Financial thoughts

The United Arab Emirates’ central bank set up a facility on Sunday to support liquidity in the banking system Dubai’s government sought to delay debt payments from two of its flagship firms, sending global markets lower.

Dubai rocked the financial world on November 25 when it said it would ask creditors of Dubai World DBWLD.UL, the conglomerate behind its rapid expansion, and Nakheel NAKHD.UL, builder of its palm-shaped islands, to agree to a standstill on billions of dollars of debt as a first step to restructuring. “(The) central bank has issued a notice to UAE banks and branches of foreign banks operating in the UAE, making available to them a special additional liquidity facility linked to their current accounts at the central bank, at the rate of 50 basis points above the 3 months EIBOR (Emirates interbank offered rate),” it said in a statement.

The bank did not give more details, only saying that it stood behind UAE banks and branches of foreign banks operating in the UAE, adding the Gulf Arab country’s banking system was more sound and liquid than a year ago.

“It is important because the main concern is that there might be some panic behavior by depositors in Dubai and by bankers who want to take deposits out of the banking system,” said John Sfakianakis, chief economist at Banque Saudi Fransi-Credit Agricole Group in Riyadh.

“This will support the liquidity and the overall soundness of the banking system in the UAE and especially in Dubai. The central bank is sending a strong message to everyone that they are providing ample liquidity and the guarantee to banks in the UAE,” he said.

State-run Dubai World had $59 billion of liabilities as of August, a large proportion of Dubai’s total debt of $80 billion and repayment of Nakheel’s $3.5 billion worth of Islamic bonds, which were originally due to mature on December 14, was widely expected by the market to be met.

Last year, the UAE finance ministry poured $6.8 billion into bank deposits, the first tranche of a $19.1 billion rescue facility it set up to help lenders weather the onslaught of the global credit crisis.

It deposited another $6.8 billion into banks in November 2008, but has not made any statements since regarding the remainder of those funds. This came after the central bank set up a $13.6 billion emergency bank lending facility to combat the crisis.

(Reporting by Martin Dokoupil and Raissa Kasolowsky; editing by John Irish)

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WaterStone Bank said it has agreed to a consent order with federal and state banking regulators to maintain minimum capital ratios that are higher than regulators typically require as a safeguard to cover the bank’s problem real estate loans.

Wauwatosa-based WaterStone (NASDAQ: WSBF) said Friday that on Wednesday it agreed to the consent order with the Federal Deposit Insurance Corporation and the Wisconsin Department of Financial Institutions. WaterStone said it also signed a stipulation and consent to a cease-and-desist order for its holding company, WaterStone Financial Inc., with the federal Office of Thrift Supervision.

WaterStone said the orders formalize a prior informal agreement the bank, its holding company and the FDIC entered in 2008. The bank and regulators have been working for the past two years to minimize the effects that the economic recession is having on the bank and its borrowers, WaterStone said.

The orders require, among other things, that the bank maintain minimum Tier 1 capital of 8 easy payday loans.5 percent of total average assets and minimum total risk-based capital of 12 percent of risk-weighted assets.

As of Sept. 30, WaterStone exceeded those levels with a Tier 1 capital ratio of 12.64 percent compared with 10.76 percent a year earlier, and a total risk-based capital ratio of 13.86 percent, compared with 12.01 percent a year ago.

Through the first nine months of 2009, WaterStone recorded a net loss of $6.24 million compared with a net loss of $27.3 million for the same period of 2008. The bank’s level of noncurrent loans to total loans increased to 6.24 percent as of Sept. 30 compared with 5.78 percent a year earlier.

WaterStone stock was down 1 cent, to $1.86, on Friday.

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Fannie Mae plans to raise minimum credit score requirements next month and limit the amount of overall debt that borrowers can carry relative to their incomes, The Washington Post reported on Thursday.

Starting December 12, the automated system that the government-controlled mortgage finance company uses to approve loans will reject borrowers who have at least a 20 percent down payment but whose credit scores fall below 620 out of 850, the newspaper reported. Previously, the cut-off was 580.

Also, for borrowers with a 20 percent down payment, no more than 45 percent of their gross monthly income can go toward paying debts, the newspaper said.

A Fannie Mae spokesman told the newspaper that the limits reflect the company’s recent experience.

