Finance Blog number 1

Stocks were mixed in early trading Monday, the same day that President Obama unveils his budget proposal for the next fiscal year.

Obama is sending Congress a $3.73 trillion budget that includes a five-year freeze on many domestic spending programs. Republicans and Democrats have argued recently over whether deep spending cuts will slow the economy’s slow recovery.

Bond prices held steady after some of the details of the budget proposal were revealed. The yield on the benchmark 10-year Treasury note was 3.64 percent, unchanged from late Friday. A jump in Treasury bond prices could suggest that investors see U.S. debt as increasingly risky.

The Dow Jones industrial average fell 20 points, or 0.2 percent, to 12,253 in early trading. The S&P 500 rose less than a point to 1,329. The Nasdaq composite gained 4 points, or 0.2 percent, to 2,814. .

MGM Resorts International Inc. fell 3.3 percent after reporting a loss of $139 million last quarter, a little less than analysts had expected. Wal-Mart Stores Inc. lost 1 percent after analysts at JPMorgan downgraded the company.

Stocks ended last week with a moderate gain Friday after the resignation of Egyptian president Hosni Mubarak. The Dow rose to its highest close since June 2008.

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Bank of America has agreed to pay $410 million to settle a federal lawsuit alleging the bank charged excessive overdraft fees.

The suit is one of several filed against several banks from plaintiffs in 14 states, which were consolidated in a federal court in Florida. Other banks named in related suits include Wells Fargo and Citibank.

The nation’s largest bank said in a court filing Friday that it has reached a memorandum of understanding to settle the claims in the suit by paying $410 million. The settlement is subject to court approval.

Consumers alleged the bank processed the payments in a way that caused more overdrafts.

Customers pay overdraft fees when they spend more money than remains in their accounts business card. The fees can reach $35 apiece. Before federal law changed this summer, banks frequently charged overdraft fees on numerous transactions in a single day.

Anne Pace, a spokeswoman for the Charlotte, N.C., bank, said Saturday that BofA is “pleased to reach a fair resolution” to the case. BofA has already has addressed many related customer concerns, she said.

Wells Fargo is appealing a $203 million judgment in a separate California case.

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U.K. mortgage approvals fell to the lowest level since March 2009 last month as demand for housing weakened amid cold weather and the prospect of the government’s fiscal squeeze.

The number of home loans fell to 40,000 from 45,000 in November, the Bank of England said in London today, citing data from six banks. The value of loans fell to 8.9 billion pounds ($14.2 billion), with net lending dropping to 800 million pounds, the lowest since records began in January 2009.

Recent data have shown a mixed picture of the U.K. housing market as the government steps up spending cuts and increases the sales-tax rate, undermining consumer confidence. A separate release from the Council of Mortgage Lenders showed gross mortgage lending fell 6 percent in December on the month.

“Lenders reported that housing market activity remained subdued, partly reflecting a weakening of house prices and potential impacts on incomes from fiscal consolidation,” the central bank said in its report. “Lenders expected both housing market activity and gross lending for house purchase to be broadly flat in 2011, with house prices expected to be little changed or to decline slightly.”

The pound was little changed against the dollar today and traded at $1.5903 as of 11:09 a.m. in London. Data from the Office for National Statistics showed retail sales dropped the most ever for a December as snowfall and higher prices undermined Britons’ holiday shopping.

Housing Demand

A British housing-market gauge stayed close to an 18-month low in December as cold weather hurt demand and fewer people put their properties on the market, the Royal Institution of Chartered Surveyors said on Jan. 18. Hometrack Ltd. said on Jan. 12 that banks won’t increase mortgage lending this year as tougher regulation and a lack of funds curb access to credit.

The CML report showed gross mortgage lending was at 11 billion pounds last month, the weakest since 2000. Mortgage approvals are at less than half the level seen at the peak of the market in 2007, according to Bank of England data.

The central bank said today the U.K.’s largest lenders indicated that while the number of home loans granted in December was “little affected” by cold weather, mortgage applications were “affected somewhat.”

Policy makers held the key interest rate at a record low of 0.5 percent this month and bond-purchase program at 200 billion pounds as they assessed signs the economic recovery is slowing.

