Actual finance blog

U.S. builders probably broke ground in July on the fewest houses in 17 years, signaling the residential-construction slump will continue to hurt growth, economists said before a government report today.

Housing starts plunged 9.9 percent to an annual rate of 960,000 after a 1.066 million pace the prior month, according to the median forecast of 77 economists in a Bloomberg News survey. A separate report may show wholesale prices probably rose at a slower pace in July as fuel expenses peaked.

Stricter lending rules, rising borrowing costs, falling property values and record foreclosures will further depress home sales and cause builders to keep retrenching. Inflation pressures are likely to ease as the downturn in housing, loss of jobs and credit crisis weaken the economy this year and into 2009.

“The supply of housing continues to be cut in response to the still relatively high inventories of unsold homes,'' said Brian Bethune, an economist at Global Insight Inc. in Lexington, Massachusetts. “This will continue to generate a large negative drag on overall growth in the second half of 2008.''

The Commerce Department will release starts figures at 8:30 a.m. in Washington. Estimates in the Bloomberg survey ranged from 875,000 to 1.09 million.

Also at 8:30 a.m., the Labor Department may report the producer price index climbed 0.6 percent in July after jumping 1.8 percent in June, according to the survey median. Prices excluding food and fuel probably rose 0.2 percent for a third month.

Permits May Drop

Commerce's housing figures may also show building permits, a sign of future construction, fell 15 percent to a 970,000 annual pace, economists forecast.

A change in New York City's building code that took effect July 1 caused housing starts and permits to unexpectedly surge in June as builders hurried to break ground ahead of the new regulations. The magnitude of the July drop may reflect, in part, a payback.

Underneath the gyrations, demand is weakening. Sales of existing homes fell to a 10-year low in the second quarter, according to the National Association of Realtors. A third of all sales were foreclosures or “short sales,'' in which lenders take a loss on a property.

Financing has also become scarce, a quarterly survey of banks by the Federal Reserve showed. Three-fourths of the loan officers polled reported they tightened standards on prime mortgage loans, up from the April survey. Lending rules on non- traditional loans were also toughened.

Mounting Losses

The five largest U.S. homebuilders reported a combined $1.08 billion in losses in their most recent quarters.

Builders are pessimistic as losses mount. The National Association of Home Builders/Wells Fargo's sentiment index yesterday showed optimism held at a record low in August for a second month.

Still, construction companies are making some headway in reducing the supply glut. The number of new homes for sale dropped in June by the most in four decades.

Some housing-related firms are faring better. Lowe's Cos., the world's second-largest home-improvement retailer, yesterday said full-year profit may fall less than it had anticipated.

Sourse

Mortgage finance giant Freddie Mac on Wednesday reported a much bigger-than-expected loss, slashed its dividend and warned of more problems ahead for the battered housing and credit markets.

Company executives, in a sobering forecast about the nation’s housing woes, said nationwide home prices are likely to drop another 7% to 9%. Those declines, and other problems in the economy, are likely to cause additional losses on the $1.8 trillion worth of single-family loans that Freddie guarantees or owns.

"Today’s challenging economic environment suggests that the housing market is far from stabilizing," Freddie Mac CEO Richard Syron said during a conference call.

Syron and other Freddie executives sought to assure investors that the company is prepared to ride out the difficulties.

But investors were unconvinced. Shares plunged 19% in afternoon trading. The decline also dragged shares of Fannie Mae (FNM, Fortune 500), which operates in the same business as Freddie and is set to report quarterly results on Friday, down 15%.

Early Wednesday, Freddie (FRE, Fortune 500) reported that it lost $821 million, or $1.63 a share, in the second quarter. Analysts surveyed by Thomson Reuters had forecast it would trim its loss to 41 cents a share from the $151 million or 66 cents-a-share it lost in the first three months of the year.

A year ago, the company earned $729 million, or 96 cents a share.

Freddie also announced that it would cut its quarterly dividend to 5 cents a share or less, subject to a final decision by its board, from 25 cents a share in an effort to save capital. Losses have strained Freddie’s capital, and the dividend cut should save the company more than $500 million a year.

Freddie’s year-to-date losses of nearly $1 billion are far below the $3.7 billion it lost the second half of 2007 as it took charges for the value of its loans portfolio. The current losses are driven by the rapidly rising costs of loan defaults and rising provisions for future losses that are certain to rise.

