Financial News

In the largely unregulated world of extended auto-service contracts, there’s one bedrock consumer safeguard: Customers canceling those vehicle-protection plans are refunded for the coverage they don’t use.

In most states, including Missouri and Illinois, it’s the law.

Yet St. Louis area companies have found a way around this rule by selling a different type of vehicle protection — warranties tied to oil additives, transmission fluids and other products that promise to keep cars running longer.

Here’s how the product warranties work: Consumers are sold an automotive additive — a bottle of liquid, or some tablets. Companies selling the additive say that if the product fails to prevent a breakdown, the warranty on the additive will cover repair bills — or at least some portion of them.

With traditional auto service contracts, the consumer is purchasing a promise that the seller will cover repair bills. The difference? First, with the additive, the consumer is buying a product, not a contract. Second, the consumer is entitled to a refund if a service contract is canceled early. That’s not the case with a product warranty.

And many consumers don’t understand that difference.

"I didn’t know I was buying any $2,000 bottle of additive," said Jeanette Franklin, of Houston, Texas, who bought a product warranty from Wentzville-based US Fidelis in November. "If they told me that’s what it was, I never would have bought it."

Franklin’s complaint is consistent with many that the St. Louis Better Business Bureau has received. The BBB has shared more than 80 complaints involving additives with the Post-Dispatch.

But the companies say they’re helping consumers by offering vehicle-protection plans for older, high-mileage vehicles.

US Fidelis Chief Executive Chris Riley said in a statement that the product warranties help consumers keep their vehicles on the road longer: "Customers who have purchased this product have had more than $5 million in product warranty claims paid," he said.

The company would not answer questions about its product warranties that were

e-mailed to a spokesman.

An attorney for St. Louis-based National Dealers Warranty said the company trained sales agents to be honest about some drawbacks of product warranties, including the fact that they can’t be refunded. Other firms did not return calls seeking comment for this story.

Thousands of consumers have complained to the BBB about auto-protection plans sold by St. Louis companies. Its crusade against the service-contract industry has focused on allegations of telemarketing abuses, deceptive direct-mail literature and high-pressure sales tactics. BBB officials said they knew little about the product-warranty side of the industry until asked about it by a reporter.

As a result, the BBB hasn’t specifically tracked whether consumers’ complaints were over a service contract or product warranty.

Critics — including some inside the industry — say the marketing of these product warranties confuses many consumers, leaving them trapped in coverage they no longer want. The warranted additives also allow service-contract brokers to sell in California, where they’re otherwise prohibited from doing business.

Franklin said she believed the two bottles of AutoLifeXtend oil and transmission additive were product samples, or maybe a thank-you gift from US Fidelis for buying a service contract. She said the company told her to activate her coverage by using the products, which she did.

She discovered just how much her protection plan differed from a service contract when she called the company on Aug. 18 to cancel the $2,060 purchase, which was to be financed over 24 months.

Franklin said the company initially wouldn’t refund any of the $800 she had paid because she had used the product as instructed. In other words, US Fidelis couldn’t give her a refund because she couldn’t return the additives. Days later, the company refunded $375 after Franklin threatened to contact the Texas attorney general, she said.

With service contracts, cancellations are common. Sometimes customers are dissatisfied; often they cancel only because they’ve sold their vehicle or the cars have broken beyond repair car loans for people with bad credit. Depending on how much of the service contracts they’ve used, these consumers can qualify for refunds of several hundred dollars.

With the product warranties, they’re generally entitled to nothing.

Mary Lobdell, an assistant attorney general in Washington state, is spearheading a 43-state investigation into the service-contract industry. She wouldn’t say whether product warranties were part of that investigation, but she said many of those protection plans were "grossly misrepresented" to the point that "consumers truly don’t understand what they’re buying."

Larry Hecker heads the Vehicle Protection Association, a trade group for companies that sell auto-service contracts. He said the product warranties were sold primarily to avoid California regulations that allow only auto dealers to sell service contracts.