The mortgage-approvals data published today are based on reports from Banco Santander SA, Barclays Plc, HSBC Holdings Plc, Lloyds Banking Group Plc, Nationwide Building Society and Royal Bank of Scotland Group Plc. The banks accounted for 75 percent of U.K. home loans granted at the end of November.

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The Department of Homeland Security canceled Boeing’s border fence program Friday, putting an end to a five-year-long project plagued by delays and technical problems.

The Secured Border Initiative Net, or SBI Net, is a network of ground tower-mounted sensors, cameras and radars that President George W. Bush’s administration backed five years ago as a security measure.

It was originally envisioned to stretch the 1,969-mile U.S.-Mexican border, but initial phases of the $1 billion project took longer than anticipated to complete and covered just a small portion, 53 miles in Arizona, since the project began.

In a statement Friday, Homeland Security Secretary Janet Napolitano said SBI Net “cannot meet its original objective of providing a single, integrated border security technology solution.”

The program was part of Boeing’s St. Louis County-based defense unit, but the termination of the contract is not expected to affect local jobs.

Homeland Security will use the technology gleaned from SBI Net to develop a plan costing less than $750 million that will cover the remaining 323 miles of the Arizona border, according to an assessment the Homeland Security agency sent to Congress on Friday.

“There is no ‘one-size-fits-all’ solution to meet our border technology needs, and this new strategy is tailored to the unique needs of each border region, providing faster deployment of technology, better coverage, and a more effective balance between cost and capability,” Napolitano said in the statement.

Boeing wouldn’t comment on whether it will bid on the new program proposed by the Homeland Security cash advance.

“It’s really too early to speculate about that,” said Deborah Bosick, Boeing SBI Net’s spokesperson. “They haven’t come out with their requirements yet.”

In a statement, Boeing said it appreciated Homeland Security’s recognition of “the value of the integrated fixed towers Boeing has built, tested and delivered so far.”

“We are proud of the accomplishments of our team and of the unprecedented capabilities delivered in the last year that provide Border Patrol agents increased safety, situational awareness and operational efficiency,” the statement continued. “Boeing remains committed to providing valuable solutions and supporting DHS.”

Loren Thompson, a defense analyst at the Lexington Insitute, a Lexington, Va.-based think tank, said the news wasn’t unexpected but is a setback for Boeing, which has sought to diversify in recent years.

“This is a big disappointment for Boeing,” Thompson said. It really won’t have an impact on the company’s financial results, “but it was a new line of business they were hoping to expand into.”

Boeing sought to diversify as its sales of military planes dropped in recent years.

Despite the project’s cancellation by Homeland Security, Boeing won’t abandon efforts to build its border security and surveillance systems business, he said.

The Houston Chronicle and Bloomberg News contributed to this report.

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Islamic bonds are outperforming emerging-market debt for a second month as new note sales rebound, Malaysia boosts spending on roads and power plants and confidence returns to the Persian Gulf.

Global Shariah-compliant notes returned 1.2 percent in December, the HSBC/NASDAQ Dubai US Dollar Sukuk Index shows, while bonds in developing regions fell 0.7 percent, according to JPMorgan Chase & Co.’s EMBI Global Diversified Index. Emerging- market returns have dropped as rising yields on U.S. Treasuries gave dollar-based investors less incentive to buy riskier fixed- income assets.

Islamic debt sales increased 34 percent in the second half compared with the first six months as investor confidence was boosted by Dubai World’s September agreement with most of its creditors to restructure $24.9 billion of debt. Developing nation bond funds suffered net outflows for three consecutive weeks until Dec. 8, the longest stretch since the first quarter of 2009, according to Cambridge, Massachusetts-based research firm EPFR Global.

“Demand for sukuk is outstripping supply,” Mohd Noor Hj A Rahman, the head of the Islamic fund management unit at Kuala Lumpur-based OSK-UOB Unit Trust Management Bhd. that manages about 250 million ringgit ($81 million) of assets, said in an interview yesterday. “The better outlook and the debt restructuring in the Gulf has given comfort to investors.”

‘Scrambling’ For Sukuk

Global sales of sukuk, which pay returns based on asset flows to comply with Islam’s ban on receiving and paying interest, fell 24 percent this year to $15.3 billion. There were $6.52 billion of offerings in the first half and $8.75 billion in the second. Issuance reached a record $31 billion in 2007.

