Finance Blog number 1

Financial regulators may force many of the largest U.S. banks to raise new capital or conserve extra cash after accounting for assets held off their balance sheets.

The Federal Reserve yesterday released the methods used in stress tests on the 19 largest U.S. banks, which incorporated an accounting proposal that would bring about $900 billion onto lenders’ books.

The accounting change suggests most of the 19 will need to take some action to buttress their capital, analysts said. Stronger banks may keep dividend payments low or apply retained earnings, with others selling new shares to make up the amounts, they said.

“We think that most banks are going to have raise capital through some or all of those means,” said Dino Kos, a former markets director at the Federal Reserve Bank of New York who is now a managing director at Portales Partners LLC, a New York research firm. “All of them will need to conserve capital through retained earnings.”

The assessments calculated the capital buffer the 19 biggest banks will need to keep making loans even if the economic downturn worsens this year and next. They also put a focus on common stock as a key component of capital.

Karen Petrou, managing partner of Washington-based research firm Federal Financial Analytics, said banks may need as much as $70 billion in new capital just to cover the added burden of the accounting changes.

Hit to Capital

The report is part of a federal effort to restore public confidence in banks, some of which have seen their capital “substantially reduced” by the recession and financial crisis.

Banks were given preliminary results from the stress tests yesterday, with final results due for publication May 4.

Financial stocks advanced yesterday even as the report stopped short of indicating how much new money regulators will demand to be raised. The report said “most” banks have capital “well in excess” of regulatory requirements, without specifying how the stress tests would impact those levels.

The Standard & Poor’s 500 index rose 1.7 percent to 866.23, and the S&P 500 Financials Index, which includes 80 banks, insurers, brokers and credit-card companies, gained 2.5 percent.

White House Chief of Staff Rahm Emanuel said the tests will reveal “gradation,” with some being “very, very healthy” and others needing assistance. Emanuel made the comments in an interview on Bloomberg Television’s Political Capital With Al Hunt.

‘Solvency’ Issue

The Fed’s report said that a bank’s capital buffer assessment is “not a measure of the current solvency or viability of the firm.” Regulators have been concerned that the release of the test results may roil the shares of banks with the largest capital needs, people familiar with the matter have said in the past week.

The 19 firms include Citigroup Inc payday loan lender., Bank of America Corp., Goldman Sachs Group Inc., GMAC LLC, MetLife Inc. and regional lenders including Fifth Third Bancorp and Regions Financial Corp.

While the report said that banks’ own assessments were “not necessarily consistent” with the estimates of the regulators, a Fed official added that the firms shouldn’t be surprised at the figures. The official spoke to reporters on a conference call on condition of anonymity.

Proposed Changes

In calculating the capital buffers, regulators accounted for off-balance sheet securities that banks will be incorporating in 2010 as a result of proposed accounting rules changes. Banks may bring on about $900 billion to their balance sheets as a result of the change by the Financial Accounting Standards Board. Supervisors boosted the risk-weighted assets in their assessments by $700 billion, the Fed said.

“The regulators have decided to err on the very cautious side, assuming FASB finalizes the rule and throws $700 billion of risk-adjusted assets into the capital calculation,” said Petrou of Federal Financial Analytics. That change, she said, “makes the test considerably more stringent.”

“We conclude that it will be very, very difficult for any big bank to get out” of the government’s capital assistance program, she added.

JPMorgan Chase & Co., Bank of America, Citigroup and Wells Fargo & Co. are among the major banks with off-balance-sheet assets, analysts said.

Share of Market

The 19 banks in the test hold two-thirds of the assets and more than one-half of the loans in the U.S. banking system, the study said.

Regulators used a consistent metric for all the firms to measure how much of an additional capital buffer is needed over standard regulatory ratios of capital to risk-weighted assets, officials said, declining to identify what the measure was.

The Fed officials said supervisors will work with banks to maintain the buffer over time, indicating that firms with high- risk portfolios will face a larger challenge to maintain it.

Regulators used the market shocks of the second half of 2008, when Lehman Brothers Holdings Inc. declared bankruptcy, as the model for testing banks with trading portfolios of $100 billion or more.

