Business
Ukraine warns grain exports will take ‘months’ to reach prewar levels
Ukraine’s infrastructure minister has warned it will take months before grain exports from Odesa and neighbouring ports reach prewar levels and alleviate the global food crisis despite the relaxation of a Russian blockade in the Black Sea.
Speaking after the departure on Monday of a ship transporting corn from Odesa to Lebanon — the first under a deal between Russia and Ukraine brokered by the UN last month — Oleksander Kubrakov said he expected no more than five vessels to leave in the next two weeks from Odesa, Chornomorsk and Pivdennyi.
Last August, 194 grain-carrying vessels departed Ukrainian ports, including now Russian-controlled Mariupol, according to London-based shipbroker Braemar. Odesa, Chornomorsk and Pivdennyi previously handled about 60 per cent of all Ukrainian grain exports.
“The first two weeks will be a pilot regime, when we will have one, two, three vessels out, and then we will receive the first one, two, three vessels coming inward,” Kubrakov said in an interview.
“In one to one and a half [months], I hope that if everything goes to plan, the market will see this mechanism is working, that insurance is available, that it’s cheaper and it will simplify the entire process.”
At least 16 ships are trapped in Ukrainian ports with shipments and crew waiting for authorities to test a safe passage through sea mines — laid by both Russia and Ukraine — and the threat of Russian missiles. Moscow has pledged not to target ships transporting food if it can carry out joint inspections to make sure returning vessels do not contain weapons.
Prices of wheat, corn and vegetable oils soared in the wake of Russia’s invasion of Ukraine in February. But the prospect of a reopening of the Black Sea corridor, along with global recession fears and record crops in Russia, have recently pushed down agricultural commodity prices.
Chicago wheat, the international benchmark, has declined to under $8 a bushel, or levels preceding Moscow’s invasion. Corn has lost almost 30 per cent from its April high.
However, many vulnerable countries reliant on Ukrainian grain are facing acute food insecurity. Ukraine accounts for 80 per cent of Lebanon’s wheat imports and is a big supplier for countries including Somalia, Syria and Libya.
Moving the 20mn-25mn tonnes of grain trapped in Ukraine will take at least 371 loadings of medium-sized vessels that can carry 40,000-69,000 deadweight tonnes — or nearly twice as many of the smaller “Handysize” vessels such as the Razoni, which set sail on Monday, according to Braemar.
Kubrakov said he hoped a few safe passages would allow “free markets” to step in and pick up the tempo of exports.
A UN official said that the commercial shipping world was “waiting to see” how the initial voyages went. “That’s why this trial ship is so important: to build trust, to show ships can go in and out safely,” she said.
Chris McGill, head of marine cargo underwriting at insurer Ascot, said he was “worried about the accuracy of the safety corridors” because the tide in the Black Sea could move the mines.
Allowing stranded ships to depart is also vital to creating space in Ukrainian ports for vessels to arrive, the UN official said. “The ambition here is to get the ships out, get new ships coming in and have regular traffic.”
The complicated logistics of navigating the Black Sea and the Bosphorus to sub-Saharan ports, which tend not to be very deep, means that a large number of smaller vessels will be required to ferry out the trapped grain, raising the prospects of long queues while vessels are being checked.
Intercargo, the trade group for dry bulk shipowners, said that the industry needed greater certainty that merchant ships would not be bombed. Shipowners would also be loath to send their vessels into the ports if the situation remains volatile.
“I understand that nobody can make guarantees,” said Kubrakov, pointing out that Odesa was hit by Russian rockets just a week ago. “We hope this won’t be repeated, but such attacks could make problems for the future.”
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Business
Families can make a tax-free rollover from 529 plans to Roth individual retirement accounts starting in 2024
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Americans who save for college in 529 plans will soon have a way to rescue unused funds while keeping their tax benefits intact.
A $1.7 trillion government funding package has a provision that lets savers roll money from 529 plans to Roth individual retirement accounts free of income tax or tax penalties.
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The House passed the measure Friday and the Senate did so Thursday. The bill heads to President Biden, who’s expected to sign it into law.
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The rollover measure — which takes effect in 2024 — has some limitations. Among the largest: There’s a $35,000 lifetime cap on transfers.
