Financial life in a big town

The biggest gathering of the global mobile phone industry begins on Monday in Barcelona, and much of the talk will be about the company that is not there: Apple.

Its iPhone has been imitated by larger competitors like Samsung Electronics, Nokia, LG and Research In Motion. All of them will be showing touch-screen devices and application stores, two innovations popularized by the iPhone.

In App Planet, a special section of the sprawling Fira de Barcelona convention grounds in the city’s center, more than 50 small software developers, many of whom make applications for the iPhone, will display the device’s capabilities. Elsewhere, manufacturers of netbooks and other mobile, connected devices will show their answers to the iPad, the tablet computer Apple introduced last month in San Francisco.

Meanwhile, Apple’s longtime rival, Microsoft, will be seeking some attention for the first glimpse of its Windows Mobile 7 operating system software for cell phones. The company does not plan to offer it on devices yet, according to people familiar with the company’s plans. Microsoft’s impact on the industry has been diminishing in the face of increased competition from other operating systems.

Apple, one of those new competitors, has never exhibited at big industry trade shows, including the Mobile World Congress. Secretive and focused, Apple rarely ventures beyond its own well-staged promotions. The company has sent executives to the Barcelona show, but has never taken center stage.

“They typically do not exhibit at non-Apple events, but we would very much like to have them join us,” said Claire Cranton, a spokeswoman for the GSM Association, the organizer of the annual Barcelona convention. “Apple products will be highly visible at the show.”

Apple has leapfrogged its Asian rivals to become the world’s third-largest maker of smartphones, the fastest-growing part of the mobile phone market. As of December, Apple had a 16.4 percent share of the market, behind Nokia and Research In Motion, which makes the BlackBerry, according to Strategy Analytics. And Apple is growing faster than either one.
Apple’s ’s growing influence on the global mobile industry stems from the way the iPhone convinced consumers to use wireless data. Wireless carriers worldwide have been seeking to increase their revenue from data use, like texting or browsing the Web, as the revenue from voice calls decline. The iPhone’s 133,000 apps that do anything a computer can do and more increase data use.

“With the iPhone, Apple has changed the paradigm of the mobile phone industry, just as Apple changed the MP3 industry with the iPod,” said Carolina Milanesi, an analyst at Gartner, a research firm free business cards. “They have shifted the focus from the technology to the services.”

The new iPhone 3GS will be part of the official display of T-Mobile, the wireless unit of Deutsche Telekom, which sells the device in 12 countries and is the exclusive seller in Germany.

Michael Hagspihl, a T-Mobile vice president in Bonn in charge of relations with cell phone makers, said the iPhone had brought T-Mobile 1.2 million new customers in Germany. “It’s been a real success for us,” Hagspihl said. “The iPhone has brought lots of new customers to our network, and our data consumption has gone through the roof.”

Should Apple ever decide to sell the iPhone through multiple operators in the United States, T-Mobile USA would definitely be interested, Hagspihl said.

So far, AT&T has the exclusive American rights to the iPhone.

But in France and Britain, Apple ended exclusive relationships and is selling the iPhone through several operators besides its original partners, France Telecom’s Orange and Telefonica’s O2.

Even after losing the exclusive selling rights in France, Orange has had no decline in iPhone sales, said Cynthia Gordon, an Orange vice president who oversees the relationship with Apple.

“Apple has had a major impact on the overall market and a very positive impact on Orange’s business,” Gordon said.

Orange is one of Apple’s biggest operator partners, Gordon said.

The French operator sells the iPhone in 29 countries in Europe, Africa, Asia and the Middle East. Through October, Orange had sold 1.7 million iPhones, which she said was more than any other operator in Europe and Africa.

IPhone sales are helping Orange offset declines in voice revenue, Gordon said.

“It has been a platform for us to build on our own sales,” she said. Besides attracting new customers and retaining old ones, the iPhone allowed Orange to develop the Orange TV Player, a programming application for viewing 60 TV channels on the iPhone in France.

Apple and Orange developed the application together, she said.

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Instant online cash advance with next-day cash direct deposit.

A growing chorus of Democratic lawmakers and liberal economists are pushing hard for a tax on stock trades to pay for job creation.

By levying a small fee when stocks, futures, swaps, options and other securities are bought and sold, supporters of the tax believe the government can take in between $120 billion and $240 billion annually. That money could be used to fund additional government stimulus to help put the nearly 16 million unemployed Americans to work.