Hecker acknowledged that the widespread sale of no-refund warranties could be problematic for an industry struggling to get past allegations that it frequently takes advantage of consumers.

"We haven’t addressed (product warranties) yet, but I’m sure we will down the road," he said, adding that it will probably be discussed by industry leaders when they meet for an annual conference next month in Orlando, Fla.

One industry veteran who plans to attend that meeting is Bill Rosenbach, who once ran a subsidiary of Wentzville-based US Fidelis and now works as a consultant for companies that sell both service contracts and product warranties.

Rosenbach said the quality of the additives and the warranties tied to them varied considerably from company to company.

Some of the additives may be beneficial to vehicles, but most don’t have any significant impact on how a car runs, he said.

Michael Carter, the general counsel for St. Peters-based National Dealers Warranty, says the additive that company sells — dubbed "The Choice" — improves auto longevity by lowering vehicles’ operating temperature. Carter said consumers typically needed to use the product only once to be covered by the warranty.

Carter said product warranties could be a good buy for consumers who didn’t qualify for traditional service contracts because their vehicles were too old or their mileage was too high. He defended the non-refundable nature of the coverage, but he said the company could make exceptions. National Dealers Warranty, he said, will "err to the side of good faith and good will" in some cases.

For companies such as US Fidelis and National Dealers Warranty, product warranties offer at least one big advantage over traditional service contracts.

"There’s a lot more profit," said Rosenbach, of Lincoln, Neb. "But the worst part about product warranties is consumers think they’re getting a service contract."

Many consumers have complained to the BBB that they couldn’t get a refund because they used the product. But others complained about the reverse: They didn’t use the product — either because they believed it unnecessary and threw it away, or their mechanics advised against using it — and later found out this was grounds for denying any claims made on the warranties.

The 10 St. Louis area businesses named in those BBB complaints include some of the country’s biggest service-contract brokers, including US Fidelis; National Dealers Warranty; Dealers Warranty, of St. Charles, which does business as Mogi; Carhill Enterprises, of St. Louis, which does business as Consumer Protection Services; and TXEN Partners, of St. Louis, which does business as Protection Direct.

Several of those firms sell product warranties tied to additives made by Dura Lube, which also sells its additive products directly, through its website, for as little as $11.99.

In 2000, the company that made Dura Lube paid $2 million to settle a Federal Trade Commission lawsuit alleging that claims about the product’s effectiveness were misleading and unsubstantiated. Dura Lube did not return calls seeking comment.

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OTTAWA–Canadian corporations earned $50.2 billion in operating profits in the second quarter, down 6.4 per cent from the previous quarter. That compares with declines of 14.1 per cent in the first quarter and 19.2 per cent in the fourth quarter of 2008.

Statistics Canada reported yesterday that operating profits have declined 35.1 per cent since their peak in the third quarter of 2008.

Profits in the non-financial industries fell 4 per cent to $37.6 billion in the second quarter, while profits in the financial industries shrank by 13.1 per cent to $12.5 billion.

The agency said lower profits in the quarter were mainly attributable to manufacturing, banks, credit unions and insurance carriers. Twelve of 22 industries saw lower profits. In the first quarter, 16 of 22 industries reported decreases.

Manufacturers earned $6.8 billion in operating profits in the second quarter, down 7.1 per cent from the first. In contrast, food and soft-drink makers reported $1.3 billion in profits, up 10.9 per cent from the first quarter.

Reduced demand for potash and nickel, which prompted stoppages at some mining operations, contributed to an 11.5 per cent decline in industry profits to $1.6 billion.

Meanwhile, oil-and-gas extractors earned $4.2 billion in profits in the second quarter, down 6.8 per cent. Retail trade operating profits fell 11.1 per cent to $3.1 billion and wholesale trade profits were down 11.5 per cent to $3.2 billion.

The Canadian Press

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WASHINGTON–The U.S. federal government faces exploding deficits and mounting debt over the next decade, White House officials predicted yesterday in a bleak new fiscal assessment.

