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New York City’s economy faces an “extreme downside risk” from Europe’s debt crisis because its banks hold over $1 trillion of assets in the city, where they are active lenders, according to a new report released on Thursday.

The city’s economy is intertwined with Europe’s because non-financial companies have significant ties to European companies while millions of tourists from this region visit the city every year, according to the report by City Comptroller John Liu.

“In light of these widespread commercial interactions, adverse effects on the City’s economy from Europe’s debt crisis appear alarming and lend greater urgency to addressing existing budget issues,” Liu said in a statement.

This potential problem could bedevil New York City’s finances, which already are being pressured by the job-cutting downturn of its prime industry: Wall Street.

The Democratic comptroller warned that Mayor Michael Bloomberg might be underestimating some risks. The list includes

the difficulty of negotiating labor contracts for teachers and supervisors with no wage increases for the past round of bargaining and the possibility that cash-poor New York state will cut $200 million in aid.

A mayoral spokesman, saying Bloomberg had warned that New York City’s economic outlook was uncertain, added: “He has kept the city’s fiscal house in order while delivering services that continue to produce record results through two historic downturns guaranteed pay day loans.”

The kinds of risks that Liu indentified could help widen the city’s budget gaps to $1.7 billion in the current accord, $3.2 billion in fiscal 2013, $4.4 billion in 2014 and $5 billion in 2015.

The city’s current budget is balanced.

Bloomberg, a political independent, has forecast smaller gaps of $2 billion in 2013, $3.8 billion in 2014 and $4.9 billion in 2015.

On the positive side, the comptroller estimated that the city’s five pension funds will cost less than Bloomberg predicted, which could save more than $1 billion from the current fiscal year to 2015.

Though New York City typically benefits when the stock market rises, as it sweeps in higher tax collections from profitable banks and brokerages and individuals with capital gains, there is a plus to the market’s current roller-coaster ride.

“The Comptroller’s Office believes that continued stock market volatility and low interest rates will further encourage institutional investors to shift portfolios towards commercial real estate, especially in premium markets such as New York City, thereby stimulating transactions of commercial property,” the report said.

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A federal jury on Friday failed to reach a verdict in a Utah company’s $1 billion antitrust lawsuit against Microsoft Corp. in a case so important to the computer giant that it put Bill Gates on the stand for two days last month.

Novell Inc. sued the software giant in 2004, claiming Microsoft duped it into developing the once-popular WordPerfect writing program for Windows 95 only to pull the plug so Microsoft could gain market share with its own product.

Novell says it was later forced to sell WordPerfect for a $1.2 billion loss.

The trial began two months ago with jurors getting the case on Wednesday. After much confusion, and some perplexing questions from the panel, they told U.S. District Judge J. Frederick Motz they were deadlocked by early Friday evening.

He repeatedly asked them if they could keep trying.

“This has been a very long and expensive case,” Motz told the panel.

Novell attorneys pleaded with Motz to give the panel just one more day. In the end, however, the 12 jurors told the judge they were “hopelessly” deadlocked, and they later told lawyers a single holdout refused to vote in Novell’s favor.

“He had strongly held views about the technical evidence and refused to budge,” Novell attorney Jeffrey Johnson said. Jurors offered no comment after the trial.

Novell was left with little to show for a decade of effort, but the company said it will seek to retry the case with a new jury.

“Although it’s a technically complicated case, we’re hoping to convince another jury that our claims have merit,” Novell’s corporate counsel Jim Lundberg said.

Microsoft said it would file a motion asking the judge to dismiss Novell’s complaint for good and avoid a second trial.

“We remain confident that Novell’s claims don’t have any merit and look forward to the next steps in the process,” said Steven Aeschbacher, Microsoft’s associate general counsel.

Novell waited until 10 years after Microsoft left WordPerfect behind to file the lawsuit. The company said it was waiting for the U.S. government’s antitrust enforcement against Microsoft to wrap up. At first Novell’s case was dismissed, but it was later reinstated on appeal.

Microsoft lawyers have argued that Novell’s loss of market share was its own doing because the company didn’t develop a compatible WordPerfect program until long after the rollout of Windows 95. WordPerfect once had nearly 50 percent of the market for word processing, but its share quickly plummeted to less than 10 percent as Microsoft’s own Office programs took hold.

Gates testified last month that he had no idea his decision to drop a tool for outside developers would sidetrack Novell. Gates said he was acting to protect Windows 95 and future versions from crashing.

He said that the company’s preferred Word software was superior to WordPerfect, which was a “bulky, slow, buggy product” that did not integrate well with Windows 95.

