Financial life in a big town

Facing firm demands from the European Union and financial markets to cut its deficit, Greece announced cost-cutting measures Wednesday that will save the debt-challenged country €4.8 billion, $6.53 billion, this year.

The Greek government plans to cut civil service workers’ entitlements by 12%. This includes a 30% decrease in holiday bonus payments, according to The Wall Street Journal’s online edition. Officials also said civil service pensions will be frozen for the year.

To increase revenue, the Greek government said it will raise the value-added tax to 21% from 19% on items including clothing and footwear. Sales tax on food and medicine will rise to 10% from 9% and the tax rate on printed products will increase to 5% from 4.5%.

The country will boost the tax on alcohol by 20% and raise the tax on tobacco to 65% from 63%. Taxes on gasoline prices will be hiked by €0.08 per liter.

Officials expect the measures will reduce Greece’s budget deficit to 8 free credit report.7% of the country’s gross domestic product this year from a level of 12.7% last year, according to the report. The European Union had given Greece until March 16 to show it is making progress in cutting its deficit from more than four times the allowed level.

Umbrella union for civil servants ADEDY is already speaking out against the measures and has called for a 24-hour general strike on March 16, said the Journal.

In a speech to parliament Tuesday, Greek prime minister George Papandreou said the country risks bankruptcy if it neglects to find lenders to cover its €300 billion, $409 billion, in debt, the Journal said.

Greece is preparing to raise between €3 billion and €5 billion, $4.1 billion and $6.8 billion, in a 10-year bond sale.  

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Banks have pared their reliance on central banks and governments for liquidity support as the worst financial crisis since the Great Depression ebbs, according to a study by the Bank for International Settlements.

“The take up of many measures has declined,” economist Petra Gerlach wrote in the study, published in the Basel, Switzerland-based BIS’s latest quarterly review.

The report comes as central banks such as the U.S. Federal Reserve trim some of the emergency programs they introduced to combat the crisis. The Fed has completed its purchase of U.S. Treasuries, while the European Central Bank conducted a final auction of 12-month funds in December. The Bank of Japan stopped its purchases of commercial paper and corporate bonds.

The shift “seems to reflect” the increased ability of banks to raise funds in markets, although it may also be the result of some lending programs becoming more restrictive, Gerlach said. She also said support may need to be removed to avoid distorting competition and so banks don’t have an excuse not to postpone repairing balance sheets quick cash.

While the decline in demand for liquidity is “clearly good news,” some institutions are relying more on governments and central banks than others, Gerlach said.

“This suggests that a differentiated exit strategy is desirable,” she said. “Such an approach would aim for a timely discontinuation of public support while taking into account that some financial institutions remain weak.”

The BIS also noted that banks within the European Union had a combined exposure of more than $200 billion to sovereign debt in Greece, Spain and Portugal at the end of the third quarter of last year. That dwarfs the exposures of the U.S. and Japan, where combined exposure is less than $20 billion.

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Simon Property Group Inc. late Wednesday reiterated its interest in buying General Growth Properties Inc. despite General Growth’s announcement that it has reached a $2.6 billion equity deal with Brookfield Asset Management Inc.

If approved by a bankruptcy court judge, the deal announced Feb. 23 by Chicago-based General Growth (Pink Sheets: GGWPQ) would allow the operator of the Regency Square Mall to exit Chapter 11 bankruptcy protection and possibly avoid being taken over.

Officials with Simon (NYSE: SPG), based in Indianapolis, called the deal between General Growth and Brookfield “inferior and highly conditional.”

Last week, Simon offered General Growth $10 billion, including $9 billion in cash. A total of $7 billion would have gone to creditors and $3 billion to shareholders.

In a letter to Simon executives, General Growth officials rebuffed the offer, saying it was “not sufficient to pre-empt the process we are undertaking to explore all avenues to emerge from Chapter 11 and maximize value for all the company’s stakeholders cash advance america.”

After learning of General Growth’s deal with Brookfield, Simon officials accused General Growth officers of not following the due-diligence process it referred to.

“General Growth’s proposed recapitalization amounts to a risky equity play on the backs of its unsecured creditors,” Simon officials said in the release. “While continuing to block the immediate and certain 100 percent cash recovery provided by Simon’s offer, General Growth has pre-empted its own self-proclaimed ‘process’ in favor of a highly speculative and risky plan to attempt to raise $5.8 billion of new capital in today’s uncertain markets.”

