Finance topics

U.K. lenders should cap mortgages at 90 percent of the property’s value and no more than three-and-a- half times a household’s annual income to prevent another housing bubble, the Institute for Public Policy Research said.

The U.K.’s “addiction to house-price inflation” is damaging the economy and the Conservative-led coalition government should make price stability a priority, the London- based advisory group said in a report today.

“Britain has suffered four housing bubbles in the last 40 years, each of which contributed to major economic and social problems,” Nick Pearce, a director at the IPPR, said in the statement. “We need tougher mortgage-market regulation from the FSA, especially caps on loan-to-value and loan-to-income ratios.” The Financial Services Authority, or FSA, regulates U.K. mortgage providers and other financial-services companies.

House prices tripled in the 10 years through 2006, rising by 12 percent a year, IPPR said. Mortgage lending as a percentage of gross domestic product is 81 percent, compared with 73 percent in the U.S., 49 percent in Canada and 44 percent in Western Europe.

The average loan for a first-time buyer was 3.15 times annual household income in March, IPPR spokesman Richard Darlington said by e-mail. In 2007, when the U.K.’s real estate market peaked, 28 percent of all advanced mortgages had loan-to- income ratios of 3.5 or more. First-time buyers regularly took out mortgages of 100 percent of the property’s value.

‘Build-To-Let’

The ease of obtaining mortgage finance fueled the boom in U.K. residential property prices and helped private landlords to keep institutional investors out of the market. About 83 percent of residential investors owned 10 units or less as of March 31, according to the Association of Residential Letting Agents.

The value of loans taken out by private landlords increased 22 percent last year, Council of Mortgage Lenders data shows, while mortgages obtained by all types of homebuyer fell 5.1 percent, according to the Bank of England.

“We should be encouraging institutional investors to ‘build-to-let,’ while discouraging individual property speculators using buy-to-let mortgages which can artificially inflate our housing market,” Pearce said.

Almost two thirds of non-homeowners believe they have “no prospect” of buying a home, according to a survey published today by Lloyds Banking Group Plc (LLOY)’s mortgage division, Halifax. Seventy-seven percent aspire to own their own home, while nearly half of those surveyed said Britain is becoming more like mainland Europe in terms of the popularity of rented accommodation.

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Treasury notes gained for a seventh week, the longest streak in more than two years, as concern the debt crisis in Europe is worsening and signs of slowing growth in the world’s largest economy stoked demand for the relative safety of government debt.

Two-, five- and seven-year notes gained as investors bid the most in almost 17 years for five-year debt and since seven- year securities were reintroduced in 2009 at auctions this week, while benchmark 10-year notes appreciated for a second week. U.S. government data showed the economy grew more slowly than forecast in the first three months of the year. Employers added fewer jobs in May than in April, according to a Bloomberg News survey before the June 3 report.

“As long as Europe is in this tenuous position, you’re going to have some safe-haven flow into U.S. fixed-income,” said Scott Sherman, an interest-rate strategist at Credit Suisse Group AG in New York, one of 20 primary dealers that trade directly with the Federal Reserve. “It will take some time to remove the uncertainty.”

The yield on the 10-year note fell eight basis points or 0.08 percentage point to 3.07 percent from 3.15 on May 20. It touched 3.04 percent yesterday, the least since Dec. 7. The 3.125 percent security due in May 2021 rose 19/32, or $5.94 per $1,000 face amount, to 100 14/32.

Yield Drops

Two-year yields fell four basis points to 0.48 percent, five-year note yields dropped seven basis points to 1.72 percent and seven-year notes declined eight basis points to 2.40 percent. The streak of declines in seven-year yields is the longest since the security was reintroduced in 2009. The runs of declines in two-and five-year yields were last seen in November and December of 2008.

Treasuries have returned 1.44 percent in May, heading for the best month since August, according to Bank of America Merrill Lynch data. They rose 1.15 percent in April and have returned 2.47 percent so far this year.

At the May 26 seven-year note auction, the securities drew a yield of 2.429 percent, compared with the average forecast of 2.448 percent in a Bloomberg News survey of nine primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with amount of securities offered, was 3.24, the highest level since February 2009, the beginning of records on the data for this maturity.

