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European services shrank at a record pace in November, increasing pressure on the European Central Bank to cut interest rates further this week.

Royal Bank of Scotland Group Plc’s services index dropped to 42.5 from 45.8 in October, remaining below the expansion- threshold of 50 for a sixth straight month. The final reading is the lowest in the survey’s 10-year history and falls short of an initial estimate of 43.3 published Nov. 21. Economists forecast a decline to 43.3, according to the median of 31 estimates in a Bloomberg survey. The index is based on a survey of purchasing managers by Markit Economics in London.

Europe’s economy fell into its first recession in 15 years in the third quarter after the worst financial crisis since the Great Depression pushed up borrowing costs, eroded confidence and hurt demand for exports. Slowing inflation is giving the ECB room to cut rates further as policy makers across the globe seek to limit the economic damage from the financial turmoil online payday loans.

“The extremely weak November service-sector purchasing managers’ survey exerts significant extra late pressure on the ECB to deliver a deep interest-rate cut on Thursday,” said Howard Archer, chief European economist at IHS Global Insight in London.

The ECB has cut its benchmark rate by 100 basis points, or a full percentage point, to 3.25 percent since early October and signaled more reductions are ahead. The central bank will probably cut its key rate by half a percentage point this week, a survey of economists shows. That would be the third reduction since early October.

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TD Bank Financial Group has reported fourth-quarter net income of $1.01 billion, down from $1.09 billion a year ago, but stressed Thursday it is still providing ample credit to Canadians.

TD said revenue was $3.64 billion in the three months ended Oct. 31, up from $3.55 billion a year earlier but down from $4.04 billion in the third quarter of this year.

Adjusted earnings fell to $665 million, compared with $1.02 billion a year ago.

Earnings per share were $1.22, down by 19 per cent from $1.50 a year ago, and EPS adjusted for one-time items slumped 44 per cent to 79 cents.

The quarterly results "reflected solid earnings contributions from TDBFG’s retail businesses in both Canada and the United States, while illiquid and volatile markets affected the performance of wholesale banking," the bank stated.

TD benefited from non-recurring items during the quarter, including a positive adjustment of $323 million after tax as the bank reversed much of reserves previously set aside for Enron litigation, a gain of $118 million on changes in fair values of hedging derivatives, and a $59-million gain on credit default swaps. These were partly offset by $126 million in amortization of intangibles and $25 million in restructuring and integration items.

Provision for credit losses more than doubled to $288 million from $139 million fast cash advance.

Full-year revenue was $14.67 billion, up from $14.28 billion, with reported net income of $3.83 billion, down from just under $4 billion.

Return on equity for the year fell to 14.4 per cent from 19.3 per cent.

"On the whole, we’re proud of what we’ve accomplished in 2008," stated TD chief executive Ed Clark.

"Our retail businesses are performing very well and, even though TD Securities had a tough year and a particularly tough fourth quarter, we’re pleased that its strategic positioning has protected our investors from the worst of the current turmoil."

Clark added: "As the economy slows, understandably there’s concern from governments and the public that banks may restrict credit. What’s clear from our reporting today is that TD continues to supply credit to its customers and clients."

He said TD’s personal and commercial lending in Canada has continued to grow at an accelerating rate through 2008, despite a general slowdown in credit expansion.

"While the lack of visibility on the economic environment calls for caution, we have a strategy and competitive position that will help us weather the storm," he added.

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Call them resigned or defeatist, but two leading risk managers are already sure of one lesson from the crisis ravaging the global financial system: in one way or another, it’s happened before and it’ll happen again.

“For at least 10 to 15 years, people will remember this very painful experience, take it to heart and balance risk versus return more realistically,” said John Rowe, London-based executive vice president for SunGard, a financial software maker.

“But I say to my younger colleagues: don’t assume this is the last one. If you’re young enough you’ll see the next one,” said Rowe, who used to oversee market risk at Bank of America.

Leaders of the Group of 20 developed and emerging economies have ordered financial supervisors to conduct a root-and-branch review of the shortcomings in regulation and oversight that spawned the credit crisis and still-deepening global slump.

Speaking on a recent visit to Beijing, Rowe saw no need for supervisors to become heavy-handed. But, he said, they should require banks to demonstrate they have the capacity to process their trades from start to finish and value them daily.