General Growth filed for protection under Chapter 11 of the U.S. Bankruptcy Code in April last year. In December, it won court approval to restructure about $10.25 billion of its debt on 103 of its 200 properties.

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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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Shares of Macy’s Inc. fell about 1 percent Monday afternoon after a Deutsche Bank analyst downgraded the stock to “hold” from “buy.”

According to a MarketWatch report, analyst Bill Dreher Jr. said the department store chain’s “My Macy’s” initiative, which consolidated merchandising and tailored it to local markets, hasn’t produced the expected results.

“Macy’s decentralization initiative is developing awkwardly and will likely need years of refinement before demonstrating significant traction," Dreher said in the MarketWatch story. He also lowered his first-quarter earnings forecast to $1.21 per share from $1.25. Analysts. on average, expect earnings per share of $1.18.

Shares of Macy’s (NYSE: M) lost about 1.5 percent, or 24 cents, to $15.69 in Monday afternoon trading.

Macy’s, with corporate offices in Cincinnati and New York, operates about 850 department stores in 49 states, the District of Columbia, Guam and Puerto Rico.

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The U.S. government posted a deficit of $91.9 billion in December, nearly double the shortfall of a year earlier and marking the government’s 15th straight month in the red, the Treasury Department reported Wednesday.

The shortfall brings the total deficit for the first quarter of fiscal year 2010 to $388.5 billion, up from $332 billion during the same period last year.

It was the second consecutive December the government spent more than it took in. In December 2008, the deficit was $51.8 billion.

While December’s deficit was less than the $120.3 billion in November, that’s no reason to celebrate. The government typically rings up a surplus in December as year-end bonuses boost high individual withholding and as companies make quarterly income tax payments.

The deficit remained high in the first three months of the fiscal year because while spending was down by $3.6 billion from the same period last year, tax revenue fell even more, dropping by $59.7 billion as individual income and payroll taxes declined.

Interest paid on the debt in December was $104.6 billion — 34% of federal outlays for the month.

"No surprises, the government obviously continues to run a very large deficit," said Gus Faucher, director of macro economics at Moody’s Economy short term personal loan.com. "But that’s necessary as a response to the recession and the financial crisis."

The Treasury estimates the annual deficit will climb to $1.502 trillion for the full fiscal year 2010, up from $1.42 trillion in 2009.

Debt ceiling: For the long term, many economists are less concerned about monthly and annual deficits, focusing instead on the enormous accumulation of national debt and its rapid upward trend.

"We want to have a big deficit now because that’s helping to stimulate the economy, said Faucher. "The concern is about the longer run."

That’s especially true after Congress raised the debt ceiling again. The new limit for the amount of debt the Treasury is allowed to have, passed in the last days of 2009, was set at $12.394 trillion, up $290 billion from the previous level of $12.104 trillion. Depending on the state of the economy, this should provide the government relief until mid-February.

As of Monday, the country’s total public debt was $12.285 trillion, $109 billion below the debt limit. 

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NEW YORK – A more upbeat outlook on jobs pushed Americans' confidence in the economy higher in December for the second month in a row, a survey released Tuesday said.

Consumers' expectations for the job market over the next six months reached their highest level in two years, but Americans remain gloomy about their current prospects.

Meanwhile, a closely watched home price index released Tuesday showed that home prices rose for the fifth month in a row in October, but the recovery continues to be uneven with only 11 of the 20 metro areas tracked showing gains.

The U.S. Conference Board said its consumer confidence index rose to 52.9, up from a revised 50.6 in November, but the reading is still far short of the 90 that would signify a solid economy. In October, consumer confidence was 48.7.

Economists surveyed by Thomson Reuters predicted a reading of 52 for December.

The index, which hit a historic low of 25.3 in February, had enjoyed a three-month climb from March through May, fuelled by signs that the economy might be stabilizing. The road has been bumpier since June as rising unemployment has taken a toll on consumers.

Economists watch consumer sentiment because spending on goods and services for consumers accounts for about 70 per cent of U.S. economic activity by federal measures.

