Finance topics

Iceland is “hopeful” that it can finance its budget deficit internally and will draw on reserves both from the central bank and pension funds to do so, Finance Minister Steingrimur Sigfusson said in an interview.

Iceland’s budget deficit will be 150 billion kronur ($1.31 billion) to 160 billion kronur this year, Sigfusson said today. The government has reserves of the same amount at the central bank and can draw on those as well as national pension funds that have “considerable investment capacity,” he said.

The North Atlantic island’s economy capsized in October after the three biggest banks failed to finance their short-term debt, precipitating the collapse of the krona and forcing the government to turn to the International Monetary Fund and the Nordic countries for a loan. Should the government struggle to cover its deficit internally, it may once again call on its neighbors for help, Sigfusson said today.

“We will try to get away without taking out more foreign loans,” Sigfusson said. “We will lower the deficit as quickly as we can to lower interest payments, and our most likely method is to cut down on spending no faxing payday loans.”

There’s a “good outlook” to cut interest rates soon because inflation has started to come down, and the currency has had a “good development,” the minister said in Reykjavik.

Iceland will have gross debt of between 80 percent and 100 percent of its gross domestic product at the end of this year, Sigfusson said. The central bank said it bowed to IMF demands to keep the key rate on hold at 18 percent at a Jan. 29 meeting.

Inflation surged to a 19-year record of 18.6 percent last month. Price gains slowed to 17.6 percent in February, the statistics office said on Feb. 25.

Sigfusson is a member of Prime Minister Johanna Sigurdardottir’s coalition of Social Democrats and Left Greens, which took office on Feb. 1 following weeks of protests demanding the former government step down.

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Beleaguered U.S. insurance giant American International Group may allow the U.S. government to take control of certain assets should the sale of stakes in various units fail to produce attractive offers, according to a source close to the matter.

Another option under discussion is for Washington to convert $40 billion worth of preferred stock into common shares, said the source, who was not authorized to speak on the record.

AIG, facing the prospect of a third round of government aid and the largest quarterly loss in U.S. corporate history, is trying to sell off assets to stay afloat and help pay back part of the $150 billion it borrowed after being driven to the brink of collapse last year.

Deadlines for bids for the Asian assets, sales of which could raise tens of billions of dollars for AIG, are due on Friday, according to sources. AIG is also selling off stakes in U.S. subsidiaries.

An AIG spokeswoman did not immediately respond to requests for comment.

The major Asian assets on the block are AIG’s American Life Insurance (Alico), a unit that generates more than half of its revenues from Japan, and a 49 percent stake in Hong Kong-based life insurance group American International Assurance Co (AIA).

Analysts originally expected the units to fetch more than $10 billion each, but the value of the assets has likely fallen since the auction began. With the auction in its last phase, AIG has signaled it’s willing to give up control of AIA, sources said advanced payday loan.

The AIA sale process has been hampered by weakening economic conditions and suitors dropping out, though hope of China’s interest in the asset was re-kindled by an official on Thursday.

Chinese firms’ potential bids would be solely a corporate decision, said Li Kemu, vice chairman of the China Insurance Regulatory Commission, suggesting Beijing would not block involvement by a Chinese firm.

Asked whether China Life or Bank of China might bid for the American insurer’s assets, Li said Chinese companies were holding discussions with AIG about a possible deal.

“The discussion is still going on, and we are paying high attention to it,” Li said.

STATE STAKES?

Also under consideration is a plan that would allow the U.S. to take stakes in AIG assets like Alico and AIA, and either spin them off or sell them later if the current auctions fail, according to one of the sources.

“The details of the plan are not yet settled and talks are fluid,” the source said.

Plans to sell AIG assets across the globe were put in place last fall shortly after the U.S. government saved AIG from bankruptcy with a rescue that has since ballooned to around $150 billion. 

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Capt. Chesley "Sully" Sullenberger, who has been heralded as a hero for successfully landing a crippled US Airways flight in the Hudson River, told U.S. lawmakers Tuesday that the state of the airline industry is in disarray.

"Americans have experienced huge economic difficulties in recent months, but airline employees have been experiencing those challenges and more for eight years," Sullenberger said. "We’ve been hit by an economic tsunami, September 11, bankruptcies, fluctuating fuel prices, mergers, loss of pensions, and revolving door management teams who have used airline employees as an ATM."

