Actual finance blog

CVS Caremark Corp. says it will pay $1.25 billion to Universal American Corp. for its Medicare prescription drug services unit.

CVS says it wants to get bigger in this area because “a growing portion of the country’s population will receive their prescription drug coverage under Medicare plans.”

The drug store chain and pharmacy benefits manager says the deal will more than double the size of its Medicare Part D business. Universal American’s Part D business serves approximately 1 guaranteed cash advance.9 million Medicare members, while CVS currently serves 1.2 million members.

Medicare Part D is the federally subsidized prescription benefit program provided to Medicare beneficiaries.

Universal American is a provider of health benefit plans based in Rye Brook, N.Y.

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Bill Donius will not seek re-election to Pulaski Financial Corp.’s board of directors next year and instead will devote his time to civic, charitable and unspecified commercial interests, the Creve Coeur-based bank announced Tuesday.

Donius is currently a member of the board and has previously served subsidiary Pulaski Bank as senior manager, chairman, CEO or director continuously since 1992. Donius stepped down as CEO in May 2008 when Gary Douglass took on the role.

“I plan to focus my full-time energies on community service, publishing the book I’ve written and continuing to write for the Huffington Post,” Donius said in a statement.

When he was CEO, Donius had been the third member of his family to run Pulaski. He succeeded his father, Walter Donius, who took over from Bill Donius’ grandfather, Michael Burdzy.

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South Korea plans to tighten curbs on banks’ holdings of foreign-exchange derivatives, lowering existing limits by a fifth, according to an official at the country’s financial regulator.

Local branches of overseas banks will be allowed to hold contracts equivalent to no more than 200 percent of their equity capital, down from 250 percent currently, and the cap for domestic banks will be cut to 40 percent from 50 percent, said the Financial Supervisory Service official, who declined to be identified because the plan isn’t public yet. The finance ministry will announce the changes in January, he said.

Nations from China to South Africa are striving to limit currency volatility as near-zero borrowing costs in the U.S. and Japan spur demand for higher-yielding assets in emerging-markets. South Korea’s existing limits on banks’ use of currency derivatives took effect in October and are subject to review every three months.

“They’re obviously concerned about trying to control capital inflows and limit the impact this could have on the currency,” said Brian Jackson, Hong Kong-based senior strategist at Royal Bank of Canada. “But I’m a little bit skeptical that this is a really big deal. I think it’s already been pretty well-flagged in advance and the market has sort of accepted that there are going to be a few limited measures no teletrek payday advance.”

The Korea Economic Daily newspaper reported the planned tightening two days ago, citing unidentified officials at the finance ministry and the Bank of Korea, and said the new limits on derivatives holdings will probably take effect in March.

Limited Impact

The planned changes aren’t expected to have much impact as foreign banks’ local branches currently have contracts totaling no more than 150 percent of their equity capital and domestic banks’ holdings are 10 percent or less, the Financial Supervisory Service official said. Exporter demand for currency- hedging products is also unlikely to be affected, he said.

The government earlier this month said it will impose a levy on banks’ foreign-exchange borrowings to help curb capital flows. The National Assembly on Dec. 8 passed a bill that will from Jan. 1 restore taxes on foreign investors’ holdings of the nation’s bonds.

The Korean won rose 0.1 percent today to close at 1,146.35 per dollar in Seoul, according to data compiled by Bloomberg. The currency has gained 1.5 percent so far this year and, according to analysts surveyed by Bloomberg, will gain 9.2 percent by the end of 2011.

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The share of Japanese equity trades taking place in dark pools, or private systems that don’t display prices publicly, is growing, according to data from the Tokyo Stock Exchange’s alternative share trading platform.

The share of Japanese stocks traded on the Tokyo Stock Exchange Trading Network, or Tostnet, increased to 10 percent in November from 7 percent in March, when regulators first required dark pools to connect to the system, the bourse said. Daiwa Securities Capital Markets is among the operators of dark pools that uses Tostnet, according to the brokerage’s Global Head of Electronic Trading Services Punit Mittal.

“The increase in Tostnet’s share of trades shows use of dark pools is growing in Japan,” said Lee Porter, Hong Kong- based managing director for Liquidnet Holdings Inc.’s Asian dark pool operations. “Most of the major broker-dealers have now deployed their dark pools in Japan. You are now seeing the Japanese domestic brokers doing the same too, so clearly there is appetite.”

