Financial life in a big town

Enormous oil wealth lies thousands of feet below Libya, but whether it will be claimed, and by whom, now that Moammar Gadhafi is gone is very much an open question.

Drilling and shipping equipment has been damaged in the Libyan civil war, land mines must be cleared around oil fields, and a legal framework for how oil money is collected and distributed must still be worked out.

Whatever government is formed could open vast regions of Libya for drilling at reasonable terms _ or it could demand that foreign oil companies pay exorbitant royalties or require them to build infrastructure in exchange for access to oil.

Libya sits on the biggest reserves of oil in Africa. Those resources could help Libya recover from Gadhafi’s decades-long corruption and the civil war. Or the oil could be kept out of reach by political chaos, crumbling infrastructure or violence.

“It’s extraordinary how the Gadhafi regime squandered so much oil wealth and left it a deprived country in terms of infrastructure,” says Daniel Yergin, chairman of IHS CERA, an energy research firm, and author of a Pulitzer Prize-winning history of the oil industry. “The country will need oil revenues to rebuild and recover.”

The oil industry had already begun to recover in recent months, especially in parts of the country where fighting had long since stopped. Libya is producing about a quarter of the 1.6 million barrels per day of oil it pumped out before the war.

Gadhafi’s death reduces the threat of further fighting in other parts of the country, especially the west and south, where the country’s most important oil fields are. In the best outcome, the national oil company and international companies will soon be able to return to those fields, repair equipment and get oil flowing again.

Analysts say it will take about a year for the country to return to full oil production, but many uncertainties remain.

The country has the potential to someday produce much more oil than it has in recent years, but the oil industry could languish if Libya’s dozens of tribes can’t form a representative government and the country falls into chaos.

The first and most important step is to establish security, experts say. International oil companies with a presence there won’t bring in engineers to assess damage to oil fields and pipelines until they are reasonably sure their workers will be safe.

Gadhafi loyalists are thought to have planted land mines around critical oil infrastructure. Thousands of shoulder-fired missile systems have disappeared from Libyan weapons depots and could be in the hands of Gadhafi loyalists or insurgents.

“If you want to cripple the state, you attack its biggest source of revenue,” says Helima Croft, an analyst for Barclays.

Next, the country must set up a system for oil companies to negotiate contracts for finding, retrieving and selling oil. At least in the interim, it appears that a government oil minister will set policy, such as how much oil companies must pay to extract Libyan oil, and the head of the national oil company will oversee operations.

But the details will probably remain in flux until an interim government can be established. Until then, oil companies can’t be sure that their existing contracts in Libya will remain in effect, although the head of the national oil company has said contracts will be honored at least for a while. It would be up to an elected government to determine whether the contracts would be revised.

What’s most important, analysts say, is that oil companies feel assured that whatever terms are set will not change in the future. Otherwise, they will never agree to spend tens of billions of dollars to repair fields and infrastructure and restore production. Some of the nation’s oil fields, pipelines, refineries and shipping terminals are in relatively good repair, but others are badly damaged.

In general, though, analysts say infrastructure in Libya is in better shape than once feared.

“What we haven’t seen is oil fields blazing,” says Jon Marks, an Africa and Middle East expert with London-based consulting firm Cross-border Information.

Major international oil companies that operated in the country before the civil war, such as Italy’s Eni and Spain’s Repsol, are beginning to assess the situation and restore production in the oil fields offshore and in Libya’s east, long held by anti-Gadhafi forces.

But international oil companies have yet to assess oil fields in the south and west, which produce most of the nation’s oil. U.S. companies that were active in Libya before the war, including Hess Corp. and Marathon Oil Corp. have not returned workers to the country.

Nuri Berruien, the head of the national oil company, told The Associated Press earlier this month that most of the damage appears to be from corrosion. Some older oil fields, such as those of the Sirte basin, require water or natural gas injection to maintain pressure in the reservoir, and that has not been done for more than six months.

Two important oil terminals, which are needed to export oil, are said to be severely damaged, but another is said to have suffered little damage. Also, looters have made off with essential oil field equipment such as power generators, pumps and trucks.

And there are other issues. Many of the country’s most experienced and senior oil engineers are seen by workers as Gadhafi loyalists. At one field, workers are refusing to work until these top engineers are removed.

