Finance Blog number 1

New Zealand central bank Governor Alan Bollard may keep the benchmark interest rate unchanged for the first time since July amid early signs of a recovery in the housing market and business confidence.

The Reserve Bank of New Zealand will leave the official cash rate at a record-low 2.5 percent, according to six of 11 economists surveyed by Bloomberg. Three predict a quarter-point cut and two a half-point reduction. The decision will be announced at 9 a.m. in Wellington tomorrow.

Bollard, who reviews borrowing costs every six weeks, began cutting rates in July last year as New Zealand slumped into its worst recession in more than three decades. House sales are rising and businesses are more optimistic about sales and profits, adding to signs the economy may return to growth before the end of the year.

“Economic data have continued to evolve in a manner consistent with a return to positive economic growth toward the end of the year,” said Darren Gibbs, chief economist at Deutsche Bank AG in Auckland. “Further easing could prove counterproductive.”

Bollard cut borrowing costs by a half point to 2.5 percent on April 30 and said he was unlikely to raise rates until late 2010 because of the outlook for global growth. He said he couldn’t rule out further reductions.

He is likely to reiterate this message tomorrow because the central bank doesn’t want to fan expectations that the benchmark rate may rise, said Gibbs.

U.S. Payrolls

Since April 30, economic reports in many countries with which New Zealand trades have shown a rebound. U.S. payrolls fell in May by the smallest amount in eight months, reinforcing signs the recession is starting to abate.

Australia’s economy unexpectedly grew in the first quarter, allowing the nation to avoid a recession. The Reserve Bank of Australia kept its benchmark interest rate unchanged at 3 percent for a second month.

In New Zealand, house sales rose from a year earlier for a second straight month in April. Home-building approvals increased for the second time in three months and immigration growth was the strongest in five years.

New Zealand businesses become optimistic for the first time in eight months in May, according to a survey by ANZ National Bank Ltd. published May 27. Consumer confidence in late May was the strongest since September, according to a Roy Morgan research poll published this week.

Credit Crisis

“Developments on the domestic front continue to challenge the assumptions underpinning the bank’s economic projections,” said Gibbs, citing the housing outlook and confidence measures affordable health insurance.

New Zealand’s economy began contracting in the first quarter of last year amid a drought and a housing slump as Bollard pushed borrowing costs to a record high. The recession was prolonged by the global credit crisis and a slump in commodity prices that stalled exports and business investment.

The economy will probably shrink for seven quarters before expanding in the fourth quarter of 2009, the Treasury Department said in a report last week, also citing the outlook for increasing business confidence.

Company optimism may be curbed by the New Zealand dollar’s 25 percent gain against the U.S. dollar in the past three months, say exporters and farmers, who want Bollard to keep cutting interest rates.

“The appreciation in the New Zealand dollar will have a major impact on margins, and more importantly sentiment amongst exporters,” John Walley, chief executive of the New Zealand Manufacturers and Exporters Association, said in a statement.

Currency Surge

The currency surged even after Bollard’s April 30 rate cut as the U.S. dollar fell and investors were prepared to take on more risk. The governor may comment on the currency’s gains, but is unlikely to use the cash rate to try to drive it lower, said Cameron Bagrie, chief economist at ANZ National Bank in Wellington.

“It’s hard to see how lowering the cash rate will make a real difference with sentiment being dominated by risk appetite,” he said. “Beyond the reaction on the day, there may not be any follow through.”

Still, the high exchange rate threatens to stall the fragile economic recovery and should be in Bollard’s sights, others say. Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, said last month it will pay its New Zealand farmers 12 percent less for milk in the season ending May 31, 2010, because of weak prices and the strong currency. That would cut farm incomes by NZ$830 million ($513 million).

“The Reserve Bank must be uncomfortable with the relentless squeezing of financial conditions,” said Annette Beacher, senior strategist at TD Securities in Singapore. “We risk celebrating the revival of the housing sector at the expense of the slow death of the export sector.”

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Banks that took billions of dollars in taxpayer aid clamped down on credit during the month of March, according to a Treasury Department report published Monday.