"Financial transactions number in the many trillions of dollars every year, so if you take a small fraction of that, you are going to be raising a lot of money," said Ann Lee, economics professor at New York University. "That can be used for things like paying down debt or creating jobs."

But the idea faces staunch opposition among Republicans and even from some Democratic lawmakers. Treasury Secretary Tim Geithner has also voiced his disapproval of the idea.

There are handful of different proposals in play, and the first bill surfaced in mid-November from a group of seven House Democrats, led by Rep. Peter DeFazio, D-Ore. The legislation is called "Let Wall Street Pay for the Restoration of Main Street Act."

The bill, which is still in the draft stages, would tax each stock transaction at 0.25% and futures, swaps and credit-default swaps at 0.02%. The bill’s sponsors estimate that it can raise about $150 billion per year, half of which could be set aside in a "job creation reserve" for Congress to allocate in the future.

"We know Main Street is suffering and a restored Wall Street should now share in its recovery with everyone else," Rep. DeFazio said in a letter to colleagues.

To ensure that the law targets speculators and not pension funds or retirement investors, the tax would be refunded for tax-favored retirement accounts such as 401(k) plans and education and health savings accounts. Additionally, the tax would not apply to the first $100,000 of a trader’s annual transactions.

House Speaker Nancy Pelosi, D-Calif., and Majority Leader Steny Hoyer, D-Md., have both said they are open to discussing such a plan, though neither said whether they support the DeFazio bill.

Support growing

Such a tax is not unprecedented. The United States used to tax all stock sales and transfers at 0.2% to 0.4% from 1914 to 1966.

England currently levies a tax on stock sales and transfers at 0.5%, which brings in about $40 billion a year. But the U.K.’s top financial services regulator Adair Turner said in September that Britain should also tax "socially useless" transactions like derivatives and swaps. Prime Minister Gordon Brown supports Turner’s proposal and presented it at last month’s G-20 meeting.

In the United States, a financial transactions tax has also gained support in recent weeks from Nobel Prize-winning economists Paul Krugman and Joseph Stiglitz. Krugman, who is attending Thursday’s "jobs summit" at the White House, argued in a recent New York Times op-ed that the tax would curb the excessive market speculation that led to last fall’s credit crisis, and the fees would not have any noticeable effect on long-term investors payday loan.

The left-leaning Economic Policy Institute on Monday announced its own plan to create 4.6 million jobs in a year by levying a tax on stocks and other financial items. The EPI said the government should spend an additional $400 billion on stimulus aimed at job creation, and estimated that those funds could be repaid within 10 years from the proceeds of a financial transactions tax.

"The tax has serious revenue potential," said Josh Bivens, economist at EPI. "No one likes taxes, but on the menu of taxes, this one makes the most sense."

Unlike Krugman, Bivens argued that the tax would have very little impact on trading because the proposed fee is so negligible. But if it does have an impact, Bivens said it would be beneficial, reducing short-term speculative trades that lead to excess market volatility.

Bill faces tough opposition

If the DeFazio bill advances to a vote, it will face an uphill battle. A letter to colleagues by Democratic Representatives Michael McMahon, D-N.Y., Carolyn Maloney, D-N.Y., and Debbie Halvorson, D-Ill., urged Congress to oppose the legislation. They argued the tax would raise credit costs, depress stock prices and force investors to flock to overseas markets. It would ultimately hurt the middle class as well "by punishing more than 90 million American investors."

Republicans and conservative economists agree with the assessment that the bill would inadvertently tax everyday Americans, arguing that banks would simply transfer the transaction fees to their customers. They also say targeting stock transactions means targeting the middle class, especially if a proposal is adopted that does not exclude retirement funds from the tax.

"People who support it see this as a way to hit evil banks and rich people, but the problem is that most stocks and bonds are not bought by rich people but by pension funds," said David John, senior research fellow at the right-leaning Heritage Fund. "To say the tax would be counterproductive would be putting it mildly."

Even some of those that support the tax conceded that it could put a stranglehold on the financial sector.

"Part of the reason why Geithner isn’t supporting it is that it will hurt folks in the financial industry in the short-term," said NYU’s Lee. "Anyone engaged in heavy trading isn’t going to like this proposal, and it could mean more job losses in that sector."

As a result, supporters like Lee and Bivens say the tax won’t likely pass through Congress while the economy is still struggling to rebound.

"I agree that the next two years are no time to do any serious tax increases," said Bivens. "We will need the revenue in the long run, but it will be hard to see it pass in the short term." 