Stocks extended their increases into a seventh day following readings. In morning trading, the Dow Jones industrial average rose 23.05, or 0.2 per cent, to 10,570.13.

One key component of the Confidence index that measures consumers' outlook over the next six months rose to 75.6 from 70.3 last month, the highest level since December 2007, when the index was 75.8. But the survey's other main component, which measures shoppers' current assessment, actually fell to 18.8 from 21.2.

The survey of 5,000 households ran Dec. 1 through 21.

"Regarding income, however, consumers remain rather pessimistic about their short-term prospects and this will likely continue to play a key role in spending decisions in early 2010," Lynn Franco, director of The Conference Board Consumer Research Center said in a statement.

Still, many retailers are breathing sighs of relief after the holiday selling season turned out better than expected, according to MasterCard Advisors' SpendingPulse, which track all forms of payment, including cash.

However, even though shoppers saw their confidence improve slightly and bought a bit more, they've been cautious in their spending. During the Christmas season, they focused on practical items for loved ones and even for themselves, while shying away from buying gift cards and opting for deeply discounted items instead.

Experts say such patterns might remain for several years amid unemployment that could be stubbornly high.

The unemployment rate dipped in November to 10 per cent, down from a 26-year high of 10.2 per cent in October. Some analysts worry it will again start to rise in coming months and won't peak until hitting 10.5 per cent next summer.

Still, businesses cut their payrolls by a net of just 11,000 jobs in November, the smallest decrease since the recession started two years ago, according to the November job report.

For December, economists surveyed by Thomson Reuters expect that the unemployment rate will tick up to 10.1 per cent, but they also expect no job losses on net when the government reports figures Jan. 8.

According to The Standard&Poor's/Case-Shiller index, home prices edged up 0.4 per cent to a seasonally adjusted reading of 145.36 in October from September. The index was off 7.3 per cent from October last year, nearly matching expectations of economists surveyed by Thomson Reuters.

The index is now up 3.4 per cent from its bottom in May, but still almost 30 per cent below its peak in April 2006.

The Conference Board survey showed that consumers' assessment of current conditions worsened in December. Those saying conditions are “bad" increased to 46.6 per cent from 44.5 per cent, while those saying business conditions are "good" decreased to seven per cent from 8.1 per cent.

Consumers' six-month outlook improved in December. Those anticipating business conditions will be better over the next six months increased to 21.3 per cent from 19.7 per cent, while those expecting conditions will deteriorate declined to 11.9 per cent from 14.6 per cent.

The outlook for the job market was also more positive. The percentage of consumers expecting more jobs to become available in the months ahead increased to 16.2 per cent from 15.8 per cent, while those expecting fewer jobs declined to 20.7 per cent from 23.1 per cent. However, the proportion of consumers anticipating an increase in their incomes declined to 10.3 per cent from 10.9 per cent.

13:01ET 29-12-09

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Finance Minister Dwight Duncan’s plan to avoid controversy with the first part of his pension reform legislation has not been a total success.

Some say his proposals to protect all workers laid off by companies go too far. After all, many pension plans are poorly funded and many companies are struggling. But others say he did not go far enough.

Duncan’s proposal in legislation tabled Wednesday would require enhanced payments starting in 2012 to anyone whose age and years of service total 55, but who has yet to qualify for early-retirement benefits. Until then, only those laid off in significant numbers would continue to enjoy such protection.

One former oil company executive argued in an email that the expansion of protection is out of step with the rest of the world and a danger to benefits of those already fired.

He noted Duncan is to meet other finance ministers in Whitehorse next Thursday to talk about expanding and standardizing pension coverage, not hastening the elimination of generous, traditional pension plans enjoyed by less than a fifth of private-sector workers.

But benefit consultants and actuaries support Duncan’s proposal, because he partly offset the cost of widening protection for laid-off workers by removing a costly, controversial and ill-defined requirement to partially wind up pension plans and divide surplus funds at the time of a significant layoff.

They think it is fair that Ontario (along with Nova Scotia) requires special treatment for long-service and older workers laid off from companies that promised qualifying employees a pension from an earlier age than 65.

"It is a very perverse thing when you fire someone at 54 to deny them what they were going to get at 55," says actuary Malcolm Hamilton of Mercer, the international benefits consulting firm. "You hold out a big promise, then you snatch it away from them."

