Actual finance blog

A radical shake-up on Wall Street and heavy losses in financial markets have recast the debate for Tuesday’s Federal Open Market Committee meeting to set interest rate policy.

Fed officials will assemble as a storm rages over the global financial system, overshadowing discussion of such bread-and-butter issues as the medium-term growth and inflation outlook.

As recently as Friday, analysts had expected the Fed to keep benchmark interest rates steady on Tuesday as it weighs a sputtering economy and an ebbing of inflation pressure.

On Monday, however, bets that the Fed will be forced into a quarter-point cut to the federal funds rate, to 1.75 percent from 2 percent, were rising paydayloans. Dealers now see more than an even-money chance of a rate cut.

“Fed views have swung dramatically in response to the gut-wrenching developments,” said Marc Chandler, currency strategist at Brown Brothers Harriman in New York.

The FOMC held rates steady when the panel met in June and August, after lowering them in April. That cut bought the fed funds rate down by a cumulative 3.25 percentage points from mid-September 2007.

Following are some factors policy-makers are considering:

FINANCIAL INSTITUTIONS: 

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The likely disappearance of investment banks Lehman Brothers and Merrill Lynch presents a double-barreled hit to an already wounded job market, and will likely depress salaries on Wall Street.

With Lehman headed for bankruptcy and Merrill swallowed by Bank of America, two of Wall Street’s four pillars have crumbled overnight.

Headhunters and consultants said the U.S. financial services sector, already suffering from a glut of unemployed talent after shedding more than 100,000 jobs this year, must now brace for up to 50,000 more.

“The resume flow will start on Monday like there’s no tomorrow,” said Michael Karp, chief executive at executive search and consulting firm Options Group in New York.

“This is seriously going to impact compensation this year, across the Street and all over the world as well,” he said.

“The golden years of compensation in the financial services industry are over, and it doesn’t help with the Bear Stearns people still looking for work.”

On Sunday, eleventh-hour talks to sell Lehman failed, making bankruptcy a certainty instant payday advance.

At the same time, Bank of America, the second-largest U.S. bank, was wrapping up a surprise acquisition of Merrill, the world’s largest brokerage, in a deal that would save Merrill from Lehman’s fate. 

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Defunct developer Pyramid Construction Inc. has found a buyer for another of its downtown properties.

Sherman Associates, a Minneapolis-based developer that helped renovate the 192-unit Syndicate building on Olive Street downtown, has reached a deal to buy the Jefferson Arms building on North Tucker Boulevard, said Steve Goldstein, an attorney for Pyramid owner John Steffen.

Goldstein would not disclose terms of the deal, which he said would likely close next year, but said any proceeds would go to Pyramid’s bank, Citicorp. Sherman did not return a call seeking comment.

Pyramid bought the Jefferson Arms, a 496-unit apartment building, in 2006 for $19 million and planned a $75 million renovation. But earlier this year, the company shut down due to financing troubles and began selling off its properties, which include a number of prominent downtown buildings.

Several still remain on its rolls, including the Mercantile Library building, at 510 Locust Street; and the Arcade Building, at 814 Olive Street paydayloans. Pyramid is trying to get all of them into the hands of new developers, Goldstein said.

"There are irons in the fire on virtually all of them," he said. "But it took a number of years to assemble these projects, and there are a number of different constituencies involved. Progress is slow but steady."

tlogan@post-dispatch.com | 314-340-8291

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OPEC oil ministers agreed Wednesday to trim overall output by more than 500,000 barrels a day in a compromise meant to avoid new turmoil in crude markets while seeking to bolster falling prices.

The news sent oil prices rising. Light, sweet crude for October delivery rose 97 cents to $104.23 a barrel in electronic trading on the New York Mercantile Exchange.

The OPEC announcement reflected the organization’s efforts to cover all bases in an oil market that saw prices spike to a record high just short of $150 a barrel in July, only to shed nearly 30% off those peaks in subsequent months.

Oil prices had lost more ground Tuesday ahead of the decision, falling $3.08 to settle at $103.26 on the Nymex, the lowest settlement price since April 1.

A statement issued by the Organization of Petroleum Exporting Countries issued after oil ministers ended their meeting early Wednesday said the organization agreed to produce 28.8 million barrels a day.

OPEC President Chakib Khelil said that quota in effect meant that member countries had agreed to cut back 520,000 barrels a day in production over the established quota.

