget Office

Headed by Douglas Elmendorf, the United States Congressional Budget Office, projects this year’s deficit will be $200 billion less than it projected just a few months ago. That said, it’s not all good news over the next ten years or so. 

Annual deficits are dipping even faster than the Budget Office predicted back in February, and the nation’s total debt is expected to drop as share of the economy for a couple years. However, the downward trend will not persist since lawmakers have not implemented measures to address the long-term drivers of the nation’s debt. 

In its budget outlook released yesterday, the Congressional Budget Office now estimates the annual deficit for the fiscal year of 2013 to be roughly $642 billion or 4 percent of GDP. This is $203 billion less than the office estimated earlier this year. The office attributes the improved figure to higher-than-expected tax revenues and more payments to the Treasury by mortgage giants Freddie Mac and Fannie Mae.

By 2015, the United States’ deficit will drop to its lowest point in the decade (roughly 2.1 percent of GDP). Moreover, the deficit will remain below 3 percent until 2019, at which point it will begin to increase again. Deficits under 3 percent are regarded as sustainable because it signifies that budget shortfalls are not growing faster than the economy. 

In a similar fashion, the budget office estimates the country’s total debt—the sum of yearly deficits procured over decades—will dip to 71 percent of GDP in 2019. This figure is four percentage points below the present day. However, the debt will begin to climb higher again, reaching almost 74 percent by 2023.

“Budget shortfalls are expected to increase later in the coming decade, but because of the pressures of an aging population, increased health care costs and increased interest payments on the federal debt,” the Congressional Budget Office claimed in its report. 

The bulk of the deficit reduction that is expected to take place in the next few years will be the result of several measures that do not address said pressures. Specifically, the expiration of the payroll tax cut, increased tax rates on high-income homes, the sequester, and lower spending caps for defense and domestic programs between 2014 and 2021. 

In the meatime, the better-than-expected deficit for this year allows provides lawmakers with more time before they are required to raise the debt ceiling, which is the nation’s legal borrowing limit. The Congressional Budget Office estimates that Congress will need to render a decision regarding the ceiling in October or November. 

Source: Congressional Budget Office

The United States Securities and Exchange Commission charged husband-and-wife executives at a China-based business with engaging in a fraudulent activity to overstate the company’s revenues and divert funds from a securities offering for their personal use.

Former Enron executive Jeffrey Skilling has reached an agreement to reduce his fraud sentence by nearly a decade. Skilling, according to court documents, will remain incarcerated for years, but could potentially shave ten years off the 15 years remaining in his prison sentence. 

Former executive Skilling is now known as inmate #29296-179 at the Englewood federal prison in Littleton, Colorado. Mr. Skilling was convicted in December of 2006 for conspiracy, fraud, insider trading and lying to auditors in the largest corporate fraud case in the history of the United States. Mr. Skilling was originally sentenced to 24 years in prison, which would put him on pace for release in February of 2028. 

“The agreement in this matter brings finality to a long and painful process,” said attorney Daniel Petrocelli for O’Melveny & Myers. “Although the suggested sentence for Mr. Skilling would be more than double of any of the other Enron defendants, all of whom have been released from prison for a long time, Jeff would at least have the opportunity to get back to a meaningful portion of his life.”

The Federal Government submitted a series of documents to federal court in the Southern District of Texas claiming they had reached an agreement to reduce Skilling’s sentence to as little as 15 years. 

“This agreement will finally put an end to the battles surrounding this matter,” said a spokesman for the Justice Department. “This agreement guarantees that Mr. Skilling will be punished for his crimes and that victims will receive the restitution they deserve.

The spokesman for the Justice department claimed victims will receive $40 million in restitution as part of the agreement. In excess of 4,000 Enron employees lost their jobs, and many of these individuals also lost their life savings, when the Houston-based energy company declared bankruptcy in 2001. In addition to workers, investors also were hard hit from the illicit activities and ultimate failures, losing more than a billion of dollars.  

Source: sec.gov

California Attorney General Kamala Harris filed a lawsuit against banking giant JP Morgan on Thursday, alleging that the financial institution engaged in legal and fraudulent debt collection practice against tens of thousands of California residents. 

Harris claims that from January of 2008 to April of 2011, JP Morgan filed in excess of 100,000 lawsuits against consumers in California over uncollected credit card debts, including 469 in a single day. 

To maintain this pace, JP Morgan used a number of illegal shortcuts, the lawsuit alleges. Among those illegal tactics was robo signing, in which employees of JP Morgan produced sworn documents and other legal filings at a substantial pace without verifying bank recrods and reviewing cases for accuracy. 