Loans to people with credit scores below 620 fell seriously behind at a rate approximately nine times higher than other loans purchased in the same period, Fannie Mae spokesman Brian Faith said. Loans taken out by borrowers with lots of debt also suffer higher levels of serious delinquency, he said.

“It’s not enough to help borrowers buy a home — we must also ensure that they can stay in the home over the long term,” Faith said in a statement to The Washington Post.

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U.S. private equity investor JC Flowers is circling Britain’s weakened banking industry, prepared to swoop on forced divestments over the next 12 months, according to the firm’s new European and Asia Pacific boss.

David Morgan, a former chief of Australia’s Westpac Banking Corp, told Reuters on Wednesday that JC Flowers had a $2.3 billion fund available for such acquisitions and that only a “very small portion” of this had been invested so far.

Partly nationalized lenders Royal Bank of Scotland (RBS) and Lloyds Banking Group Plc are both expected to put assets up for auction over the next few years. RBS’s commodity-trading unit is anticipated to be among them.

“RBS and Lloyds have had directions from the authorities that they do need to divest significant parts of their business,” Morgan said in a phone interview from Brisbane.

Morgan, who was nine years at the helm of Westpac, Australia’s third-biggest lender, has spent almost two years as Australian chairman of JC Flowers, which was founded by former Goldman Sachs banker Christopher Flowers.

Morgan is relocating to London to take up his new, full-time role with the firm, which invests solely in the financial services sector, where he sees the most immediate opportunities.

Morgan said his strong ties with Australian bank executives meant it was very possible JC Flowers could team with National Australia Bank Ltd, Australia and New Zealand Banking Group Ltd or Macquarie Group Ltd no fax payday advance. in the bidding for financial services assets across Asia and the U.K.

This month, the British government ordered the banks in which it is a major shareholder, including the wholly state-owned Northern Rock, to sell off assets over the next four years in order to repay their taxpayer-funded bailouts.

But Morgan said he expected the divestments to go ahead sooner rather than later, noting also a ruling by the British government that divestments be made to new players, not incumbents.

“Once a unit knows it has to be divested, it probably makes sense to get on with it.”

“We’re also in the process of discussing co-investment opportunities with a major sovereign wealth fund, so we think if we can identify the opportunities, the capital will be there,” he added.

Of the Australian banks, ANZ and Macquarie are explicit in their desire to expand offshore, with ANZ focused on growth in Asia. NAB, which owns Clydesdale and Yorkshire banks in the UK, is in the process of deciding whether to expand in Britain or divest and leave.

Australia’s other two big lenders, Commonwealth Bank of Australia and Morgan’s former employer, Westpac are focusing on bedding down recent large acquisitions at home.

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Japan’s government and central bank clashed over the threat of deflation, indicating Prime Minister Yukio Hatoyama may want stronger monetary stimulus to buttress the economy’s recovery.

The Bank of Japan yesterday said growth is “picking up,” and Governor Masaaki Shirakawa said public expectations for consumer prices remain stable. By contrast, Finance Minister Hirohisa Fujii said there’s a “sense of crisis” over deflation and Deputy Prime Minister Naoto Kan urged the central bank to take action to overcome the price slump.

Hatoyama’s administration, which took office in September, is signaling it wants the central bank to step up its purchases of government bonds from the current 1.8 trillion yen ($20 billion) a month to inject more cash into the banking system, analysts said. Shirakawa said yesterday that liquidity alone won’t raise prices.

“Given the bank’s independence, the government can’t ask the BOJ directly to cut rates or buy more bonds,” said Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co. in Tokyo. “That’s why it’s using this term ‘deflation’ to force the BOJ to step up its accommodative measures.”

The policy board kept the overnight lending rate at 0.1 percent at yesterday’s meeting in a unanimous decision, and Shirakawa pledged to maintain low borrowing costs. The BOJ will keep the benchmark rate on hold through 2010, according to 15 of 17 economists surveyed by Bloomberg News this month.

Shares Slump

Sustained price declines threaten to curtail a corporate profit rebound that’s already been insufficient to spur a rally in Japan’s shares this quarter. The Nikkei 225 Stock Average sank 2.8 percent this week, its sharpest slump in seven weeks.

