(Image: ThinkStock)

Investors will continue to face off-the-charts volatility. Many reeled from yesterday’s market activity as global markets plunged in response to the alarming European debt crisis.  The performance of all three major indices was their worst in the past few months. The S&P 500 index suffered one of its biggest drop since August, sliding 3.7 % to 1,229. The Dow Jones Industrial Average dipped 389 points—its worst one-day loss since Sept. 22—to 11,781.  And the tech-driven Nasdaq composite index fell 3.9% to 2,622. The decline erased gains etched out after a two-day winning streak.

The culprit: news that the crisis spread to Italy, Europe’s third largest economy. For the first time since joining the 17-nation Euro currency zone, the interest rate that Italy must pay to borrow money rose more than 7% for 10-year bonds, putting into question the country’s viability as it goes through a major transition in political leadership and proposed austerity measures.

Worries over Greek debt have increased volatility in the financial markets for the past year and that country’s bailout has been a long, arduous process. At $2.6 trillion, Italy’s debt is much larger than than that of Greece and two other troubled European countries that had to be rescued—Portugal and Ireland. The challenge: Unlike those smaller economies, Italy is viewed as too big for the same type of international bailout but too big to default. Analysts and government leaders agree that international intervention is imperative.

But on Thursday morning, the markets staged a comeback. The yields on Italian 10-year bonds dropped to 6.93% helped by secondary-market purchases by the European Central Bank—an action that steadied European markets. And U.S. stocks regained momentum after Standard & Poor’s maintained France’s AAA credit rating. By mid-day, the Dow was up 118 points, the S&P 500 rose 6.58 points, with energy stocks as top performers and tech lagging among its 10 major sectors, while the Nasdaq Composite fell 2.71 points.

Expect more market turbulence as the European scenario—and other major economic and financial events play out.

Europe represents more than 25% of the world economy. The financial crisis continuing to spread to other parts of the continent would be disastrous since its our largest trading partner and, in turn, such activity would affect business and employment on our shores.

Analysts from Moody’s Investors Service, one of the leading ratings agencies, recently announced it was concerned that the U.S. economy could be hurt if this catastrophe. The situation, they assert, would be similar to the aftermath of the 2008 bankruptcy of Lehman Brothers in which banks suddenly became less willing to lend to each other, creating a credit crunch for companies and individuals.

Don’t expect an American bailout as we grapple with our own sluggish economy. For example, President Obama has not commented on recent developments since he appeared at the G20 Summit in Cannes, France last week, urging European leaders to take “bolder action” to avert contagion. And when asked about Europe’s woes during the GOP debate last night, Republican presidential candidates were emphatically against any direct aid to stem the crisis. Mitt Romney‘s comment mirrored the sentiment of others: “Europe is able to take care of their own problems. We do not need to step in to bail out banks in Europe or here in the U.S. that may have Italian debt.”

In such a tumultuous environment, what should you do as an investor? I suggest you continue to follow the advice we offered in the Money section of our October issue. the strategies include:

• Adopt a long-term focus. By doing so, you can actually afford to not pay too much attention to market turbulence. Our experts tell investors not to panic and avoid making knee-jerk decisions you will regret when the market settles down.
• Stick with market leaders. Look for quality stocks with proven earnings track records and strong cash positions.  Some money managers maintain that multinational companies with revenue streams from different geographic locations will still offer downside protection.
• Look for value. Now is a great time to buy solid companies at bargain prices to gain some rather attractive returns—especially in battered industries like financial services.
• Purchase dividend-paying stocks. There are a number of companies that still manage to significantly grow earnings, generate free cash flow and offer strong dividend yields right now.

These are but a few approaches to bolstering your investments. Remember: Monitor, don’t ignore, the financial markets and make adjustments to your portfolio. Avoid your own investment crisis but not letting volatility force you to make a hasty exit from the market.