In its first broad-based view of lending activity of the 500 financial institutions that received money under the agency’s Capital Purchase Program, the Treasury said the total amount of loans outstanding contracted by 0.8% in March to $5.24 trillion from $5.28 trillion in February.

The report, which included everyone from smaller community banks to major national banks like Bank of America (BAC, Fortune 500) and JPMorgan Chase (JPM, Fortune 500), revealed that banks pulled back the most on new business loans. The amount of commercial loans outstanding fell 1.2% to $2.35 trillion.

The amount of consumer loans, including residential mortgages, student loans and credit card lines, fell by less than half that amount, declining 0.5% in March to $2.88 trillion in March.

Monday’s report marks the first time that Treasury provided any details about lending activity by regional and community banks that received government aid under the program, still commonly referred to as the Troubled Asset Relief Program, or TARP payday loans lenders.

Since February, the agency has been providing monthly data on lending activity at the country’s 21 largest financial institutions to provide a better sense of just how these banks were using billions of dollars in taxpayer funds.

Treasury said Monday’s announcement was part of that effort to ensure greater transparency

So far, roughly $200 billion has been invested in more than 500 financial institutions across the country as part of the Treasury’s capital purchase program. Banks have broadly come under fire for not using those funds to make new loans or extend existing lines of credit to consumers and businesses.

Banks have maintained, however, that they are lending even as the appetite for new loans has fallen. Demand for commercial real estate and business loans, for example, have dwindled in recent months as many companies pared back expansion plans — a trend that banks predict will continue. 

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Former Federal Reserve Chairman Alan Greenspan signaled that the financial crisis has yet to end even as borrowing costs tumble, warning that U.S. banks must raise “large” amounts of money.

“There is still a very large unfunded capital requirement in the commercial banking system in the United States and that’s got to be funded,” Greenspan said in an interview yesterday in Washington. He also said that “until the price of homes flattens out we still have a very serious potential mortgage crisis.”

Greenspan’s comments suggest he sees a bigger capital shortfall in the banking system than reflected in regulators’ stress tests on the 19 biggest U.S. lenders. Treasury Secretary Timothy Geithner told lawmakers yesterday that banks have issued more than $56 billion in new stock or debt since the tests found 10 firms needed to raise about $75 billion.

A lack of capital at banks may inhibit lending to consumers and businesses, tempering any economic recovery. The former Fed chief, who left the central bank in 2006, said that the continued slump in home prices is putting at risk millions of borrowers.

“We’re on the edge and if this thing doesn’t get resolved quickly I’m worried,” he said before a meeting with House of Representatives members on financial regulation that was organized by the Washington-based Bipartisan Policy Center.

Home prices will only start to stabilize once the “liquidation” rate of single-family homes has peaked, he said. “I don’t think we’re there yet.”

‘Remarkable’ Improvement

More broadly, “things have unquestionably improved” across the economy and financial markets, he said. “They’ve improved everywhere in the world. It’s remarkable.”

The London interbank offered rate, or Libor, for three- month dollar loans fell 3 basis points yesterday to 0.75 percent, the British Bankers’ Association said, the 35th straight drop. The Libor-OIS spread, a gauge of banks’ reluctance to lend, narrowed to 55 basis points, the least since February 2008. It was as high as 364 basis points in October.

That’s an “extraordinary improvement,” said Greenspan, who last year said that the credit crisis would be at an end once the Libor-OIS spread narrowed past 25 basis points business cards. “Virtually all of the various credit spreads not only in the U.S. but globally have come down.”

Alan Blinder, a former Fed vice chairman, also said on Capitol Hill that “if there are no more reversals, history will judge that by May 2009 we will have passed the worst of the crisis.”

GDP Call

“My current guess would be in terms of GDP the second quarter will be a bottom and by the third quarter we’re eking out a positive,” Blinder said.

Greenspan agreed, estimating that U.S. gross domestic product will decline at an annual rate of 1 percent in the second quarter.