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AP Business Writers Tarek El-Tablawy in Kabul, Afghanistan, Alan Clendenning in Madrid, and Adam Schreck in Dubai contributed to this story.

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Fewer people bought previously occupied homes in June, putting this year on pace to be the worst for sales since the housing bust.

Home sales fell 0.8 percent last month to a seasonally adjusted annual rate of 4.77 million homes, the National Association of Realtors said Wednesday. That’s far below the 6 million homes per year that economists say represents a healthy housing market.

Through the first six months of this year, the sales pace is behind last year’s 4.91 million homes sold _ the weakest sales in 13 years. Sales have fallen in four of the past five years.

The Realtors’ group said a record number of people who signed contracts canceled deals last month. And first-time buyers fell to a smaller share of the market.

Declining home prices have kept many people from selling their houses and taking new jobs in growing areas. They have also made people feel less wealthy and that has reduced the consumer spending that drives about 70 percent of economic activity.

Roughly 16 percent of home deals were canceled last month, the highest level since such records began being kept more than a year ago. It was unclear what the chief reason was for the high rate. But some buyers have canceled purchases after appraisals showed that the homes were worth less than the buyers’ initial bids. A sale isn’t final until a mortgage is closed.

First-time homebuyers made up just 31 percent of sales. They normally make up about half of all home sales. First-time buyers are critical to a strong and stable housing market no fax cash advances. They tend to keep their homes for years. What’s more, their purchases of low and moderately priced homes allow sellers to move up to pricier homes.

Bigger down payments, tougher lending rules, high debt and a shortage of desirable starter homes are keeping many would-be buyers away. Even some with good credit and enough money for a down payment are holding off because they are worried home prices will keep falling.

Foreclosures and short sales _ when a lender agrees to sell for less than what is owed on a mortgage _ make up an increasingly large portion of all home sales. And a wave of foreclosures are being held up, either by backlogged courts or lenders awaiting state and federal probes into troubled foreclosure practices.

Re-sold homes are a bargain compared to new homes. The median price of a new home is more than 30 percent higher than the median price for a previously occupied home. That’s twice the normal markup.

A glut of millions of unsold homes is also weighing on prices, forcing sellers to slash their prices in order to grab the attention of potential buyers.

Most economists say home prices will keep falling, by at least 5 percent, through the rest of the year. Many forecasts don’t anticipate a rebound in prices until at least 2013.

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Wells Fargo & Co. says its second-quarter profit rose 30 percent, boosted by a release of reserves set aside to cover souring loans as its customers continued to improve their loan and credit card payments.

The San Francisco bank says its net income rose to $3.73 billion, or 70 cents per share, in the three months ended June 30. Wall Street was expecting 69 cents per share, on average.

Revenue edged down 5 percent to $20.39 billion, just short of analyst estimates for $20.43 billion. Revenue in its largest segment, community banking, fell credit score.

The largest contributor to the quarter’s results came from a $1 billion release from the money set aside to cover uncollected loans and credit card bills, as the amount written off from bad loans dropped.

In premarket trading, Wells Fargo shares added 33 cents to $27.21 per share.

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The economy’s continuing struggles aren’t just confounding ordinary Americans. They’ve also stumped the head of the Federal Reserve.

Fed Chairman Ben Bernanke told reporters Wednesday that the central bank had been caught off guard by recent signs of deterioration in the economy. And he said the troubles could continue into next year.

“We don’t have a precise read on why this slower pace of growth is persisting,” Bernanke said. He said the weak housing market and problems in the banking system might be “more persistent than we thought.”

It was the Fed chief’s most explicit warning yet that the economy will face serious challenges next year. For several months, he had said the factors working against economic growth appeared to be “transitory.”

The Fed cut its forecast for economic growth this year to a range of 2.7 percent to 2.9 percent from an April forecast of 3.1 percent to 3.3 percent. It also cut its forecast for next year to a range of 3.3 percent to 3.7 percent from an earlier 3.5 percent to 4.2 percent. The Fed also said unemployment would stay higher than it had expected earlier.

In a policy statement issued at the end of a two-day meeting, the Fed blamed the worsening economic outlook in part on higher energy prices and the earthquake and tsunami in Japan, which slowed production of cars and other products.