John B. Rhea to Head New York City Housing Authority

Mayor Bloomberg announces the appointment of new NYCHA Chairman John B. Rhea. (Source: Nyc.gov)

Former Lehman Brothers executive John B. Rhea, 43, will take over as chairman of the New York City Housing Authority (Nycha), the nation’s largest public housing authority, June 1.

In announcing the appointment last week, Mayor Michael R. Bloomberg cited Rhea’s more than two decades of investment banking and private sector experience. However, critics are concerned that Rhea has no experience in affordable housing management.

“John will bring new dynamic leadership and innovative thinking to managing Nycha at a particularly challenging time for public housing,” said Bloomberg at a news conference last week. “John’s experience makes him the perfect person to lead our efforts to create long-term financial stability at the Authority, and to ring in a new era of transparency and agency responsiveness to improving resident and community quality of life.”

Acknowledging his lack of experience in the public housing sector, Rhea said: “I have not only managed within large complex organizations in which NYCHA clearly is. I’ve also managed multi-billion capital dollar budgets.”

Rhea takes over an agency with a $137 million annual deficit and a history of mismanagement and maintenance problems – most notably unsafe elevators. He is replacing Tino Hernandez, who held the post for seven years before leaving in November.
A graduate of Wesleyan University who also holds a Masters of Business Administration from the Harvard Business School, Rhea began his career at PaineWebber Inc., and most recently served as managing director and co-head of global consumer/retail group at Barclays Capital (formerly Lehman Brothers).

The Nycha provides affordable housing to more than 402,000 people in 340 housing developments and 178,000 apartments. It also administers the nation’s largest Section 8 program, which assists more than 95,000 families in renting apartments in private homes.

–Deborah Creighton Skinner

Despite Family Infighting, DreamWorks to Film MLK Biopic

King

Despite opposition and threatened legal action from members Martin Luther King Jr.’s estate, DreamWorks still wants to make a movie about the slain civil rights leader if his feuding children can reach an agreement, the movie studio said Wednesday.

DreamWorks announced a deal this week with the King Estate for a film about the civil rights icon. Bernice King and Martin Luther King III are against the movie. Their brother Dexter, who oversees the estate, signed off on the deal.

“The purpose of making a movie about the life of Dr. Martin Luther King Jr. is to tell a great story which could bridge distances and bring people together,” said DreamWorks spokesman Chip Sullivan in a statement given to the Associated Press. “We remain committed to pursuing a film chronicling Martin Luther King’s life provided that there is unity in the family so we can make a film about unity in our nation. We believe this is what Dr. King would have wanted.”

In announcing the biopic, DreamWorks said the film would be the first big-screen portrayal of the 1964 Nobel Peace Prize winner that would be authorized by the estate and use King’s intellectual property, including copyrighted speeches and other works, as the basis for the film, according to the AP. Steven Spielberg was listed as a co-producer.
“I sincerely believe that the film project we have been working on with DreamWorks … offers an unprecedented opportunity for educating the largest possible audience about our father’s legacy as the leader of America’s greatest nonviolent movement,” Dexter King said in a statement.

Bernice King and King III have been feuding with their brother for years, accusing him of hurting their parents’ legacy. In March, the siblings were upset about an $800,000 licensing deal Dexter made with the Martin Luther King Jr. Memorial Foundation, which is building a monument to King on the National Mall in Washington, D.C. The three are also embroiled in three lawsuits involving their parents’ estates

–Deborah Creighton Skinner

Operation HOPE and E*Trade are offering a financial tools Website for young adults.

Operation Hope Launches Financial Literacy Site for Students

Earlier this week, Operation HOPE and E*Trade launched a new Website designed to give young adults the tools to start their journey to financial freedom.

BankingonOurFuture.org offers free online access to a financial literacy program that teaches students ages nine to 18 the basics of banking, credit, checking, savings, borrowing and investing, and other key money management topics.

“We must teach our youth the ‘language of money’ – the importance of respecting, saving and spending money wisely – in order to resolve many of the social and economic issues our world faces today,” said John Hope Bryant, founder and CEO of Operation HOPE. The California-based organization is dedicated to promoting financial literacy and empowerment in low-wealth, underserved communities.