Members of the Fed’s Open Market Committee who met in Washington April 28-29 saw “some signs pointing toward economic stabilization,” and some officials detected prospects for “a trough” in the housing market’s downturn, according to minutes of the meeting released yesterday in Washington.

Fed governors and district-bank presidents project that the economy will shrink 1.3 percent to 2 percent this year and grow 2 percent to 3 percent in 2010, according to median estimates released yesterday.

Greenspan separately said he opposed the creation of a “systemic risk regulator,” a concept that has been backed by the Obama administration and Fed Chairman Ben S. Bernanke. The agency would be given an impossible task of trying to foresee crises, he said.

“If you put the power into the hands of people, very smart people, but if you ask them to do more than is possible I think they will create problems for the system,” said Greenspan, who said in congressional testimony in October that “a flaw” in his free-market ideology contributed to the “once-in-a- century” credit crisis.

The former Fed chairman also reiterated his view that the central bank’s emergency lending should be done instead through the Treasury.

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China’s new lending cooled in April, easing concern that banks are taking on too much risk in a credit boom after the government dropped restrictions on loans in November.

Lending was “approximately” 600 billion yuan ($88 billion), central bank Governor Zhou Xiaochuan said in Basel, Switzerland, today. The number is about a third of the record 1.89 trillion yuan in March. The official figure is due to be released this week.

Consumer prices fell 1.5 percent in April from a year earlier, the statistics bureau said today, making it easier for the government to maintain the “moderately loose” monetary policy that saw restrictions on banks’ loan volumes scrapped in November. China is yet to establish a stable economic recovery, with lending concentrated on government projects while small businesses lack cash, the central bank said last week.

“There were concerns about rising non-performing loans; those concerns will have eased,” said Ben Simpfendorfer, an economist at Royal Bank of Scotland in Hong Kong. “If bank-loan growth continues to drop from here that would be a worry, but I don’t expect that.”

The Shanghai Composite Index rose for an eighth day, climbing 0.1 percent as of 2:33 p.m. local time, its longest winning streak in two years. The yuan was little changed at 6.8220 against the dollar.

Investment, Exports

New loans of 600 billion yuan would be about 30 percent more than a year earlier. In comparison, lending surged six times in March.

Other data this week may show investment growth accelerated and a decline in exports moderated, strengthening a fledgling recovery in the world’s third-biggest economy. China is battling a global recession that dragged economic growth to 6.1 percent in the first quarter, the slowest pace in almost a decade, according to official data.

Urban fixed-asset investment grew 29.1 percent in the four months through April from a year earlier, according to the median estimate of 16 economists surveyed by Bloomberg News. That compares with a 28.6 percent gain in the first three months.

Exports may have dropped 15.3 percent last month, the smallest decline in four months. The government will release trade and investment figures tomorrow.

Gaining Speed

“The economy has gained speed heading into the current quarter,” said Wang Qian, an economist with JPMorgan Chase & Co instant cash advance. in Hong Kong. “We expect it to strengthen further as policy stimulus kicks in more powerfully and the external environment gradually improves.”

That view contrasts with interest-rate swaps showing traders paring expectations for the speed of the recovery.

China’s consumer prices fell for a third month on lower costs for food and commodities. Producer prices plunged 6.6 percent, the most since Bloomberg data began in 1999. While lower prices may encourage consumer spending, the central bank is also on guard against entrenched deflation, where people delay purchases in the hope of better deals in the future.

“Downward pressure on consumer prices still exists,” Su Ning, a deputy governor of the People’s Bank of China, said in Shanghai today.

The stimulus package announced in November is taking effect and the economy is recovering, Su said.

Manufacturing Expands

Chinese manufacturing expanded in April for the first time in nine months, according to the CLSA China Purchasing Managers’ Index. A government-backed index also showed an expansion.

General Motors Corp., the biggest overseas automaker in China, said its sales in the country rose 50 percent last month to a record. Overall vehicle sales climbed 25 percent to a record 1.15 million units.

Industrial & Commercial Bank of China Ltd., the world’s largest lender by market value, increased its lending by 636.4 billion yuan in the first quarter, an amount greater than Vietnam’s annual gross domestic product.

