Finance Blog number 1

German Chancellor Angela Merkel and French President Nicolas Sarkozy called a summit of euro-area leaders next month on economic competitiveness as they sought to bridge differences over how to end the region’s debt crisis.

The German and French leaders announced a joint push for a “pact for competitiveness” to flank more immediate steps — still the subject of dispute — to shore up Greece and Ireland and prevent fiscal woes from swamping Portugal and Spain.

The two didn’t say whether Germany and France have resolved disagreements over the expanded use of the 440 billion-euro ($600 billion) rescue fund for debt-strapped countries.

“The year 2010 was a year of trials for the euro,” Merkel said at a joint briefing with Sarkozy at a meeting of European leaders in Brussels today. Germany and France are firmly committed that 2011 will be the year of new confidence for the euro.”

No date was set for the 17-nation euro summit. It could come as late as the eve of the next scheduled meeting of all 27 European Union leaders on March 24, a French official said.

The euro region’s two leading economic powers are at odds over how to retool the rescue fund, with Germany opposing buybacks that would enable high-debt countries to buy their own bonds at a discount on the market, according to three European officials involved in the talks who declined to be identified because the deliberations remain private personal loan for poor credit.

Instead, the focus is on mobilizing the full potential of the fund, now able to lend only about 250 billion euros due to collateral rules that underpin its AAA credit rating.

Euro Dips

Signs of discord helped snuff out a three-day rally in European bond markets yesterday and knocked the euro off a three-month high, as investors questioned when Europe will come up with an anti-crisis formula.

The euro fell for a third day today, weakening as much as 0.5 percent to $1.3568.

The competitiveness proposal calls for debt-limitation rules in national constitutions, a revival of EU plans to harmonize the corporate-tax base, the abolition of wage indexation and promises to clean up the banking system.

Only the principles have been worked out so far, the French official told reporters, ruling out a further increase in the French retirement age after it was lifted to 62 from 60 last year.

“We are working together, Germany and France, hand in hand with an absolute determination to support the euro, to defend the euro, which we see as a major element in the European project,” Sarkozy said.

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Europe’s new risk watchdog probably lacks the teeth to avert the region’s next financial crisis, economists say.

The European Systemic Risk Board, which aims to identify and warn of brewing risks in the financial system, may fail to prevent future imbalances as it doesn’t have any legal power to enforce action, according to economists at ING Group, Barclays Capital and ABN Amro.

The 65-member board meets for the first time in Frankfurt today. Its chairman, European Central Bank President Jean-Claude Trichet, and vice chairman, Bank of England Governor Mervyn King, will give a press conference at 3:30 p.m.

“If you’re looking for an institution that will save us from the next crisis, this is certainly not it,” said Carsten Brzeski, an economist at ING Group in Brussels. “It’s just another talking shop.”

The European Union is trying to avoid a repeat of the financial crisis that followed the 2008 collapse of Lehman Brothers Holdings Inc. and resulted in European governments setting aside more than $5 trillion to support banks. Part of a wider regulatory overhaul, the ESRB is similar to the Financial Stability Oversight Council in the U.S.

“If they come up with a convincing case pointing to deficiencies in any particular market or jurisdiction, it will be very hard for the authorities concerned to ignore that warning,” said Bernhard Speyer, head of financial market regulation research at Deutsche Bank AG in Frankfurt cash advance payday loan. “I am fairly confident as to the quality of the output of the ESRB.”

While the body will monitor macro-prudential risks, it may turn its attention to single institutions deemed systemically important. It has yet to identify those institutions or say what methodology it will use in its risk analysis.

Public Disclosure

The ESRB has been given discretion over whether to inform the public of any warnings it makes on a case-by-case basis. Lawmakers have allowed the body to keep warnings secret if it thinks any judgment would unsettle markets, even though the legislation says that “public disclosure can foster compliance.”

ECB council member Athanasios Orphanides of Cyprus said the ESRB could recommend actions similar to those taken by the Cypriot central bank in 2007, when it tightened the loan-to- value ratios on real estate loans.

“That decision made our system more resilient” and is “an example of the recommendations I foresee the ESRB will consider making,” he said in an interview on Jan. 14.

Still, in the absence of clarity about the ESRB’s powers and activities, banks have reacted with indifference to the arrival of the new body, according to James Nixon, co-chief European economist at Societe Generale in London.

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The U.S. trade deficit edged down to the lowest point in 10 months as exports, helped by a weaker dollar and rising foreign demand, climbed to the highest level in more than two years.

The Commerce Department says that the trade deficit narrowed to $38.3 billion in November, down 0.3 percent from October’s revised $38.4 billion deficit.

Through the first 11 months of 2010, the deficit is running at an annual rate of $500.4 billion, 33.5 percent higher than in 2009 _ a year when the deep recession cut into Americans’ appetite for imports.