While gross domestic product grew an annualized 4.8 percent last quarter, the fastest pace in more than two years, a gauge of prices excluding imports tumbled the most in 51 years, a Cabinet Office report showed this week.

Discounts by retailers from Aeon Co. to Fast Retailing Co. are helping push down consumer prices, which slid 2.3 percent in September, a seventh drop. The central bank said last month it expects them to keep sliding through fiscal 2011.

“Given the tremendous decline in demand through the early part of this fiscal year, downward pressure on prices will probably linger for quite some time,” Shirakawa said, adding that the government shares the view. He said they are falling because of weak corporate and consumer demand and policy makers should work to boost growth expectations and spending pay day loans.

Deflation Declaration

The Cabinet Office said yesterday that Japan “is in a mild deflationary phase,” referring to declining prices in its monthly economic evaluation for the first time since June 2006.

“I expect monetary support from the central bank in order to overcome these deflationary conditions,” Kan said.

Finance Minister Fujii called on the central bank to respond to the deflation threat, while acknowledging rates are already “very low,” limiting room for further monetary action.

“The government’s surprise declaration is less of a sudden change in its price outlook than a step toward loosening fiscal discipline,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo. She said the central bank would resist pressure to increase bond purchases and instead state a commitment to keep rates low for a specific period.

Deflation blighted Japan during its so-called lost decade of stagnation after an asset bubble burst in the early 1990s. The central bank responded by flooding the economy with cash in so-called quantitative easing from 2001 to 2006, a policy that Shirakawa has said had limited impact on economic growth.

OECD’s Suggestion

The Organization for Economic Cooperation and Development said this week that an increase in the Bank of Japan’s government bond purchases would combat deflation by adding liquidity to markets and pushing up price expectations.

Increasing the monthly debt buying may also help to contain long-term interest rates as the government struggles to restrict the budget amid a slump in tax revenue. Shirakawa has said the debt purchases aren’t aimed at funding fiscal spending or propping up bond markets.

Yields on 10-year government bonds climbed to a four-month high on Nov. 10 on concern that spending by the Hatoyama administration will increase a public debt burden that’s approaching twice the size of the economy. They have since retreated to 1.305 percent.

“Sure, more fiscal spending by the government combined with more bond buying by the central bank may make it easier for Japan to get rid of deflation,” said Masaaki Kanno, chief economist at JPMorgan Chase & Co. in Tokyo, who used to work at the central bank. “But it’s problematic if the central bank keeps raising bond purchases without limit.”

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OTTAWA – After hunkering down throughout most of the recession, Canadian businesses began lining up with consumers at the bankruptcy office in September, according to government data released Friday.

The Office of the Superintendent of Bankruptcy reported that 489 businesses had filed for insolvency during the month, a 31.6 per cent increase from August.

The increase from September 2008 was only 1.6 per cent, but Scotiabank economist Derek Holt said the jump between August and September of this year was worrying.

"What concerns me is that it cut across so many different sectors of the economy,“ Holt said.

"Part of it was the elevated Canadian dollar and what it’s doing to export competitiveness, but the other part is just the catch-up from weak domestic fundamentals."

The export-oriented manufacturing sector saw a 71-per-cent increase in bankruptcies from August, but retail business insolvencies were up 69 per cent, and insolvencies in the high-tech sector increased 119 per cent.

Still, Holt said Canadian businesses did better than households.

The September story for consumers built on a weakening trend that began with the recession last fall, with personal bankruptcies spiking to 15,465 in September, an increase of 45.5 per cent from last year.

On a monthly basis, household bankruptcies and proposals for settlement with lenders were 28.4-per-cent higher than in August.

The bankruptcy office suggested seasonal variations may have accounted for a portion of the increase, noting there were more insolvencies in September than in August in seven of the last 10 years.

Regionally, consumer bankruptcies rose highest in the western provinces, although Ontario and Quebec were not far behind.

While bankruptcies are considered a lagging indicator that reflects weak labour markets, the continued hard times by Canadian households bodes ill for retailers during the holiday shopping season.

As well, the bankruptcy numbers also provide more evidence that the economy is not rebounding strongly from the recession.

Bank of Canada governor Mark Carney warned Thursday night after a speech in New York that he now expects the quarter – the July-September period – to fall short of his forecast of a two-per-cent bounce.