Saudi Arabia alone accounts for more than that amount of output over its official quota — all members of the 13-nation OPEC have such formal production limits allotted to them except violence-torn Iraq. But Khelil said that the cutbacks in overproduction would apply proportionally to all OPEC members bound by quotas.

OPEC overall regularly churns out oil above the organization’s overall quota, last set in November at 27.3 million barrels a day, and it remained unclear whether group members would abide by the decision to keep to their limits.

Still, the decision could have the psychological effect of steadying eroding prices at or above the $100 mark — the red line for many OPEC nations concerned about their rapid loss of revenue in recent months.

While the new production limit of 28.8 million barrels a day is above that set in November, the statement said it reflected adjustments to include new members Angola and Ecuador and exclude Iraq, as well as Indonesia, which used the Vienna meeting to announce it was suspending its full membership.

Saudi Arabia was widely believed to be leaning toward maintaining the status quo heading into this week’s meeting — a view shared by its Arab Gulf neighbors. Wednesday’s compromise, while promising to tighten up global supplies, does not amount to an official cutback by the cartel.

"At the end of the day, all they’re saying is: ‘we’ve been cheating for the past year,"’ said analyst and trader Stephen Schork, who was monitoring the meeting in Vienna. "I wouldn’t say the Saudis backed down. I’d say it was a respectful nod to the other members of the group."

Saudi Arabia and others opposed to a major pullback are concerned that high oil prices will kill demand — a trend that has already begun in the U.S. and other big oil-consuming nations.

But at the same time, OPEC countries’ economies are being buoyed considerably by crude’s historically high price and members are not eager for the flow of money to ease.

Some observers said Saudi Arabia and other U.S payday loans application. allies in the Middle East also do not want OPEC to become more of a target for American consumers fuming over historically high fuel prices in a highly charged presidential election season. The impact of Wednesday’s compromise remains to be seen.

The half a million barrels OPEC said it will shave from the market is similar to the amount of additional crude Saudi Arabia unilaterally promised to pour onto the market over the summer when prices were setting new weekly, if not daily, highs.

OPEC’s statement Wednesday noted that "prices had dropped significantly in recent weeks driven by a weakening world economy … with its concomitant lower oil demand growth, coupled with higher crude supply, a strengthening of the U.S. dollar and an easing of geopolitical tensions."

And it warned of the possibility of further price erosion, forecasting a possible "shift in market sentiment, causing downside risks to the global oil market outlook."

But analysts said several factors could stem any further slide in prices over the next few months. "There are good reasons ahead for prices to turn toward the upside," said Johannes Benigni, managing director of JBC Energy in Vienna. "Take the next hurricane," he said, alluding to the chances that — after a few near misses in recent weeks — further storms could savage oil installations in the Gulf of Mexico.

He also warned against expectations that non-OPEC suppliers could make up for any added demand for crude in the traditionally high-use Western Hemisphere winter season, saying "OPEC will have to step in to fill the gap" if other suppliers come up short.

Others said that OPEC’s concerns were well founded. Oil analyst Cornelia Meyer said she expected OPEC to "wait and see what is happening to the global economy and depending on whether China and India are (also) affected, we will see them do a cut" in December.

Oil demand from China’s and India’s booming economies have helped fuel oil demand and drive up prices.

Ehsan ul-Haq, head of research at JBC Energy, also said it that OPEC "might have to cut production below its set target." He mentioned a further downturn in the U.S. economy and the possibility of a mild winter as possibly depressing the world’s appetite for crude by year’s end.

Khelil said the request to curb overproduction was effective immediately with a 40-day window for it to take effect. And he suggested bigger cuts may be in the offing if prices continue to slide, telling reporters that OPEC would "swiftly respond to energy developments which may threaten oil (market) stability."

At the next OPEC meeting Dec. 17, in Oran, Algeria, the organization would "reassess the market situation," he added.

Since crude surged to a record $147.27 a barrel on July 11, it has tumbled by over $40, or more than 27%. Still, prices remain close to 14% higher this year than in 2007, and a barrel of benchmark crude still fetches four times what it did five years ago. 

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Two months ago, Missouri Banking Commissioner Eric McClure wouldn’t have given a second thought to seeing preferred stock in Fannie Mae and Freddie Mac in a bank’s investment portfolio.