Figures released by the White House budget office foresee a cumulative $9 trillion (U.S.) deficit from 2010-19, $2 trillion more than the administration estimated in May. Moreover, the figures show the public debt doubling by 2019 and reaching three-quarters the size of the entire national economy.

Analysts from the non-partisan Congressional Budget Office, meanwhile, projected a cumulative $7 trillion deficit from 2010-19.

The congressional budget analysts said in a report yesterday that the deficit this year will total $1.6 trillion, and that putting the nation on a sustainable fiscal course will require a mix of lower spending and higher tax revenues than the amounts now projected.

The White House also projected a $1.6 trillion deficit this year – $263 billion less than projected in May, largely because the White House removed a $250 billion item inserted as a "placeholder" in case banks needed another bailout – and a gloomy $9 trillion 10-year shortfall.

Christina Romer, economic adviser to President Barack Obama, predicted unemployment could reach 10 per cent this year and begin a slow decline next year. Still, she said, the average unemployment will be 9.3 per cent in 2009 and 9.8 per cent in 2010.

"This recession was simply worse than the information we and other forecasters had back in last fall and early this winter," Romer said.

The new numbers come as Obama prods Congress to enact a major overhaul of the health-care system – one that could cost $1 trillion or more over 10 years.

Obama has said he doesn’t want the measure to add to the deficit, but lawmakers have been unable to agree on revenues that cover the cost.

The revised estimates project the economy will contract by 2.8 per cent this year, more than twice what the White House predicted in May. Romer projected the economy would expand in 2010, but by 2 per cent instead of the 3.2 per cent predicted in May. By 2011, Romer estimated, the economy would be humming at 3.6 per cent growth.

Both Romer and budget director Peter Orszag said this year’s contraction would have been far worse without money from the $787 billion economic stimulus package.

Associated Press

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OTTAWA–Bank of Canada governor Mark Carney is giving broad hints he wants an expanded mandate to prevent future financial meltdowns beyond acting as the country’s inflation cop.

The G7’s youngest central banker laid out his views on the current financial and economic crisis before key policy makers from around the world yesterday and he warned that strictly targeting inflation, while useful, may not be enough to prevent future meltdowns.

In fact, he says, central bankers may have done too good a job of keeping inflation in check for too long, giving cowboys on Wall Street the false sense of security to take disastrous risks.

"There is an emerging consensus that price stability does not guarantee financial stability," he said in the prepared text of his remarks released by the Bank of Canada.

"As we have all just been reminded at great cost, low, stable and predictable inflation and low variability in activity … can breed complacency among financial market participants as risk-taking adapts to the perceived new equilibrium."

To prevent such abuses in the future, Carney said central bankers should be allowed the freedom to use monetary policy to rein in financial markets as well as inflation. Currently, the Bank of Canada’s agreement with the government restricts it to controlling inflation.

The observation and others at the Jackson Hole, Wyo. symposium suggests Carney has been thinking long and hard about what went wrong with financial markets in the summer of 2007.

The comments also suggest Carney may be frustrated that while central banks did their part establishing an environment of stable and predictable price increases and economic growth, that did not help in averting the worst global recession since the World War II.

On Friday, Federal Reserve chairman Ben Bernanke used his opportunity at the symposium to all but declare the recession in the U.S. at an end, saying the economy was stabilizing and that growth would return soon.

The text of Carney’s speech did not directly talk about the economy, although he has already forecast a return to growth in Canada in this current third quarter.

Instead, he focused on exploring ways to prevent a repeat of the global economic disruption that began with a subprime mortgage crash in the United States.

The first line of defence, he said, is better regulation of markets.

But he added central banks could use monetary policy – hiking interest rates – to cool off a financial markets bubble even if the measure causes the bank to miss its inflation target.

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Signs of economic recovery may be emerging, but it will be years before manufacturers of business jets – which came to be viewed as symbols of corporate excess – manage to return their battered businesses to an airworthy state.