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George Weston Ltd. executives say they’re still hunting for acquisitions, but hinted the company could be closer to making a move after months of searching for the right fit.

"Obviously a lot of values have gone up in a lot of companies, but not many in our space," chairman and president Galen Weston Sr. told analysts in a conference call on Tuesday.

"There’s probably going to be stuff coming due from a number of sources. We are scouring the nation, north and south, to ensure that nothing passes us by which we feel would be appropriate for us."

North America’s largest baked goods maker reported that its third-quarter net earnings dropped 52 per cent to $86 million, or 56 cents per share, for the quarter ended Oct. 10.

That was down from a year-ago profit of $180 million, or $1.29 per share, largely because of foreign exchange losses.

Revenue totalled $9.78 billion for the quarter, down about $100 million from $9.88 billion last year. Analysts had expected revenue of $9.90 billion, according to Thomson Reuters.

Toronto-based Weston said most of its revenue came from Loblaw, a publicly traded grocery retailer that it controls.

Its Weston Foods sector, which includes the baking business, accounted for just $502 million of revenue, down 26 per cent from a year before.

George Weston has been selling assets in recent years in an attempt to tighten its focus. Last year, the company sold its Neilson dairy business to cheese maker Saputo for $465 million and its U.S. fresh baked goods division to Grupo Bimbo for $2 cash advance loan.5 billion (U.S.).

Since those sales, the company has said it would use the $3.3 billion in cash, along with $1.6 billion in short-term investments, to make an acquisition, but that it didn’t feel pressure to make a play quickly.

Excluding discontinued operations following the sale of Weston Food’s dairy and bottling operations at the end of last year and its U.S. fresh bread and baked goods business early this year, Weston’s overall net income was $71 million or 44 cents a share in the third quarter.

George Weston said its net earnings in the most recent quarter took a beating from a 58 cent charge per common share related to unrealized foreign exchange losses.

In last year’s third quarter, spanning a 16-week period ended Oct. 4, 2008, Weston’s net earnings from continuing operations was $119 million, or 81 cents per share, while net earnings including discontinued operations was $180 million. or $1.29.

But the company said that excluding the foreign exchange losses and other items, its performance in the third quarter was "strong" compared with last year.

George Weston said brand and product development efforts continue while plant and distribution optimization and other cost-cutting measures remain a priority.

It said the sale of its dairy and bottling operations in the fourth quarter of 2008 negatively impacted sales growth by about 26 per cent, but foreign currency translation positively impacted sales growth by about 2 per cent.

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The Silverdome is going, going, going … and soon it will be gone.

The hard-hit city of Pontiac, Mich. is nearly finished accepting bids for the Silverdome, an 80,000-seat stadium on a 127-acre site. The deadline for bids is 4 p.m. EST Thursday, according to Williams & Williams, the Tulsa, Okla.-based auctioneer.

Amy Bates, vice president of marketing at Williams & Williams, said the city will announce the winning bidder on Friday, or will continue the process with an in-house auction if the top bids have a narrow spread.

"The city has the right to accept the high bid today, or can choose to have up to five of the sealed bidders come in to participate in a live outcry auction in Pontiac," she said.

The city of Pontiac announced in early October that it was placing the Silverdome on the block, as the stadium has seen little use since 2002 and costs $1.5 million in annual upkeep. There is no minimum bid for this auction, though it does require a deposit of $250,000, which would be reimbursed once the process is completed, said Bates.

Williams & Williams declined to provide details about the bidding.

"We’re in the middle of the auction, so we’re providing no information about the number of people who have called," said Bates. "We did extensive global marketing and we’re very pleased with the response to the marketing and the interest in the property."

The Silverdome was the biggest stadium in the National Football League when it was built in 1975 for $55.7 million. As the former home of the NFL’s Detroit Lions and the National Basketball Association’s Detroit Pistons, the stadium has a rich sports history, playing host to Super Bowl XVI in 1982 and the World Cup in 1994.

At its zenith in 1987, the stadium drew a record number of indoor fans for WrestleMania III, when 93,000 people showed up to watch Hulk Hogan body-slam Andre the Giant.

That same year, Pope John Paul II held Mass at the stadium. In its time, the Silverdome has also served as a concert venue for pop luminaries Michael Jackson, Madonna and Elvis Presley.

Pontiac was a core player in Michigan’s once-thriving automobile manufacturing industry. But hard times have come to the city, which is suffering budget shortfalls and high unemployment, like close-by Detroit and other cities throughout Michigan.