Supervisors will weigh how much capital each company holds, its ability to retain earnings over the next few years, future access to private capital and the extent any asset writedowns.

Taxpayer aid for a troubled bank will come from the Treasury’s $700 billion Troubled Asset Relief Program for banks that need a stronger buffer. The Treasury is also open to converting its current preferred shares into common equity, a step that would boost capital levels and reduce banks’ dividend payments.

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U.K. government support for the banking system has risen to 1.4 trillion pounds ($2 trillion) and may climb higher as the financial crisis spreads to building societies and economists warn lenders may need more aid.

Prime Minister Gordon Brown’s government yesterday offered to guarantee some mortgage-backed bonds, adding as much as 50 billion pounds to the bailout that began with the collapse of Northern Rock Plc in 2007. The amount invested in, loaned to or pledged to back bank assets now equals Britain’s gross domestic product, or 22,800 pounds for every person in the U.K.

“The size of this financial bailout is unprecedented,” said Alan Clarke, an economist at BNP Paribas in London. “The worry is that this is not going to be enough and the government may need to come back and step in again.”

Britain’s budget deficit rose to 12.4 percent of GDP as the government took over four banks, insured assets and underwrote loans to spur an economy ravaged by the global credit crisis. Brown is using that leverage to force banks to increase lending as he trails the Conservative Party in the polls and prepares for elections no later than June 2010.

The Treasury, in the budget submitted to Parliament yesterday, estimated the bailout may cost taxpayers 50 billion pounds. That contradicts with the International Monetary Fund’s estimate that the bill may climb to 9.1 percent of GDP, or about 132 billion pounds.

In return for state aid, Lloyds Banking Group Plc, Royal Bank of Scotland Group Plc and Northern Rock Plc have pledged to increase lending by 44 billion pounds over the next year.

150 Billion Pounds Needed

That’s 150 billion pounds less than the economy needs to return to a nominal growth rate of 5 percent, said Vicky Redwood, an economist at Capital Economics Ltd. who formerly worked at the Bank of England.

“This problem is not going to ease in the near term with unemployment rising sharply,” Redwood said. “The government may put more capital into the banks or promise to put more capital into the banks to get lending going again.”

Government measures to cap losses on toxic assets have eased strain in the credit markets. The difference between the three-month London interbank offered rate for pounds and the expected average Bank of England base rate, an indicator of banks willingness to lend, has narrowed by 56 basis points since Feb. 26, when RBS said it would enter the government’s asset insurance plan. The spread was 107 basis points yesterday, compared with a record 299 basis points on Nov. 6.

The government took action “to make sure we get ourselves back on a path to sustainable recovery,” Chancellor of the Exchequer Alistair Darling said today in an interview with Bloomberg Television. “If I hadn’t done that then the cost of this recession would far more paydayloan.”

Building Societies

Brown may need to provide more money to help building Societies. The customer-owned lenders accounted for 18 percent of the U.K. residential mortgage market in 2007, according to the Council of Mortgage Lenders.

Moody’s Investors Service last week downgraded the credit ratings of nine building societies, including Nationwide, the U.K.’s largest, citing concerns about further credit losses. The cut will make it harder for the lenders to raise funding in the wholesale markets.

“Building societies that made imprudent commercial lending decisions are most likely to need a government bailout,” said Ray Boulger, senior technical manager at Charcol Ltd., Britain’s biggest online mortgage broker. “A number of societies expanded into commercial lending without the necessary expertise to know exactly what they were doing.”

Bloomberg News tabulated the extent of the government’s effort to rescue the financial system using data from the Treasury, Bank of England and U.K. banks.

Government Pledges

Commitments include 526.5 billion pounds of asset insurance, 250 billion pounds to guarantee bank lending and 154 billion pounds to take on the liabilities of nationalized banks Northern Rock and Bradford & Bingley Plc.

The government also loaned the Bank of England 185 billion pounds to finance a special liquidity program for banks. In addition, the central bank agreed to purchase as much as 150 billion pounds of assets with new money to lower borrowing costs through so-called quantitative easing.