But at a press conference afterward, the second of what the Fed says will be regular question-and-answer sessions with reporters, Bernanke conceded the economy’s troubles are more puzzling and potentially more long-lasting than a pair of temporary shocks.

The Fed announcement, at 12:30 p.m., had little effect on the stock and bond markets. Bernanke began speaking at 2:15, and stocks started falling at about 2:30, when he acknowledged that some of the economy’s problems could linger into next year. The Dow Jones industrial average closed down 80 points for the day.

The Fed’s statement Wednesday stood in contrast to the Fed’s more upbeat view when officials last met, eight weeks ago. At that time, the central bank said the job market was gradually improving.

Since then, the economic news has been gloomy. The government reported that the economy grew at an annual rate of only 1.8 percent in the first three months of the year. It isn’t expected to grow much faster in the current quarter. The economy added 54,000 jobs in May, far fewer than in the previous two months. Consumer spending has weakened, too.

The bad economic news is taking a political toll on President Barack Obama personal loans for people with bad credit. For the first time this year, an Associated Press-GfK poll found that fewer than 50 percent of respondents believe Obama deserves re-election. Obama’s overall approval rating fell to 52 percent in the new poll. It had risen as high as 60 percent after the U.S. raid last month in Pakistan that killed Osama bin Laden.

The new Fed statement acknowledged a slowdown over the past two months. “They see the weakness,” said Bruce McCain, chief investment strategist at Key Private Bank. “You can hear their concern about economic weakness despite their hope it is likely to be temporary.”

The Fed stuck to its plan to bring an end this month to a program to help the economy by buying $600 billion in government bonds. The Fed also intends to keep short-term interest rates near zero “for an extended period,” a phrase it has been using the past two years. Though the central bank noted that inflation has risen, it expects that to be temporary as well.

The Fed has kept rates at ultra-low levels since December 2008. Abandoning the promise to keep them there for an “extended period” would be viewed as a signal that the Fed is preparing to raise interest rates. Many private economists think it will be another full year before the economy has recovered enough for the Fed to do it.

Economists looking for clues to the Fed’s next move didn’t get much help Wednesday. “There’s no obvious hint of tightening here,” said Jim O’Sullivan, chief economist at MF Global. “There’s no hint of new easing.”

The bond-buying program has been controversial. Supporters say the bond purchases have kept interest rates low and encouraged spending. Low long-term rates make it easier to buy homes and cars and for companies to expand.

They also argue that those lower rates fueled a stock rally. Since Bernanke outlined plans for the program last August, the Standard & Poor’s 500 index is up 24 percent. Lower rates made stocks more attractive to investors than bonds, whose yields were falling.

The average rate on a 30-year mortgage has stayed below 5 percent for all but two weeks this year and was 4.5 percent last week. But low rates haven’t helped home sales much. They fell in May to the lowest level since November.

Critics, including some Fed officials, saw things differently. They warned that by pumping so much money into the economy, the Fed increased the risks of high inflation later.

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Royal Bank declined to comment Friday on a report that two U.S. banks were showing interest in acquiring the Canadian bank

Asian stock markets retreated Monday as evidence mounted that recoveries in the world’s biggest economies have hit a roadblock.

Oil prices fell below $99 a barrel, extending a big loss on Friday after a report said Saudi Arabia plans to boost its crude production. In currencies, the dollar was stronger against the yen and the euro.

Japan’s Nikkei 225 dropped 0.8 percent to 9,441.34 after the government reported that core machinery orders fell unexpectedly in April by 3.3 percent from the previous month.

The drop came as companies canceled orders amid fears of a slowdown following a devastating March 11 earthquake and tsunami in northeastern Japan that threw scores of factories offline.

The decline was the first in four months, evidence that the twin disasters continue to take their toll on Japan’s economy. The seasonally adjusted figure includes heavily electrical machinery, engines, machine tools, road vehicles and aircraft but excludes orders for ships and utilities because of their volatility.

Hong Kong’s Hang Seng index slipped 0.6 percent to 22,290.22, with blue chip property shares slumping after Hong Kong Monetary Authority Chief Executive Norman Chan announced further measures to cool property prices. Buyers of homes costing less than Hong Kong $7 million will have to make a 30 percent down payment, while the minimum payment was increased to 50 percent for homes costing HK$10 million or more.

China Overseas Land tumbled 2.2 percent, while China Resources Land fell 2.1 percent.