General Motors announced plans earlier this year to close a truck plant in Pontiac that employed more than 1,400 workers. The state of Michigan was recently listed by the Pew Center, a research organization, as one of the top 10 most fiscally troubled states. Michigan’s statewide unemployment rate of 15.3% is the highest in the country.

Fred Leeb, emergency financial manager for Pontiac, did not immediately return a phone message to the city offices, which are closed Thursday and Friday.

But in an October interview, Leeb said the Silverdome was being auctioned "because the Detroit Lions moved out years ago, and since then it’s only been used sporadically. So we want to convert a major premier asset of the city — convert it from something that’s been languishing into a new, vibrant marquee asset of the community."

Leeb also said the city "established a very flexible zoning ordinance to allow people to do virtually anything that makes economic sense." He acknowledged that "demolition is a possibility." 

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The New York Yankees, who became World Series champs for the 27th time Wednesday night, logged the highest payroll in baseball for the 2009 season. This time, they definitely got what they paid for.

It wasn’t just the $201.4 million payroll that led to the Yankees’ successful season. It was how they spent that money — investing in the right players, not just the most expensive ones.

"One of the oldest truisms in business is that you have to spend money to make money, and the Yankees have clearly been successful in that this season," said Marc Ganis, a sports marketing consultant with SportsCorp Ltd. "But it’s all predicated on the success of the team on the field — if they didn’t win, it would be money poorly spent."

The Yankees stocked this year’s team with championship material players like CC Sabathia, A.J. Burnett and Mark Teixeira, and still managed to trim their payroll by about $8 million this season.

That wasn’t always the Yankee way.

The Bronx Bombers have had the highest payroll among all Major League teams since 1999, but they had no championship rings to show for it from 2001 to 2008. The team even embarrassingly missed the playoffs in the 2008 season despite strutting the highest payroll in baseball history.

During that eight-season stretch, the Yankees shelled out about $1.7 billion for their players’ salaries, including $148 million in luxury taxes that the team had to pay for sporting such a high payroll.

This season, the Yankees got a lot more bang for their buck … in more ways than one.

Adding up the dollars and cents. Applying a Society of Baseball Research metric, the Yankees were actually more efficient with their payroll this past season than were the hapless cross-town Mets, Cleveland Indians and basement-dwelling Washington Nationals.

The World Champs were only slightly less thrifty with their salaries than the Chicago Cubs, Houston Astros, and Kansas City Royals, all of whom missed the playoffs.

By those calculations, the Yankees paid $3.2 million per "marginal victory." That’s nearly twice as efficient as the Mets, who only won 70 games despite their $149 million payroll and paid $5.8 million per marginal victory.

In addition, a rough estimate of the team’s revenue in 2009 shows the Yankees cashed in on their success more than any other team. Multiply the number of people coming to games by the average ticket price ($73),and the Yankees took in about $270 million this season, or $69 million more than they shelled out for their payroll.

In 2008, the Yankees took in just $146.4 million from ticket sales, $63 million less than their payroll.

The Yankees’ 2009 revenue figure doesn’t even include additional playoff ticket sales they raked in, but most of that bonus playoff income will be offset by the hefty luxury tax that the team will have to pay this year.

Only five teams took in more revenue from ticket sales than they paid for their overall payrolls, and the Yankees’ $69 million in earnings was by far the highest net income of any team. The nearest competitor was the rival Boston Red Sox who took in $32 million more than the cost of their payroll.

Banking on the players. The team’s business strategies paid off more than just financially this season. The Yankees’ focus on top-of-the rotation pitching helped catapult them into the championship this year, said industry consultant Vince Gennaro.

Starters Sabathia, Burnett and Andy Pettite, set-up man Phil Hughes and closer Mariano Rivera pitched 52% of the Yankees’ innings during the regular season, but pitched 81% of the postseason innings and made 100% of the playoff starts.

Last year, the Yankees got the highest amount of innings from Pettite — their third starter in 2009.

The Yankees also got a big upgrade at first-base by signing Mark Teixeira, who not only out-performed last year’s starting first-baseman Jason Giambi at the plate, but Teixeira also provided gold-glove caliber defense.

But the Yankees’ new acquisitions also combined for something more than just improved skills. They played with a kind of exuberance that made them fun to watch and easy to like, even for non-Yankees fans.

"This team’s identity was about never giving up," said Ganis. "When you watch their walk-off celebrations, they look like giddy junior high schoolers out there."