Other state aid to the industry includes direct investment in U.K. lenders, assistance for customers of Icelandic banks and the bailout of Dunfermline Building Society.

The 1.4 trillion figure doesn’t count government pledges to stimulate the economy.

‘Still Very Fragile’

Since credit markets froze in August 2007, U.K. banks have announced 76.6 billion pounds of losses and at least 45,000 job cuts, according to data compiled by Bloomberg.

The five-member FTSE 350 Banks Index has gained 68 percent since March 7, when Lloyds joined RBS in entering the asset insurance plan. The index fell 57 percent in 2008.

“The whole banking system is still very fragile,” said Peter Hahn, a former managing director of Citigroup Inc. and now a fellow at London’s Cass Business School.

“When you look at the income numbers that have been put out by banks recently they contain so much fudge and financial manipulation. You could say that the automobile industry has a clearer future at the moment.”

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India’s central bank reduced interest rates for the sixth time in as many months to a record low after forecasting the economy will expand at the slowest pace since 2003.

The Reserve Bank of India cut the reverse repurchase rate to 3.25 percent from 3.5 percent, according to a statement in Mumbai today. Economic growth may ease to 6 percent in the year that started April 1 from 7.1 percent in the previous 12 months, the central bank said.

Governor Duvvuri Subbarao’s efforts to stimulate growth in Asia’s third-largest economy are being hampered by the reluctance of commercial lenders to pass on rate cuts and the government’s inability to increase spending during an election. Bond yields fell to the lowest in six weeks.

“The worst is yet to come for India as signs of weakness are still growing,” said Sherman Chan, a Sydney-based economist at Moody’s Economy.com. “The RBI needs to facilitate credit growth to support the economy.”

Bonds extended gains after the central bank decision, with the yield on benchmark 10-year government bonds declining to 6.21 percent from 6.34 percent before the announcement. The rupee traded little changed at 50.44 a dollar. Only six of 15 analysts in a Bloomberg News survey expected the rate to be cut.

India’s industrial production dropped 1.2 percent in February from a year earlier, the most in more than 14 years. Exports plunged by a record in March, extending the longest declining streak in a decade.

‘Further Action’

The Reserve Bank also cut the repurchase rate by a quarter- point to 4.75 percent and kept the cash reserve ratio unchanged at 5 percent, today’s statement said.

“Banks have been slow in reducing their lending rates,” Subbarao said in the statement. “Further action on policy rates is now being taken to reinforce this process.”

The central bank had lowered the reverse repurchase rate by 275 basis points and its repurchase rate by 425 basis points since October. In response, non-state-owned ICICI Bank Ltd., India’s second-biggest, has reduced its lending rates by only 50 basis points. State-run banks cut their borrowing costs by about 200 basis points after government prodding.

“There is typically a six-month time lag for the central bank’s rate cut to filter through the economy,” said Arun Kaul, New Delhi-based treasurer at state-owned Punjab National Bank. “Commercial rates will come down, but not substantially because government savings instruments are offering higher rates.”

Deposit Rates

Government-run savings plans such as postal deposits, which compete with banks’ deposits, offer interest rates at upwards of 8 percent faxless payday loans. The rates on these plans are set by the government and haven’t been changed since the central bank started cutting borrowing costs to counter the global downturn.

Kaul said banks are also holding high-cost term deposits because the central bank’s key rates were double current levels until October 2008 after inflation touched a 16-year high of 12.91 percent in August.

Inflation has subsequently slowed to 0.18 percent in the week ended April 4. The central bank expects inflation to accelerate to about 4 percent by the end of March.

“Inflation risks have clearly abated,” Subbarao said. “Banks should not be overly apprehensive about reducing deposit rates for fear of competition from small savings, especially as the overall systemic liquidity remains highly comfortable. There is scope for the overall interest rate structure to move down.”

Cash Injection

Between April and September, the central bank will inject 1.2 trillion rupees ($23.8 billion) of cash into the banking system by purchasing government bonds via auctions and buying back market stabilization bonds, which were sold in the past four years to drain money from the economy. The cash injected will be equivalent to a 3 percentage point reduction in the cash reserve ratio, the central bank said.