“Everyone is scrambling to buy sukuk and the supply is limited,” Noripah Kamso, chief executive officer at CIMB- Principal Islamic Asset Management Bhd. in Kuala Lumpur, said in a telephone interview yesterday. “Pension houses are coming to us and saying I want this money to be invested in sukuk. For the first quarter, we still expect very good pricing for sukuk.”

A Malaysian government 10-year private-led project initiative, including a nuclear power plant and an underground rail network, will spur sales of Shariah-compliant debt next year, Prime Minister Najib Razak said in an Oct. 25 speech in Kuala Lumpur.

Saudi Stimulus

Saudi Arabia’s 1.44 trillion-riyal ($384 billion) stimulus plan may see the kingdom’s borrowers overtake Malaysia as the largest issuer of Islamic debt next year, Tariq Al-Rifai, director of Islamic Market Indexes in Dubai for Dow Jones Indexes, said Dec. 17. The world’s largest oil exporter announced in August a five-year development plan to spur growth, create jobs and diversify its economy away from hydrocarbons.

Malaysian and Persian Gulf infrastructure spending will boost sukuk issuance in 2011, said Badlisyah Abdul Ghani, Kuala Lumpur-based chief executive officer at CIMB Islamic Bank Bhd., a unit of CIMB Group Holdings Bhd., this year’s top sukuk arranger. Islamic bond sales may match 2007 levels next year, he said in an interview on Dec. 22.

Average yields on Shariah-compliant bonds from the Gulf Cooperation Council countries fell for a third consecutive week, down 13 basis points, or 0.13 percentage point, this week to 5.5 percent yesterday, according to the HSBC/NASDAQ Dubai GCC Dollar Sukuk Index.

Spread Narrows

The yield on Dubai Department of Finance’s 6.396 percent sukuk due November 2014 fell 33 basis points this month to 6.48 percent, according to data compiled by Bloomberg. The extra yield investors demand to hold Dubai’s government sukuk rather than Malaysia’s narrowed 62 basis points to 336, Bloomberg data show.

The difference between the average yield for emerging- market sukuk and the London interbank offered rate narrowed 172 basis points this year to 297 yesterday, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index. In the GCC, the gap shrank 185 basis points to 359.

“We see that the sukuk spread over Libor has narrowed, reflecting that demand for sukuk is stronger,” Zamri Shariff, head of asset management at Asian Finance Bank Bhd., the Kuala Lumpur-based unit of Qatar Islamic Bank SAQ, said in an interview yesterday. “We should start seeing other issuers coming into the fray, the non-traditional sukuk issuing countries like Thailand, Korea and the Philippines.”

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Greece had its ‘BB+’ long-term sovereign credit rating placed on CreditWatch with negative implications by Standard & Poor’s Ratings Services, which said it is assessing the credit implications of the proposed European Stability Mechanism that may govern EU sovereign bonds beginning in July 2013.

“Assigning ‘preferred creditor’ status to future official lending via the ESM could be detrimental to the ability of non- official holders of sovereign debt to be repaid,” S&P said in a statement.

S&P took the move as details of the plan are still emerging, it said.

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World stock markets were higher Thursday as European officials sought a way to fix the region’s debt crisis and China appeared poised to cool rising food costs with price controls rather than an interest rate hike that could slow growth.

European bourses advanced early trading. Britain’s FTSE 100 rose 0.8 percent to 5,738.77. Germany’s DAX was up 1 percent to 6,769.48 and France’s CAC-40 added 1 percent to 3,828.27.

Wall Street was poised to open higher with Dow futures up 0.6 percent to 11,060. The dollar was steady against the yen and lower against the euro.

Japan’s Nikkei jumped 2.1 percent to close at 10,013.63 as shares of insurance companies led gains and other stocks benefited from a weaker yen. Insurance stocks gained on a Nikkei business daily report that said MS&AD Insurance Group Holdings Inc. will sell a total of 300 billion yen ($3.6 billion) of its shares in other companies.

Traders looking for bargains after four days of losses helped push up Hong Kong’s Hang Seng index, which added 1.8 percent to close at 23,637.39 as financials advanced.

China shares rebounded Thursday, led by airlines and some financial institutions, as investors hunted bargains following recent weakness.