(Payroll efficiency was created by the Doug Pappas of SABR. It is calculated by adding a team’s payroll that was above the minimum allowable payroll, and dividing that by the number of victories over 49 wins — a number of games Pappas figured a team of scrubs could win.)

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Europe’s manufacturing expanded for the first time in 17 months and services industries grew at a faster pace in October as evidence mounted that the global economy is pulling out of the recession.

An index of manufacturing rose to 50.7 this month from 49.3 in September and a services gauge increased to 52.3 from 50.9, London-based Markit Economics said today. Both indexes topped economist forecasts in separate Bloomberg News surveys, and the factory gauge climbed above 50, which indicates expansion, for the first time since May 2008. German business confidence rose to a 13-month high, a separate report showed.

European companies are stepping up output to meet reviving orders after governments around the world spent $2 trillion in stimulus measures to fight the worst recession in at least six decades. The International Monetary Fund said on Oct. 1 that the global economy will expand at a faster pace than previously expected in 2010. Still, the euro’s ascent against the dollar may curb the recovery in Europe.

“The second half of the year will be relatively strong,” said Juergen Michels, chief euro-area economist at Citigroup in London. “Looking ahead, there are a lot of reasons for momentum to weaken partly because of a stonger euro.”

The world economy will shrink 1.1 percent this year, less than the 1.4 percent projected in July, the Washington-based IMF forecast. In 2010, the economy may expand 3.1 percent instead of a previously projected 2.5 percent, the fund said. In the euro region, the economy probably returned to growth in the third quarter, the European Commission forecast last month.

Composite Index

A composite index of manufacturing and services industries in the euro-area economy rose to 53 from 51.1 in September, Markit said in today’s report. That was the highest since December 2007 and above the 51.6 that economists had projected in a Bloomberg survey.

Adding to signs of global recovery, German business sentiment improved to the highest since September 2008 this month, the Ifo institute in Munich said today, citing a survey of 7,000 executives.

Confidence in the world economy rose for a third straight month in October, a Bloomberg survey of users on six continents showed earlier this month. In the U.S., industrial output increased more than expected in September and China’s manufacturing expanded at the fastest pace in 17 months.

Wolfsburg, Germany-based Volkswagen AG, the biggest overseas carmaker in China, sold 150,000 cars last month, a monthly record, as sales for the first nine months surged 37 percent. Volkswagen is investing 4 billion euros ($6 billion) to expand capacity in China through 2011.

‘Steam Engine’

“China is the steam engine of the world economy,” Volkswagen sales chief Detlef Wittig said in a Sept. 25 interview in Frankfurt. “The lust for mobility there seems almost bottomless. We’re very well positioned there and will keep investing to secure our share of the market.”

Hermes International SCA Chief Executive Officer Patrick Thomas said on Oct. 8 that luxury-goods brand sales are “booming” in China and elsewhere in Asia, while the U.S. market has turned “slightly positive.”

The European Central Bank has cut its key rate to a record low of 1 percent and started buying as much as 60 billion euros of covered bonds to stimulate bank lending and boost investments and consumption. ECB President Jean-Claude Trichet said on Oct. 9 that it is “not the time to exit yet” with the economy expected to show a “rather uneven” recovery.

Annual Gains

The euro has appreciated around 7.5 percent against the dollar over the past five months, bringing annual gains to 6.9 percent. Dublin-based C&C Group Plc, the maker of Magners cider, on Oct. 8 reported a drop in first-half profit and said trading conditions have become “more challenging.”

In the year’s first seven months, euro-area exports to the U.S., the region’s second-largest trading partner, dropped 20 percent from a year earlier, data showed on Oct. 16. Shipments to the U.K. fell 26 percent and exports to China dropped 4 percent in that period.

“Exchange-rate movements make policy makers sweat,” said Marco Annunziata, chief economist at UniCredit Group in London in an e-mailed statement. “The euro is already at historically strong levels and will start hitting the recovery at its most fragile juncture, six to nine months from now.”

Siemens AG, Europe’s largest engineering company, had a “tough” year on slumping orders, Chief Financial Officer Joe Kaeser said on Sept. 29. ArcelorMittal, the world’s largest steelmaker, said on Sept. 16 that markets for metal in the U.S. and Europe won’t “normalize” next year and Chinese growth will slow.

Euro-area unemployment rose to 9.6 percent in August, the highest in more than a decade, and the IMF last week forecast it will reach 11.7 percent next year, higher than in the U.S. or the U.K. While there are “encouraging signs” of a recovery, the world economy remains fragile and labor markets are yet to improve, the Group of Seven ministers and central bankers said on Oct. 3.