Japan’s Financial Services Agency in March ruled dark pools must register as proprietary trading systems or connect to financial markets via systems such as Tostnet. Foreign brokers including Credit Suisse, Citigroup and Morgan Stanley operate dark pools in Japan alongside domestic operators like Daiwa Securities. Tostnet trades accounted for 6.6 percent of domestic share volume at the Tokyo exchange in 2009 and 6.2 percent in 2008, according to bourse data.

Income May Drop

The portion of trades handled outside of public exchanges in the Asia-Pacific region is forecast to rise to 5 percent of transactions within three years from about 2 percent this year, John Feng, New York-based managing director of research company Greenwich Associates, said.

Tostnet’s increased share “signals more dark pools exist here,” Tsuyoshi Masuda, deputy director of the stock-market department at the exchange, said payday advance lender. The exchange’s “income may drop if more money shifts to dark pools from the auction as Tostnet’s fees are cheaper than those for auction trades.”

The commission for Tostnet is about one-seventh of that charged for regular auction trades, according to TSE. The alternative trading system was launched in 1998 as a venue for block share transactions after regular trading hours. The service was re-established as an equities and derivatives platform in 2008.

“As traders and their trading needs become more sophisticated they will need to broaden their execution options,” Porter said. “You will see a gradual increase in the percentage of trades reported to Tostnet as opposed to executed directly on the TSE.”

Record Volume

Trading volume is at a record on Tostnet, with about 39 billion shares changing hands so far this year, according to preliminary TSE data. That compares to the previous record of 36.4 billion shares in 2009.

“It’s very difficult to estimate percentage growth because dark pool statistics are not officially published anywhere,” said Daiwa’s Mittal. Requiring dark pools to connect to Tostnet or similar systems at other exchanges “is a positive move as all trades will be published and consolidated on one venue to provide greater market transparency and efficiency.”

The growth of dark pools in Asia has lagged behind the U.S. and Europe because regulators in the region have been slow to accept the systems, Greenwich’s Feng said.

Trades through dark pools this year in the U.S. accounted for 10 percent of the total, and 5 percent in Europe, he estimates.

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China raised interest rates for the second time since mid-October to counter the fastest inflation in more than two years and more moves may follow.

The benchmark one-year lending rate will rise by 25 basis points to 5.81 percent and the one-year deposit rate will climb by the same amount to 2.75 percent, effective today, the People’s Bank of China said in a one-sentence statement on its website late yesterday.

Economists surveyed by Bloomberg News earlier this month forecast one percentage point of increases by the end of 2011.PremierWen Jiabao is seeking to slow gains in property values and consumer prices that are making it harder for families to buy homes and pay for food. Bank lending and a wider-than- forecast November trade surplus have pumped more cash into an economy already awash with money.

“This demonstrates how determined the government is to control inflation,” said Wang Qing, a Hong Kong-based economist with Morgan Stanley. “Interest rates on medium and long-term loans are adjusted by banks at the beginning of every year so by raising rates now, this will have a much greater tightening effect than it would have in January.”

Wang said he expects three more interest-rate adjustments of 25 basis points each in the first half of next year. Ken Peng, an economist at Citigroup Inc. in Hong Kong said yesterday he forecasts increases totaling 100 basis points next year.

Tighter Policies

Today’s interest-rate increase is the first since Chinese leaders on Dec. 3 announced a shift to a “prudent” monetary policy from the “moderately loose” stance adopted to support the economy amid the global financial crisis.

China reported 5.1 percent inflation for November, the highest in 28 months. Also in November, exports reached a record $153.3 billion and the trade surplus exceeded $20 billion for the fifth time in sixth months, indicating a recovery in international trade from the global financial crisis.

The latest rate increase is aimed at reining in inflation expectations and narrowing the gap between gains in consumer prices and savings rates, Ba Shusong, a researcher at the State Council’s Development Research Center, told state television yesterday after the announcement.

The new benchmark one-year deposit rate of 2.75 percent and the five-year rate of 4.55 percent compare with inflation of 5.1 percent in November.

Concern that the government would increase interest rates to slow expansion in the world’s fastest-growing major economy spurred an 11 percent selloff in the benchmark Shanghai Composite Index of stocks in November. The index jumped 2.9 percent on Dec. 13, the biggest gain in eight weeks, after the central bank ordered lenders to set aside more money as reserves to control liquidity rather than boosting borrowing costs.