"While we may be roughly half way through the eventual decline, we are still in the early stages of realized defaults," said Patricia Cook, the company’s chief business officer. "Most of the expected losses are yet to be realized."

Since the start of 2007, Freddie’s portfolio of single-family home loans suffered credit default costs of nearly $2 billion. Three months ago the company estimated that those defaults could end up costing between $15 billion and $20 billion during the life of the loans.

But with steeper home price declines now being forecast, and the increasing rate of mortgage foreclosures and delinquencies, Freddie expects those costs to go higher - to as much as $42 billion in what it says is a worst-case scenario.

Freddie officials said the company should have enough capital to deal with even those worst-case losses, once it goes ahead with plans to raise $5 billion in additional capital.

"We have the wherewithal and the earning power to manage through this period," said Buddy Piszel, its chief financial officer.

Freddie said its estimated core capital slipped to $37.1 billion at the end of the quarter from $38.3 billion at the end of March. That capital level is about $2.7 billion above the level it agreed to meet with its federal regulator.

Provisions for credit losses more than doubled to $2.5 billion from $1.2 billion in the first quarter. The reason: increases in the delinquency and foreclosure rates of the mortgages Freddie owns and guarantees, as well as the continued declines in home prices.

Those provisions for credit losses caused the company to lose $1.4 billion on the guarantees it makes on loans for single-family homes - about triple the $458 million loss on that line in the first quarter. The company made $129 million on those guarantees in the year-ago period.

The company saw losses soar even though its net interest income, the difference between interest paid and interest income soared to $1.5 billion from $793 million a year ago, due to lower interest costs for the firm in the just completed quarter.

That rise in net interest income was more than offset by the $3.3 billion hit in investment activity due to the reduced estimated value of its holdings. That’s up from a loss of $540 million a year earlier.

About $1 billion of the most recent investment loss was caused by the decline in the value of Freddie’s mortgage securities, which are backed by subprime mortgages or so-called Alt-A home loans made to borrowers who did not provide full or any verification of income or assets.

Freddie and Fannie Mae (FNM, Fortune 500), which were set up by the government to provide funding for the mortgage markets, have become the primary source of capital for banks and other lenders making home loans. They are seen as crucial to the recovery of the housing and credit markets.

But investor anxiety about the firms has driven shares of Freddie down by 66% between June 16 and Tuesday’s close, while Fannie shares lost nearly half their value during the same period. It also prompted Congress to pass a rescue measure for the firms, allowing the Treasury Department to loan them an unlimited amount of cash and even buy their shares if necessary.

Syron was asked Wednesday if Fannie and Freddie, known as government sponsored enterprises or GSEs, can continue to operate in a way that both helps the housing market and makes the profits that shareholders demand. He said he believes they can continue to serve both missions going forward, despite these losses.

"I don’t think we’re at a point that the model doesn’t work anymore," he said. "I think we are a point where the model is more stressed."

"I think virtually everyone, including our critics, would say that this would be an extremely ugly mortgage market if you didn’t have the GSEs in it," Syron said. 

Sourse

The Federal Reserve’s proposed rules for credit card lenders could lead the banking industry to lose at least $10.6 billion in interest annually, JPMorgan Chase & Co. said in a letter to regulators, citing a study.

In May, the Federal Reserve and other regulators proposed steps to end what they called "unfair and deceptive" practices in the credit card industry. The rules aim to protect people from having their interest rates raised arbitrarily, among other practices.

In a letter sent Monday to the Fed’s board of governors, the Office of Thrift Supervision and National Credit Union Administration, JPMorgan’s Chase Bank subsidiary said the proposed regulation, if finalized, "is likely to have profound effects on Chase’s operations and financial results."

The bank also said the proposal will negatively affect the credit card asset-backed securities market by reducing the amount of secondary market capital, and make credit less available to customers.

Chase cited data collected from a group of banks, including Chase itself, on a confidential basis by the law firm Morrison & Foerster LLP. Morrison & Foerster could not comment on the data Tuesday, or on how many banks participated.

The cumulative impact for the participating banks would be at least $10.6 billion in lost annualized interest, Chase said in its letter, signed by Associate General Counsel Andrew T. Semmelman.