Novell could have worked around the problem but failed to react quickly, he said.

Novell has argued that Gates ordered Microsoft engineers to reject WordPerfect as a Windows 95 word processing application because he feared it was too good.

Novell’s lawsuit is the last major private antitrust case to follow the settlement of a federal antitrust enforcement action against Microsoft more than eight years ago.

Novell is now a wholly owned subsidiary of The Attachmate Group, the result of a merger that was completed earlier this year.

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By the time the sun rose Friday morning, exhausted shoppers were dozing, slumped over in chairs at area malls, surrounded by shopping bags.

It was one sign that the midnight Black Friday sales were a hit with many deal-hungry consumers who took retailers up on their promotions and literally shopped until they dropped.

By 8 a.m. Friday, marathon shoppers and sisters Tina Hamilton of Bridgeton and Lisa Gray of Overland had already been shopping for about 10 hours. They started at Walmart around 10 p.m., then went to a Target opening at midnight, followed by Kmart at 5 a.m. and then to West County Center.

You have to have a strategy, Hamilton said. And, apparently, a lot of endurance.

“Your body is so broken down after cooking all day and then you stood in line to get a TV that didn’t go on sale until midnight,” Gray said.

There were few signs of consumer backlash to the midnight openings other than some shoppers who showed up later Friday morning because they said they were unhappy that stores made employees work on the holiday.

Black Friday, considered the start of the holiday shopping season, is closely watched by economists because of the important role retail sales play in fueling the economy.

Last year, the Thanksgiving shopping weekend accounted for 12.1 percent of overall holiday sales, according to ShopperTrak, a research firm. Black Friday made up about half of that no fax payday loans.

Greg Maloney, chief executive of retail for commercial real estate firm Jones Lang LaSalle, said he thinks this will end up being an even better Black Friday than originally anticipated. He saw more customers leaving the stores with bags in hand this year. The relatively good weather around the country helped, too, he said.

“It’s a great start to the holidays,” he said. “If I had to predict, I would say next year you’ll see most if not all retailers opening up (Thanksgiving night) and staying open all night.”

Sean Phillips, regional marketing director for CBL & Associates, which operates many shopping malls in the region, said the midnight openings seemed to be a big success for those mall-based stores with special doorbuster deals such as Macy’s, Victoria’s Secret, and Bath & Body Works.

“A lot of the stores I talked to this morning did think the midnight opening was going to help them meet or exceed their sales,” he said Friday afternoon. “They felt it brought in a lot of new sales.”

A record number of shoppers are expected this weekend. For three days starting on Black Friday, 152 million people are expected to shop, either online or in stores, an increase of about 10 percent from last year, according to the National Retail Federation.

The midnight sales seemed to draw more of a younger crowd

Ladue-based McCarthy Building Cos. Inc. was awarded a $7.5 million contract to renovate one level of the two-story, 32,069-square-foot Inpatient Rehabilitation Center at Immanuel Medical Center in Omaha, Neb. Preliminary phasing work has started, and main work on the renovations will start in January. Completion is scheduled for October 2012.

McCarthy will serve as construction manager and general contractor on the project. Renovations to the rehab center will include the addition of 36 private rehab inpatient rooms, a gym, dining and living space and support spaces. McCarthy will work with Omaha-based Altus Architectural Studio and Omaha-based Farris Engineering on the remodeling.

On one side of Bangkok, you’ll find the victims of Thailand’s worst flooding in half a century. They float down trash-strewn waterways, paddling washtubs with wicker brooms over submerged neighborhoods.

Just a few miles (kilometers) away, you’ll find something else entirely: well-heeled shoppers perusing bustling malls decorated with newly hung Halloween decorations, couples sipping espresso in the air-conditioned comfort of ultrachic cafes.

Although catastrophic flooding has devastated a third of this Southeast Asian nation and submerged some of the capital’s northernmost districts, the reality for the majority of this sprawling metropolis of 9 million people is that life goes on.

The desperate images of disaster contrast sharply with scenes of total normality _ from night-owls drinking cocktails in red light districts to tourists enjoying relaxing foot massages in faux-leather chairs downtown.

An exodus of thousands of Bangkok residents to nearby resorts and a government-ordered five-day holiday have left the notoriously congested city unusually easy to maneuver by taxi and three-wheeled tuk-tuk.

“It’s better, in a way,” Nicole Attwater of Sydney said Sunday, adding that she was happy to brave some flooding to see the Grand Palace, the gold-studded former seat of the Thai monarchy, with far lighter crowds than normal on a sunny morning.

“It’s a good time to come, because it’s quiet,” she said.