‘Prudent Move’

“A rate hike is not normally on the wish-list for Santa Claus, but in China’s case this is a prudent move,” said Brian Jackson, a senior strategist at Royal Bank of Canada in Hong Kong. “It is increasingly clear that using quantitative measures such as the reserve requirement ratio to rein in liquidity and credit hasn’t been enough and adjusting the price of credit is needed to get price pressures under control.”

China is tightening after a record expansion of credit to counter the effects of the world financial crisis. The broadest measure of money supply, M2, has surged by 55 percent over the past two years and outstanding yuan-denominated loans have climbed 60 percent to 47.4 trillion yuan.

Lags Asian Increases

The country is lagging behind counterparts across Asia that took steps earlier to raise borrowing costs from global recession lows. Malaysia boosted its benchmark rate three times, starting in March, Taiwan began in June and South Korea in July. The PBOC last lifted the benchmark one-year lending and deposit rates on Oct. 19, the first increase since 2007.

The government is taking a “very prudent approach” to boosting interest rates because of an unstable and rapidly changing global environment, central bank Governor Zhou Xiaochuan was cited as saying by the official China Daily on Dec payday loans no faxing. 17. Yesterday’s announcement may indicate that policy makers now regard curbing inflation a more pressing task as price increases extend beyond seasonal fluctuations in food.

Residence-related costs, including charges for water, electricity and rent, jumped 5.8 percent last month from a year earlier, the most in more than two years, and consumer goods prices rose 5.9 percent, the biggest gain since August 2008, according to statistics bureau data.

‘Long-term Battle’

China raised gasoline and diesel prices by as much as 4 percent on Dec. 22 to reflect higher global costs of oil. Still, the increase was less than half of the gain in crude prices over the previous month and the nation’s planning agency said it limited the rise because of the “rapid increase in overall prices.”

The nation must prepare for a “long-term battle” against price increases, Peng Sen, vice chairman of the National Development and Reform Commission, told state television on Dec. 21. The root causes of inflation have yet to be resolved, he said, citing domestic supply shortages, gains in global commodity prices and excessive liquidity.

Inflation is likely to reach 3.3 percent for the whole of this year, breaching the government’s target of 3 percent, Peng said. The commission raised its expectation of average gains in consumer prices next year to 4 percent, state television reported on Dec. 14.

‘Relatively High’ Inflation

Consumer price increases may accelerate to more than 6 percent in coming months, Ben Simpfendorfer, a Hong Kong-based economist at Royal Bank of Scotland Plc, said in a Dec 11 note. Inflation will remain “relatively high” in the first half of next year, especially the first quarter, as the impact of rising costs in October and November feeds through to the data, the NDRC said on Dec. 11.

The government has been reluctant to raise interest rates, preferring to increase the amount of deposits banks must set aside as reserves to curb liquidity that’s fueling gains in food and asset prices. The People’s Bank of China has increased the reserve ratio six times this year, including three times since November.

Policy makers are concerned that raising interest rates could “encourage hot money inflows,” Paul Cavey, a Hong Kong- based economist at Macquarie Securities Ltd. said. “Raising interest rates has far more implications” than ordering lenders to set aside more of their deposits as reserves, as it may affect the ability of local governments and companies to pay their debts.

Hot Money

State Council researcher Ba Shusong told state television yesterday that the government will step up regulation of capital inflows, without specifying measures that will be taken.

The nation’s foreign-exchange regulator this month published a list of companies involved in illegal currency deals including the use of fake contracts as part of its crackdown on hot money inflows, the official Xinhua news agency reported on Dec. 10.

The Ministry of Commerce is stepping up supervision of foreign investment in real estate to crack down on speculation after a 48 percent jump in overseas fund inflows to the industry in the first 11 months of the year, spokesman Yao Jian said on Dec. 15.

Policy makers may also allow faster gains in the yuan to help curb inflation from higher prices of imported commodities, according to analysts’ forecasts. The currency, which has risen 2.85 percent since the central bank dropped its dollar peg in June as the economy rebounded from the financial crisis, can strengthen at a faster pace if gains are “controllable,” Li Daokui, a central bank adviser, said in a Dec. 3 interview.

The yuan closed 0.2 percent higher against the dollar on Dec. 24 at 6.6320.

–Li Yanping. With assistance from Sophie Leung in Hong Kong and Fan Wenxin in Shanghai. Editors: Nerys Avery, Dick Schumacher.

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Americans increased spending in November for a fifth straight month and companies stepped up orders for equipment, more evidence the U.S. economy is gaining momentum heading into 2011.