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A year ago today, Royal Bank of Scotland Group Plc and HBOS Plc were close to collapse, causing a chain reaction that could have ended with riots in U.K. cities, security analysts and economists said.

Bank failures would have forced the government to cancel police leave and deploy troops as the breakdown of the financial payments system threatened the ability of utilities to provide essential services, said David Livingstone, a fellow at the Royal Institute for International Affairs in London, a former adviser to the government’s Cobra crisis response committee.

“You are talking about a situation with mass disorder and panic,” the former Royal Navy officer said in an interview. There would be “riots, pandemonium, everyone fending for themselves.”

Chancellor of the Exchequer Alistair Darling, Bank of England Governor Mervyn King and Financial Services Authority Chairman Adair Turner met at 5 p.m. on Oct. 7, 2008, and readied a 250 billion-pound ($398 billion) rescue for the banks in the 16 hours before they opened for business the following day. In response to a Freedom of Information Act request from Bloomberg News one year on, the Treasury declined to say if it had a contingency plan for the two banks, then or now.

Releasing such information would probably “have a destabilizing effect on financial markets,” damage the government decision-making process and cause commercial harm to the banks involved, the Treasury said in a letter.

“In the current economic climate, economic perception, even if totally misconceived, is important and has the capacity to alter market behavior,” the government said. “To confirm or deny whether or not the information is held, either in relation to the banks mentioned in your request or more generally” would hurt the banks and the U.K.’s economic interests.

‘Catastrophic’ Costs

The crisis last year was the worst Britain had faced in peacetime, Darling told the British Broadcasting Corp. last month. The two banks were not “confident they could get to the end of the day,” on Oct. 7, King told the same program.

“You would have had unmitigated panic and a bank run,” said Tom Kirchmaier, a fellow at the London School of Economics. “People would not have been able to buy bread. The cost to the economy would have been catastrophic.”

RBS and HBOS, then in talks to be taken over by Lloyds TSB Group Plc, had more than 35 million business and individual customers with 475 billion pounds of deposits, 22 percent of the U.K. total, held at about 3,250 branches.

‘Contagious Effects’

“If RBS hadn’t been propped up as it was, in practice it would have been nationalized the following week,” former Bank of England deputy governor John Gieve said in a Bloomberg Television interview. “If RBS, HBOS, Lloyds had gone down, that would have had huge contagious effects throughout the rest of the world.”

The failure of Edinburgh-based RBS and HBOS would have had a domino-effect with customers seeking to take out their deposits from other lenders and causing a wider run on U.K. banks, said Vicky Redwood, an economist at Capital Economics Ltd.

“Trust in the banking system would have completely collapsed” and would have generated civil unrest, said Redwood. “People would have been rushing to take their money out of the other banks and you would have been heading back to the depression era.”

In Iceland, occasionally violent protests erupted for months after the government’s nationalization of Glitnir Bank hf and the country’s two other biggest banks in October. The crisis caused Iceland to become the first western country to seek International Monetary Fund assistance in 32 years. Even so, the banks remained open for business.

Government Rescue

British government rescue packages announced on Oct. 8, 2008, Oct. 13, 2008 and Jan. 19 stabilized the financial system. RBS, HBOS and Lloyds TSB Group Plc accepted a 37 billion-pound government bailout and a further 200 billion pounds was made available by the government to improve liquidity, boost capital and absorb writedowns. The government also pledged to insure 585 billion pounds of toxic assets.

British banking shares rose 1.8 percent in the year from Oct. 13, 2008 to Oct. 5, 2009, according to the FTSE 350 Banks Index. The index has more than doubled since its low on March 9. The FTSE 100 index of leading stocks gained 18 percent in the same period.

Even so, the financial sector “is not out of the woods,” Michael Geoghegan, chief executive officer of HSBC Holdings Plc, Europe’s biggest bank, told investors at a conference organized by Bank of America Merrill Lynch on Sept. 29.

‘Back to Normal’

British banks have only recognized 40 percent of a likely $604 billion in writedowns from 2007 to 2010, and earnings won’t be sufficient to offset this, the IMF said Sept. 30. A sluggish economy and rising unemployment will add to loan losses, it said.

“Trust has returned, but there is too much trust and people are taking risks blindly,” said LSE’s Kirchmaier. “If you look at the market, people assume it is back to normal, but there are huge risks in the system.”