Most of Bangkok is dry, with little to indicate that anything is wrong _ except for the ominous walls of sandbags stacked around hotels and homes, and the apocalyptic predictions of everyone from expatriate bloggers to some members of the Thai government.

Yet, the threat of floodwaters sweeping through the city is still very real. Nationwide, 381 people have died over the last three months, and 110,000 more have been displaced _ 10,000 of them in Bangkok, according to government figures. The catastrophe has put hundreds of thousands of people out of work and cost billions of dollars in damage _ a bill that grows larger by the day.

Among items struck from tourists’ agendas: shopping for crafts at the popular Chatuchak weekend market and dinner cruises down the city’s Chao Phraya river _ all canceled due to the high waters. The river swelled to a record high level early Sunday, spilling into some neighborhoods and sparking fears it would flood the inner city.

Fears over worse-case scenarios and travel warnings issued by foreign governments have slashed visitors by half at sites like the Grand Palace and the giant gold-plated Reclining Buddha inside Bangkok’s Wat Pho temple complex.

But the biggest problem by far, said tour guide Keerati Atui, is the media, which he said has given the impression that most of Bangkok is under water.

“Look around,” he said, gesturing to lines of tourists streaming into the white-walled palace. “It’s dry. Everything here is normal.”

River water has lapped at the palace gates and even crept inside, but much of it has welled up through drains in the riverside neighborhood. One picture posted this week on Twitter showed a cameraman filming a television news anchor on a street beside the palace in ankle-high water. On both sides of the pair, the street was bone dry.

Heavy monsoon rains have pummeled a large swath of Asia since July. As floodwaters crept across Thailand, they first drowned neighboring provinces, then districts on the northern outskirts of Bangkok. Last week, advancing water forced the city’s Don Muang airport, which is used mainly for domestic flights, to shut down. However, the international Suwarnabhumi airport remains open, and the city’s skytrain and subway lines were functioning normally.

Nobody knows how far the water will go, but so far Bangkok’s defenses have mostly held.

Statements from government leaders have alternated from assurances the capital would be spared to dire warnings that nowhere is safe.

Panicked Bangkokians have stripped supermarkets and convenience stores of bottled water and dried noodle supplies in recent weeks as a result, but there is still plenty to drink. Both those items can be still found in street-side shops along the city’s temple-dotted riverside, where the mineral water is ice cold and the noodle soup is spicy and sprinkled with fish balls.

“A lot of people are overreacting, they’ve been hoarding too much stuff,” said Kwanpimol Pleegluay, a 48-year-old housewife. “They watch the news and see people in other flooded provinces and think that’s going to happen to them here.”

Kwanpimol was taking a casual stroll along the Chao Phraya with her husband over the weekend _ to see how high the river swelled. After peering into the water, she took his photo and chose one word to describe the scene: “Beautiful,” she said.

On the other side of the Chao Phraya, where the 200-year-old pagoda of the city’s famed Temple of the Dawn rises from the banks, 42-year-old monk Phramaha Abhin said he was not worried.

“The Lord Buddha taught us not to be negligent, we must always prepare,” said Phramaha, referring to newly laid protective layer of sandbags outside the temple, where he lives. “But he also taught us not to foolishly fear that which hasn’t happened yet.”

Many people in Bangkok and neighboring provinces see the flooding as something that should be accepted, not something to be angry about.

In Bangkok’s heavily flooded Thonburi district, a navy team evacuated a stranded pregnant woman whose water broke Sunday. Aorasa Wisetkoop looked anxious, but remained calm and held tightly onto her belly, while a rescue team lifted her into a boat.

“We had to get her to hospital,” rescuer Nitipat Mongolpradit said.

But along with every tragic and urgent incident in the inundation, there were images of Thais splashing in the floodwaters for fun.

When the river began flowing like a waterfall over a wall into Chantana Srisuwan’s wooden-shack kitchen, the 58-year-old pulled out a stack of aluminum pans, soaped them up and began washing them. “Why bother being troubled?” she asked.

“If we think we shouldn’t get wet, we’ll never have peace of mind,” she said, as a neighbor complained he could not sleep because his bed was submerged beneath encroaching waves. “If there’s no water, great. But if there is, we have to learn to live with it.”

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ST. LOUIS

PARIS

BUFFALO, N.Y.

Buffalo’s venerable M&T Bank Corp., one of America’s 20 largest commercial lenders, tells the story of the troubled global banking industry in a nutshell.

Bob Wilmers, 77, and CEO of the bank for 27 years, ran M&T like its prudent Canadian counterparts until it mattered.