The benchmark Shanghai Composite Index gained 0.9 percent to 2,865.45. The Shenzhen Composite Index for China’s second, smaller exchange jumped 1.8 percent to 1,260.59.

China’s government said Wednesday it will subsidize food for poor families and could introduce price controls to dampen double-digit increases in the cost of staples. That relieved some of the anxiety in global markets that China would raise interest rates to control inflation, potentially slowing its rapid economic growth.

Kwong Man Bun, chief operating officer at KGI Asia Ltd. in Hong Kong, said the strengthening of the dollar against the yen was also helping lift markets in Asia. Investors in the region like a strong dollar, because exporters in Japan and other Asian countries can sell their products more cheaply payday loan.

Australia’s S&P/ASX 200 edged up 0.3 percent to 4,640.2 while markets in Taiwan and the Philippines also gained.

Singapore’s benchmark fell 0.2 percent amid a government report indicating the city-state’s economic growth will slow sharply next year as U.S. and European demand for its exports weakens. Singapore, with its small population and lack of natural resources, relies on manufacturing, financial services and tourism to drive economic growth.

In New York on Wednesday, stocks ended mixed as concerns that Ireland will need outside help to repay its debts were coupled with a steep drop in housing construction in the U.S.

Britain, which is not part of the 16-nation bloc that uses the euro, offered Wednesday to provide additional support to Ireland beyond what it gets from the European Union or the International Monetary Fund. That eased concerns that Ireland would be unable to pay the cost of rescuing the banks at the center of the country’s financial crisis.

“Investors expect the debt crisis can be resolved,” said Kwong.

In the U.S., construction of new homes fell 11.7 percent in October, the Commerce Department reported.

The Dow Jones industrial average fell 15.62, or 0.1 percent, to 11,007.88. The broader S&P 500 rose 0.25, or less than 0.1 percent, to 1,178.59, and the technology-focused Nasdaq composite index rose 6.17, or 0.3 percent, to 2,476.01.

In currencies, the dollar was little changed from 83.16 yen late Wednesday in New York after earlier this month trading near 80 yen. The euro rose to $1.3586 from $1.3552.

Benchmark oil for December delivery was up $1.01 to $81.45 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.90 to settle at $80.44 on Wednesday.

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Ireland’s debt crisis, and the question of how to avoid a domino effect that could topple other vulnerable nations like Portugal, is set to dominate a meeting of European finance ministers Tuesday.

The 16-country eurozone has been shaken by concerns that Ireland will not be able to endure high debt levels and that a bailout might be necessary to soothe jittery investors. Market tensions are making borrowing more expensive for countries like Portugal, threatening to spread the crisis across the region.

“This is a time for cool heads,” Amadeu Altafaj Tardio, a spokesman for the EU’s Monetary Affairs Commissioner Olli Rehn, said of the finance ministers meeting due to start in Brussels in the afternoon. “This is a time for political determination and this is a time for serious implementation of decisions that have been taken.”

The interest rate, or yield, on Irish bonds inched up again Tuesday, suggesting greater worries among traders even though Dublin repeatedly rejected reports that it would need to tap the eurozone’s euro750 billion ($1 trillion) financial backstop cheap payday loans online. In early afternoon trading, the yield on Ireland’s 10-year bonds reached 8.14 percent, up from 7.98 percent at the open.

Ireland is struggling to slash a budget shortfall that will likely balloon this year to a staggering 32 percent of GDP _ a record for postwar Europe. The government’s budget dropped deep into the red after its euro45 billion rescue of five banks that were hit hard when the country’s real estate bubble burst in 2008.

While well below last week’s record of 8.95 percent, the high yields signal that confidence in Ireland’s ability to repay its debts is still low and that it will have a hard time raising money once it has to return to the markets some time next year. Dublin has said that it has enough money to fund itself until the middle of 2011.

The surge in yields has pushed the EU back into the depths of crisis management, after policymakers had spent their recent gatherings focusing on crisis prevention.

In an interview with French newspaper Le Figaro published Tuesday, Greek Prime Minister George Papandreou insisted his country won’t default on its euro298 billion ($406 billion) in debt because doing so would be a “catastrophe” for Greece, Europe and the euro.