Sullenberger testified before a House subcommittee along with others involved in last month’s emergency landing of Flight 1549 in the Hudson River. All five crew members and 150 passengers survived guaranteed personal loan approval.

Sullenberger expressed concern that the economic decline has hit the airline industry so hard that "the airline piloting profession will not be able to continue to attract the best and the brightest."

"I do not know a single professional airline pilot who wants his or her children to follow in their footsteps," he said.

"The current experience and skills of our country’s professional airline pilots come from investments made years ago when we were able to attract ambitious, talented people who now frequently seek professional careers elsewhere." 

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New Zealand consumers are making fewer applications for credit and are more likely to default on bills and mortgages as a recession enters its fifth quarter, according to the nation’s biggest credit-checking company.

Applications for personal loans, hire purchases and mortgages fell 12 percent in the six months ended Dec. 31 from a year earlier, Veda Advantage Ltd. said in an e-mailed statement. Mortgage applications alone dropped 20 percent, it said.

Rising unemployment and falling house prices are weighing on confidence and making consumers unwilling to commit to new loans amid a recession that started in the first quarter of last year. The jobless rate may rise to a 10-year high of 7 percent this year from 4.6 percent, the government forecasts.

“Consumers are clearly bracing themselves for the likelihood of greater stress on budgets in 2009,” said John Roberts, managing director of Veda in Auckland bad credit personal loan lenders.

House prices fell 8.3 percent in January from a year earlier, according to government figures. Mortgage applications were at a five-year low in January, Veda said.

“It remains to be seen what impact falling house prices and mortgage-rate cuts will have on the market, but the trends we are witnessing suggest conditions may worsen further before we see any improvement,” said Roberts.

Defaults by consumers on mortgages, personal loans and bills increased 11 percent from the first half of 2008, Veda said.

Defaults by businesses rose 50 percent from a year-earlier, it said.

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Crashing home prices have led to the most affordable housing market in at least five years, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index released Thursday.

More than 60% of all U.S. homes sold during the last three months of 2008 were affordable - meaning that a family making the national median of $61,500 a year would pay 28% or less of their total income toward housing expenses.

At 62.4% affordable, the figure is up considerably from 56.1% in the previous quarter and 46.6% at the end of 2007, according to the report.

Topping the list of most affordable U.S. metro areas, which ranks areas with more than 500,000 in population, was Indianapolis. This is the city’s 14th consecutive quarter in first place; it boasts a full 93% of all homes sold being affordable to median family households.

The least affordable was the New York City metro area, where only 13.9% of homes sold met the criteria.

In the fourth quarter, the national median home price fell to $190,000 from $205,700 in the previous-year period, according to a report issued last week by the National Association of Realtors. That combined with falling mortgage rates has made home buying the most affordable it has been since early 2002.

"Falling home prices and very favorable mortgage rates both contributed to the housing affordability gains we saw in the fourth quarter of 2008," NAHB Chairman Joe Robson, a homebuilder from Tulsa, Okla., said in a prepared statement.

That still wasn’t enough to get moribund housing markets moving again. Existing homes sold at an annualized rate of 4.74 million in December, according to the National Association of Realtors, down from more than 7 million during the boom.

And a government report revealed that new home sales crashed to an annualized rate of 331,000 in December, the lowest since record keeping began in 1963.

"Worsening economic conditions, historically low consumer confidence and uncertainty about future home prices kept many qualified buyers on the sidelines," Robson said.

Still no buying push

That affordability has improved so much does not necessarily make people go house hunting, according to Mike Larson, a real estate analyst with Weiss Research.

"You could argue that house affordability indexes are improving but that may not be the best way of defining whether it’s a good time to buy," he said. "Concerns about the economy and whether they’re going to still have a job have kept many homebuyers from stepping up to the plate."

During the boom, when house affordability plunged, buyers came out in droves. They were confident in the economy and afraid that home prices would soar out of reach. Today, just the opposite applies.

"Affordability is going to get even better," said Larson. "Home prices are not done falling no teletrack payday loan lenders. Buyers recognize this. There’s no sense of urgency, and rightly so."

Indeed, according to Nicholas Retsinas, director of Harvard University’s Joint Center for Housing Studies, affordability, which was a major factor in homebuying during the boom, no longer matters very much. In most parts of the United States, affordability has returned to where it was in 2002 or 2003.