It’s a sobering reality for a sector that was soaring just a few years ago, fuelled by new-found wealth in emerging markets such as Russia and the rise of so-called air taxi services and fractional ownership.

Yesterday, Montreal-based Bombardier Inc. announced it has terminated an order for 110 business jets, valued at about $1.5 billion. The Learjet 60 XRs were destined for a European private jet service called Jet Republic, which said yesterday that it had grounded its operations based in Lisbon.

With production of business jets expected to be down by 40 per cent this year, according to J.P. Morgan, the number of orders being cancelled now exceeds new orders being taken at many manufacturers.

Many of those same operators, some of which sell hourly use of corporate jets, have had the rug pulled out from under them as companies slash travel budgets.

"I think the market got overextended," said Jacques Kavafian, an analyst at Research Capital. "A lot of these guys are finding themselves in a bind right now."

Bombardier, which also makes passenger trains and commercial aircraft, said only 25 of the 110 business jets ordered by Jet Republic had been classified as firm orders, with a value of about $340 million. The order termination comes on the heels of another for 15 regional jets earlier this month by Italian airline MyAir.com.

Analysts and investors are concerned that more cancellations could be on the way.

Benoit Poirier, an analyst at Desjardins Securities, said in a note to clients yesterday that two other large Bombardier orders may be at risk: a firm order for 20 jets by California-based XOJET and a firm order for 35 by Europe’s VistaJet.

"XOJET and VistaJet run similar operations to Jet Republic," wrote Poirier. "Given both are private companies, it is difficult to assess their performance and to determine how secure their orders are."

Shares of Bombardier fell 16 cents yesterday to close at $3.98 on the Toronto Stock Exchange free credit report and score.

Jet Republic, scheduled to receive its first jet in October, raised eyebrows when it launched last September just as the financial crisis was escalating into a full-scale market meltdown. Its implosion came shortly after it had decided to spend nearly 2.2 million euros, or about $3.5 million, on custom-made espresso machines for its planes in an effort to differentiate itself from other business jet services.

"Until very recently, we remained very confident of meeting our objectives, but the aviation asset finance market has completely dried up, making it much more difficult for potential clients to take out and obtain financing for fractional ownership of jets," Jet Republic said. "We have therefore taken the decision to suspend our operations in Portugal until further notice."

The industry has also had to cope with the emergence of corporate jets as a symbol of the financial excess that brought down Wall Street. The CEOs of America’s three biggest automakers received a memorable grilling by politicians last year for flying in corporate jets to Washington to ask for a public bailout.

In Canada, the chief executive of Nortel Networks, operating under bankruptcy protection since January, was also taken to task for using Nortel’s private jet to commute between Toronto headquarters and his home near Chicago.

Spokeswoman Danielle Boudreau said Bombardier’s business aircraft division received 41 more cancellations than orders for jets during the first quarter, putting it in a "net negative" position. Bombardier had expected business jet deliveries to decline by about 25 per cent this year.

Kavafian said the business jet market typically lags the overall economy by about two years, so it could take until 2011 before orders begin to roll in again.

The good news for Bombardier is that bleak performance of its business jet division is being partly offset by continued demand for commercial planes, such as regional jets and turboprops, as airlines look to smaller, more fuel-efficient planes.

Bombardier received 50 new orders for commercial aircraft in the first quarter, Boudreau said. It releases Q2 results Sept. 2.

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JEFFERSON CITY — A state board gave preliminary support Tuesday for $3 million in bonds for Express Scripts to expand in north St. Louis County — building a drug distribution center that the company says will create almost 270 jobs.

The Missouri Development Finance Board gave the plan a unanimous nod, and final approval could come at the board’s next meeting on Sept. 15. If approved, the bonds will be made possible by Missouri’s BUILD program, which requires $15 million in new investment and at least 100 new jobs over the next three years for qualifying companies. The program can fund from $500,000 to $25 million for buildings and roadwork for projects in the state.