Like so many of the world’s largest financial institutions in the mid-2000s, M&T gave in to peer pressure and criticism from securities analysts that it was unduly risk-averse. It deviated from character, relaxing its lending standards in pursuit of higher short-term results. M&T accelerated its writing of “Alt-A” mortgages, just a notch above subprime or junk mortgages, to borrowers of doubtful creditworthiness.

M&T also bought $131.7 million worth of collateralized debt obligations (CDOs) from Deutsche Bank AG. DB was one of the top global lenders then passing among themselves these bundles of U.S. subprimes and other dubious loans — soon to be dubbed “toxic” — for a quick profit amid a record U.S. housing boom.

And M&T took a 20 per cent stake in Bayview Lending Group, a Miami-based commercial mortgage lender far afield from M&T’s base in the U.S. Northeast.

The Buffalo bank was soon heavily exposed in Florida, California and Arizona, epicentres of the U.S. housing boom and imminent bust. Just 15 per cent of M&T’s loan book was in those three states, but they account for half the bank’s writeoffs since 2007.

By 2010, M&T’s dalliance with go-go banking had resulted in a more than sixfold increase in delinquent loans, to $1.5 billion, from the 2006 level. Its writeoffs on bad loans peaked a year earlier, at $513 million, and remained unusually high last year, at $346 million.

Profits at the 155-year-old M&T were more than halved from 2006, to $379 million in 2009, and despite last year’s smart recovery they remained 12 per cent below their peak four years ago.

M&T is no basket case, though. It has recorded profits throughout the crisis, ranks among the most prolific small-business lenders in its markets and required no government rescue.

Elsewhere in global banking, the story is far worse, though the cause of the misery is the same. The U.S. alone has spent close to $2 trillion to stabilize its banking system, which continues to hoard cash to shore up weak balance sheets rather than lend it, impeding a recovery in the broader economy. Some 6 million U.S. households have gone into or face foreclosure.

In Europe, the deadbeat phenomenon extends beyond participants in the British, Irish and Spanish housing booms to over-leveraged nations like Greece and Portugal. The damage to the world economy has been incalculable, including funding cuts to education and other essential services in the U.S. and the very existence of the postwar European Union.

And this epic disaster started simply enough, Bob Wilmers explains, with peer pressure.

Says Wilmers: “For decades M&T had outperformed our peer group (of large regional banks).” That was due to his painstakingly honed formula of unexotic local lending restricted to retail and business clients in the territory where M&T has its more than 725 offices — seven Northeast states, Washington, D.C., and Toronto.

Wilmers had been unusually disciplined in the more than 20 mergers with which he grew M&T from $2 billion in assets when he became CEO to $68 billion today, taking a pass on the overpriced acquisition prospects that crossed his desk each day.

And in contrast with empire-building banks undermined by culture clashes, M&T mastered the art of integrating acquisitions. It uses a buddy system that pairs new employees with existing ones in order to imbue the M&T culture of prudent, plain-vanilla banking and extensive community involvement to keep M&T’s profile high.

But in the mid-2000s, “we were looking pretty mediocre,” Wilmers says, compared with spectacular gains posted by fellow regionals like Cleveland’s National City Corp. and Wachovia Corp. of Charlotte, N.C., along with megabanks Citigroup Inc. and Bank of America Corp. (The first two eventually had to be forcibly merged out of existence. The latter two, deemed “too big to fail,” were rescued with massive government bailouts.)

I ask Wilmers how could he sign off on the ill-fated CDO purchases, given his history of extricating the then-troubled M&T from exotic foreign loans.

“I just wasn’t focused,” he allows. “I had papers in front of me that said these were triple A- and double A-rated mortgages, which we fully expected to promptly resell. In hindsight, the shame of it is that our treasurer was proposing these CDOs as a means of squeezing an extra 0.25 per cent return over our customary investments. And we got left holding the bag.”

Like so many of his fellow bank CEOs, Wilmers says he didn’t know what either CDOs or the recent Wall Street “innovation” of Alt-A mortgages were. Eyes rolled later when the music stopped and, failing to find a buyer for M&T’s unsuitable loans, Wilmers asked colleagues if the CDOs could be opened to see if there was something salvageable.

“There was a long silence,” Wilmers recalls, “until someone said, ‘Bob, there are 486,000 mortgages in this thing. It would take years to sort them out.’”

I ask Wilmers about his desire to see the restoration of the Great Depression reform known as Glass-Steagall, which divorced commercial from investment banking, given that Canada’s Big Six absorbed the securities sector in the 1980s to no ill effect.