"The new barrier is willingness to buy," he said.

That’s why one major goal of President Obama’s housing-rescue plan involves slowing foreclosures to stabilize housing markets and foster consumer confidence.

"If that happens, maybe people will start thinking, ‘Hey, maybe prices won’t go down tomorrow,’" said Retsinas.

Most and least affordable

Affordability in Indianapolis, the 33rd largest metro area in the United States with 1.7 million people, was buoyed by fairly high median income of $65,100 and rock-bottom home prices. The median price for a home sold during the quarter was just $103,000, according to the National Association of Home Builders report.

Those prices, combined with reasonable mortgage interest rates, make home-buying in the area a snap. A buyer of a median-priced home putting 20% down would pay only about $450 a month in mortgage expenses.

But even though house buying costs are reasonable, the city’s weakening economy meant it did not escape the foreclosure plague. More than 20,000 homes, representing nearly 3% of the city, received a foreclosure filing of some kind in 2008, the 26th highest rate in the nation.

Other most affordable towns were: Warren, Mich. (89.6%); Youngstown, Ohio (89.4%); and Detroit (89.3%).

In the New York City metro area, home prices took a steep dive during the quarter, to $455,000 from $500,000 three months earlier. But even that was not enough to dislodge the city from its rank as the most unaffordable metro area in the land.

Median income in the area is $63,000, less than in Indianapolis and, with home prices more than four times higher than in the Midwestern metropolis, only 13.9% of the homes sold there were affordable to median income families.

That was still a major improvement from two years ago, when only 5.1% of homes sold during the fourth quarter of 2006 were affordable. And New York households have been barely brushed by foreclosure so far with only 0.71% receiving some kind of foreclosure filing during 2008.

Other least-affordable metro areas included San Francisco at 20.6%, where affordability improved greatly from 5.7% during the second quarter of 2007; suburban Long Island, where 25.5% were affordable; and Los Angeles, where 26.9% were. 

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Confidence among U.S. homebuilders barely climbed in February from a record low, signaling the housing slump continues.

The National Association of Home Builders/Wells Fargo index of builder confidence increased to 9, higher than forecast, from 8 in January, the Washington-based group said today. A reading below 50 means most respondents view conditions as poor.

Record foreclosures are swelling the glut of properties on the market, forcing down home values and undermining builders’ efforts to revive demand and lighten inventory by cutting prices. After signing the stimulus plan into law, President Barack Obama tomorrow will announce extraordinary measures designed to stem repossessions and the drop in values.

“Home builders are especially concerned about the continually rising number of foreclosures and short sales, which are flooding the market with excess inventory,” David Crowe, the group’s chief economist, said in a statement.

The index was forecast to hold at 8 this month, according to the median of 44 projections in a Bloomberg News survey. Estimates ranged from 7 to 9.

The gauge was first published in January 1985 and averaged 16 last year.

The confidence survey asks builders to characterize current sales as “good,” “fair” or “poor” and to gauge prospective buyers’ traffic. The survey also asks participants to gauge the outlook for the next six months.

Dim Outlook

The index of sales expectations for six months from now fell to 15 this month, a record low, from 17 in January. The gauge of current single-family home sales rose to 7 from 6 and the measure of buyer traffic increased to 11 from 8.

“People are looking for deals out there because they feel it is a buyer’s market,” Leif Thomsen, chief executive officer of Mortgage Master, a Walpole, Massachusetts-based lender, said in an interview. “The activity has gotten a lot better. It hasn’t necessarily materialized into sales yet 30 day payday loans.”

Confidence increased in three of four regions in February, led by a gain in the Midwest. Sentiment declined in the Northeast.

Obama’s housing recovery plan will accelerate loan modifications for distressed homeowners and will reform the bankruptcy system for foreclosures, Housing Secretary Shaun Donovan said Feb. 13. Obama has pledged to commit $50 billion to $100 billion to housing relief from the $700 billion Troubled Asset Relief Program enacted last year.

Foreclosures

Foreclosure filings in the U.S. rose 81 percent last year to 2.3 million, the highest on record, according to RealtyTrac Inc.