Then over the weekend, the federal government placed the two mortgage giants in conservatorship, yanking them from the private sector to government control. Dividends on the already battered preferred shares were suspended, and they lost much of their remaining value this week.

"It’s changed totally now," McClure said. Shares once seen as investment grade have suddenly become junk.

However, McClure said none of the 300 Missouri banks regulated by the state is in jeopardy because of their investments in Freddie and Fannie.

"In no case is a bank going to fail because of that," McClure said. State-chartered banks in Missouri have capital ratios averaging 9 percent, well above the 6 percent of total assets the state requires, he said.

Jorge Solis, director of Illinois’ banking division, said a review of investments by the 480 state-chartered banks in Illinois shows that those that held preferred shares in Fannie and Freddie have enough capital to continue operating safely.

Creve Coeur-based Pulaski Bank was among those dumping the stocks this week. The bank’s parent, Pulaski Financial Corp., Wednesday issued a statement saying that it had sold its 350,000 preferred shares in Fannie, taking a loss of $5.2 million. The company expects to take a charge of 51 cents a share against earnings for its fourth quarter, which ends Sept. 30.

Missouri doesn’t regulate Pulaski, which is a federally chartered savings association.

Ramsey Hamadi, Pulaski’s chief financial officer, said that as recently as July, Fannie Mae preferred shares still were considered solid investments, though their value had declined. The bank noted in a filing that month that its $8.9 million investment in the shares had declined in value to $8 million.

"Now it is a speculative investment," which isn’t suitable for the bank’s portfolio, Hamadi said fast cash online. "We are disappointed. It certainly is not something that you could have forecasted to occur and not as quickly."

Pulaski’s capital is still well above the 6 percent of assets required by regulators to be considered well-capitalized, Hamadi said. It’s core capital stood at 8.29 percent before selling the shares. The sale would take the ratio to 7.93 percent.

Kansas City-based Commerce, the largest Missouri-based bank,; Enterprise Bank & Trust Co. and Centrue Financial Corp., both of Clayton; and First Banks Inc. of Creve Coeur did not hold the shares, they said. None of the other locally based banks has given notice that it has the shares or plans to sell them.

U.S. Bank, the market share leader here, has $97 million in preferred stock of government-sponsored entities, said Lisa Clark, a spokeswoman. The bank considers the amount "very manageable," at less than one percent of its capital, she said.

Frank Sanfilippo, chief financial officer at Enterprise, said the government takeover of Fannie and Freddie has sent a shock wave through the industry. About 8,000 banks held the shares, regulators have said.

A bank that holds the shares has two choices, Sanfilippo said. It can either sell them and take the loss against earnings directly, as Pulaski did. Or it can hold them and write their value down to the current market price. Either way, bank earnings can take a hit.

A loss can affect the bank’s total equity capital, and in some cases, it can change the bank’s rating from "well-capitalized" to "adequately capitalized." Dropping to "adequate" can have a number of effects on a bank’s finances.

For one thing, the rates the Federal Deposit Insurance Corporation charges to insure the bank’s deposits will go up. Insurance rates already were going up because of bank failures that put a strain on the FDIC’s reserves.

Lower capital ratios also could cut off a bank’s access to the wholesale deposit market, Sanfilippo said. Some banks have turned to so-called

Brazil's central bank raised its benchmark interest rate to the highest in almost two years in a bid to cool accelerating economic growth that's stoking inflation. Policy makers were split over the size of the move for the first time in over a year.

Policy makers led by Henrique Meirelles voted 5-3, without a bias, to increase the so-called Selic rate to 13.75 percent from 13 percent, as forecast by 40 of 41 economists in a Bloomberg survey. That raised the country's real interest rate, which is the Selic minus inflation, to the highest of all 54 countries tracked by Bloomberg.

The central bank, in a statement, said it was raising rates “to promote the conversion of the inflation to the target trajectory in a timely fashion.''

It was the first non-unanimous vote since July, 2007, with dissenters favoring a 50 basis-point increase, as forecast by one economist in the same survey.

Falling commodity prices that pushed inflation lower last month to 6.17 percent, from a three-year high of 6.37 percent, have done little to ease central bank concerns that demand growth is outpacing supply in Brazil's $1.3 trillion economy.