The bank said those industry losses would likely result in a nearly 12% increase in annual percentage rates to an average of 16.58%; a $1.1 trillion reduction in total credit lines to consumers; and tighter standards that would stop $11 billion in new accounts from being booked each year.

In addition to restricting rate hikes on cards in certain situations, the Fed’s proposed rules aim to limit the imposition of inadequate time restraints on consumers, and the practice of allocating all payments to balances with lower interest rates when a borrower has balances with different rates.

On Monday, the chairman of the Senate’s investigations subcommittee said he supports the Federal Reserve’s proposed restrictions on credit card practices - but that he believes there should be more.

Sen. Carl Levin, D-Mich., wrote in a 13-page letter to the Fed that it should expand its rules to end or restrict such practices as charging interest for debt paid on time; interest on transaction fees; fees levied on consumers paying their bills on time; and billing amounts that force consumers to pay four or five times their original debt.

Back in March, JPMorgan Chase (JPM, Fortune 500), at the behest of the U.S. government, bought the ailing investment bank Bear Stearns Cos. when it appeared to be near collapse. 

Sourse

In the Mexican town of Tarimbaro, construction has stopped on new homes, so sales at a hardware store are half last year's total. A butcher who slaughtered a head of cattle a day now slays two a week. And Rocio Rangel feeds her son and daughter bread and coffee for dinner.

Rural Mexican towns are suffering as money transfers from relatives working north of the border dry up, the result of a weak U.S. economy. Remittances equaled 2.7 percent of gross domestic product last year and are Mexico's second-biggest source of dollar flows after oil exports.

“My children need more than this, but we don't have anything,'' said Rangel, 36, whose husband hasn't sent funds home from Florida in nine months.

Shrinking transfers, inflation at a three-year high and a peso that has appreciated 10 percent this year are eroding the purchasing power of Mexico's poor, the 35 percent of the population that can't afford basics such as clothing, housing and health care. Residents who depend on funds from abroad are cutting back on spending because of weakness in U.S. industries such as construction, the biggest employer of Mexico's migrants.

In the first half of this year, remittances fell 2.2 percent to $11.6 billion, the first decline for the period since Mexico's central bank began tracking the data in 1995. For the entire year, the bank forecasts they will drop as much as 3 percent.

Remittances grew only 1 percent in 2007 to $24 billion after a record 39 percent expansion in 2003.

Danger for Calderon

The dwindling flow of cash this year may shift support from President Felipe Calderon to the opposition Party of the Democratic Revolution, which attracts lower-income voters.

“The worse the economy is, the better'' the PRD will do, said Daniel Lund, president of consulting group Mund Americas in Mexico City. The party's former presidential candidate Andres Manuel Lopez Obrador refused to recognize a razor-thin defeat to Calderon in the 2006 election and set up his own quasi- government that opposes the president's initiatives.

Lopez Obrador, whose campaign pledge was “the poor come first,'' promised to reduce privileges for the business elite. Calderon is backed by the business community, who endorse his efforts to promote free trade and boost private investment.

An increase in popularity for Lopez Obrador “is the great danger'' for Calderon, said Gabriel Casillas, an economist at Banco UBS Pactual in Mexico City. “It's a priority for the presidency to try to prevent him from gaining more support.''

Diversified Exports

So far, the economy is benefiting from diversified exports and Calderon's plan to spend 2.5 trillion pesos ($250.7 billion) in public and private funds on infrastructure projects during his six-year term, creating construction jobs, building ports and expanding roads. The government estimates GDP expanded 3 percent in the second quarter.

In May, Calderon announced a program to boost aid to more than 5 million of Mexico's poorest families by 22 percent to 655 pesos a month. His goal is to shrink extreme poverty, defined as families unable to pay for a basket of basic foodstuffs, by 30 percent in the next five years. In 2006, 10.6 percent of the population was in the lowest income group.

Tarimbaro Mayor Baltazar Gaona Sanchez said Calderon's anti-poverty program benefits only about 6 percent of the townspeople and isn't having a significant effect. Residents work mainly in agriculture, growing corn, tomatoes and onions.

“There's still a lot lacking,'' he said. The economy of the municipality, which is 200 kilometers (124 miles) west of Mexico City, “has sunk,'' he said. “There are a lot of people who come to ask for help to eat.''