Household purchases rose 0.4 percent after a 0.7 percent increase in October that was almost twice as large as previously estimated, figures from the Commerce Department showed today in Washington. The agency also reported a 2.6 percent gain in bookings for capital goods like computers and electronics.

Rising incomes and stock prices are giving consumers the wherewithal to boost the purchases that account for 70 percent of the world’s largest economy, improving earnings prospects for companies including Bed Bath & Beyond Inc. A drop in claims for jobless benefits reported today indicates employers are slowing the pace of firings, a step toward cutting unemployment from close to a 26-year high.

“The recovery is moving into higher gear,” said Jim O’Sullivan, global chief economist at MF Global Ltd. in New York. “The unemployment rate will gradually come down, which in turn should reduce the downward pressure on inflation.”

First-time filings for jobless insurance declined by 3,000 to 420,000 in the week ended Dec. 18, matching the median forecast in a Bloomberg News survey, according to Labor Department figures released today.

Another report today showed a measure of consumer confidence climbed to a six-month high in December. The Thomson Reuters/University of Michigan final index of consumer sentiment rose to 74.5, matching the median estimate in a Bloomberg survey, from 71.6 in November. The preliminary December reading was 74.2.

Stocks, Treasuries

Stocks were little changed after the reports. The Standard & Poor’s 500 Index fell 0.1 to 1,257.03 at 11:40 a.m. in New York. The index has climbed more than 12 percent this year on prospects for economic growth. Treasury securities fell, sending the yield on the benchmark 10-year note up to 3.38 percent from 3.35 percent late yesterday.

Today’s reports add to a run of better-than-forecast data that have prompted economists to raise their estimates for economic growth. Retail sales increased more than forecast in November, the trade deficit shrank as exports jumped to a two- year high in October, and regional as well as nationwide figures showed factories are ramping up production.

Economists at Morgan Stanley in New York today raised their tracking estimate for consumer spending this quarter to 4.1 percent from 3.5 percent. They project the economy will expand at a 4.5 percent pace in the October-December period, up from a prior estimate of 4.3 percent.

Tax Cuts Extended

The extension of Bush-era income-tax cuts for two years, a reduction in the payroll tax next year and the Federal Reserve’s plan to buy $600 billion of Treasury securities are adding to the optimism.

Housing remains a weak spot for the economy as an overhang of unsold properties weighs on the market. Purchases of existing homes increased 5.5 percent to a 290,000 annual rate from a 275,000 pace in October that was slower than previously estimated, the Commerce Department said today. The median forecast of economists surveyed by Bloomberg projected a 300,000 pace direct payday lenders.

“While the economic environment appears to have stabilized and is perhaps improving, it looks as if the consumer continues to face challenges resulting from the macroeconomic environment such as historically high unemployment rates,” Leonard Feinstein, co-chairman of Bed Bath & Beyond, said on a conference call yesterday.

Earnings Forecast

Union, New Jersey-based Bed Bath & Beyond yesterday increased its fiscal year earnings forecast to as much as $2.90 a share from a previous forecast of as much as $2.76.

Economists forecast consumer spending would rise 0.5 percent, according to the median of 75 projections in a Bloomberg survey. Estimates ranged from increases of 0.1 percent to 0.8 percent. The revisions made October’s gain in spending the biggest since August 2009.

Inflation remained below the Fed’s comfort zone. The central bank’s preferred price measure, which excludes food and fuel, rose 0.1 percent from the prior month and was up 0.8 percent from a year earlier, matching October’s 12-month gain as the smallest on record.

The economy grew at a 2.6 percent annual pace in the third quarter, the government reported yesterday. Consumer spending rose at a 2.4 percent pace, the fastest since the first three months of 2007.

Unemployment Rate

Growth hasn’t been fast enough to bring down the unemployment rate, which rose last month to 9.8 percent. Fed policy makers last week maintained their program to buy up to an additional $600 billion in Treasury securities through June to try to bolster the economy and support prices.

“Consumer spending has moved into a period of healthy growth and we do think even if we don’t maintain the extremely strong fourth quarter pace consumer spending will grow solidly into 2011,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York.

Today’s durable goods report from the Commerce Department showed that total orders dropped 1.3 percent, depressed by volatile demand for aircraft, and bookings excluding transportation equipment rose more than forecast.

Capital spending has been a source of strength for the world’s largest economy at the same time that household purchases are starting to accelerate. Manufacturing, the industry that helped pull the U.S. out of the worst recession since the 1930s, has been resilient throughout the recovery, bolstered in part by overseas demand for American-made goods.