Subbarao said the central bank’s efforts are aimed at creating consumer demand and spurring growth, which he expects will remain favorable compared with most countries as normal rains boost farm production.

“However, any upturn in the growth momentum is unlikely in view of the projected contraction in global demand during 2009, particularly in trade,” Subbarao said.

The rate cut came in the middle of elections in India, which started on April 16 and will continue until May 13, with counting of ballots due to be held on May 16. Most opinion polls say Prime Minister Manmohan Singh’s Congress party may emerge with most seats, though it may have to rope in new allies to secure a majority in the legislature.

The central bank said it will use “a combination of monetary and debt-management tools” to ensure there is enough money in the economy and prevent the government’s record 4.35 trillion rupees of borrowings this year from disrupting growth.

“With no further fiscal stimulus likely until after the election, the onus is on the monetary policy to boost growth,” said Sonal Varma, an economist at Nomura Securities Ltd. in Mumbai.

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Mark Mobius, whose Templeton Asset Management Ltd. has invested in Thailand for two decades, says the nation’s political turmoil poses a risk to Southeast Asia’s second-largest economy.

“In the near and medium term, Thailand will need to restore consumer confidence and revive investment,” Mobius, who helps oversee $20 billion in emerging-market assets at San Mateo, California-based Templeton, said in an e-mail response to questions. “Failure to do so due to these political conflicts could present a risk to Thailand’s growth.”

Fitch Ratings cut its long-term foreign currency rating on the nation to BBB from BBB+, citing the civil unrest. The benchmark SET Index rose 0.8 percent to 457.36 at 11:23 a.m. local time, erasing earlier losses as trading resumed today after a three-day holiday marred by street clashes that forced the cancellation of the Association of Southeast Asian Nations summit in the resort town of Pattaya on April 10. The protests left two dead and 123 injured.

The SET has gained 1.7 percent in 2009, lagging behind the 15 percent increase in MSCI’s developing-nation index. The Thai index tumbled 48 percent last year, the steepest drop since 1997, when the devaluation of Thailand’s baht triggered an economic crisis in Asia. The measure trades for 8.3 times its companies’ projected earnings for 2009, the lowest valuation among Asian equity benchmark gauges tracked by Bloomberg.

Abhisit

The demonstrations have dealt a blow to Prime Minister Abhisit Vejjajiva, 44, who called off the summit after so-called Red Shirt protesters stormed the meeting venue.

The group supports exiled former Premier Thaksin Shinawatra and says Abhisit came to power illegitimately in December. Opponents of Thaksin, in exile to avoid a two-year jail sentence for corruption, seized airports in the country last year. Abhisit said today Thaksin is in Dubai.

The past week of protests forced Abhisit to declare emergency rule April 12 after he failed to curb demonstrations, which have since subsided.

“The current political situation means that less foreigners will invest in the country and that portfolio managers may actually be sellers of equity,” investor Marc Faber, who publishes the Gloom, Boom and Doom report, said in an April 13 interview. “The two parties will not agree on anything for a long time to come and that has a negative impact on business and in particular tourism.”

The country relies on visitors for about 12 percent of its economy, according to the tourism authority.

Tourism Stocks

Minor International Pcl, the Bangkok-based owner of hotels including the JW Marriott Phuket Resort & Spa and Four Seasons in the capital city, was cut to “hold” from “buy” at Deutsche Bank AG yesterday. National carrier Thai Airways International Pcl, also based in Bangkok, was reduced to “sell” from “hold” by the bank on April 9.

Minor fell 0.8 percent to 6.25 baht, while Thai Airways gained 1.5 percent to 9.9 baht.

“Lingering political uncertainty” may weigh on Thailand’s bank stocks, with slowing spending and economic growth increasing the risks of non-performing loans, Cazenove Asia Ltd. analysts Seeping Tan and Xiushi Cai said in an April 15 report. They advised investors to sell shares of Kasikornbank Pcl and Krung Thai Bank Pcl, both based in Bangkok same day cash loans.