"Recent indicators suggest somewhat softer growth relative to that two-per-cent projection but the expectation is that the overall profile of the growth in that projection – so accelerating growth in the fourth quarter and into 2010 for Canada – remains valid," he told reporters.

Some economists have warned that the third quarter could be negative, meaning that the recession hadn’t ended as of September. Although most agree with Carney that last three months of 2009 will see improvement.

BMO economist Robert Kavcic said while the odds favour positive growth in the third quarter, it will be weak at less than one per cent.

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The Organization for Economic Cooperation and Development doubled its growth forecast for the leading developed economies next year and predicted a further acceleration in 2011 as China powers a global recovery.

The economy of the group’s 30 member countries will expand 1.9 percent next year and 2.5 percent in 2011, the Paris-based organization said in a report today. Output will contract 3.5 percent this year. The OECD, which advises members on economic policy, forecast 2010 growth of 0.7 percent in June.

The MSCI World Index has surged 69 percent in the past eight months as the world economy emerges from its worst recession in more than half a century. While the U.S. and the euro region will return to growth next year, mounting debt burdens will keep the expansion in check, the OECD said.

“We now have numbers that support a recovery in motion,” Jorgen Elmeskov, the OECD’s acting chief economist, said in an interview. “It’s still a slow recovery because of considerable headwinds from the need to adjust the balance sheets of households, enterprises and financial sectors.”

The MSCI index, down 0.8 percent today, was little changed immediately after the OECD report was published. The yield on the benchmark German 10-year government bond stayed at 3.292 percent.

Meltdowns

The U.S. economy will grow 2.5 percent in 2010 instead of the 0.9 percent predicted in June and the euro region will advance 0.9 percent instead of a projection it would stagnate, the OECD said. Japan will post growth of 1.8 percent instead of 0.7 percent. The forecast for China was raised to 10.2 percent.

“Outside of the OECD, things are more buoyant, especially in Asia,” Elmeskov said. “The non-OECD countries weren’t affected by asset-price meltdowns as much and up to the downturn ran sensible economic policies.”

The relative weakness of the U.S. and the euro region is prompting policy makers to put China under pressure to allow the yuan to appreciate more and help their exporters. President Barack Obama told Chinese leaders this week the U.S. expects to see progress by next year on making the exchange rate “more flexible,” Ambassador Jon Huntsman said.

The OECD also gave 2011 forecasts for the first time. The U.S. will grow 2.8 percent, the euro area 1.7 percent and Japan 2 percent. The Chinese economy will expand 9.3 percent, it said.

OECD output will only return to the level achieved in the first three months of 2008 in the third quarter of 2011.

The OECD said unemployment in the bloc will increase by 21 million by the end of 2010 compared with 2007, taking the rate to 9 percent. Adobe Systems Inc., the world’s biggest maker of graphic-design programs, said Nov. 11 it plans to cut about 9 percent of its global workforce.

Political Pressure

Rising unemployment may put more pressure on politicians such as Prime Minister Gordon Brown and Nicolas Sarkozy, who are struggling in the polls as the recession bites and swells their budget deficits cash advance flexible payments. In the U.K., where Brown must call an election by June, unemployment is the highest since 1997.

The OECD said that gross debt among its 30 members may exceed their total gross domestic product by 2011 from 90 percent this year.

Sluggish growth means most OECD central banks should be careful in tightening monetary policy as their economies recover, the organization said.

While non-conventional measures may need to be withdrawn in the months ahead to counter a “large overhang of liquidity,” interest rates shouldn’t start to move up until inflationary pressures begin to be felt, the report said.

Weak Recovery

“The recovery is weak and there is a lot of spare capacity,” Elmeskov said.

The OECD’s forecasts assume the U.S. Federal Reserve and the European Central Bank hold off on rate increases until almost the end of 2010 and the Bank of Japan maintains its benchmark rate at 0.1 percent through 2011, he added.

The ECB’s main rate, currently at 1 percent, will probably climb to 2 percent by the end of 2011 and the Fed’s benchmark will rise to 2.25 percent in that time from close to zero at present.

While unprecedented liquidity injections have raised concern about new asset bubbles that policy makers need to be aware of, they have yet to materialize, the OECD says.