“And they should say ‘if you can’t show us, we’ll get real tough’,” he said. “It would slow the pace of innovation to some significant extent, but it wouldn’t completely handcuff the process.”

Even then, Rowe said the best pricing and risk management tools struggle to capture “tail risk” — statistically improbable confluences of events that have materialized with alarming frequency during the crisis, bringing many banks to their knees free credit report.

“People have been too inclined to put complete faith in the scientific certainty of the numbers that come out of all these complicated systems and abandon a certain amount of common sense.

“Part of the problem is not derivatives or risk systems. It’s human psychology at fault here. We’ve met the enemy and it’s us.”

BE HUMBLE

Nikolaus von Bomhard, the chief executive of Munich Re (MUVGn.DE: Quote, Profile, Research, Stock Buzz), the world’s largest reinsurer, thinks he may have already spotted the next market land mine: before long, the availability of too much cheap cash will once more cause risk to be underpriced.

The appetite for risk may have faded for now, but von Bomhard said he suspected this was just a fad.

“Excess liquidity will sooner or later become an issue again,” he said in an interview at the weekend.

“One or two years out, it will take a lot of discipline to take the liquidity out and not fall into the trap again of chasing yield and disregarding risk.”

As for the claims side of Munich Re’s business, von Bomhard agreed with Rowe that managing risk is as much about trying to understand human nature and technological change as it is about analyzing actuarial tables. 

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Oil prices fell over 6 per cent Monday, to below US$51 a barrel, after OPEC decided not to cut production at an informal meeting in Cairo on Saturday and on more evidence the global economic slowdown will hurt demand for crude.

By midday in Europe, light, sweet crude for January delivery was down $3.62 to $50.81 a barrel in electronic trading on the New York Mercantile Exchange. The contract had settled down a penny at $54.43 on Friday.

In London, January Brent crude fell $3.31 to $50.18 on the ICE Futures exchange.

On Saturday, Saudi Oil Minister Ali Naimi said that OPEC will "do what needs to be done" to shore up falling oil prices when the group meets Dec. 17 in Algeria, but for now it was "too early" to make another output cut.

Prices continued to slide despite a separate report by Iranian state TV in which OPEC Secretary-General Abdullah El-Badri said that a daily oil production cut of between 1 million and 1.5 million barrels was likely in December.

OPEC had already made an output cut of 1.5 million barrels a day in October, although analysts said the organization may want to observe the impact of that cut before committing to the another one.

El-Badri was quoted Monday on the station's website saying that the Organization of Petroleum Exporting Countries is facing a very difficult situation and plans to "restore oil prices to $90 per barrel."

But disheartening news from some of the world's largest economies pushed aside speculation about any future OPEC cuts.

Surveys of activity in the manufacturing sector in the euro zone and Britain were particularly poor on Monday. Both pointed to a sharper-than-expected contraction in output.

In China, an equivalent survey of its manufacturing sector also made for grim reading, generating fears that one of the main engines of global growth over the last few years is slowing sharply same day payday loans.

Sucden Research in London cited data from the United Nations, which now expects the global economy to grow by just 1 per cent in 2009, compared to an earlier forecast expecting growth of 2.5 per cent.

Meanwhile, Saudi King Abdullah told the Kuwaiti newspaper Al-Seyassah in an interview published Saturday that oil should be priced at $75 a barrel.

"They need to cut a lot to get the price to $75," said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore. "Demand is disappearing underneath them fast."

Iranian Oil Minister Gholam Hossein Nozari was quoted as saying Sunday that the market was oversupplied by around 2 million barrels per day and that production should be cut by that amount.

OPEC, which accounts for about 40 per cent of global supply, reduced output quotas in October by 1.5 million barrels a day.

"It will be difficult to get everyone to comply to a drastic cut," Shum said. "The market has assumed there will be a substantial OPEC cut so if they don't, there will be significant downward pressure on prices.''

Investors will be looking this week for signs of how bad the global economic slowdown may be, particularly U.S. retail sales at the start of the holiday shopping season.

In other Nymex trading, gasoline futures fell 5.16 cents to $1.1580 a gallon. Heating oil dropped 5.66 cents to $1.6705 a gallon while natural gas for January delivery shed 12.8 cents to $6.382 per 1,000 cubic feet.

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