Economic growth unexpectedly accelerated to 6.1 percent in the second quarter, a government report showed today, fueling concern that rising demand may stoke inflation. Consumer price increases have exceeded the bank's 4.5 percent target since January.

More Rate Increases

Policy makers, after raising the so-called Selic rate by a larger-than-expected 0.75 percentage point in the previous meeting July 23, used the same language to express their goal of bringing inflation back to its target in a “timely fashion.''

Central bankers will raise the Selic rate further to 14.75 percent by the end of the year, according to the most recent central bank survey of 100 economists published Sept 5.

The second-quarter gross domestic product expansion, up from 5.9 percent in the previous three months, beat all forecasts in a Bloomberg survey of 36 economists, whose median estimate was 5.5 percent.

Central bank President Meirelles described the GDP advance as “robust,'' driven by a record 5.4 percent increase in investments on a quarter-on-quarter basis, according to a statement distributed in Brasilia payday loans in one hour.

“Brazil lives today a sustained growth cycle, supported by price stability,'' Meirelles said.

Spending

Government plans to boost spending excluding interest payments by 13 percent in 2009 are also adding pressure on inflation, said Thomas Trebat, director of Columbia University's Center for Brazilian Studies in New York.

Manufacturers operated at a record 83.5 percent capacity in July and industrial output grew 8.5 percent that month, more than economists expected.

Finance Minister Guido Mantega said today in Brasilia economic growth isn't stoking inflation. Growth this year will exceed the government's 5 percent forecast, he said.

“The economy can grow at a pace of 5 percent to 5.5 percent keeping inflation within the target,'' Mantega told reporters. “The increase of GDP comes as inflation is slowing and therefore growth is sustainable.''

The central bank started to raise the Selic rate at the April 15-16 meeting after holding it unchanged for six months at a record low of 11.25 percent. Policy makers had increased the rate by half a percentage point twice before accelerating the pace in July. Today's rate increase puts the Selic rate at the level it was in November 2006.

Brazil's real fell today to the lowest level in seven months and yesterday Mantega predicted further weakening because of reduced investment and a narrowing trade surplus. The real is down 8.7 percent this month, the worst performance among the 16 most-traded currencies tracked by Bloomberg.

Inflation Peak

Economists began trimming their inflation forecasts in August after consumer prices rose at the slowest pace in 11 months. Citigroup Inc. said in a report yesterday that inflation “likely peaked'' in July at 6.37 percent. Consumer price increases will slow to 6.27 percent by the end of 2008, according to the central bank weekly survey.

Parts of the economy are showing signs of slowing following the central bank's rate increases. Vehicle sales grew 4 percent in August from a year ago, the slowest pace in almost two years, after car-loan costs jumped.

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OTTAWA–The number of new housing starts in Canada grew last month on an acceleration of condominium building in Ontario, according to the country’s national housing agency.

Canada Mortgage and Housing Corporation says the seasonally adjusted annual rate of housing starts moved up to 211,000 units in August, from 186,500 units in July.

"After a brief pause in July, the volatile multiple segment bounced back to a level of activity that is more consistent with our forecast for this year," said Bob Dugan, chief economist at CMHC’s market analysis centre. "Most of the volatility in housing starts over the last three months reflected swings in multiple starts in Ontario."

Multi-unit starts, essentially condos, were up 9.3 per cent year over year in the last three months to 9,465 units from 8,675, but single-family starts were down 23 per cent from last year, to 6,406 units from 8,526.

New housing construction in larger cities jumped 81 per cent in Ontario, but dropped just about everywhere else.

Urban housing starts in the Prairies sagged 22.5 per cent and were down 11.5 per cent in Atlantic Canada. There were smaller declines in Quebec and British Columbia.

"While the decline in single-family starts is discouraging, it’s still not in the same league as the 40-per-cent-plus dive seen south of the border," said economist Robert Kavcic of BMO Capital Markets.

He noted the trend in Ontario residential construction has turned up since the start of 2008, with average starts over the last year the highest since late 2006 – likely thanks to the Toronto condo market.

Meantime, Alberta’s 12-month trend is now at its lowest since mid-2005, while B.C payday loans lenders. has lost momentum and Saskatchewan has also slowed down.

"Canadian residential construction activity has held steady since 2003 thanks to strong multiple-unit starts and strength in Western Canada," Kavcic said.