`No Work'

Maria Sebastiana, 50, who lives about an hour away in the town of Zinapecuaro, said her husband was fired from his construction job in Oregon and hasn't sent money to her since November. Still, her pregnant daughter's boyfriend has left for the U.S. in search of employment to support the couple and their child. “Here, there's no work,'' Sebastiana said.

In the San Fernando Valley of Los Angeles, Mexicans who once had full-time construction jobs are now looking for day employment on street corners, said Antonio Bernabe, day-laborer organizer at the city's Coalition for Humane Immigrant Rights.

“They are living in very poor conditions, eating noodle soups at 25 cents each,'' Bernabe said.

Only half of Latin American immigrants in the U.S. said they sent money home in February, down from 73 percent two years ago, according to a survey released in April by the Inter- American Development Bank.

Agustin Garduno, wearing a paint-stained sweatshirt, said he sleeps in cars and on floors at friends' houses because he can't afford rent. As noon approaches and no contractors have pulled up to the corner of Van Nuys Boulevard and Oxnard Street looking to hire, it will be the fifteenth day he has gone without work.

“If you gave me a ticket, I'll go back to Mexico because here, there's nothing,'' said Garduno, 48, who used to make $1,300 a month and now makes about $500.

Sourse

The economy, boosted by $90 billion in stimulus checks, grew at a faster pace in the spring but not as strongly as expected, the government reported Thursday.

The Commerce Department also lowered its readings on growth in the two previous quarters, resulting in the first contraction in the economy since the 2001 recession. The report is likely to spur further debate over whether the economy has fallen into a recession.

The gross domestic product, the broadest measure of the nation’s economic activity, grew at an annual rate of 1.9% in the three months ended in June. That’s up from a revised 0.9% growth rate in the first quarter.

Still, the reading was weaker than expected, as economists surveyed by Briefing.com had forecast growth of 2.3%.

The first-quarter reading was revised lower from a 1% growth estimate a month ago.

The Commerce Department revised the fourth-quarter 2007 reading to a decline of 0.2%. The previous fourth-quarter reading was 0.6% growth.

Key to second-quarter growth was the economic stimulus program, which boosted consumer spending in the face of higher prices. Also adding to growth were strong exports, which were helped by a weak dollar that made U.S. goods and services more competitive overseas.

"This shows that the stimulus package is clearly working," Commerce Secretary Carlos Gutierrez told CNNMoney Thursday.
"Trade was great. If I could find a stronger word than great, I would use that."

An advisor to Republican presidential candidate John McCain said the GDP report shows the importance of free trade agreements.

"While growth continues to be disappointing, trade provides one of the few bright spots in an otherwise gloomy economic picture, raising questions about Barack Obama’s policy of economic isolationism," said Doug Holtz-Eakin, McCain’s senior policy advisor on the economy.

Gutierrez conceded that growth is still weaker than the administration would prefer. But he said he’s hopeful the stimulus checks will continue to support spending in the second half of the year. He dismissed calls by Democrats, including Democratic presidential candidate Obama, for a new stimulus package.

"This stimulus package is just barely starting," he said. "Let’s see how this works before we throw any more short-term money [at the economy.]"

But Jason Furman, Obama’s economic policy director, pointed out that a separate report issued Thursday showed that worker pay, when adjusted for inflation, posted the largest drop on record in the second quarter.

"Nothing in today’s GDP numbers was positive for families trying to find a job or pay to fill up their tank," he said. "That is why we need a second $50 billion stimulus package that both relieves the burden on middle-class families and helps to jump-start job creation."

Despite Gutierrez’s optimism about the second half of this year, some economists, most notably Federal Reserve Chairman Ben Bernanke, have expressed worries that with those checks already cashed, spending and economic activity could slow even further.

Gross domestic purchases, a measure of how much American consumers, businesses and governments are buying, fell 0.5%, after a 0.1% rise in the first quarter and a 1% drop in the fourth quarter, a sign of underlying weakness in the economy.

Robert Brusca of FAO Economics described the report as weaker than the 1.9% growth rate would suggest, saying that if it weren’t for changes in imports and exports GDP would have declined in the quarter.