While a foreclosure-driven decline in prices has helped boost sales of existing homes, it is depressing new-home purchases as builders can’t compete. New-home sales last month dropped to a record-low 331,000 annual pace, according to figures from the Commerce Department.

It would take a record 12.9 months to whittle down the number of new houses on the market at the current sales pace. That is more than twice the five-to-six months of supply the National Association of Realtors has said is consistent with a stable market. It also suggests that builders will continue to hold back on production in coming months.

The Commerce Department is scheduled to release its report on January housing starts tomorrow. Economists surveyed by Bloomberg News project it fell to a record-low 530,000 annual rate.

Toll Brothers Inc., the largest U.S. luxury homebuilder, last week said first-quarter revenue plunged 51 percent.

“The past five months have been among the most difficult in U.S. economic history,” Chief Executive Officer Robert Toll said on a Feb. 11 conference call. Buyers are worried they may lose their jobs and won’t be able to sell their existing homes, he said.

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DETROIT – Talks between the United Auto Workers and General Motors Corp. central to a turnaround plan for the struggling automaker have broken down over the issue of retiree health-care costs, a person briefed on the talks said yesterday.

A parallel set of talks between Chrysler LLC and the UAW over similar concessions were continuing over the weekend but little progress had been made, the person said.

The breakdown of talks at GM and the stalled negotiations at Chrysler come just before Tuesday’s deadline for both automakers to submit new restructuring plans to Washington as a condition of the $17.4 billion (U.S.) in federal aid that has kept them both operating since the start of the year.

"It doesn’t seem like the stakeholders are really prepared to give a whole lot," said independent auto industry analyst Erich Merkle. "It’s a high-stakes game of poker right now."

If GM cannot win agreement from the UAW and creditors to reduce its debt, analysts say the Obama administration will face a politically tough choice: either pump billions of dollars more into the struggling automaker or steer it toward bankruptcy as some critics of the bailout have urged.

Differences over how to pay the health-care costs of retirees led to UAW negotiators walking away from talks held near GM’s Detroit headquarters Friday night, the person familiar with the talks said.

GM declined to comment directly on the state of negotiations with the union. "We are committed to meeting the terms of the bridge loan and executing our restructuring plan," GM spokesperson Renee Rashid-Merem said.

Chrysler said it was also committed to meeting the terms of the federal bailout, which requires both automakers to reduce labour costs and the amount owed to a UAW-affiliated fund. "We continue to engage all of our stakeholder groups as we work through this process," Chrysler said in a statement. UAW representatives were not immediately available for comment.

Chrysler has been given $4 billion in emergency funding from the U.S. Treasury. It seeks $3 billion more.

GM owes the UAW some $20 billion – money pledged to a health-care trust for retirees no teletrack payday loans. The union faces demands that it reduce its claim to half of that amount in exchange for stock in a recapitalized GM under the terms of the federal bailout for the automaker.

GM has received $9.4 billion from the U.S. government and has been pledged another $4 billion if it can show it can be viable at a time when U.S. auto sales are near 30-year lows.

The Wall Street Journal reported yesterday that one scenario being considered by GM would put its viable assets, including international operations, into a single company. Other assets would be sold under the protection of a bankruptcy court, the newspaper said.

A bankruptcy filing would allow GM to rework its contracts with creditors, the UAW, dealers and its suppliers.

But it would also mean even steeper job losses. GM, Chrysler and Ford Motor Co. have cut 250,000 jobs since the start of the decade and are looking to cut more.

David Paterson, a GM Canada spokesperson, refused to comment on the U.S. situation but hinted that GM Canada is currently ironing out its own reconstruction plan to be submitted to Ottawa on Friday.

He would not say if employee and retiree concessions such as benefits cuts were part of the viability plan that will be presented to the federal government but made it clear that the global economic meltdown is a defining factor in the companies’ belt-tightening efforts.

Ken Lewenza, president of the Canadian Auto Workers union, said he will be keeping a keen eye on the worrisome American proceedings.

"You cannot have a healthy auto industry in Canada and an unhealthy auto industry in Detroit," he said. "There’s just too much integration between both countries. We’ve been sitting on pins and needles with the constant speculation."