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Jan. 2011: $1.25 million gift to St. Louis Beacon Oct. 2010: $5 million to City Academy Sept. 2010: $2 million to St. Louis Art Museum Dec. 2009: $30 million to Danforth Center for Faith & Politics Dec. 2008: $10 million to Washington University’s Hope Center Sept. 2005: $10 million to Donald Danforth Plant Science Center (with promise to match additional $40 million) Dec. 2004: $1 million to Sustainable Neighborhoods Small Business Loan and Gap Financing Program Jan payday loan. 2003: $117 million to Donald Danforth Plant Science Center 1999: Donald Danforth Plant Science Center, $60 million (over 10 years) Nov. 1997: $100 million to Washington University 1986: $100 million to Washington University

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Businesses ordered more factory goods in November, responding to stronger consumer demand for household appliances, computers, and furniture.

The Commerce Department says that total orders increased 0.7 percent in November. That follows a 0.7 percent drop in October.

The overall figure was pulled down by a drop in volatile transportation orders. Excluding aircraft and autos, orders rose 2.4 percent _ the largest jump for that category in eight months.

The November increase left total orders at $424.5 billion. Economists consider that a healthy range for manufacturing activity. It’s 20.4 percent above the recession low, hit in March 2009.

Consumers are coming off the busiest holiday shopping season in four years. Businesses are anticipating stronger economic activity to continue this year, helped by a tax cut that will put more money in consumers pockets.

One category considered a good proxy for business expansion rose 2.6 percent in November.

Manufacturing activity has expanded in every month since the recession officially ended in June 2009.

For November, orders for durable goods dropped 0.3 percent. But the decline was heavily influenced by a 50.6 percent plunge in orders for commercial aircraft. Big-ticket consumer goods showed gains.

And demand for iron and steel rose a sharp 21.7 percent, the raw materials for a raft of goods. That suggests factories are gearing up to produce autos to appliances in the months ahead.

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China’s benchmark money-market rate surged to a three-year high, on speculation a shortage of funds will worsen as banks hoard cash before the New Year holiday.

The seven-day repurchase rate rallied even after the central bank pumped a total of 26 billion yuan ($3.9 billion) of capital into the financial market this week, a sixth net weekly injection, according to data compiled by Bloomberg. Policy makers on Dec. 10 ordered lenders to park more money with the central bank for the third time in five weeks to limit inflation.

“Banks are collecting money to prepare for cash-withdrawal demand during the holiday and to meet the loan-to-deposit ratio requirement at the end of each month,” said Liu Junyu, a Shenzhen-based bond analyst at China Merchants Bank Co., the nation’s sixth largest lender. “Every one is badly short of money after making the payments for the reserve ratio hike on Monday.”

The seven-day repo rate, which measures lending costs between banks, jumped 150 basis points to 5.67 percent, the highest level since October 2007, according to a daily fixing published at 11 a.m. by the National Interbank Funding Center. That was the biggest daily gain since June 2008 faxless cash advances.

The People’s Bank of China sold 1 billion yuan of three- month bills at a yield of 1.8131 percent in open-market operations, unchanged for a sixth straight week, according to a statement on its website.

The yield on the 3.28 percent government bond due October 2020 rose 3.5 basis points to 3.80 percent, Interbank Funding Center data show. One-year interest-rate swaps, or the fixed cost needed to receive the floating seven-day repurchase rate, climbed eight basis points to 3.15 percent.

The yuan was little changed at 6.6431 per dollar as of 4:30 p.m. in Shanghai, according to the China Foreign Exchange Trade System.

Twelve-month non-deliverable forwards climbed 0.1 percent to 6.5043 per dollar, reflecting bets the currency will strengthen 2.2 percent in one year, according to data compiled by Bloomberg.

–Judy Chen. Editors: Sandy Hendry, Dirk Beveridge

To contact Bloomberg News staff for this story: Judy Chen in Shanghai at +86-21-6104-3043 or xchen45@bloomberg.net.

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Dell Inc. reported that booming sales to businesses sharply lifted its profit last quarter, even as consumer sales disappointed.

Sales to large corporate customers soared 27% during the quarter, public sector revenue rose 20% and small- and medium-sized business sales were up 24%. Dell said profit in its SMB division hit an all-time high.

It’s not surprising that Dell’s sales were sharply higher compared to last year. About 80% of Dell’s sales come from enterprise customers, which have finally begun refreshing their old PCs and servers after holding off on buying new hardware during the recession.

Desktop PC sales rose 21% and servers were up 20%.

But sales of Dell’s consumer products rose just 4%, and operating income was break-even in the quarter, thanks to still-timid shoppers.

"We’re seeing weakness in consumer demand, and we’ll continue to manage that," Chief Financial Officer Brian Gladden said on a conference call with the press. "We’re improving profit in our consumer business, which is something we’ve been focused on."

The company has struggled in its with consumer sales in the past few years, and mobile has been a particular weak point.

Dell announced Wednesday that Ron Garriques, the head of the company’s mobile division, is resigning, and its communications unit will be disbanded. Gladden said the move gave the company an opportunity to bring its mobile business into the "core of the company."