"The consumer adds only 1.1 percentage point to overall growth, and this is with a rebate check in hand," he said. "GDP was net negative on the domestic front. As we look to the second half of the year foreign growth is fading so U.S. exports are sure to slow. Also the rebate checks no longer are a factor. Meanwhile the housing sector is still a negative."

Mark Vitner, senior economist for Wachovia, said the report indicates growth is just narrowly above what would be seen in a recession and that domestic demand is at the weakest level seen since the 1991-92 recession.

He said that while stimulus checks helped support spending, most was apparently spent on items such as food and gasoline, rather than big-ticket items. Spending on services by consumers also was weak due to a pullback in travel, Vitner said.

"We have long held that the best measure of the economy most consumers interact with on a daily basis is final sales to domestic purchasers," said Vitner. "On this basis the economy has actually been weaker than it was in the last recession."

Investment in housing fell for the 10th straight quarter, down 15.6% in the second quarter. Housing subtracted 0.6 percentage points from GDP. A weak auto sector subtracted nearly 1.1 percentage points, as spending on autos and parts plunged 9.4% in the face of record high gas prices.

But the report did include some good news on a closely watched inflation measure, the so called core PCE deflator, which reflects prices paid by consumers on items other than food and energy. The core PCE deflator rose 2.1% annually, down from a 2.3% increase in the first quarter.

Experts say the Fed likes to see that measure rise between 1% and 2%.

The rate of overall price increases also slowed. Overall prices rose 1.1% in the quarter, well below forecasts. Prices increased 2.6% in the first quarter. But other price measures in the report that include food and energy prices showed a jump in overall inflation.

Nonetheless, the Fed is widely expected to leave a key short-term interest rate unchanged at its next meeting on Tuesday. It also held rates steady in May after cutting them seven times between September 2007 and April this year in an effort to spur the economy and help jittery financial markets.

The Fed has a dual mandate to support sustainable economic growth and fight inflation. The central bank typically raises rates when it is more worried about inflation and lowers them when an economic slowdown is the predominant concern. 

Sourse

Drug developer Merck says its second-quarter profit rose 5% as cost-cutting efforts offset a drop in sales of its asthma treatment Singulair and cholesterol drugs Zetia and Vytorin.

Whitehouse Station, N.J.-based Merck & Co (MRK, Fortune 500). says profit rose to $1.77 billion, or 82 cents per share, from $1.68 billion, or 77 cents per share, during the prior-year period. Sales fell 1% to $6.05 billion from $6.11 billion.

Excluding restructuring charges, Merck says it earned 86 cents per share.

Analysts polled by Thomson Financial expected profit of 83 cents per share on revenue of $6.05 billion.

Merck shares fell 23 cents to $35.10 in after-hours trading after falling $2.35, or 6.2%, to close at $35.33. 

Sourse

Shares of mortgage financing giants Fannie Mae and Freddie Mac both plummeted Monday after an analyst with Lehman Brothers wrote in a report that the two companies may need to raise billions of dollars if accounting rules are changed.

Shares of Fannie Mae (FNM, Fortune 500) fell more than 16% to $15.74. The stock set a new 52-week low of $14.65 earlier during the day. Freddie Mac (FRE, Fortune 500) plunged nearly 18% to $11.91. It also hit a new 52-week low of $10.28 a share before recovering slightly at the end of the trading session.

Fannie Mae and Freddie Mac are government sponsored enterprises that help the mortgage market function by purchasing pools of loans and packaging them into securities.

According to a report from Lehman Brothers analyst Bruce Harting, the Financial Accounting Standards Board (FASB) is considering a rule change that would force Fannie and Freddie to move so-called off balance sheet securities onto their balance sheets.

The potential accounting change would require Fannie Mae to add $46 billion of capital and Freddie Mac to add $29 billion of capital, Harting noted.

Fannie Mae was not immediately available for comment about the Lehman report. Sharon McHale, spokesperson for Freddie Mac, said that Freddie Mac will "not comment on changes in the stock price."

But an accounting rule change would be the latest blow to Fannie and Freddie. With more than a million Americans facing foreclosure and home prices sinking, the two companies have already been hit hard.

The two companies, which bought securities backed by risky subprime mortgages when the housing market was booming, have watched those bets unravel in the past few months as the housing market buckled under credit crisis pressures.