With files from Jason Miller

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All week on Building Blocks we were up and down about the $15,000 home buyer tax credit that was stuffed into the big stimulus package, then cut out of the final bill. But maybe in the end St. Louis will benefit anyway. Another prominent real estate blogger pointed out that the $8,000 credit for first-time buyers will go a lot further in low-cost markets like ours than in high-cost places like California, where prices have plunged payday loan companies. Of course, $15,000 would go farther, too. But it was a nice idea while it lasted.

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Swiss bank UBS() announced it would cut about 1,600 more jobs at its investment bank after it posted a 8.1 billion Swiss franc ($7 billion) loss in the fourth quarter, missing forecasts.

UBS’s loss for 2008 came at 19.7 billion Swiss francs, the highest ever by a Swiss group. A Reuters poll had forecast UBS to have a loss of 7.1 billion Swiss francs in the quarter and a loss of 18.7 billion francs in the year.

Swiss bank giant UBS, which made nearly $49 billion of writedowns in the credit crisis, said it had suffered new money outflows of 58.2 billion Swiss franc at its prized wealth management unit, higher than the previous quarter and forecast payday loan company.

But the Swiss bank said net new money had turned positive in both wealth management and asset management in January, the first time after a streak of negative quarters.

Rich clients had withdrawn 49 billion francs in the third quarter, or around 2.5 percent of the bank’s assets under management in its core wealth management division.

(Writing by Lisa Jucca; editing by Karen Foster)

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For at least the last five years, AmerenUE has doggedly worked for approval of a fuel surcharge that would allow it to more quickly recover millions of dollars in coal and natural gas expenses from its 1.2 million electric customers.

The St. Louis utility, a subsidiary of Ameren Corp., lobbied the Missouri Legislature to get a law passed in 2005. For three years, it pleaded to regulators, claiming it was at a disadvantage to utilities in other states. Finally, the state Public Service Commission approved AmerenUE’s request on Jan. 27 as part of a rate increase that lifted revenue by $163 million a year.

Now, just two weeks later, AmerenUE is back on the PSC’s doorstep asking for a temporary change to the new rules, which haven’t yet taken effect.

Because of last month’s crippling ice storm in southeast Missouri and a bizarre set of circumstances, what would have been a $31.4 million windfall for Ameren shareholders becomes a $73 million gusher for utility customers.

AmerenUE says the potential $100 million swing in revenue ultimately threatens to wipe out almost half of last month’s rate increase.

The issue centers on Noranda Inc.’s aluminum smelter in New Madrid County. The plant, which is outside AmerenUE’s geographic service area, is the utility’s biggest electricity consumer. In 2005, the PSC approved a 15-year electric supply agreement between AmerenUE and Noranda.

The ice storm knocked out Associated Electric Cooperatives Inc.’s transmission lines that deliver AmerenUE’s power to the plant. Noranda said the outage cut plant capacity by 75 percent, and restoring full capacity could take a year.

The outage leaves AmerenUE with excess electric generation that it can sell for a higher price on the wholesale power market.

Under current rules, Ameren could sell the power at market rates. That would mean an additional $31 cash advance america.4 million in pretax earnings for AmerenUE and its parent’s shareholders.

But the PSC-approved fuel surcharge will require that 95 percent of the additional revenue from the sale of excess power go to utility customers.

AmerenUE said in its filing that "giving customers a windfall caused solely by an act of God that reduced Noranda’s production would be unjust, unreasonable and unfair."

"We never anticipated an ice storm like we saw in southeast Missouri," utility spokeswoman Karen Foss said. "All we’re asking for is a one-time exception for this extraordinary situation."

But consumer groups that vehemently opposed the fuel surcharge balked at the idea of taking revenue from customers and giving it back to utility shareholders.

"I’ve been doing this for a long time, and I can’t remember a time when I was so appalled at the greed and callousness of a utility," said Lewis Mills Jr., Missouri’s public counsel. "They’ve literally spent millions of dollars getting this particular fuel adjustment clause through. That’s why it’s so outrageous."

Foss said AmerenUE is only asking the commission to "be made whole," so that it isn’t penalized from the storm and damage to transmission lines it doesn’t own. Customers would still benefit from any additional profit on power sales above what’s needed for the company to recoup lost revenue.

The utility has asked the PSC to rule on the request by Feb. 19. The fuel surcharge and higher electric rates are expected to take effect March 1.

jtomich@post-dispatch.com | 314-340-8320

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