Robo signing was used on an extremely large scale during the foreclosure crisis as banks scrambled to complete foreclosures throughout the United States as the housing market collapsed.

Among other allegations, the attorney general claims that JP Morgan failed to notify residents of California that they were being sued. Moreover, the personal information of consumers allegedly went unredacted in court documents, increasing the odds of identity theft exposure. JP Morgan is also accused of certifying under penalty of perjury that consumers targeted with suits were not on active military duty without actually checking their background, therefore depriving these individuals of their rightful legal protections. 

“At virtually every stage of the debt collection process, defendants cut corners for the sake of speed and savings, providing only the slimmest veneer of legitimacy to their suits,” the complaint alleges. 

JP Morgan could end up being forced to pay a significant sum in penalties should a judge rule in California’s favor. Each alleged violation carries a maximum fine of $2,500, and a spokesperson for Harris said there are likely to be multiple violations per case for the more than 100,000 consumers the banking giant targeted. This spokesperson also claimed that Harris’s office will continue to investigate this issue on an industry-wide basis, with potential suits being filed against other banking institutions.  

Source: sec.gov

The Tesla Model S, which is priced at a substantial $70,000, is now the hottest electric car on the market. In fact, in the first quarter of this year, sales of the Tesla Model S outpaced similar gasoline models from the top three German luxury models. Roughly 5,000 consumers purchased the Model S while a shade over 3,000 purchased Mercedes’ top-flight sedan.

Sales figures; however, are by no means a perfect comparison as actual selling price for the S-class Mercedes start toward the high-end of the Tesla Model S price Range. Moreover, buyers do not receive the $7,500 federal tax credit for buying a luxury gasoline model.

That said, the Tesla Model S is faring quite well, particularly for a start-up auto maker with a limited network.

Last week, Tesla announced a profit that crushed Wall Street estimates; the relatively young automaker also raised its Model S sales forecasts for 2013 to 21,000 from 20,000.

To continue the positive momentum, Consumer Reports on Thursday called the Tesla Model S the best automobile that it ever tested. The vehicle’s overall performance was off the charts, according to the publication’s head of auto testing. The vehicle earned an almost perfect score of 99 out of a possible 100 points; 1 point was deducted from the vehicle’s score because it cannot be driven long distances without recharging.

Despite early struggles, including a feud with the New York Times over the vehicle’s “super charger” network and delays sparked by traditional car sellers over the sales strategy, the new Tesla model seems to be thriving in this green-friendly market. 

Sales: whitehouse.gov

The United States Securities and Exchange Commission charged Capital One Financial and two prominent executives for understating millions of dollars in auto loan losses that were incurred during the months leading up to the financial crisis. 

An investigation conducted by the United States Securities and Exchange Commission found that in financial reporting for the second and third quarters of 2007, the Capital One Financial Corporation failed to account for losses in its auto financing business. The profitability of this business was derived from extending credit to subprime customers. As credit markets began to crumble, the banking giant’s internal loss forecasts found that the declining environment had a substantial impact on its loan loss expense. That said, Capital One did not properly incorporate these assessments into its financial reporting, and as a result understated its loan loss expense by roughly 18 percent in the second quarter and nearly 10 percent in the third quarter.

In response to these charges, Capital One agreed to pay over $3.5 million to settle the SEC complaint. The two executives named in the complaint—former CRO Peter Schnall and Former Credit Officer David LaGassa—also agreed to the charges filed against them. 

“Honest and accurate financial reporting is a principal obligation for any public company, especially a bank’s accounting for the provision of loan losses during a time of financial distress,” said George Canellos, a Director of the SEC’s enforcement division. 

According to the SEC’s order regarding administrative proceedings, beginning in 2006 and continuing through the third quarter of 2007, Capital One’s Auto Loan business experienced substantially higher charge-offs and delinquencies concerning its auto loans than it originally had publicized. The increased losses occurred within every loan type in each of the company’s lines of businesses. 

Capital One’s understatements regarding its auto loan losses violated the reporting, internal controls provisions, and records of the federal securities laws, primarily Section 13 of the United States Securities Exchange Act. Capital One and the executives named in the matter neither denied nor admitted the findings regarding the SEC’s order requiring the business to cease and desist from causing or committing any violations of U.S. securities laws. 

This investigation was conducted by Assistant Chief Accountant Amanda deRoo and Senior Counsel Anita Brand and supervised by Director Conway Dodge. 

Source: SEC.gov