Benchmarks in Singapore, Indonesia, Taiwan and mainland China also sank, while South Korea’s Kospi was flat at 2,045 business cards.75.

Thanks in part to high gasoline prices, the economy in the U.S. isn’t growing as quickly as expected at the start of the year. Since the market’s peak on April 29, more than 15 economic indicators, ranging from the number of new jobs added in May to how much consumers are spending at retailers, have been weaker than analysts had predicted.

Adding to the gloom is the recession in Japan that resulted from the earthquake. Among other woes, the disaster resulted in a scarcity of key parts that disrupted manufacturing around the globe.

On Wall Street on Friday, fears that the global economic recovery has stalled pushed the Dow Jones industrial average below 12,000 for the first time since March and drove the stock market lower for the sixth straight week. The Dow fell 1.4 percent to close at 11,951.91. The S&P 500 index fell 1.4 percent to 1,270.98. The Nasdaq dropped 1.5 percent to 2,643.73.

Oil prices fell 22 cents to $99.07 per barrel after publication of reports that Saudi Arabia, the world’s biggest oil exporter, will increase production 13 percent from May.

Benchmark oil for July delivery was down 31 cents to $98.98 a barrel in electronic trading on the New York Mercantile Exchange. The contract lost $2.64 to settle at $99.29 on the Nymex on Friday.

The euro weakened to $1.4339 from $1.4355 in late trading in New York. The dollar strengthened to 80.46 yen from 80.32 yen.

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A top White House political and economic adviser says President Obama will lay out new plans this week to reduce the federal deficit.

Obama adviser David Plouffe, speaking Sunday on NBC’s “Meet the Press,” says Obama plans to offer ideas for what Plouffe calls “long-term deficit reduction” as Congress begins to debate raising the nation’s debt ceiling.

Plouffe is giving few specifics on what Obama will announce, but he says that the president believes taxes should go up on higher-income Americans. He also says that the Republican budget plan offered this week by congressman Paul Ryan of Wisconsin may pass the House but won’t become law.

Ryan’s plan would repeal Obama’s signature health care reform and make significant changes to Medicare and Medicaid.

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Luxembourg’s Jean-Claude Juncker, who chairs the group of euro-area finance ministers, said he is “not happy” about the role played by credit-rating companies in Europe’s sovereign-debt crisis, particularly in the case of Spain.

“In the U.S., people are saying that financial markets would not always be best advised to follow the assessments given by the rating agencies,” Juncker told reporters yesterday in Brussels, where he chaired a meeting of finance chiefs. “As far as this very point is concerned, I’m very American.”

Moody’s Investors Service lowered Spain’s credit rating to Aa2 on March 10, saying Spanish lenders will need as much as 50 billion euros ($70 billion) to meet new capital requirements, more than double the 20 billion euros seen by the government in Madrid. Juncker said it is “surprising” that Moody’s didn’t wait to see the Bank of Spain’s assessment of lenders’ capital shortfall, which was due on the same day, before downgrading the nation’s credit rating.

French Finance Minister Christine Lagarde said the ratings downgrade is being studied as an example of problems with how rating agencies work. “The fact that the downgrade came within a few hours of that statement prompted a rejection of the way they’re operating,” she said yesterday in Brussels. The European Union wants to set new rules for the timing and justification of such ratings changes, she added.

Warning Period

Credit-ratings companies may be forced to give governments three days’ notice of any change to their rating under proposals made in November by the European Commission, the EU executive no fax needed payday loans. Extending the warning period to 72 hours, from the current 12 hours, would give countries a chance to point out “factual errors” and “new developments” which may influence the rating, according to the commission.

Moody’s said it “will continue to engage constructively with European policy makers on the evolving regulation of our industry,” according to an e-mailed statement from the company. “Our ratings derive from transparent methodologies and are supported by in-depth research and analysis.”

The Brussels-based commission also is considering setting up a publicly funded agency to compete with companies such as Moody’s, Standard & Poor’s and Fitch Ratings. European Central Bank officials have criticized rating companies for announcing changes in sovereign ratings just as Europe’s debt crisis was unfolding, exacerbating market turmoil.