“It’s a good provision for people who have [529 accounts] and the money hasn’t been used,” said Ed Slott, a certified public accountant and IRA expert based in Rockville Centre, New York.
That might happen if a beneficiary — such as a child or grandchild — doesn’t attend a college, university, vocational or private K-12 school, or other qualifying institution, for example. Or, a student may receive scholarships that mean some 529 funds are left over.
Millions of 529 accounts hold billions in savings
There were nearly 15 million 529 accounts at the end of last year, holding a total $480 billion, according to the Investment Company Institute. That’s an average of about $30,600 per account.
529 plans carry tax advantages for college savers. Namely, investment earnings on account contributions grow tax-free and aren’t taxable if used for qualifying education expenses like tuition, fees, books, and room and board.
However, that investment growth is generally subject to income tax and a 10% tax penalty if used for an ineligible expense.
This is where rollovers to a Roth IRA can benefit savers with stranded 529 money. A transfer would skirt income tax and penalties; investments would keep growing tax-free in a Roth account, and future retirement withdrawals would also be tax-free.
Some think it’s a handout for the rich
However, some critics think the rollover policy largely amounts to a tax handout to wealthier families.
“You’re giving savings incentives to those who can save and leaving behind those who cannot save,” said Steve Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center.
A 2012 analysis conducted by the Government Accountability Office found the typical American with a 529 account had “much more wealth” than someone without: $413,500 in total wealth for the median person, about 25 times the amount of a non-accountholder.
You’re giving savings incentives to those who can save and leaving behind those who cannot save.
Steve Rosenthal
senior fellow at the Urban-Brookings Tax Policy Center
Further, the typical owner had a roughly $142,000 annual income versus $45,000 for other families, the GAO report said. Almost half, 47%, had incomes over $150,000.
The new 529-to-Roth IRA transfer provision doesn’t carry income limits.
Limitations on 529-to-IRA transfers
While the new tax break primarily benefits wealthier families, there are “pretty significant” limitations on the rollovers that reduce the financial benefit, Jeffrey Levine, a certified financial planner and certified public accountant based in St. Louis, said in a tweet.
The restrictions include:
- A $35,000 lifetime cap on transfers.
- Rollovers are subject to the annual Roth IRA contribution limit. (The limit is $6,500 in 2023.)
- The rollover can only be made to the beneficiary’s Roth IRA — not that of the account owner. (In other words, a 529 owned by a parent with the child as beneficiary would need to be rolled into the child’s IRA, not the parent’s.)
- The 529 account must have been open for at least 15 years. (It seems changing account beneficiaries may restart that 15-year clock, Levine said.)
- Accountholders can’t roll over contributions, or earnings on those contributions, made in the last five years.
In a summary document, the Senate Finance Committee said current 529 tax rules have “led to hesitating, delaying, or declining to fund 529s to levels needed to pay for the rising costs of education.”
“Families who sacrifice and save in 529 accounts should not be punished with tax and penalty years later if the beneficiary has found an alternative way to pay for their education,” it said.
Are 529 plans already flexible enough?
Some education savings experts think 529 accounts have adequate flexibility so as not to deter families from using them.
For example, owners with leftover account funds can change beneficiaries to another qualifying family member — thereby helping avoid a tax penalty for non-qualified withdrawals. Aside from a kid or grandkid, that family member might be you; a spouse; a son, daughter, brother, sister, father or mother-in-law; sibling or step-sibling; first cousin or their spouse; a niece, nephew or their spouse; or aunt and uncle, among others.
Owners can also keep funds in an account for a beneficiary’s graduate schooling or the education of a future grandchild, according to Savingforcollege.com. Funds can also be used to make up to $10,000 of student loan payments.
The tax penalty may also not be quite as bad as some think, according to education expert Mark Kantrowitz. For example, taxes are assessed at the beneficiary’s income-tax rate, which is generally lower than the parent’s tax rate by at least 10 percentage points.
In that case, the parent “is no worse off than they would have been had they saved in a taxable account,” depending on their tax rates on long-term capital gains, he said.
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The knives are out for Goldman Sachs CEO David Solomon, and this time the people brandishing them aren’t the usual suspects — his junior staffers annoyed that they have to work late or come into the office several times a week.