The courses include Web video modules designed for elementary, middle and high school/adult level students. Teachers may request volunteer banker-teachers to participate in live classroom sessions.

–Renita Burns

Navy to Remain on GlobalHue Client Roster

GlobalHue (No. 1 on the BE Advertising Agencies list with $379.5 million in billings) will continue it’s relationship with the U.S. Navy after being selected as part of a three-agency team to manage the organization’s multicultural marketing and advertising campaign initiatives across the African-American and Asian consumer markets.

The contract, which was announced this week, includes strategic planning, creative services and marketing communication efforts.

“GlobalHue is excited to use our unique strategic business model to strengthen and direct Navy’s African-American and Asian outreach initiatives,” said Allen Pugh, vice chairman of GlobalHue. “As an agency, GlobalHue continues to think out of the box to demonstrate the depth of our expertise and creativity in reaching multicultural segments.”

GlobalHue has worked with Navy since 2000 and is responsible for award-winning African American- targeted campaigns including “Person in Me” and “Anchor.”  Recently, the agency conceived and launched Mynavymyfuture.com, an interactive microsite for college students that focuses on Navy collegiate programs and careers.

The Navy creative has been honored with some of the industry’s most coveted awards including the American Advertising Federation Mosaic Award for Outstanding Multicultural Adverting Campaign.

Also, the Bermuda Department of Tourism will continue its relationship with the company as its official advertising agency of record.

–Janell Hazelwood

BlackEnterprise.com: With the technology advances what does the pipeline look like for African Americans? What has ExxonMobil invested to make sure that the pipeline is diverse?

Rex Tillerson: We’ve never been very successful at tapping into the African American community for scientists and engineers. We see it as very fertile ground. We continue to develop programs and try to innovate new ways to attract more young African Americans and in particular, women to science and engineering.

Through our women in science and engineering program, we provided $1 million to a joint venture project put in place in 2006 with Spelman College and Georgia Tech. Women in Science and Engineering (WISE) provides scholarships directed at African American women to attract them into science. Another significant effort is the creation of the National Math and Science Initiative, a $125 million program that takes prudent programs and puts them into school districts that will attract more competent science and math teachers.

What programs has the company initiated to develop ExxonMobil franchisees and suppliers?

Through our global procurement organization, we have a number of programs directed at minority venders and contractors, first, to ensure that they understand how to become qualified for our business. Special efforts are made to evaluate their business and their competencies, what we can do, and what can they do to become qualified to compete.

ExxonMobil funds scholarships for minority and women suppliers to attend the University of Virginia’s Darden Graduate School of Business Administration, Northwestern University’s Kellogg Graduate School of Management Executive Program and the University of Texas’ Executive Education Seminar. Our Fuels Marketing Co. has developed a minority economic development to help create awareness and interest in retailing opportunities at ExxonMobil among minority candidates.

What type of commitment has ExxonMobil demonstrated toward helping African Americans and women infiltrate the executive level in house?

ExxonMobil supports diverse employee networks including BEST – Black Employee Success Team– which provides mentoring, coaching, and strategies to enhance professional growth and development.

The importance of this group is the mentoring that goes on. Our senior executives are able to share with younger, newer employees their experiences and how they dealt with it. It helps everyone assimilate into the workforce more easily, but it also helps with the discouragement. It is daunting for everyone, but for a young African American working at a company that has 81,000 employees, it can be particularly daunting.

What types of information about energy systems are you putting forth, and how are you reassuring consumers and environmentalists?

We want to teach people about the power of technology and what technology has done to transform our industry over the last 30-40 years. Just like your telephone doesn’t look anything like the one you used when you were a child. The way we drill oil, produce and transport it is more efficient and effective to protect the environment in much better ways than we ever could before. We really can develop this resource and deliver it in a safe, reliable and responsible way. A lot of the old fears that people carry around with them really are outdated and we try to get people to reexamine those, and look at them in the context of the high tech world we live in today.