Economy

Abhisit today pledged to work closely with the tourism industry, saying that it’s an important part of the nation’s economy. He’s seeking agreement on political reforms and plans to call for elections when there is stability, he added in a Bloomberg Television interview.

Consumer confidence fell in March to the lowest level in more than seven years, the University of the Thai Chamber of Commerce said on April 9. Overseas sales, which make up 70 percent of Thailand’s gross domestic product, also dropped for four straight months on weaker demand for Asia’s electronics.

Thai Finance Minister Korn Chatikavanij said April 14 the protests were driving off tourists and investors, deepening the worst recession since the Asian financial crisis. The government will lower its forecast for a 3 percent economic contraction this year, he said in a Bloomberg TV interview in Bangkok.

“Even if this comes to a quick resolution, the damage has more of less been done in terms of discouraging investment,” said Martin Hohensee, the Singapore-based head of Asia fixed- income research at Deutsche Bank. “It’s obviously going to be bad for the baht because of a loss from tourism revenues.”

Downgrades?

Fitch’s downgrade may be followed by Moody’s Investors Service and Standard & Poor’s, after the credit rating companies said this week they may lower the nation’s foreign-currency debt ratings as continued political instability hurts tourism revenue and spurs capital outflows.

The baht rose to a one-week high on optimism stability will return after the government quelled street protests. The currency gained 0.1 percent to 35.37 per dollar as of 9:52 a.m. in Bangkok versus 35.40 on April 10, according to data compiled by Bloomberg. It fell 0.7 percent to 35.64 in offshore trading on April 13, the most in eight months, amid the unrest.

The baht has lost 1.4 percent in the past three months, the second-largest drop among 10 Asian currencies, excluding the Japanese yen. The currency may retreat to 36 by the end of this quarter as the economy weakens, Nizam Idris, UBS AG’s Singapore- based currency strategist, said yesterday.

‘Remain Positive’

Thailand’s natural resources, exports and domestic economy may help the nation overcome the political conflicts, Templeton’s Mobius said. The 21 uprisings since 1932 also mean the nation can cope with political changes, he said.

“As long as the nation’s current monarchy system remains stable, we are optimistic that eventually a resolution will be reached,” Mobius said. “We remain positive with Thailand’s longer-term outlook and fundamentals.”

For now, the nation remains in a state of emergency and protesters are vowing to keep seeking the ouster of Abhisit.

“With no end in sight, the ongoing political situation will weigh on investor sentiment,” said Daphne Roth, the Singapore-based head of Asia equity research at ABN Amro Private Bank, which manages $27 billion of Asian assets. “As markets recover, Thailand will be marginalized.”

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China’s central bank said it will ensure sufficient liquidity to sustain economic growth, damping speculation regulators may seek to restrain credit after new loans jumped by six times to a record in March.

The People’s Bank of China “will implement moderately loose monetary policy and maintain the continuity and stability of policy,” the central bank said on its Web site yesterday. It pledged “ample liquidity” to “ensure money supply and loan growth meet economic development needs.”

The statement indicated that reviving growth remains China’s priority amid concern that the credit boom will lead to bad debts and asset bubbles. The world’s third-largest economy, while showing a better-than-expected performance in the first quarter, still faces “great difficulties,” Premier Wen Jiabao told reporters in Thailand on April 11.

“It’s likely that the authorities will not change their stimulative policy at least for another month,” said Stephen Green, head of China research at Standard Chartered Plc in Shanghai. “This means fast loan growth will continue. The longer this goes on, though, the bigger the risk of asset bubbles developing becomes.”

New loans rose to 1.89 trillion yuan ($277 billion) in March, the central bank said April 11. M2, the broadest measure of money supply, grew 25.5 percent, the most since Bloomberg began compiling data in 1998 and more than the 21.5 percent median estimate in a survey of 12 economists.

Policy Stimulus

The surge in credit growth was mainly driven by the policy stimulus, said Yu Song, an economist with Goldman Sachs Group Inc. in Hong Kong.