Companies would still be able to deny workers the substantial value of an early-retirement benefit if they quit voluntarily or were fired for cause.

Multi-employer plans, and jointly sponsored plans in the public sector, could opt out of enhancing payments to those whose age and service total 55 easy payday loans.

Some benefits consultants argue limiting enhanced payments to laid-off workers is unfair to those laid off at an earlier age, and those who voluntarily leave.

James Pierrot, a lawyer with Towers Perrin, says "what we recommended to the Ministry of Finance is, if you are going to broaden entitlement to early retirement benefits, what is magical about having 55 points?

"Why not have employees earn early-retirement subsidies in proportion to their years of service? That would be much more fair than having a cut-off. Why should a person with 54.9 points not get it? It’s silly."

That said, Pierrot says it’s also odd to entrench rights under pension legislation that would more properly be included with minimum severance requirements in employment standards legislation.

Ian Edelist, an actuary with Eckler Ltd. and member of a task force on pensions formed by actuaries, said the cost of requiring that laid-off workers with 55 points be allowed to qualify for early retirement benefits would vary from plan to plan.

The cost would not be as large in plans where a high percentage of members has already retired as those with few retirees.

But he agreed with Hamilton and Pierrot that Ontario’s special requirements for laid off workers are not a primary reason for employers halting or phasing out traditional defined-benefit plans. Nor, say the consultants, will Ontario’s reforms be a big impediment to harmonization of pension legislation on more important issues.

The big issue for existing pension plans – on which Ottawa recently took the lead with proposed legislative changes – is giving employers an incentive to build a rainy-day buffer without facing demands to share surplus funds with plan members.

A much bigger issue for Ottawa and the provinces will be agreeing on how to ensure more workers get included in a low-cost, professionally managed pension plans.

jdaw@thestar.ca

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Dubai’s Nakheel asked for three of its listed Islamic bonds worth $5.25 billion to be suspended pending details of restructuring plans at its parent company, a move likely aimed at dampening speculation on the bonds.

The request briefly stalled but did not stop trading in the bonds, which are exchanged over the counter and not on the bourse, where the listing is regarded as a technicality.

The request also added to confusion that has reigned in the markets since the Dubai government last week said it would seek debt standstill agreements from creditors to Nakheel and Dubai World, briefly sparking fears of a renewed crisis.

“After the suspension announcement, it took some time on compliance to establish if they could trade, but as of 11:30 they started trading,” Mohieddine Kronfol at Dubai-based fund manager Algebra Capital said.

The three instruments listed on the exchange are a $3.5 billion sukuk due on December 14, a 3.6 billion dirham sukuk ($980.1 million) due on May 13 and a $750 million sukuk due on January 16, 2011.

Nakheel’s December bond was trading at 58 on Monday, according to Thomson Reuters data, having traded as high as 110 on Wednesday before the Dubai government’s announcement. Its 2011 debt was trading at 55.

“They are trying to minimize the huge amount of speculation going on until a definitive statement comes out,” said a Dubai-based fixed income banker.

Nakheel, developer of a series of created islands in the shape of palm trees off Dubai’s coast, said it had asked Nasdaq Dubai to suspend all three of its listed Islamic bonds, or sukuk, “until it is in a position to fully inform the market.”

Nakheel officials were not immediately available to give further details on the suspension.

Nakheel’s first bond, the $3.5 billion sukuk, was widely expected by the market to be repaid on time.

United Arab Emirate stocks tumbled 6 to 7 percent on Monday as the market reopened for the first time since Dubai called for the delay in debt repayments.

The UAE on Sunday offered the country’s banks emergency support and Abu Dhabi said it would provide selective support to Dubai companies.

($1=3.673 Uae Dirham)

(Reporting by John Irish and Jason Benham; editing by Kim Coghill, Thomas Atkins and Karen Foster)

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Premier Wen Jiabao on Sunday restated China’s long-standing position that the yuan’s exchange rate should be kept at a reasonable, balanced level.

State television showed Wen meeting a trio of top economic officials from the euro zone, who were making the case for a strengthening of the Chinese currency.

Wen also said China wanted to see stability in the world’s major reserve currencies — a thinly veiled way of saying China is unhappy with the weakening trend of the dollar.

(Reporting by Zhou Xin and Alan Wheatley)

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