Express Scripts, among the St. Louis region’s largest employers and among the nation’s largest pharmacy benefits managers, plans a nearly $60 million expansion at NorthPark, a business park across Interstate 70 from its headquarters at the University of Missouri-St. Louis.

Construction of the 221,000-square-foot building on a 12-acre site could begin next month, Express Scripts said in its application for the state bonds. Operation could begin next April and 269 jobs would be added within a year of startup, the company said.

Express Scripts also is considering a site in Pennsylvania but wouldn’t provide details on any incentives there. The company said in its application for Missouri aid that it has "largely completed" lease negotiations for a site in Bristol, Pa.

"We are still reviewing our facilities in regards to capacity, geography and future planning," said spokeswoman Maria Palumbo. "Our exploration of options for expansion continues and it is too early in the process for us to comment on specifics car insurance quotes."

Palumbo said Express Scripts "is very appreciative" of the Missouri board’s vote Tuesday.

John Fougere, spokesman for the Missouri Department of Economic Development, said state officials are hopeful "that an attractive package of incentives that includes the Missouri BUILD Program will prompt Express Scripts to strongly consider choosing the state of Missouri as a location for the company’s proposed expansion."

Express Scripts also is seeking more than $2.7 million in local property tax abatements and state sales tax exemptions of $1.1 million in the first year.

Tom Rocheford, the company’s vice president for facilities, told the board in a conference call Tuesday that Express Scripts plans to build a "high-volume filler," an automated pharmacy that would be the company’s largest.

Despite the recession, Express Scripts has continued to expand. It has added workers in recent months and hopes to complete by the end of the year its $4.7 billion purchase of WellPoint NextRx, a subsidiary of health insurance giant WellPoint.

Linda Martinez, head of the development finance board and the state’s director of economic development, said at Tuesday’s meeting that the Express Scripts plan could not only create new jobs soon but more jobs later if the company concentrates its "supply chain" activities in Missouri.

"I think this is an exciting possibility for our state," she said.

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Swedbank surprised markets on Monday with news of a 15 billion Swedish crown ($2.1 billion) rights issue to boost its balance sheet hit by bad debts in the Baltics, after saying a month ago its capital situation was “very resilient.”

Sweden’s financial watchdog said in June that the country’s banks had enough capital to pass its “worst-case” stress test for 150 billion crowns in Baltic loan losses, though that same day its central bank took a big loan from the European Central Bank to cushion the financial system.

The latest issue, Europe’s eighth biggest this year, was something of a U-turn for the Swedish bank, which as recently as July said it had a resilient capital base, and a month before that had insisted there was no need for extra capital.

“The difference between what we said then and what we are doing now is that we can clearly say to the market that even if the Riksbank’s stress scenario would happen, we would be well-capitalized,” Chief Executive Officer Michael Wolf told Reuters to explain the decision.

The Baltic states, to which Swedbank is the most exposed of Nordic banks, have taken a heavy blow due to the global downturn, with their most recent quarterly gross domestic product figures shrinking by about a fifth.

“It’s a signal to our customers that we have the ability to support them through this recession, no matter what happens,” said Wolf.

He told analysts that the lender stood by the outlook it gave for all its markets at its results briefing in July payday advance.

“They give good reasons for the issue,” said one analyst, who declined to be named. “At the same time, this news raises suspicions about the situation in the Baltic countries and its Lehman exposure. Although the bank has not changed the guidance they gave in Q2, concerns have increased.”

Sweden’s Markets Minister Mats Odell told Reuters that the move by Swedbank was a sign that Sweden’s financial markets were starting to recover and on the path to normalization.

“It means that Swedish banks, from an international perspective, are well-capitalized,” Odell said.

At 1419 GMT (10:19 a.m. EDT), Swedbank shares were down 3.4 percent at 63.75 crowns, having been down as much as 9.5 percent. The broader European banking sector was down 2.7 percent.