The proportion of new lending made via discounted bills, which supply working capital, fell to 19.5 percent from 45.5 percent in February. Medium- and long-term loans accounted for 41.5 percent of new lending, up from 34.4 percent in February.

China’s industrial production climbed 8.3 percent from a year earlier in March and consumer demand grew “relatively rapidly” in the first quarter, adding to signs the government’s 4 trillion yuan stimulus plan is taking effect, Wen was cited as saying by the official Xinhua News Agency.

The government has pushed banks to lend in support of the stimulus, implemented after the global recession led to a collapse in exports that dragged economic growth to the weakest pace in seven years. China’s lending boom contrasts with the struggle in the U.S. to rid banks of illiquid assets and efforts by central banks from Switzerland to Japan to unfreeze credit.

Lending Target

China’s banks, which are mostly state-owned, have already met the bulk of the government’s target of at least 5 trillion yuan of new loans this year. Lending may top that level by as much as 3 trillion yuan, according to JPMorgan Chase & Co cash til payday.

“The biggest dangers to China’s economy and financial system come from within, not from outside,” Jiang Zhenghua, former vice chairman of China’s parliamentary standing committee, said at a conference in Beijing April 11. “The biggest of these hidden dangers is the degree of bad loans in China.”

Commercial banks’ bad-loan ratio was 2.45 percent at the end of 2008, according to the regulator. The ratio was more than 20 percent in 2003, before the government completed a cleanup of the banking system that cost more $500 billion.

Bad Loans

The China Banking Regulatory Commission asked all banks to raise bad debt provisions to 150 percent of outstanding non- performing loans to be “prudent,” Chairman Liu Mingkang said in Beijing last month.

In yesterday’s statement, the central bank pledged to prevent loans from going to high energy-consuming or polluting enterprises or to industries where there is overcapacity. It also reiterated support for loans to the agricultural sector, as well as to small- and medium-sized companies.

“The lending numbers are extraordinarily strong and there must be concerns about the impact on overall loan quality, the potential for new asset-price bubbles, and whether these funds can all be allocated to investment projects in an efficient manner,” said Brian Jackson, senior strategist at Royal Bank of Canada in Hong Kong. “When you are throwing around so much money so quickly, some of it is bound to be wasted.”

Deepening Crisis

The Shanghai Composite Index rose 2.5 percent at 1:08 p.m. in Shanghai, the highest in eight months. It has gained 38 percent this year, making it the second-best performer of 88 benchmark gauges tracked by Bloomberg. That’s fueled concern that some of the increase in lending has been used for speculation.

“Some of the money has gone to the property market, some to the stock market,” said Kevin Lai, an economist with Daiwa Institute of Research in Hong Kong. “It is not what the central bank wants to see.”

Wen cited a month-on-month rebound in trade and gains in stocks and property transactions as evidence the stimulus is working, in an interview at the aborted Association of Southeast Asian Nations meeting, according to Xinhua. Signs of recovery also include a 26.5 percent jump in urban fixed-asset investment in the first two months.

Vigilance is still needed as the global financial crisis is continuing to deepen and spread, Xinhua cited Wen as saying.

China’s economic growth slowed to 6.8 percent in the fourth quarter. First-quarter data is due to be released April 16.

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Government stress tests of U.S. banks’ ability to withstand a deeper recession are likely to indicate that most don’t need more taxpayer money, Federal Reserve Bank of Kansas City President Thomas Hoenig said.

“I would point out, first, that although the United States has several thousand banks, only 19 have more than $100 billion of assets, and that after supervisory authorities evaluate their condition, it is likely that few would require further government intervention,” Hoenig said in the text of a speech in Tulsa, Oklahoma.

The remarks came while stocks rallied worldwide today as better-than-estimated earnings at Wells Fargo & Co. boosted confidence in the financial system and speculation that American banks will pass stress tests. Federal Reserve Bank of Minneapolis President Gary Stern said that while “appreciable strains” remain in credit markets, the resumption of U.S. economic growth “should not be too far off.”