Fannie Mae has reported a loss for the past two quarters while Freddie Mac has posted three consecutive quarterly losses. Both companies are expected to report a loss in the second quarter as well.

As such, concerns have grown about their need for more capital. Some analysts have even suggested that a government bailout of the two may be necessary.

But one analyst said the accounting changes discussed in the Lehman report were so drastic, that it’s hard to imagine Fannie and Freddie being forced to adopt them.

"The notion that FASB would be so reckless to precipitate a major financial crisis just seems too absurd to believe," said Jaret Seiberg, a financial services policy analyst at Stanford Group, a research firm.

In fact, even Lehman’s Harting downplayed the notion that Fannie Mae and Freddie Mac would soon need to raise more capital.

Harting wrote that it would be "extremely challenging" for either company to come up with so much cash to meet new minimum capital requirements, causing already timid investors to be concerned. He added that a "severely undercapitalized" Fannie and Freddie "could possibly topple the already fragile markets."

For this reason, Harting went on to write that he thought it was "highly unlikely" that the FASB would impose such new regulations on Fannie and Freddie.

Nonetheless, the thought that Fannie and Freddie may need to raise more capital further spooked Wall Street, which prior to the Lehman report already had plenty of reasons to be worried about Fannie and Freddie as well as other financial stocks.

"The stocks continue to drift down on any news, whether it is reality or not," said Frederick Cannon, managing director at KBW, an investment bank that specializes in financial firms. Cannon says that any change in the capital requirements for GSE’s would not come from a change in accounting rules, but from careful consideration and gradual change in Congressional regulation.

There is so much anxiety surrounding the housing market, said Seiberg, that "everyone is on edge." To that end, shares of other top bank and brokerage companies fell in afternoon trading Monday.

Dow components Bank of America (BAC, Fortune 500) fell nearly 4% while Citigroup (C, Fortune 500) was down 2.5%. Wachovia’s (WB, Fortune 500) stock fell 7%. And shares of the investment bank Lehman Brothers (LEH, Fortune 500), which is facing its own concerns about the need for more capital, plunged 9%. 

Sourse

Manhattan apartment sales dropped the most for a second quarter since 1998 and unsold inventory approached an eight-year record, two signs prices may be poised to drop in the nation's most expensive urban housing market.

Sales fell 22 percent from a year earlier and inventory rose 31 percent to 6,869 units, New York-based real estate appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate said in a report today. The median price of a co-operative or condominium apartment increased almost 15 percent to a record $1.03 million, lifted by new developments.

Transactions are declining as financial firms have announced plans to cut almost 90,000 jobs after taking more than $400 billion in mortgage-related losses and writedowns. Those companies may lose as many as 175,000 employees by next June, according to executive recruiters such as New York's Gerson Group, casting a pall on a property market driven by Wall Street compensation.

“People are asking: `Am I going to have a job?''' said Pamela Liebman, chief executive officer of the Corcoran Group, a Manhattan-based real estate brokerage that also issued a price report today. “There is a lot of uncertainty and uncertainty puts people on the sidelines.''

The U.S. housing slump started in mid-2005 when sales of new and existing homes began to drop, bringing a five-year boom to a close. Prices for existing homes started falling last July and finished the year below 2006 levels, the first annual decline since the Great Depression, according to the National Association of Realtors in Chicago.

Longer Selling Time

While prices in New York City are holding up for now, buyers remain wary and apartments are taking longer to sell. The average time spent on the market rose 15 percent to 135 days, according to Miller Samuel. At the end of May, there were 7,320 housing units for sale in Manhattan, the second-highest number for the month since Miller began keeping records in 2001.

“There is sort of the anticipation, the expectation that the other shoe is going to drop,'' Miller Samuel President Jonathan Miller said. “I think for this quarter, it hasn't.''

All four reports issued today show price increases. Corcoran, owned by Apollo Management LP, and the New York-based brokers Brown Harris Stevens and Halstead Property LLC, owned by Terra Holdings LLC, produced reports in addition to Miller's. The figures vary in part because the brokers include some of their own sales that have yet to show up in the city's public records database.

Manhattan apartment prices rose 3.6 percent in 2007, according to Miller Samuel.

Luxury Sales

About a third of second-quarter closings were new condominiums, some of which went into contract before turmoil hit the credit markets last August and September, said Gregory Heym, chief economist for Terra Holdings.