ExxonMobil has been criticized about the revenue they’ve enjoyed while consumers are scraping by. Do you feel that corporations have a responsibility in terms of alleviating the pressures that consumers might feel from high gas prices?

The price itself is very difficult for a lot of families, and we do know that, but even more painful then the price itself is the real risk that comes from policies that might interrupt that supply. Not having the supply would be devastating to people’s livelihoods. What we can do about that is get more supply; both in terms of crude oil but also natural gas and manufacture more gasoline.

We’ve seen vivid examples of how painful it is when you can’t get the product at all, like when the recent hurricanes caused shortages in the supply chain. And we all saw pictures on the news of long lines at gas stations in mid-Atlantic states where people couldn’t get fuel.

What policy steps might interrupt the supply?

We’re already the most heavily taxed industry in the country. In our case, for every dollar of profit, we pay about $2.50 in taxes.

Yes, when prices are high like we’ve had, we’re doing pretty well. But the investments we have to make are these long lead times that are enormous. A single project can cost us $15 billion and take us six to eight years to implement. We’re investing huge amounts of money where there is no income coming in from that investment and we have no idea what the price is going to be 10 years from now. So the risks in this business are still enormous. If you take too much of our revenue stream away from us by increasing the tax burden, then you lower our ability to take that risk. Our level of profitability goes directly to our ability to provide the supply in the years ahead.

Everyone is looking to reduce carbon emissions and use alternative energy sources such as solar, wind, and biofuels. How do you see ExxonMobil transforming and evolving to meet the desire for a greener world and economy?

That defines the biggest issue we are facing today. Almost any forecast you want to look at will show that 25 years from now energy demand is going to grow because populations grow and economic activity grows.

Today, oil and gas account for 60% of our energy. Twenty-five years from now, they are still going to account for 60% of our energy. It’s not because there’s not going to be enormous growth in alternatives: bio-fuels, solar, wind, and some growth in nuclear over this time period. All of these alternatives start at a very small base. It’s because the energy consumption in this country and in the world is so enormous.

We can send 44,000 gallons of oil per second. Alternative fuels such as ethanol can produce 50 million gallons of ethanol a year at a world-scale ethanol plant. That is about eight hours of supply. They will grow, and they will grow rapidly, but they are starting at essentially zero. Even when you grow something at a double digit rate, 25 years from now alternative fuels will comprise about 3-4% of the supply and that’s all. It doesn’t mean we shouldn’t do it. Particularly in the U.S. we’ve got to develop all of the options because we are going to need them all.

In an early-morning announcement, Lehman Brothers said it was filing for Chapter 11 bankruptcy protection after attempts to rescue the 158-year-old firm, which was struggling under $60 billion in bad real-estate holdings, failed. Lehman said that none of its broker-dealer subsidiaries or other units would be included in the bankruptcy filing and all of its broker-dealers will continue to operate. Bank of American also said in a statement early Monday that it would acquire Merrill Lynch in an all-stock transaction valued at $50 billion.

“The major investors including mutual funds, pension funds, and private-equity investors are moving money from the stock market to the Treasuries and Bond markets,” says Samuel D. Melvin, a mortgage planning agent at Desert State Mortgage, LLC. “This increases the value of the treasury and market bonds, which in turns takes pressure off of mortgage interest rates, driving them lower.”

Last week Lehman shares lost 45% after the financial company announced a third quarter loss of $3.9 billion. Standard & Poor’s Ratings Services said today that it removed Lehman from CreditWatch and lowered its long-term counterparty credit rating to ‘SD’ (selective default, meaning payments may not be made on some financial obligations), from ‘A’.