Solomon’s problems are more serious and existential, I am told, and how he handles what can best be described as a revolt in some quarters of Goldman’s middle and upper management ranks could determine how much longer he stays in his job.
Solomon, 60, took the job in 2018 and was always somewhat of an odd choice to run the white-shoe investment bank that usually cultivated its leaders from within. He cut his teeth at a decidedly un-Goldman-like venue: the scrappy investment bank Bear Stearns (ultimately one of the causalities of the 2008 financial crisis).
He joined Goldman in 1999, as a partner, no less, because his deal-making chops allowed him to skip layers of management.
In other words, Solomon is an outsider at a firm with a wickedly insular culture. He has a quirky side gig as a DJ in the summer Hamptons party circuit. He’s also not one for small talk, and doesn’t consult with a lot of people before handing down his edicts.
“He doesn’t breed a lot of love,” said one former Goldman executive who knows Solomon well.
Lots of people at Goldman don’t like him, and they’re letting their views be heard both internally and with pals at rival firms.
For the record: I’ve met Solomon and like him for his no-BS style. And until pretty recently, the numbers show him doing a great job. Goldman was running on all cylinders in deals and trading. Even as the market corrects, shares are up about 60% since Solomon took over as CEO in 2018 compared to around a 44% rise in the S&P during that time.
Goldman is still the top M&A shop, even widening its market share over rivals in that important business line. Solomon was the first among his fellow CEOs to see the downturn and enact significant layoffs to cut costs.
Still, the grumbling about Solomon is spreading to the managing director and partner class. High-priced Wall Street talent don’t call all the shots at any firm, of course. But Goldman’s MDs and partners have historically been a powerful force when the board decides the fate of current management, which makes Solomon’s hold on his job increasingly precarious as more and more of them defect from his camp.
Here’s how they’re building a case against him: Goldman’s longtime archrival investment bank Morgan Stanley now easily dwarfs Goldman in market value, $144 billion to $116 billion, continuing a trend that predates Solomon. That comes amid a slowdown in banking deals, Goldman’s bread-and-butter business, and Solomon’s home turf.
Morgan’s CEO James Gorman deftly expanded the firm’s wealth management operations, which provide steady revenues. Solomon’s effort to diversify was an overindulgence in something called Marcus, a digital retail bank launched by his predecessor Lloyd Bankfein that Solomon made his baby. So far, it’s been a disaster, so much so that Solomon has been forced to scale back, possibly on the way to winding it down.
Goldman, meanwhile, has missed targets in its recent earnings announcements, and more downward surprises could be in store as markets continue to wobble. Bonuses are down, in some places cut in half, albeit from the nosebleed levels of 2021.
Traders did well in 2022 because Goldman’s are particularly adept in profiting off turbulence, but part of their pool is being diverted to bankers to keep them in-house until the deal slowdown ends.
Since Solomon is a banker, he’s also being accused of favoritism, which in truth is a pretty lame charge, since bankers often subsidize trader bonuses when the markets aren’t profitable. Still, the Goldman trading department is powerful and can spark management change, as it has done in the past.
There’s also a question about Solomon’s allegiance to Goldman’s stand-alone culture. In its 153-year existence, Goldman has operated on the assumption that it would be the acquirer in any major strategic acquisition. Solomon’s experience at Bear, then one of the most transactional places on Wall Street, means he could be looking for a deal and not one that keeps Goldman in charge.
At a time when most Goldman insiders believe he needs to do a “transformational deal,” i.e., something big that allows it to better compete against Morgan Stanley and super banks like JP Morgan, there is speculation that Solomon might allow Goldman to be swallowed whole by, say, a big asset manager or bank if the price was right.
As best I can tell, this grumbling, though real, doesn’t immediately threaten Solomon’s job. Then again, there is something to be said for keeping your producers happy.
Jack Welch, the legendary CEO of General Electric, was a notorious screamer and demanding beyond belief. Yet Welch knew how to nurture his people.
“Jack could chew your ass, then put his arm around you and make you feel great,” one of his longtime executives, Bob Nardelli, once told me.
It’s why so many other talented execs chose to stay around under Welch, abuse and all, and left when his successor took over, watching GE implode from the outside.
Maybe it’s a good time for Solomon to take a page from Welch and start hugging it out.
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