On Monday, Greece said this year’s deficit would likely reach 9.4 percent, well above the 8.1 percent level it forecast earlier this year when it received a euro110 billion ($140 billion) bailout from European partners and the International Monetary Fund cash till payday.

Portugal, which is struggling with high budget deficits, also saw itself forced to deny rumors that it would seek financial assistance.

“Portugal has made no official or informal contacts with a view to seeking European aid,” Finance Minister Fernando Teixeira dos Santos said in an interview Monday with financial newspaper Jornal de Negocios. But he added that “if Ireland’s situation deteriorates” the market pressure on Portugal would increase.

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The Financial Stability Board is set to focus on tougher rules for too-big-to-fail organizations operating in the “shadow-banking sector” to prevent another global economic crisis, its chairman Mario Draghi said.

Systemically important financial institutions, or SIFIs, “don’t reside only within the banking sector,” Draghi said in a Nov. 5 interview in Ancona, Italy. Over the next two years, the FSB will focus on “the progressive enlargement of what we call the regulatory perimeter to include the most important segments” of the “shadow financial sector.”

Leaders from the Group of 20 meeting today in Seoul will review possible measures by the FSB and the Basel Committee on Banking Supervision to subject too-big-to-fail organizations to tougher rules. Leaders are expected to ask the FSB and the Basel committee to continue their work on defining which institutions fall into this category and what additional requirements should be placed on them.

Tougher regulations for the shadow industry — which includes securities brokers, hedge funds and money-market funds — aim to prevent a repeat of the turmoil that followed the collapse of Lehman Brothers Holdings Inc. The sector’s liabilities totaled about $16 trillion in the first three months of 2010, according to a staff report published by the Federal Reserve Bank of New York in July.

Absorbing Losses

The FSB wants “globally active” SIFIs to “have what we call a great loss-absorbency capacity, greater than what is foreseen by the minimum-capital standards” agreed on by the Basel committee, Draghi said. The committee agreed in September to more than triple the highest-quality capital that banks must hold, a recommendation that G-20 leaders are expected to approve at the Seoul summit.

“How this greater capacity is going to be addressed by different institutions will depend on what these institutions are, what is their history,” said Draghi, 63.

Global policy makers need to make sure that banks adjusting to tighter rules on capital don’t build up risks in the shadow banking system, International Monetary Fund economists said in a report this month. Banks “may shift some activities to the unregulated shadow banking sector or their businesses to jurisdictions with less onerous regulatory requirements,” the IMF staff said.

The Basel committee said in a statement last month that it plans to agree on provisional criteria for “assessing the systemic importance of financial institutions at the global level” by the end of 2010.

Identifying the Players

“On the basis of quality and quantity of the indicators provided by the Basel committee, on the basis of these indicators and only on the basis of these indicators, the FSB will identify together with national authorities the globally active SIFIs,” said Draghi, who is also Bank of Italy governor.

The FSB hopes to complete the process by the end of 2011, Draghi told journalists last month in Korea.

The FSB and the Basel committee are considering including insurers and clearing houses in measures to safeguard the world economy from crises sparked by SIFIs, two people close to the negotiations said. They declined to be identified as the talks are private.

“Draghi is right to say that systemically important financial institutions don’t reside only within the banking sector,” said Andrew Baker, chief executive officer of the Alternative Investment Management Association, which represents the hedge-fund industry. AIMA “would note that the UK FSA’s view is that at the moment, hedge funds do not present ‘a potentially destabilizing credit counterparty risk,’” he said by e-mail, referring to a report published by the U.K Financial Services Authority in February.

Proposals

The FSB and the Basel committee are developing a “well- integrated approach” to SIFIs that may include capital surcharges, bonds which convert to equity when a firm is in distress, or mandatory losses for investors in pre-agreed situations, the committee said in a statement in September.

Draghi said instruments to achieve greater loss absorbency will “be discussed by the different jurisdictions.” Their decisions will be subject to a “well-thought” out peer-review process within the Basel-based FSB, he said.

“All these jurisdictions having SIFIs should have a supervisory system in place capable of actually undertaking effective supervision at the degree of complexity that SIFIs have today,” said Draghi, a former vice chairman at Goldman Sachs Group Inc.

Unwinding Mechanism

G-20 leaders in Seoul are expected to reiterate calls for a mechanism to wind down too-big-to-fail institutions when they become insolvent, without causing wider damage to the financial industry or costing the taxpayer.