CASH CALL EPIDEMIC

Swedbank also made a $1.5 billion cash call last year, and other banks exposed to emerging Europe, such as SEB, Nordea, Poland’s PKO and National Bank of Greece, have also asked shareholders for cash to face the worst recession in decades.

Like Swedbank, those banks said they did not desperately need the capital but were exploiting improving market sentiment to raise money opportunistically.

Analysts said they were not concerned about any sort of contagion following Swedbank’s share call. 

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MONTREAL–Groupe Aeroplan Inc. saw its second-quarter results deteriorate as the economic recession and concerns about Air Canada's future caused members to spend less and redeem more Aeroplan loyalty points.

The Montreal-based company, which runs customer-loyalty programs for the airline and other businesses, reported profits of $26.7 million or 13 cents per share for the quarter ended June 30, down from year-earlier net earnings of $31.5 million or 16 cents per share.

Groupe Aeroplan, which originated as the in-house frequent-flyer program for Air Canada (TSX: AC.B) but now operates as an independent company that also runs customer loyalty programs for non-airline companies, said quarterly revenue dipped to $333.5 million from $336.7 million a year ago.

The decline was partially attributed to a drop in gross billings from the sale of Aeroplan miles, which sagged 5.6 per cent to $337.8 million from $335.9 million recorded in the same quarter of 2008. On a constant currency basis, the number decreased three per cent.

Among Aeroplan's key partners are CIBC (TSX: CM) and American Express, which offer credit cards that provide Aeroplan points that travellers can used to pay for airline tickets, hotel rooms, rental cars.

"We believe the uncertainty surrounding Air Canada has had an additional impact on our Canadian business, ultimately influencing the average per card spend in our financial partner portfolio, which was also impacted, both by a decline in business travel and the recession," Groupe Aeroplan chief executive Rupert Duchesne said in a statement.

Higher mile redemptions caused the cost of rewards to increase 4 payday loans in 1 hour.7 per cent to $201.7 million. Aeroplan said redemption activity in all programs was within normal seasonal levels.

The results failed to meet analyst expectations. Analysts polled by Thomson Reuters thought EPS would increase 67 per cent to 27 cents on $359 million of revenues.

"I am the bear on the Street and it was slightly disappointing even to me,“ said Neil Linsdell of Versant Partners."

He said Aeroplan predictably was affected by consumer behaviour during the recession to spend less on credit cards and use their Aeroplan miles instead of cash.

Heightened concerns about Air Canada's future also prompted members to cash in miles fearing the rules on their use might be changed, even if the airline avoided bankruptcy protection, Linsdell said in an interview.

Duchesne said assisting Air Canada with a $150 million loan was the right thing to do "both from a commercial perspective and for the benefit of all of our stakeholders."

"A stronger Air Canada, a key strategic partner, means our Canadian program will be in a better position going forward," he said.

But Linsdell said most Aeroplan investors do so for the loyalty program and not for the company to be lending money to a business with a questionable future.

"Unfortunately, Aeroplan is over a barrel."

On the Toronto Stock Exchange, Aeroplan shares lost 38 cents, or 3.85 per cent, to $9.50 in midday trading.

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Anheuser-Busch InBev, the world’s largest brewer, said cost cutting had helped it beat analyst forecasts for second-quarter profit, although the second half of the year would be significantly weaker.

AB InBev has described beer as “resilient” in the face of the global economic slump, although the industry has seen consumers trading down from premium to cheaper brands, and opting to drink at home instead of the pub.

“We have strong operating momentum going into the second half of 2009, but recognize that many challenges remain. The beer industry, while resilient in most of our key markets, is not immune to economic pressures,” Chief Executive Carlos Brito said in a statement.

The maker of Budweiser, Stella Artois and Beck’s beers said earnings before interest, tax, depreciation and amortization (EBITDA) rose 18.5 percent to $3.596 billion, compared with the average $3.221 billion in a Reuters poll of 15 analysts.