These remain, according to Simon Maughan, an analyst at MF Global Securities Ltd. in London. Banks have yet to cut debt sufficiently after balance sheets expanded rapidly during the boom, while regulatory demands for increased capital are “cosmetic,” he added.

“The problem was way too much money in the system and a demand for yield,” Maughan said. “Very little has changed” and banks may be laying “the groundwork for the next crisis.”

The banking crisis was the symptom of an unsustainable asset-price boom “that began when western monetary authorities began to believe that inflation was dead,” said David Sayer, head of retail banking at KPMG. Restricting bankers’ bonuses won’t be enough to stop it happening again, he said.

The banking industry is now engaged in “a period of significant transformation and change,” HSBC’s Geoghegan said last month. “These changes in themselves, if not sensibly introduced in a rational and unemotional way, may well trigger a further crisis of confidence at this fragile time,” he said.

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UBS AG’s U.S. wealth management unit Paine Webber is not a core part of the bank’s operations but will not be sold at present, UBS Chief Executive Oswald Gruebel was quoted saying in the FT.

“We’ve had a lot of inquiries from potential buyers but it wouldn’t make sense to sell at current valuations,” Gruebel said, according to the report in Tuesday’s Financial Times.

Gruebel also told the FT the bank wanted to cut ties with the Swiss government by buying its way out of a “bad bank” deal and aimed to return to health within a year.

The bank previously said it had no plans to buy back toxic assets but could consider such a course of action at some point in future.

UBS bought U.S. brokerage Paine Webber in 2000 for about $10 billion and merged it into UBS Americas, its U.S. wealth management subsidiary, signaling its intention to aggressively expand in the U.S. wealth management segment.

UBS Americas had over $600 billion in assets at the end of 2008, according to the UBS annual report.

However the dual challenges of the financial crisis and a damaging tax fraud probe by the U.S. government, which caused considerable brand damage to UBS, have forced the bank to pare back its U.S. wealth management business.

In April, the world’s second largest wealth manager by client assets cut 2,000 U.S. jobs as part of a restructuring plan to cut 8,700 jobs worldwide. Earlier in September, sources close to the situation told Reuters the bank had cut a further 200 positions at the U.S. arm.

The bank has locked horns with Switzerland’s financial regulator, FINMA, over its aim to leave the bad bank scheme, under which it pays for protection against big losses on toxic assets, the paper said.

With credit markets recently recovering, the bank believes it could take the assets back onto its balance sheet, but conceded it may not be able to do so until late 2010, the newspaper said.

“It is very expensive,” Gruebel said of the bad bank scheme.

Separately UBS said Fiat SpA Chief Executive Sergio Marchionne and Royal Dutch Shell Plc Chief Executive Peter Voser will not stand for re-election to its board next year.

Marchionne had been mentioned as a possible alternative CEO for UBS in the midst of its troubles earlier this year but the bank turned to former Credit Suisse boss Gruebel.

(Additional reporting by Jan Harvey in London and Emma Thomasson in Zurich; Editing by Dan Lalor and David Holmes)

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Nasty bear markets tend to stimulate demand for information, and sometimes I wonder how private investors cope with all the noise and clutter of the business media. There is too much information out there. Who with a life can make an investment decision based on retail sales, the leading indicators, housing starts, jobless claims, the Philly Fed and ISM manufacturing indexes?

While we’re at it, why not pile on the inflation-deflation debate, the potential for a U.S.-China trade war and the U.S. Federal Reserve’s latest decision on interest rates?

Now, you need to know if you’re a "value" investor or a "growth" investor because of where we are in the business cycle. If you’re not sure of the difference, here is a clip from a recent item claiming value investing beats out growth.

"As a first step, we formed quartiles by sorting stocks by price/earnings (P/E) ratios and then stocks within each P/E quartile were sorted by price/book value (P/BV). As is typical for this type of study, we defined the low P/E—low P/BV group of stocks as value stocks and the high P/E—high P/BV as growth stocks. …

"To prevent problems from the inclusion of negative or extremely positive P/E- and P/BV-ratio firms, and eliminate likely data errors, we excluded negative P/E and P/BV ratios, as well as P/E ratios in excess of 150 and P/BV over 20."

Moving right along, you could switch to exchange traded funds (ETFs) and dump those expensive actively managed mutual funds.

You could ignore all of the above and adopt a less complex strategy of rebalancing your asset mix once or twice a year. As a last resort, you could fire your full-service adviser and switch to a discount broker to at least lower your trading costs.