Systemically important institutions “have to be resolvable in an orderly way, mainly without disruption of the most important sectors of financial markets,” Draghi said. “They have to be resolvable without the use of public money.”

The G-20 set up the FSB last year to oversee the work of groups setting international standards to strengthen global financial regulation after the worst financial crisis since the Great Depression. It replaced the Financial Stability Forum, a think tank with no formal role that was created in 1999 after the Asian financial crisis. The group’s members include national regulators from 24 countries, including all members of the G-20.

“The G20 gave great evidence of being the most important forum for global coordination and global economic policy,” Draghi said. Financial regulation is “the area where this international coordination has made the greatest progress.”

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Indian and U.S. companies have discussed or signed over $14.9 billion in deals around President Barack Obama’s trip that will support 53,670 U.S. jobs, the White House said.

The U.S. export content of the deals, estimated at $9.5 billion, won’t go far to settle America’s trade deficit, which was $46.3 billion in August alone, but the numbers are testament to India’s growing importance as a global market and have provoked a swell of pride here.

“I want to be able to say to the American people when they ask me, well, why are you spending time with India, aren’t they taking our jobs?” Obama told reporters in New Delhi Monday. “I want to be able to say, actually, you know what, they just created 50,000 jobs. And that’s why we shouldn’t be resorting to protectionist measures. We shouldn’t be thinking that it’s just a one-way street.”

KPMG India executive director Pradeep Udhas, who is also president of the Indo-U.S. Chamber of Commerce, said the deals are significant less for their absolute value than their message.

“A two-way street between the U.S. and India has started,” he said. “It’s important in terms of sending out a message to U.S. constituencies that India is not just some Third World country. It’s actually a huge market.”

India is also a growing investor in the U.S. From 2004-2009, Indian companies invested over $26 billion in the U.S., creating more than 55,000 jobs, according to KMPG.

“For five decades after Independence, Indians looked up to the rest of the world for aid, technology and capital. Now, the world looks upon India as a dynamic creator of jobs and income opportunities,” India’s Economic Times editorialized Monday.

“It would, at this point of time, be safe to say that the U.S. needs India more,” Anil Padmanabhan wrote in the Indian business daily, Mint, on Monday.

Boeing Co. and General Electric Co. walked away with the richest deals, worth $6.8 billion and $1.6 billion, respectively.

The biggest single deal is Boeing’s long-discussed sale of 10 C-17 transport aircraft, which will give the Indian Air Force the largest fleet of C-17s outside the U.S., according to the White House. The preliminary agreement values the sale at $4.1 billion, less than the anticipated $5.8 billion. Boeing says the sale will support 22,160 U.S. jobs.

Indian airline SpiceJet also agreed to buy 30 B737-800 planes from Boeing, in a $2.7 billion transaction that will support 12,970 jobs.

GE was selected last month to provide the Indian Aeronautical Development Agency with 107 F414 engines for Tejas light combat aircraft, in a deal tentatively valued at $822 million, which will support 4,440 jobs in the U.S.

India’s Ministry of Railways also selected GE Transportation and LaGrange, Illinois-based Electro-Motive Diesel as the two sole bidders to make 1,000 diesel locomotives over the next decade, in a deal that could be worth over $1 billion.

On Saturday, Reliance Power signed a $750 million turbine deal with General Electric, and on Sunday finalized an agreement with the U.S. Export-Import Bank to provide up to $5 billion in financing for U.S. exports.

Reliance Power said it is negotiating an additional $1.25 billion worth of equipment deals with U.S. companies which it declined to name.

Those deals pale in comparison with Reliance Power’s recent China purchases. Less than two weeks ago, Reliance Power announced a $10 billion order for power generation equipment for its coal-based power plants from China’s Shanghai Electric Group Co. Ltd., and secured a $12 billion financing package for Chinese exports from a consortium of Chinese banks.

Still, the flurry of activity may help ease the dismay GE and other private companies have felt at India’s strict nuclear liability law, which extends liability to suppliers of nuclear plants, stymieing their efforts to participate in India’s multibillion nuclear reactor build-out. America led the diplomatic push to restart nuclear trade with India, despite its weapons program.

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