Spain has taken unprecedented measures to avoid following Greece and Ireland into a bailout, implementing the deepest budget cuts in at least three decades. The government in Madrid is tightening capital requirements for banks in an effort to show investors that its lenders can weather a fourth year of economic slump.

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Vietnamese police have arrested a senior executive of the beleaguered state-owned shipbuilding company as authorities widen their investigation into one of the country’s biggest economic scandals, state media reported Thursday.

Trinh Thi Hau, 47, former general manager of Vinashin Finance Company, an affiliate of Vietnam Shipbuilding Industry Group, better known as Vinashin, was taken into police custody Tuesday after her house and office were searched, the Thanh Nien newspaper said.

Tuoi Tre newspaper reported Thursday that Hau and Ho Ngoc Tung, Vinashin’s chief finance officer, were accused of “contravening state regulations causing serious consequences.”

The two had illegally approved expenditure of 60 billion dong ($2.8 million), which was taken from a $750 million pool of cash raised by the government in an international bond sale, Tuoi Tre said.

The money included 42.8 billion dong ($2 million) that was allocated to a Vinashin affiliate company to buy steel, but was instead used to import industrial waste from two outdated South Korea thermal power plants, it said.

Police also have launched an investigation intoTung, who is in Australia receiving medical treatment, the newspaper said personal loans for bad credit.

Executives at Vinashin and police declined to comment Thursday.

So far, eight Vinashin executives including chairman Pham Thanh Binh have been arrested for alleged mismanagement.

Earlier last year, the company was teetering on the edge of bankruptcy. It amassed huge debts estimated as of June at $4.5 billion _ about 4.5 percent of the country’s gross domestic product _ after its expansion into areas outside shipbuilding _ everything from animal food production to tourist resorts.

The shipbuilding conglomerate was established in 1996, and the Communist government had high hopes that it would become one of the world’s top shipbuilders, while serving as an example of the country’s new success as it opened up to foreign investment and trade.

In December, Vinashin defaulted on the first payment on a $600 million loan from a group of creditors led by Credit Suisse.

Ratings agencies have downgraded Vietnam’s credit rating, citing problems at Vinashin as one of the reasons for the action.

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The outgoing head of Germany’s Bundesbank decided against seeking the presidency of the European Central Bank because he believed his open opposition to its bond-buying program would have posed a credibility problem, according to an interview published Saturday.

Axel Weber was long a favorite to succeed Jean-Claude Trichet at the ECB when the Frenchman’s term expires in October. But that status evaporated over days of confusion that culminated in Friday’s announcement that Weber will leave the Bundesbank on April 30, a year early, for personal reasons.

Weber had voiced unease over the ECB’s program, launched last year, to buy bonds of troubled eurozone countries and called for the program to be stopped.

Weber, 53, was quoted as telling the weekly Der Spiegel that he had taken “clear positions that I still stand by.”

“These positions may not always have been conducive to my acceptance by some governments,” he said. “I was aware since last May that a potential (ECB) candidacy would be impaired by this.”

Weber was never formally proposed for the job, and said he had decided over recent months not to seek it. He said he indicated to Chancellor Angela Merkel in January that he was “not available for package solutions” combining his candidacy with policy issues, and the two agreed then to talk again in March.

“The ECB is the bulwark for stability in Europe,” Weber was quoted as saying. “The president has a special position _ but if he represents a minority opinion on important questions, then the credibility of this office suffers low rates payday advance.”

Weber is a member of the ECB’s governing council in his capacity as president of Germany’s central bank. In the Bundesbank’s tradition, he has been an advocate of tough steps to prevent inflation.

In Saturday’s interview he underlined his concerns about the ECB buying government bonds, although he conceded that “the current volumes are controllable.”

“That doesn’t change anything about my fundamental concerns,” he said. “A central bank must always be aware of what risk it is taking as soon as it acts in the border zone between monetary and fiscal policy.”

Weber’s departure from the ECB race leaves Trichet’s succession wide open. Bank of Italy governor Mario Draghi is widely viewed as another front-runner, while analysts point to the possibility of a candidate from a smaller, northern country such as the Finnish or Luxembourg central bank governors.

“In the end, which nation provides the president is not so important,” Weber said. The ECB needs “people who are credible, embody the culture of stability and can communicate this to Europe’s population,” he added.

Weber said he hasn’t yet decided what he will do next, but he won’t start a new job before next year.

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