“Yes, but the Canadians didn’t turn that combination into a casino, did they?” Wilmers asked rhetorically. “We did.”

Wilmers calculates that just three errant deviations from its usual culture cost his bank a total of $845 million in losses — roughly equal to M&T’s entire 2006 profit. “We should have stuck to our knitting. But instead we joined the party.”

It shouldn’t take hindsight to grasp something was bound to go horribly wrong when Japanese university endowment funds were holding mortgages on four-bedroom “starter” homes in Phoenix, and lenders in Charlotte were financing the debt of Greece.

“You’re much less likely to do dumb things when you stick with the fundamentals of knowing your borrowers and their employees, suppliers and customers,” Wilmers says. “Banking is not that difficult, you know.”

It’s been immeasurably costly, and needlessly so, to relearn the maxim that has served Wilmers and M&T so well. “You should do what you know and do it at home.”

dolive@thestar.ca

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Target Corp. is benefiting from the economic downturn, while other retailers are getting battered by it.

The discounter, based in Minneapolis, on Wednesday posted second-quarter profit and revenue that beat Wall Street estimates in part because of a growing frugal trend among Americans who are concerned with job security and other economic woes. Target said that while cost-conscious customers in general are making fewer shopping trips to save money on gas, they’re increasingly coming into its stores for their one-stop shopping needs.

“We do believe that we are gaining some of the trip consolidation,” said Kathy Tesija, Target’s executive vice president of merchandising. “We think we’re benefiting across all income levels.”

Consumers have been changing their shopping habits during the economic downturn as they’re being squeezed by rising food costs, high unemployment and weak job and housing markets. Retailers have had to adapt by keeping inventory fresh, offering incentives and discounting.

Target said its results were buoyed by its push into the grocery business, which allows it to offer customers more food items. The retailer also said it benefited from the 5 percent discount program it launched in October for customers who pay with Target branded credit and debit cards.

Target said profit rose 3.7 percent to $704 million, or $1.03 per share, for the quarter that ended July 30. That compares with $679 million, or 92 cents per share, a year earlier. Revenue rose 4.6 percent to $16.24 billion. Analysts were expecting earnings of 97 cents per share on revenue of $15.9 billion.

Revenue rose 3.9 percent at stores opened at least a year __ a key indicator of a retailer’s health. Target said shoppers bought more clothing and home furnishings, as well as groceries and beauty products. Some shoppers also traded up to higher-end home brands like Fieldcrest.

Looking forward, Target said August sales growth is so far slightly slower than in June and July. But the company said school supplies have been selling well and the heart of the back-to-school selling season is still ahead.

The company forecasts third-quarter profit of 70 cents to 75 cents per share, while analysts expect 72 cents per share. For the full year, Target expects to earn $4 payday loan.15 per share to $4.30 per share, compared with the $4.14 per share analysts expect.

“Without a doubt, recent economic and financial market turmoil create additional uncertainty about what lies ahead,” said CEO Gregg Steinhafel, who expressed caution in speaking to investors during a conference call on Wednesday. “Our teams are vigilant and prepared to address unexpected challenges and opportunities as they arise.”

Target shares rose $1.31, nearly 3 percent, to $50.68. That’s at the mid-point of its 52-week range of $45.28 and $60.97.

Analysts say Target is winning customers from rival Wal-Mart Stores Inc., the world’s largest retailer. Target’s results come a day after Wal-Mart posted its ninth straight quarter of declines in revenue at U.S. Walmart stores open at least a year.

The Bentonville, Ark.-based company, however, reported a 5.7 percent increase in second-quarter profit and raised its outlook for the year, citing strong international sales growth and cost cutting. And al-Mart said it has seen a steady improvement in its U.S. business in the past three quarters.

During a pre-recorded call on Tuesday, Mike Duke, Wal-Mart’s chief executive officer, said his company’s shoppers are being pinched by the economy and “trading down to stretch their budgets.”

But some analysts say customers are trading to Target because they were turned off when Wal-Mart got rid of popular brands and items in an effort to clean up its stores. Moreover, recent surveys, including one from WSL Strategic Retail, show that customers no longer believe that Wal-Mart is the low-price leader.

Wal-Mart has been working to restock shelves with popular items again. It’s also returning to an everyday low-price strategy instead of discounting select merchandise on a temporary basis. But some analysts say it’s too little too late for some shoppers.

“Wal-Mart is getting its lunch eaten,” by Target, said Patty Edwards, a principal at Trutina Financial, an investment management firm. “Wal-Mart’s flip-flopping is confusing shoppers.”

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Canada