President Barack Obama will get a progress report on stress tests at the 19 biggest U.S. banks when he meets tomorrow with his economic team. The exams, to conclude by the end of April, are designed to show how much extra capital banks may need to survive a deeper economic downturn.

Hoenig didn’t discuss the current U.S. economic outlook or interest-rate policy in his speech.

Speaking in Sioux Falls, South Dakota, Stern said, “while it is still far too early to fully tally results, there has been progress and I anticipate more to come.”

Failing Banks

In his speech, Hoenig repeated his view that the government shouldn’t prop up failing financial institutions. Instead, officials should take over institutions temporarily and wind them down, as they did with the takeover of Continental Illinois National Bank & Trust Co. in 1984.

“There has been much talk lately about a new resolution process for systemically important firms that Congress could enact, and I would encourage this be implemented as quickly as possible, but we do not have to wait for new authority,” Hoenig told the Tulsa Metro Chamber of Commerce. “We can act immediately, using essentially the same steps we used for Continental.”

Treasury Secretary Timothy Geithner and Fed Chairman Ben S free online credit report. Bernanke last month called for new powers to take over and wind down failing financial companies after the government’s rescue of American International Group Inc. Bernanke and Geithner also called for stronger regulation to constrain the risks taken by firms that could endanger the financial system.

Conservatorship

“An extremely large firm that has failed would have to be temporarily operated as a conservatorship or a bridge organization and then reprivatized as quickly as is economically feasible,” Hoenig said. “We cannot simply add more capital without a change in the firm’s ownership and management and expect different outcomes.”

While the Federal Deposit Insurance Corp. has the power to take over failing deposit-taking firms and wind down their assets, no such authority exists for financial firms that aren’t classified as banks, such as AIG or a hedge fund with extensive links throughout the banking system.

Hoenig said calling a firm “too big to fail” is a “misstatement” because a bank deemed insolvent “has failed.”

“I believe that failure is an option,” he said.

Undoing Stimulus

Answering questions from the audience after his speech, Hoenig said the Fed must be prepared to remove its stimulus in a timely manner to ensure the economy doesn’t face a period of high inflation similar to the early 1980s.

“ You cannot wait until you know for sure the economy is recovering,” Hoenig said, adding that ”employment growth tends to lag” and may not be the best indicator of recovery. “We will watch every indicator of data that suggests we have a recovery under way.”

Hoenig also said if the U.S. manages its economy well, the U.S. dollar should remain the world’s reserve currency.

“It is a matter of running your economy properly,” he said. “When the U.S. does that, and I think we will, I think we will remain the largest, most successful reserve currency on the face of the earth.”

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LDK Solar Co. will start a joint venture with Q-Cells SE to sell solar power projects in Europe and China.

Projects built under this joint venture will use LDK’s wafers (they are the raw material from which solar cells are cut, just as silicon chips are cut from wafers) and solar cells made by Q-Cells.

The two businesses have already started a 40-megawatt project together in Europe, and they are planning joint projects in China.

News reports last month suggested that the two companies had asked German antitrust regulators about the possibility of a joint venture. Both businesses have suffered slumps in sales projections due to declines in the solar industry lately instant cash advance no fax.

Xiaofeng Peng is chairman and CEO of LDK Solar (NYSE: LDK), which has its head office and factories in Xinyu City, China and its U.S. headquarters in Sunnyvale.

Charles Anton Milner is CEO of Q-Cells — the business, listed on the Frankfurt Stock Exchange, has some 2,500 workers. It has offices in Hong Kong, China and Japan, and is building a factory in Malaysia. Its head office is in Bitterfeld-Wolfen, in eastern Germany, between Berlin and Leipzig.

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A site along the Intracoastal Waterway in Hallandale Beach is scheduled for a foreclosure sale.

According to the Web site of Boca Raton-based RPC Holdings, a partnership between it and other investors planned to build a tower with 350 units on the site at 2600 E. Hallandale Beach Blvd. The partnership, MCG Hallandale Holdings, bought the site for $10 million in 2005. However, the project never broke ground.