“We are talking about a risk here, not something that is happening,” Elmeskov said. “One can say that given where we are there’s little alternative to very low rates but we need to be aware that they could imply the risk of bubbles forming.”

Unsettle Markets

Even so, central banks and governments around the world must take care not to unsettle markets when they communicate how they will unwind stimulus measures, the OECD said.

For now, stock and commodity indices are rising and the return to growth is boosting corporate earnings. The Dow Jones Industrial Average and the S&P 500 Index have gained 19 percent and 23 percent this year and the price of crude oil has risen 77 percent. Gold has jumped 55 percent in the past 12 months.

In the U.K., William Morrison Supermarkets Plc said today that same-store sales rose 4.3 percent in the three months through Nov. 1. A.P. Moeller-Maersk A/S, the owner of the world’s largest container shipping line, said yesterday that the market will return to growth next year and that freight rates may rise.

“Unprecedented policy efforts appear to have succeeded in limiting the severity of the downturn and fostering a recovery to a degree that was largely unexpected even six months ago,” Elmeskov said in the report. “It is now time to plan the exit strategy form the crisis policies.”

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WASHINGTON–Ford, Subaru and Volkswagen lead the insurance industry’s annual list of the safest new vehicles, according to a closely watched assessment used by car companies to lure safety-conscious consumers to showrooms.

The Virginia-based Insurance Institute for Highway Safety awarded its "top safety pick" on Wednesday to 19 passenger cars and eight sport utility vehicles for the 2010 model year. The institute substantially reduced the number of awards compared with 2009, because of tougher requirements for roof strength.

Ford Motor Co. and its Volvo unit received the most awards with six, followed by five awards apiece for Japanese automaker Subaru and German automaker Volkswagen AG and its Audi unit.

Chrysler Group LLC received four awards followed by two each for Honda Motor Co. and General Motors Co.

Toyota Motor Corp., BMW AG, Mazda Motor Corp. and Mitsubishi Motors Corp. were shut out in the annual IIHS review.

Ford’s recipients include the Ford Taurus and Lincoln MKS passenger cars and the Volvo S80 and C30 passenger cars and the XC60 and XC90 SUVs.

Ford said in a statement it is "committed to providing customers with safe vehicles for a broad range of real-world crash conditions.”

Subaru recorded winners with the Subaru Legacy, Outback and Impreza cars and Tribeca and Forester SUVs. Subaru was the only automaker with an IIHS winner in all four vehicle classes in which it competes.

The automaker, which has bucked the brutal U.S. sales market with a 13 per cent increase during the first 10 months of 2009, attributed its safety success to a unique engine design that sits low in the vehicle chassis and moves down and under occupants in a frontal collision.

Tom Doll, executive vice president and COO of Subaru of America, said the awards were a "tribute to the engineering that goes into Subaru products.”

Volkswagen scored with the 4-door versions of the Jetta, Passat and Golf, the Audi A3 and the Volkswagen Tiguan, a small SUV. Mark Barnes, Volkswagen of America’s chief operating officer, said the "safety of our cars is of the utmost concern, from the initial design stages all the way through the maintenance procedures at dealerships.”

Chrysler won the award for the Chrysler Sebring and Dodge Avenger sedans equipped with optional electronic stability control, the Dodge Journey midsize SUV and the Jeep Patriot with optional side thorax air bags loan until payday.

Scott Kunselman, Chrysler’s senior vice president-engineering, said the awards underscore the Auburn Hills, Mich., automaker’s “engineering capability and leadership in occupant protection.”

General Motors Co. and Honda Motor Co. both received two awards. GM was recognized for the Buick LaCrosse and the Chevrolet Malibu while Honda won for 4-door versions of the Civic with optional electronic stability control and the Honda Element.

Other winners included the Nissan Cube, the Kia Soul and the Mercedes C Class.

The vehicles are selected for best protecting motorists in front, side and rear crash tests based on Institute evaluations during the year. The vehicles are required to have electronic stability control, or ESC, to qualify for the award. Earlier this year, the Institute said vehicles would need to receive its highest score in its roof strength evaluation to qualify the safety pick designation.