By the numbers

The Round Rock, Texas, company said net income for the third quarter, ended Oct. 30, rose to $822 million, or 42 cents per share. That’s up 144% from a year earlier.

Results included a one-time charge of 3 cents per share. Without the charge, Dell said it earned 45 cents per share. Analysts polled by Thomson Reuters, who typically exclude one-time items from their estimates, forecasted earnings of 32 cents per share.

Sales rose 19% to $15.4 billion, but the results missed analysts’ forecasts of $15.8 billion.

"Dell is growing in the right areas, and I’m very excited about our momentum," CEO Michael Dell said in a prepared statement.

The company reaffirmed its forecast for full-year revenue growth of 14% to 19%, which is echoed by analysts’ consensus expectation of an 18% rise in sales.

Shares of Dell (DELL, Fortune 500) rose 6% after hours.

Rival Hewlett-Packard (HPQ, Fortune 500) is expected to report its earnings on Monday. 

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St. Louis Brewery, maker of Schlafly craft beer, is for sale. But company founders Tom Schlafly and Dan Kopman say they are in no rush to sell their stakes, and they would strongly prefer a local ownership group that includes current brewery workers.

The main reason for the "for sale" sign outside St. Louis’ largest craft brewer is succession planning, they said. Schlafly, 61, who owns nearly 80 percent of the company, has no family interested in running the business. Kopman, 48, who holds about 20 percent, also does not see his school-age children becoming involved with the brewery.

"At some point, the brewery is going to move to additional ownership," Schlafly said Monday.

And they wanted to begin thinking about that now. So earlier this month they asked the brewery’s senior staff to look for ways they could buy the company.

"We’re exploring this on the basis that we want our employees to have a long-term stake in the company," Kopman said.

St. Louis Brewery joins a generation of craft brewers now confronting questions about what future ownership will look like. Anchor Brewing Co. in San Francisco, which is considered the brand that launched the microbrew movement, was sold earlier this year to Bay-area entrepreneurs. Rogue Ales in Portland, Ore., is being handed down from the founder-father to son.

St. Louis Brewing, founded in 1991, sells its beer under the Schlafly name and operates two brew pubs, in downtown St. Louis and Maplewood. It posted nearly $12 million in sales last year and ranked No. 41 among the nation’s largest craft brewers, according to the Brewers Association.

James Ottolini, head of brewing operations, is one of the longtime workers whom Schlafly and Kopman hope will lead the buyout effort. Ottolini, who holds a freshly minted Washington University MBA, said he was excited by the opportunity.

"Our efforts will be to put together an investment group" that includes outside investors and workers, Ottolini said.

Schlafly, an attorney not involved in the day-to-day operations, said he hoped to retain a small, unspecified stake in the company. Kopman said he might not sell any of his share. In any case, he planned to stay on as chief operating officer "for the foreseeable future."

They sounded reluctant to sell to venture capital firms seeking outsized returns or to take the company public, with heavy compliance costs and focus on making quarterly numbers.

The most likely scenario, Kopman said, is local investors and some form of employee-stock ownership plan buying a majority stake.

"We don’t want to see what we’ve helped build diminished," Kopman said.

Schlafly said he was motivated to seek a buyer, in part, because the growing company faces a looming decision on building a new brewery, "and I don’t have the appetite for the debt that it would involve."

The brewery could roughly fetch $5 million to $18 million, based on revenue and estimated margins, said Tom Lee, senior vice president with Mercer Capital in Memphis, Tenn.

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The U.S. Department of Commerce’s Economic Development Administration has awarded Jacksonville $1.32 million in federal funding to repair Lake Fretwell.

The investment will fund repairs and expansion of Lake Fretwell, an existing storm water retention facility located at the former Cecil Field Naval Air Station. The storm water retention lake was damaged by flooding from Tropical Storm Fay in 2008.

The improvements to the lake will allow a major expansion of Cecil Commercial Park to create future jobs and attract private investment. The project will also protect residential neighborhoods downstream, prevent roadway and property flooding damage such as occurred in 2008, and stop further erosion of the lake’s levy.

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Stock Building Supply on Monday closed on its acquisition of National Home Centers Inc., an Arkansas-based supplier of construction materials that had been operating under Chapter 11 bankruptcy protection.

Raleigh-based Stock had issued a stalking-horse bid in late February to purchase National Home Centers Inc. A bankruptcy court judge approved the sale April 2.

Ken Greene, a Stock veteran, will serve as market manager for the company’s Arkansas operations.

The expansion adds to Stock’s 19-market footprint.

Financial terms of the deal were not released. It was not immediately known how many employees and stores the acquisition would bring to Stock.

A Stock spokeswoman did not immediate return a phone call seeking comment.

Stock’s expansion comes after a tumultuous two-year period for the company. In response to a stalled housing market, the building material supplier slashed more than 5,000 jobs and closed more than 100 stores as part of its own bankruptcy reorganization last year. As part of that process, British giant Wolseley PLC sold a majority stake in stock to The Gores Group, a Los Angeles-based private equity firm that provided the financing to bring Stock out of Chapter 11 protection.

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