Lenders face “severe” challenges in managing their risks, the banking regulator said last month.

“The size of lending in the first quarter was quite astonishing,” said Wang Tao, an economist at UBS AG in Beijing. “It takes time to digest that much money.”

Besides the risk of bad loans, the credit boom may inflate asset prices and increase the likelihood of inflation making a comeback. The Shanghai Composite Index has climbed 45 percent this year.

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Japan’s exports plunged the most on record in November as global demand for cars and electronics collapsed, signaling more factory shutdowns and job cuts are likely as the recession deepens.

Exports fell 26.7 percent from a year earlier, the Finance Ministry said today in Tokyo. That was more than the 22.3 percent decline estimated by economists and the sharpest since comparable data were made available in 1980.

Shipments to the U.S. slid an unprecedented 34 percent and sales to China slumped the most in 13 years, underscoring why the Bank of Japan lowered its key interest rate to 0.1 percent last week. The yen’s surge to a 13-year high is amplifying the woes of exporters including Toyota Motor Corp., which may announce a lower earnings forecast at a press briefing today.

“Japan’s export crash is finally upon us, and this is the worst thing that could happen,” said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. “The recession will be very severe as companies adjust investment, production and labor.”

The yen weakened and stocks rose on speculation emergency loans to General Motors Corp. and Chrysler LLC will stem a deeper U.S. downturn.

Japan’s currency fell to 90.02 per dollar as of 1:16 p.m. in Tokyo from 89.50 before the trade report was published and 87.14 on Dec. 17, the strongest since 1995. The Nikkei 225 Stock Average climbed 1 percent.

Getting Worse

The government today lowered its assessment of the world’s second-largest economy, saying it’s “worsening” for the first time since 2002. Gross domestic product shrank in the past two quarters, sending Japan into its first recession since 2001.

Toyota, Honda Motor Co. and Sony Corp. are among the companies that are shedding thousands of workers and closing production lines as profits dwindle. Car exports slid 32 percent last month, the most ever, and semiconductors slumped 29 percent, the ministry said.

Today’s report showed the global recession is spreading to the emerging markets that propped up exports as demand from the U.S. and Europe evaporated. Exports to Asia fell 27 percent, the most in 22 years. Shipments to China, Japan’s largest trading partner, tumbled 25 percent, the steepest decline since 1995.

“There are no markets that can make up for the drop in demand for Japanese-made goods,” Dai-Ichi Life’s Shinke said affordable health insurance.

Exports to Europe slid 31 percent, the second-most ever.

Another Deficit

Imports fell 14.4 percent, the first decline in 14 months, as oil costs eased and the yen gained. That wasn’t enough to prevent a trade deficit of 223.4 billion yen ($2.5 billion), the third shortfall in four months.

The yen strengthened 25 percent against the dollar this year as the global financial crisis prompted investors to sell riskier assets purchased with money borrowed in the currency.

Honda President Takeo Fukui said last week that the carmaker may shift more manufacturing overseas if the yen strengthens further and urged government action to halt its ascent. Every 1 yen gain against the dollar cuts Honda’s annual operating profit by 18 billion yen, according to the company.

Finance Minister Shoichi Nakagawa said last week that he has “the means” to sell yen to stem its appreciation. Japan hasn’t intervened in the foreign-exchange market since 2004.

Companies are also struggling to obtain funding as the market turmoil dissuades investors from buying corporate debt. To help businesses get financing, the Bank of Japan last week decided to buy commercial paper for the first time.

Gloomy Households

Sales at home are unlikely to make up for the collapse in demand from abroad. Households, whose confidence is at a record low, pared spending in each of the eight months to October as wage growth stagnated and job prospects worsened.

The Finance Ministry last week submitted an extra budget for the year ending March that includes 2 trillion yen in cash handouts for households as Prime Minister Taro Aso tries to spur spending. That may be too little, too late, economists say.

“Japan’s economy has never weaned itself off of the overbearing reliance on exports, and especially to the U.S.,” said Kirby Daley, senior strategist and head of capital introductions at Newedge Group. “Japan did nothing to prepare itself” for the collapse in demand from abroad.