Carolina First Bank recently won a $7.6 million foreclosure judgment against MCG Hallandale, RPC Hallandale Intracoastal and RPC Holdings Principal and CEO Daniel Kodsi health insurance companies. The public sale is set for May 5 at 11 a.m. in the Broward County Courthouse in Fort Lauderdale.

There are two other pending foreclosure lawsuits in Miami-Dade County that name Kodsi. They target two sites of canceled condo projects in Sunny Isles Beach and downtown Miami.

Kodsi’s RPC is currently building the Paramount Bay condo in downtown Miami. It is not facing a foreclosure lawsuit.

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Northrop Grumman Corp. will pay $325 million to settle claims that TRW Inc., which Northrop bought in 2002, made defective parts for satellites.

The allegations say that the National Reconnaissance Office purchased parts from TRW that were not adequately tested, and certain defective parts were put into the satellites. The allegations also say that the problems were covered up.

As part of the settlement, Northrop admitted no wrongdoing in the matter. All of the alleged activities took place before Northrop purchased TRW car insurance quotes.

The settlement also will have $325 million coming into Northrop's coffers, as Northrop and the government settled a dispute regarding a missile contract.

The $325 million was paid to avoid further expenses and litigation. Northrop had sought $1 billion in the case.

The pair of settlements offset each other.

Northrop (NYSE: NOC) is a Los Angeles-based defense and technology company.

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London luxury-home prices fell for a fourth consecutive quarter leading to an increase in sales, Knight Frank LLP said.

The average value of homes costing more than 1 million pounds ($1.4 million) in London’s most expensive neighborhoods dropped 6.7 percent in the first quarter, the London-based property broker said in a statement today. The annualized decline in March was 24 percent, the biggest since Knight Frank started compiling the index in 1976.

Job cuts by financial-services companies contributed to the decline. House prices across the U.K. fell 18 percent in the year through February, the biggest drop since at least 1983, according to mortgage lender Halifax, a unit of Lloyds Banking Group Plc. For buyers outside the country, the pound’s depreciation against the dollar and the euro made real estate in areas such as Mayfair cheaper, Knight Frank said.

“The increased activity may be an early sign of a turnaround,” Richard Snook, senior economist at the Centre for Economics and Business Research Ltd., said in an interview. “Housing affordability is very good compared with what it was 12 months ago.”

An estimated 250 house and apartments costing more than 1 million pounds were sold in central London last month, up from about 200 a year earlier, said Liam Bailey, head of residential research at Knight Frank.

Mayfair

“Mayfair has been a particular beneficiary of the weakness of Sterling, with foreign buyers comprising almost 60 percent of the market,” he said.

The pound has fallen 27 percent against the dollar in the past year and 14 percent against the euro.

Viewings by potential buyers jumped 38 percent in March from a year earlier. The number of properties put up for sale in the month slumped 42 percent compared with March 2008 business card.

“The key issue to hit the prime London market at the current time is the growing shortage of stock,” Bailey said in an interview. “The number coming onto the market is drying up because people don’t want to accept the prices on offer.”

A four-story, four-bedroom house that Knight Frank is marketing in Chelsea for 2.55 million pounds was put on sale almost a year ago for 3.3 million pounds.

Slashed Prices

In the same district, Knight Frank has cut the price of a five-story house by 17 percent to 2.45 million pounds.

The first-quarter price decline of 6.7 percent compared with a slump of 9.4 percent in the final quarter of 2008 and a gain of 1.8 percent in the first quarter of 2008, Knight Frank said.

Prices are falling as bankers, the main buyers of luxury homes in London, worry about losing their jobs. Financial companies may cut as many as 60,000 jobs by the end of 2010, according to research firm Oxford Economics.

Knight Frank compiles its luxury index from estimated values on properties in the Mayfair, St. John’s Wood, Regent’s Park, Kensington, Notting Hill, Chelsea, Knightsbridge, Belgravia and the South Bank neighborhoods of London.

The company expects luxury prices to level out this year at about 35 percent less than their March 2008 peak and remain little changed at best in 2010.

Knight Frank’s index, which started at 100 in 1976, fell to 3,652.2 last month, down from a record 4,796.6 a year earlier.

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