Many of the units closing now are multimillion dollar condominiums at the recently converted Plaza and at architect Robert A.M. Stern's 15 Central Park West.

Those properties helped drive the median condominium price up almost 22 percent to $1.3 million in the three months ended in June and contributed more than three percentage points to the city's overall increase in median price, according to Miller. Without them, the median rose 11.2 percent, Miller said.

Goldman Sachs Group Inc. Chairman Lloyd Blankfein, former Citigroup Inc. Chairman Sanford Weill and rock star Sting have bought units at 15 Central Park West, where the apartments have heated bathroom floors, Vermont marble countertops and six-burner Thermador ranges.

Future Bonuses

Other buyers there include Nascar Inc. Chairman Brian France, who paid $10.7 million, and Mitchell Julis, co-founder of the asset management firm Canyon Partners LLC, who paid $10.2 million, according to city records.

Once the remaining units in Stern's building and the Plaza close, average prices may drop as much as $200,000, Heym said.

“I don't expect to see any dramatic price change before the end of the year,'' Heym said. “The real telling thing will be Wall Street bonuses and how the city looks going into 2009.''

Prices of two-bedroom apartments rose 18 percent to $1.65 million, the biggest increase for any size category. Studios rose almost 12 percent to $480,000, one bedrooms increased 11 percent to $778,961, three bedrooms by 3 percent to $3.7 million and apartments with four or more bedrooms climbed 11 percent to a median of $7.35 million, Miller's data show.

`Kiss the Ground'

The top end of the residential market remained the strongest as wealthy buyers bought condominiums with amenities such as gym and spa services, hotel-style room service and swimming pools.

The median price of a luxury apartment rose almost 38 percent to $4.95 million in the Miller Samuel survey and 35 percent to $4.88 million, according to Corcoran. Both companies consider apartments of more than $3.1 million as luxury.

“Real estate markets go up and down, and when it comes to New York City, it's an island. There's not a lot of land, and it'll survive,'' said Dottie Herman, chief executive officer of Prudential Douglas Elliman. “I think we need to kiss the ground because we live in New York.''

Sourse

Citigroup is preparing to fire thousands from its worldwide investment-banking division, The Wall Street Journal reported on Sunday.

The Journal, citing people familiar with the matter, said the layoffs are part of a plan to cut about 10% of the staff of the 65,000-member investment-banking group.

Messages left with Citigroup spokesmen on Sunday were not immediately returned. The Journal said the fired employees could be notified as early as Monday.

The New York-basked global bank, along with much of Wall Street, is in the throes of recovering from bad investments on mortgages and leveraged loans that cut billions of dollars from its portfolio.

It was not immediately clear if the reported job cuts would be in addition to cuts announced by Citigroup (C, Fortune 500) in April. After reporting a $5.1 billion first-quarter loss, the bank said then it was reducing its staff by 9,000, in addition to the 4,200 job cuts the bank announced late last year.

As of the end of last year, Citigroup had about 147,000 full-time employees.

In May, Citigroup unveiled a three-year plan that included getting rid of more businesses, mortgages, real-estate operations and jobs.

The bank called for shedding between $400 billion and $500 billion of its $2.2 trillion in assets and growing revenue by 9 percent over the next few years as it tries to rebound from the huge losses tied to deterioration in the credit markets.

Earlier this month, the bank said it was closing the Old Lane Partners hedge fund that was co-founded by Chief Executive Vikram Pandit. The bank is shuttering the fund just 11 months after it was acquired for more than $800 million. 

Sourse

Staples Inc. posted a slim 1.5% increase in its first-quarter profit, after posting small declines the previous two quarters amid slow retail sales of office products.

The world’s largest office products supplier said Tuesday its profit rose to $212.3 million, or 30 cents per share, in the three months ended May 3. That compares with a profit of $209.1 million, or 29 cents per share, a year earlier.

The latest profit matches analysts expectations.

Staples (SPLS, Fortune 500) says sales rose 6% to $4.9 billion from $4.59 billion a year ago, slightly beating analysts’ forecast of $4.83 billion.

Staples reaffirms its profit and sales forecast for the full year. It expects a weak economic climate throughout 2008. 

Sourse