Overall cost of sales decreased by 5.6 percent in the second quarter, or 2.4 percent per hectoliter, thanks to brewery productivity enhancements, the group said.

The brewer said it projected cost of sales per hectoliter to run flat or increase by low single digit percentages over the full 2009 year, which was “somewhat more optimistic” than previously anticipated.

It had benefited from lower spot prices for its non-hedged input costs — the cost of ingredients such as malting barley, other grains and hops — after a sharp rise in prices last year, it said.

By 5 a.m. EDT, AB Inbev shares had dropped 3.7 percent to 27.7 euros, against a 0.9 percent fall for the DJ Stoxx Europe food and beverage sector 500 fast cash.SX3P. Shares in Heineken, which reports on August 26, were down 3 percent.

“The market is reacting somewhat negatively to the group’s outlook,” said KBC analyst Wim Hoste, adding, however, that this reaction was a little exaggerated given the strong second-quarter EBITDA performance.

The company, reporting in dollars from this year, said second-half year-on-year EBITDA gains would be significantly below the 18.5 percent achieved in the second quarter of 2009, primarily due to more difficult comparisons.

Analysts were positively surprised by the group’s improved guidance for cost of sales.

“In a market which is going down it is very good that they can keep their costs under control,” Petercam analyst Kris Kippers said.

VOLUMES DROP, MORE SAVINGS EYED

The company said second-quarter volumes fell by 1.1 percent, against overall expectations for a 1 percent drop.

Volumes grew 7.0 percent in Brazil but fell 8.9 percent in Central and Eastern Europe (CEE) due to weak market demand and market share loss in the value segment. CEE nevertheless saw EBITDA growth of 39 percent in the second quarter as a result of price improvements, lower cost of sales and lower distribution costs, the group said.

World number two SABMiller’s underlying beer volumes were flat in the second quarter, while those of Carlsberg, the fourth biggest brewer, fell by 6 percent on a like-for-like basis. 

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A big chunk of downtown real estate disappeared Monday from Pyramid Construction Co.’s portfolio, when a bank took back the vacant Jefferson Arms building that was once slated for a $75 million overhaul.

Overwhelming debt crushed Pyramid last year. Many of its uncompleted projects — including the Dillard’s, Arcade and St. Louis Centre renovations — went back to lenders or to other owners.

Citicorp foreclosed Monday on the Jefferson Arms after Pyramid failed to keep up on a $16 million loan to buy the 496-unit apartment building in 2006.

Thomas Vandiver, the Sonnenshein Nath & Rosenthal lawyer who handled the foreclosure for Citicorp, said accumulated interest had pushed the amount owed to $19 million. A Citicorp affiliate got the Jefferson Arms with the auction’s only bid: $5.5 million.

Vandiver said Citicorp hopes to find a buyer, noting that roof repairs at Jefferson Arms are nearly complete.

"There were some problems of water damage in the last year, year and a half," he said. "Unfortunately, Pyramid emptied the building and boarded it up."

The building, originally the Jefferson Hotel, has been vacant since shortly after Pyramid bought the structure and required the residents, most of them people over age 55, to move payday loans.

Built in the early 20th century and named for President Thomas Jefferson, the hotel was designed, Beaux Arts style, by the Barnett, Haynes & Barnett firm, with 500 rooms. The hotel was expanded in 1928. Later alterations reconfigured the building with studio, one-bedroom and two-bedroom apartments.

Pyramid had planned to convert the building to condos, retail space and a banquet facility.

Vandiver said Citicorp is in talks with developers to buy the apartment building. Among them is Sherman Associates, based in Minneapolis, which took part in the renovation of the Syndicate Trust building downtown as apartments and condos.

Rocko Bratic, owner of the Shell Building, at 1221 Locust Street, just west of the Jefferson Arms, said he had sought to buy the empty apartment building’s parking garage. Bratic said he already leases the 260-car garage for tenants of his building and loft dwellers in the neighborhood.

Vandiver said Citicorp had no interest in selling the Jefferson Arms property piecemeal.

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