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German Chancellor Angela Merkel's Cabinet agreed on a package of measures aimed at unlocking 50 billion euros ($65 billion) of investment to shore up the economy amid a global slowdown.

The two-year program ranges from tax breaks for buyers of new cars to greater financial help for improving buildings' energy efficiency. The measures will cost 23 billion euros in the four years through 2012, of which 10.9 billion euros will come out of the federal budget, the Finance Ministry said.

The government aims to “avert a credit squeeze for small and medium-sized companies,'' Economy Minister Michael Glos told a news conference in Berlin today after the Cabinet met. “It's a tailored economic growth package, not a classic stimulus program — we want to strengthen the power of the economy to resist the impact of the crisis.''

The government program for the economy, Europe's biggest, comes two days after the European Commission forecast stagnation in Germany in 2009, an election year. The government last month slashed its own forecast for 2009 growth to 0.2 percent from 1.2 percent, citing weakening demand for exports as the financial crisis feeds into the global economy.

`Bold and Targeted'

“We will have difficulties in 2009,'' Merkel told reporters today. “We want to do something to counter this with investment incentives.'' The program, which also includes increased tax relief on household repairs, loans to small and medium-sized businesses and money for roads and railways, is “bold and targeted'' and will act as a bridge to revive economic growth in 2010, she said.

Even so, the package “is too small and is designed mainly for capital spending instead of consumer spending,'' Stefan Bielmeier, an economist with Deutsche Bank AG in Frankfurt, said in a Nov. 3 note. “We believe that the growth impulses will be smaller than expected by the government. But it could help to shorten the period of negative GDP growth in Germany.''

Germany follows the U.S. in attempting to prime the wider economy after the financial crisis triggered the collapse of Lehman Brothers Holdings Inc. in September, forcing government bank bailout programs. Germany rushed a 500 billion-euro bank- rescue plan through parliament Oct pay day loan lenders. 17.

U.S. Comparison

President George W. Bush signed a $168 billion economic stimulus package into law in February that sent tax rebates of as much as $600 to individuals and $1,200 to couples. The package is equivalent to about 1.2 percent of gross domestic product, according to Bloomberg calculations.

U.S. lawmakers are moving toward a second fiscal-stimulus bill after Federal Reserve Chairman Ben S. Bernanke endorsed the idea. Democratic President-elect Barack Obama has called for a measure worth $175 billion.

The German steps, equivalent to about 2 percent of gross domestic product, will have “double the effect of the Bush program,'' Jens Ehrhardt, who oversees $12 billion at Munich- based Dr. Jens Ehrhardt Kapital AG, told yesterday's edition of Handelsblatt newspaper.

The measures will hurt attempts to balance the federal budget by 2011, which will remain a “goal'' for the government in the next legislative period after the election, Merkel said in a speech to the BDA employers' federation yesterday.

National Elections

Finance Minister Peer Steinbrueck, a Social Democrat, told reporters today that the budget may be balanced by the end of the next legislative period, in 2013. Merkel's Christian Democrats and her Social Democrat coalition partners will contest national elections in September next year.

In a related development, a panel of fiscal experts meeting in Hildesheim, about 140 kilometers (90 miles) south of Hamburg, gave new estimates for tax revenue showing that total revenue will hold up next year in the face of the economic slowdown.

Revenue at federal, state and municipal level next year will be 572 billion euros compared with a May estimate of 571 billion euros, the Finance Ministry said, citing the panel's findings.

“Merkel needs every cent of tax revenue she can get next year — the crisis rescue packages are a huge burden on the budget,'' Rainer Kambeck, a fiscal policy specialist at the Essen-based RWI economic institute, said in an interview. “The forecast is surely a relief.'' RWI is a member of the tax panel.

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LinkedIn Corp. has raised $22.7 million in funding from Goldman Sachs, The McGraw-Hill Cos., and SAP Ventures, along with a reinvestment by Bessemer Venture Partners, the company said Thursday.