Higher Profits

Some manufacturers are projecting higher profits as orders increase. Joy Global Inc., the maker of P&H and Joy mining equipment, last week announced a fiscal 2011 profit forecast that topped analysts’ estimates in a Bloomberg survey.

“The improving bookings rate supports our view that our mining customers will continue to increase their capital expenditure plans,” Mike Sutherlin, chief executive officer of the Milwaukee-based company, said in a Dec. 15 statement. “We continue to ramp up our production to meet this expected growth in demand.”

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Wells Fargo, in an agreement with California’s attorney general announced Monday, said it would provide $2 billion worth of loan modifications to nearly 15,000 homeowners.

Under the deal, the bank is also paying a total of $32 million to borrowers who lost their homes to foreclosure, according to the AG.

Attorney General Jerry Brown said Wells Fargo (WFC, Fortune 500) will offer modifications to 14,900 homeowners, who have so-called "pick-a-pay" loans.

"Customers were offered adjustable-rate loans, with payments that mushroomed to amounts that ultimately thousands of borrowers could not afford," said Brown, who takes over as California’s governor next month. "Recognizing the harm caused by these loans — Wells Fargo accepted responsibility and entered in this settlement with my office."

Pick-a-pay loans, where the rate changes throughout the life of the loan, became notorious during the housing market meltdown. According to the AG’s office, payments often started low — at levels that were "insufficient to cover the monthly interest owed, and the unpaid interest was added to the loan balance." The loans would ultimately increase "dramatically," soaring to unaffordable heights for the homeowner and creating the risk of foreclosure.

In addition to the loan modifications, Wells Fargo will pay $32 million in restitution to more than 12,000 pick-a-pay borrowers who lost their homes through foreclosure in California.

The attorney general noted that the loans were not made by Wells Fargo, but by banks that it acquired: World Savings and Wachovia.

Wells Fargo stated that so far it has already extended significant home payment relief to more than 50,000 at-risk, pick-a-payment homeowners in California — through interest rate reductions, term extensions, tax forgiveness, insurance advances and principal forgiveness.

This adds to the list of pick-a-pay settlements that Wells Fargo has previously signed with attorney generals in Arizona, Colorado, Florida, Illinois, Nevada, New Jersey, Texas and Washington. 

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Days after cutting its global workforce by 4%, Yahoo turned the axe on its product portfolio. Yahoo said Friday that it is killing Buzz, a two-year-old experiment in community news curation.

Buzz never took off, and its termination isn’t much of a surprise. But deeper and more painful cuts are coming: According to a leaked screenshot of an internal webcast by Yahoo Chief Product Officer Blake Irving, the list of products slated for "sunset" also includes MyBlogLog, Yahoo Picks, AltaVista, Yahoo Bookmarks and Delicious.

Ex-Yahoo Eric Marcoullier — who created MyBlogLog — posted the screenshot, which has since been taken down, to his Twitter account. Irving shot back on Twitter: "Really dude? Can’t wait to find out how you got the web cast. Whoever it is, gone!"

A Yahoo (YHOO, Fortune 500) spokeswoman confirmed by e-mail that the company is "cutting our investment in underperforming or off-strategy products" does "plan to shut down some products in the coming months such as Yahoo Buzz, our Traffic APIs, and others."

She declined to comment on the leaked screenshot or the fate of the other services, saying "we will communicate specific plans when appropriate."

But late Friday, Delicious posted on its blog: "No, we are not shutting down Delicious online pay day loans. While we have determined that there is not a strategic fit at Yahoo, we believe there is a ideal home for Delicious outside of the company where it can be resourced to the level where it can be competitive. We’re in the process of exploring a variety of options and talking to companies right now."

Users of the targeted services weren’t waiting around for official death notices. They took to Twitter early Friday to lash out at Yahoo. Fans of bookmarking site Delicious were especially irate.

"Dear #yahoo, you officially suck for shutting down Delicious, and I vow to never use you or your services again. Love, pissed-off-user," blasted one tweeter.

Launched in 2003, Delicious was acquired by Yahoo acquired in 2005 for an undisclosed sum. Though the bookmarking site is a cult favorite, data from Internet traffic tracker Compete shows a big dropoff in traffic: Around 525,000 unique users visited Delicious this November, versus almost 930,000 in the same month last year.

– CNNMoney producer Allie Bell contributed to this report. 

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Conditions are ripe for labour unrest in Canada

The amount Canadian