“I think it serves to cause all banks to look at transactions a little bit more conservatively,” says Bob Nesbitt, president of the Alabama division of Atlanta-based Citizens Trust Bank (No. 6 on the B.E. 100s Banks list with $338 million in assets). “The investment firms are traditionally firms that buy securities including mortgaged backed securities. As they have more problems it will cause their underwriting to be a little bit more stringent, which will in turn cause commercial banks to be a little more careful in their lending practices.”

Meanwhile, Bank of America’s acquisition of Merrill Lynch will create a company that will rival Citigroup Inc., the biggest U.S. bank, in terms of assets. By adding Merrill Lynch’s more than 16,000 financial advisers, Bank of America would have the largest brokerage in the world with more than 20,000 advisers and $2.5 trillion in client assets, Bank of America said. The combined company would have strong positions in retail brokerage and wealth management.

“Acquiring one of the premier wealth management, capital markets, and advisory companies is a great opportunity for our shareholders,” Bank of America Chairman and Chief Executive Officer Ken Lewis said in a press release. “Together, our companies are more valuable because of the synergies in our businesses.”

“I think it is a consolidation which most people in the business thought needed to happen to get out of the malaise that we are in,” says Dave Jones, president and CEO of Castle Oaks Securities (No. 9 on the B.E. 100s Investment Banking list with $66 Billion in Co-Managed Issues.) He called the forced consolidation a good thing. “With three players out of the market place (Lehman, Merrill Lynch and Bear Stearns) that means increased business for us. Their models might be different but we’re talking to the same client.”

The deal comes as many banks have had difficulties amid the sub-prime credit meltdown. Just last week the Treasury Department took control of mortgage giants Freddie Mac and Fannie Mae in an attempt to shore up the nation’s weakened housing market.

Who Is to Blame?
Benn Steil, a senior fellow and director of international economics at the Council on Foreign Relations, suggests that many of the problems banks have experienced are a result of overleveraging due to a lack of over-the-counter derivative regulation.
“Lehman Brothers’ central position in the OTC credit derivatives market emphasizes the critical importance of improving risk management in large OTC markets,” he said. He suggests that a well-capitalized central party, called a Clearinghouse, would protect markets and also renew the emergence of derivatives on exchanges.

However, not all economists agree with that point of view.

“The idea that the lack of regulation is to blame for what’s gone wrong is suspect,” said Sebastian Mallaby, director of the Maurice R. Greenberg Center for Geoeconomics and senior fellow for international economics at CFR. “On the one hand Fannie and Freddie were highly regulated and they still needed a bailout. Regulated banks such as Citigroup lost huge amounts of money. Meanwhile, rather lightly regulated hedge funds have had some trouble but less than the more regulated parts of the financial system.”
Last October, Lehman brothers entered into a groundbreaking corporate-academic partnership with Spelman College to establish and develop the Lehman Brothers Center for Global Finance and Economic Development. Lehman Brothers committed $10 million which would go towards the development of an interdisciplinary curriculum and courses, the creation of a new scholarship program, and the recruitment of new faculty. Neither Spelman College or Lehman Brothers will comment as to whether this partnership will continue or if the money still needs to be distributed.

Adding to the uncertainty in the markets, American International Group Inc., the world’s largest insurance provider, received special permission to transfer some assets to access about $20 billion in cash for short-term liquidity, a move that was approved by the New York Insurance Department. Additionally, Gov. David Paterson sent Insurance Superintendent Eric Dinallo to work with the Federal Reserve on a plan to help AIG.

“Wall Street’s continuing problems should serve as a stark reminder that this recession is far from over. New York State has taken the first step towards helping to stabilize AIG, which is otherwise a very healthy company,” said Paterson. “On a state level, we were able to reach a market-based solution that will stabilize AIG at no cost to New York taxpayers. Policyholders should also know that they are safe, and their insurance policies are still good. AIG’S insurance companies are financially strong, and the Insurance Department will continue to ensure that they remain strong.”

AIG has $1 trillion in assets, and more than 100,000 employees.AIG dropped $7.38 to close at $4.76 in New York Stock Exchange composite trading. The shares traded for $65.96 a year ago.