Now that I’ve tabled some strategies, I should mention that none of the above works in a bear market.

In a bear market, economic numbers mean nothing. In a bear market, both value and growth investors get slaughtered. In a bear market, ETFs and actively managed mutual funds get slaughtered. And lower costs do little to offset losses.

In a bull market, all strategies work. ETFs go up, managed mutual funds go up, value goes up, growth goes up and our current adviser is well worth those extra fees.

In a nutshell, all we really need to know is the current status of the equity markets no fax cash advances. Are we in a bull or bear market? The rule here is: In a bull market, be an investor, and in a bear market, be a trader.

One of the most reliable tools for confirming the bulls or the bears is to monitor the financial stocks, as that group typically leads the other stock sectors in both cycles.

Technically, the 2007-09 bear became official in November 2007, when the S&P/TSX financials index quietly slipped below the 200-day moving average five months after the price peak on June 2007.

A prudent person, however, does not act on one isolated technical event but rather seeks out more evidence to confirm the possibility of a new bear market.

I have found that wealth management companies – mutual fund companies and investment dealers – tend to lead the broader financial services group, which includes banks and life insurance firms.

If we know the broader S&P/TSX financials index peaked in mid-2007, we need to know if the wealth managers "confirmed" by posting earlier price peaks.

The following confirmed the financial bear: CI Financial Corp. peaked in April 2006; Canaccord Capital Inc. in May 2006; AGF Management Ltd., April 2007; and IGM Financial Inc, May 2007.

Now we have good news, because we know the S&P/TSX financials index rebounded from the March 2009 low to rally above the 200-day moving average in early May.

Once again our wealth-manager test has confirmed the bull market, with many of them posting their last new 52-week low ahead of the broader S&P/TSX financials index.

One example of the strong wealth manager group is shown in our chart this week, which plots the weekly closes of the S&P/TSX financials index above wealth manager Canaccord Capital’s.

I have identified the December 2008 lows of each plot at (A). Note now the respective lower March 2009 lows at (B) for the financial index and the respective higher March lows at (B) for Canaccord.

This tells me the wealth managers are outperforming the broader financial services industry and, until that changes, I remain a bull.

Bill Carrigan, CIM is an independent stock-market analyst. He can be reached at info@gettingtechnical.com.

Source

Kenneth Feinberg, the Obama administration’s pay czar, said on Sunday he has broad and “binding” authority over executive compensation, including the ability to “claw back” money already paid, and he is weighing how and whether to use that power.

Feinberg told Reuters that Citigroup Inc included the contract of energy trader Andrew Hall in submissions due Friday by seven major companies still locked in the federal government’s TARP Program.

Feinberg said he hasn’t looked at Hall’s contract, which reports have said could pay him as much as $100 million this year.

“Whether I have jurisdiction to decide his compensation or not, we will take a look and decide over the next few weeks,” Feinberg said after speaking at a public forum in Martha’s Vineyard, Massachusetts, part of a newsmaker series hosted by the Martha’s Vineyard Times newspaper.

Feinberg has been consulting with seven companies that have yet to pay back money they borrowed from the government, including Citi, American International Group Inc, Bank of America Corp, Chrysler Financial, Chrysler Group LLC, General Motors Co and GMAC Inc.

Those companies faced a deadline of Friday of submitted proposals to Feinberg for their top 25 employees.

Feinberg said on Sunday that decisions he makes will be “binding,” but the law limits his power over contracts signed before February 11, 2009 paydayloan.

He also said he has the authority to use a “clawback” provision to go after compensation for executives from any company that received money from the U.S. Treasury’s Troubled Asset Relief Progr.am (TARP).

“I have the discretion, conferred upon by Congress, to attempt to recover compensation that has already been paid to executives not only in these companies, but in any company that received federal assistance,” Feinberg said during his remarks.

Asked by Reuters if he could use that ability to target a firm like Goldman Sachs Group Inc, which paid back $10 billion in bailout money, Feinberg said: “Anything is possible under the law.”

“I can claw back, but we haven’t focused on that at all,” he said.

“TOUGH DISAGREEMENTS”

Feinberg said he has been advising the seven firms under his jurisdiction on a daily basis, characterizing the meetings as “very amicable.”

“There have been some tough disagreements, but everyone is trying to get to an end place in compensation that makes sense in a post-TARP world,” Feinberg said.

Citigroup, in particular, has concerns about pay restrictions causing its top employees to leave, Feinberg said. 

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