"However, with that region slowing and other factors – job losses, declining confidence – pointing to further housing market weakness, expect more downward pressure on housing in the coming quarters."

TD Bank economist Pascal Gauthier said Ontario’s, and particularly Toronto’s, condo starts "have trended up precisely when Alberta starts started pulling back in the fall of last year, offsetting that decline" in other parts of Canada’s new homebuilding sector.

The Canadian Press

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Coca-Cola Co (KO.N: Quote, Profile, Research, Stock Buzz) plans to seek approval under China’s antitrust law for its $2.5 billion bid for top domestic juice maker Huiyuan, the final obstacle to what would be the largest foreign takeover of a local firm.

Analysts and lawyers said the application will be closely watched as it is the first case to test the nascent law.

Fears that the deal — which critics warn would mark the loss of a local champion to foreign control — could be derailed under the anti-monopoly regulations, have helped push down Huiyuan Juice Group’s (1886.HK: Quote, Profile, Research, Stock Buzz) shares 13 percent from its year high on Sept 3, struck after the purchase was announced.

“This will be the very first case under China’s antitrust law, implemented on August 1,” Huiyuan’s Chief Financial Officer Francis Ng told a news conference on Wednesday cashadvance.com.

“The offer price had been carefully considered by both the buyer and the sellers,” said Ng, when asked whether he thought the offer price was fair.

Coca-Cola’s Hong-based spokesman Kenth Kaerhoeg said: “We will obviously comply with the process, and we’ll facilitate it based on what the regulators ask of us.”

“It would be inappropriate to comment on the regulatory process,” he added.

The European Union Chamber of Commerce in China said on Tuesday rising economic nationalism was deterring investment by European companies and hampering access to the domestic market, saying the Huiyuan deal would be a litmus test of Beijing’s attitude toward foreign business. 

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NEW YORK–Wall Street greeted the U.S. government’s seizure of mortgage giants Fannie Mae and Freddie Mac with a sigh of relief yesterday, hoping it would provide some relief to ongoing crises in housing and credit markets.

However, many analysts said the bailout of the United States’ two biggest mortgage finance companies, which could be the government’s costliest ever, was a symptom of the still-dismal state of credit markets after a year of crisis.

The immediate reaction on the mortgage front was favourable. Mortgage rates fell in the hope that now the government was standing behind Fannie and Freddie, they’d be able to continue providing ample funds for home loans and bolster the ailing housing market. Thirty-year home mortgage loan rates fell about a half percentage point from Friday to 6 per cent, according to Bankrate.com.

In financial markets, stock prices around the world surged on hopes the U.S. Treasury’s plan to take control of the companies – which together back about half the $12 trillion in U.S quick payday loan. home mortgages – might put at least a temporary floor under troubled financial markets.

While the Dow Jones industrial average rose, Fannie Mae and Freddie Mac stocks got hammered, losing more than 80 per cent of their value and trading below $1 a share.

The takeover came as worries heightened over shrinking capital at the congressionally chartered companies, which had combined losses of nearly $14 billion the last four quarters.

It was welcome news to China and Japan, the biggest buyers of the two companies’ bonds, who praised Washington for its rescue of the mortgage giants.

But analysts noted this was only the latest in a string of bailouts. None has achieved lasting success.

Yesterday, U.S. Treasury Secretary Henry Paulson said he couldn’t estimate how big the taxpayers’ burden would be until the extent of mortgage market declines were fully known.

Reuters News Agency

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Stephen Fleming has been named president and chief executive officer of RCB Corp. and River City Bank, the largest locally owned bank in the Sacramento region.

Fleming, a 25-year banking veteran, replaces Jeanne Reaves, who will continue her director positions with the bank and RCB boards. RCB is the holding company of River City Bank.

Fleming will oversee the daily operations of River City, an $861 million-asset bank based in Sacramento. He has been a senior executive with Bank of America in the Sacramento region and London, chief executive officer of National Bank of the Redwoods in Santa Rosa, and was the co-founder and CEO of Presidio Bank in San Francisco.

“His diverse banking experience adds a dimension that matches the ever increasingly diverse business climate of the Central Valley,” RCB and bank chairman Jon Kelly said in a news release late Friday free credit reports. “I have known Steve for more than 20 years and am excited about the leadership skills that he will bring to our team as we look to prudently accelerate our growth.”

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