"With the addition of our roof strength evaluation, our crash test results now cover all four of the most common kinds of crashes," said Institute president Adrian Lund. "Consumers can use this list to zero in on the vehicles that are on the top rung for safety.”

The Institute awarded its top prize to 94 vehicles in 2009 and attributed the decline in awards this year to the roof strength requirement. The Honda Accord and the Ford Fusion both dropped off the list because 2010 versions didn’t earn high enough scores on the roof test.

The Toyota Camry would have made the list, the Institute said, if it had received the highest rating in rear crash protection. The Institute said the Camry’s seats and head restraints were rated marginal for protection against whiplash injuries.

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On the Net:

Insurance Institute for Highway Safety: http://www.iihs.org

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Microsoft Corp co-founder Paul Allen has been diagnosed with non-Hodgkin’s lymphoma and has begun treatment, a spokesman for his investment company said on Monday.

Employees of Vulcan Inc, which Allen formed in 1986 to manage his business dealings and philanthropic activity, were informed of Allen’s illness in a company e-mail on Monday.

“He’s feeling pretty good, he’s remaining very active at Vulcan and his other holdings and interests and he has no plans to cut back on any of that,” said Vulcan spokesman David Postman.

Postman said Allen’s diagnosis was recent and that treatment has already begun.

Allen, the 32nd richest person in the world according to Forbes magazine, co-founded Microsoft in 1975 with Bill Gates and resigned as an executive in 1983. He was diagnosed with Hodgkin’s disease in 1983 but his cancer was successfully treated.

Non-Hodgkin’s lymphoma is a type of cancer that originates in the lymphatic system, which is the body’s disease-fighting network no credit check payday loans. It is a far more common disease than the related but distinct Hodgkin’s.

In 2009 there were nearly 66,000 new cases of non-Hodgkin’s lymphoma and 19,500 deaths, according to the National Cancer Institute.

Through Vulcan, Allen has been a high-profile investor in his home town of Seattle.

He owns the Seattle Seahawks American football team and is a minority owner of the Seattle Sounders soccer team. He created the Experience Music Project pop museum in the city and is leading the development of a run-down area near Seattle’s Lake Union into a center for biotech research.

Allen is also chairman of cable company Charter Communications Inc.

(Reporting by Gabriel Madway and Bill Rigby; Editing Bernard Orr)

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Bank of America Corp’s search for a new chief executive has been hurt by federal pay limits that played a major role in the senior vice chairman of PNC Financial Services Group Inc spurning feelers from the company, the Wall Street Journal reported on Saturday.

PNC’s William Demchak rejected a feeler from a recruiter for Bank of America last week, and the required approval of U.S. government pay czar Kenneth Feinberg for any compensation package was a major factor in the decision, the paper said, citing a person familiar with the situation.

The bank, which borrowed $45 billion from the government, would “get blasted” for buying out Demchak’s PNC shares, the unidentified source told the Journal. Demchak also did not see Bank of America’s situation as fixable given the government’s heavy influence, the paper said.

Feinberg declined to comment to the Journal, which also could not reach Bank of America Chairman Walter Massey.

Bank of America has argued the added regulation, like the pay czar’s compensation limits, hurts its ability to compete with other financial firms.

Those limits are expected to be in place for any successor to Kenneth Lewis, who is scheduled to retire at year end and gave up his 2009 salary and bonus at Feinberg’s request.

Other high-profile external candidates linked to the job — like Bank of New York Mellon’s CEO Bob Kelly and BlackRock CEO Laurence Fink — have either declined the post or denied interest to begin with. At least two internal candidates have expressed interest, according to reports.

Bank of America’s next chief faces a bevy of operational, regulatory and political challenges.

The bank is struggling to stem real estate and consumer credit losses while integrating two large businesses, mortgage lender Countrywide Financial and brokerage Merrill Lynch & Co.

On top of that, government regulators have issued a secret regulatory oversight agreement that overhauled Bank of America’s board and mandated pay cuts for some top employees.

The bank’s credit problems are the key to relieving the pressure of government involvement, analysts have said. Once the bank’s loan book stabilizes, it can start to pay back the money it borrowed from the U.S. government, which came with some serious strings attached including Feinberg’s control of compensation for top executives.

(Reporting by Ben Klayman, editing by Vicki Allen)

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