The new investment is a follow-on from a Series D round of funding in June that raised $53 million, led by Bain Capital Ventures.

LinkedIn says its valuation for the round was just over $1 billion.

The Mountain View-based business social networking service says more than 30 million professionals have joined guaranteed cash advance. LinkedIn backers include Sequoia Capital, Greylock Partners, the European Founders Fund, Bessemer Venture Partners, Bain Capital Ventures and now Goldman Sachs, The McGraw-Hill Co. and SAP Ventures.

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Constellation Energy Group unveiled Tuesday changes in its top management, a month after the Baltimore energy giant agreed to acquired in a $4.7 billion deal.

Jonathan Thayer will become the chief financial officer, replacing John R. Collins, who stepped down from the post, Constellation said. Charles A. Berardesco, 50, will become the new general counsel for Constellation and replace Irving Yoskowitz.

Iowa-based MidAmerican Energy Holdings Co., a subsidiary of billionaire Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK.A., BRK.B), said Sept. 18 it would acquire Constellation (NYSE: CEG).

Thayer, 37, had served as the vice president and managing director for corporate strategy and development for Constellation. He was appointed treasurer in August.

Collins, 51, will take an advisory role on the Constellation and MidAmerican merger and will also remain as chairman of the board of directors for Constellation Energy Partners LLC, an affiliate of Constellation Energy Group that’s developing and acquiring oil and natural gas properties savings account payday advance.

Collins was appointed chief financial officer of Constellation in May 2007.

Berardesco had served as vice president, deputy general counsel, chief compliance officer and corporate secretary for Constellation. Yoskowitz, who joined Constellation as general counsel in 2005, will retire.

The proposed union between Constellation and MidAmerican could take nearly a year to close and would need the approval of federal and state regulators and shareholders.

Constellation filed its application for the merger with the Federal Energy Regulatory Commission Oct. 15 and filed its application with the Maryland Public Service Commission Oct. 17. The PSC plans to hold a pre-hearing conference on the merger filing Nov. 3.

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German Finance Minister Peer Steinbrueck said Europe's biggest economy will struggle to grow next year amid the fallout from the financial crisis.

“We'll be entering an extremely difficult year in 2009,'' Steinbrueck told reporters in Washington today after a meeting of Group of Seven finance ministers and central bank governors. “The crisis is already spilling over into the real economy.''

Chancellor Angela Merkel's government will accept tax revenue shortfalls and higher spending for unemployment benefits to cushion the slowdown, and will resist cutting spending, Steinbrueck said. After posting a small budget surplus in 2008, the slowdown will squeeze public coffers next year, he said.

The comments suggest Steinbrueck may have to abandon his goal of eliminating by 2011 the federal budget deficit, the only component of Germany's overall budget that's still in the red. Putting public finances in order has been the hallmark of Merkel's ruling coalition, which faces a federal election in 2009.

Still, unlike other economies, Germany is facing only a worsening of financing conditions and not a credit crunch, Steinbrueck said. There's been no property-market bubble that might aggravate the economic downturn and the labor market remains solid, he said.

German unemployment fell more than economists forecast in September as machine makers hired people to work off an order backlog, the Federal Labor Agency said Sept. 30. Consumer confidence unexpectedly rose for the first time in five months after falling fuel prices left people with more to spend on food and clothing, GfK AG said Sept. 25.

The Sueddeutsche Zeitung newspaper today reported the government will cut its 2009 economic growth forecast to zero or slightly above zero next week. Economy Minister Michael Glos will present new forecasts for 2008 and 2009 on Oct. 16.

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Nevada-based Papa Bello Enterprises is selling its development rights for the state of Tennessee to Phoenix Rising Development LLC.

Papa Bello owns and operates franchisees of Italian style eateries and has 17 stores.

The contract with Phoenix, which also owns the rights to South Carolina, includes the acquisition of a Papa Bello’s corporate store in Cleveland, Tenn cashadvance.

"This agreement represents a substantial enhancement to fulfilling our expansion plans in the southeastern region of the country,” says Phoenix Rising CEO Chase Canfield.

Terms of the deal were not disclosed.

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