Bid Patterns

The government’s $35 billion auction of five-year securities May 25 drew the highest bid-to-cover ratio since 1994, while demand at the sale of the same amount of two-year debt on May 24 was the strongest since January.

Yields on 10-year yield on German bunds fell a for seventh week, closing below 3 percent for the first time since January as investors sought safe assets amid concerns about the need to restructure Greek debt and as inflation slowed.

European confidence in the economic outlook weakened for a third straight month in May as the region’s worsening debt crisis and surging commodity costs clouded growth prospects. An index of executive and consumer sentiment in the 17-member euro region slipped to 105.5 from 106.1 in April, the European Commission in Brussels said yesterday.

“We’re going to have this lingering backdrop for a while,” said Michael Cloherty, head of U.S. interest rate strategist at Royal Bank of Canada’s RBC Capital Markets unit in New York, a primary dealer. “You don’t resolve Europe in a weekend. You’re looking for things they can do that buy them time. ”

Global Outlook

Group of Eight leaders said a strengthening global economy will pave the way to cuts in the debt built up during the recession that followed the 2008 financial crisis.

“The global recovery is gaining strength and is becoming more self-sustained,” according to a statement yesterday after a two-day summit in Deauville, France. President Barack Obama told leaders that the U.S. budget deficit limited the country’s ability to act as the engine of the global economy, the European diplomats said.

America’s gross domestic product grew at 1.8 percent annual rate in the first quarter, Commerce Department figures showed May 26. The gain was the same as estimated last month and compared with a 3.1 percent increase in the prior quarter. The median forecast of 82 economists in a Bloomberg News survey was for a revised 2.2 percent gain.

U.S. employers may have added 185,000 jobs in May, compared with 244,000 in April, according to the median forecast in a Bloomberg News survey of 68 economists. The nation’s unemployment rate is projected to fall to 8.9 percent from 9 percent.

“The economy remains tepid, growth is tepid, which in the mindset of the marketplace pushes the Federal Reserve on hold probably longer,” said Charles Comiskey, head of Treasury trading in New York at Bank of Nova Scotia.

The Fed’s target rate for overnight lending between banks will rise to 0.5 percent by the first quarter of 2012, according to median forecast of economists surveyed by Bloomberg News. The central bank has kept its target rate at zero to 0.25 percent since December 2008.

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There will be 146 fewer Blockbuster Canada stores that accept gift cards issued by the video and game retailer starting today as liquidation sales begin at the locations that will be closed in coming weeks.

The firm Grant Thornton, which is court-appointed receiver for Blockbuster Canada, is maintaining a list of locations that are due to be closed on its website.

As of Thursday, there were six more locations on the list than previously reported earlier this week when store employees got the news.

Ontario will have the largest number of closures at 63, but every province will lose at least one Blockbuster store.

Blockbuster currently operates about 400 stores across the country.

An estimated 1,400 employees could lose their jobs out of the 4,000 who work for Blockbuster across Canada.

French Finance Minister Christine Lagarde declared her candidacy to head the International Monetary Fund, saying she should be judged on the basis of experience rather than nationality.

“Being a European should not be a plus and it shouldn’t be a minus,” she said at a press conference in Paris today. “I am not arguing for my candidacy because I am a European.”

The IMF executive directors representing Brazil, Russia, India, China and South Africa united yesterday to protest publicly the presumption that the fund’s next chief once again be a European. The IMF has been led by Europeans since it was set up after World War II.

Lagarde, who would succeed countryman Dominique Strauss- Kahn and become the first woman to lead the Washington-based lender to nations since its founding in 1945, now has the backing of Europe’s main economies and, according to her government, China. Brazil will also privately support her rather than her main rival, Mexican central bank governor Agustin Carstens, a Brazilian government official said.

“It’s looking like it’s almost a done deal for Lagarde,” Desmond Lachman, a former deputy director at the IMF and now a resident fellow at the American Enterprise Institute in Washington, said by telephone. “The emerging markets can’t get their act together and back one candidate.”

U.S. Role

The U.S., which may hold the decisive vote with a 16.8 stake in the fund, has not committed itself publicly. Treasury Secretary Timothy F. Geithner said today that Lagarde and Carstens are “very talented” candidates.

President Barack Obama and fellow Group of Eight leaders plan to convene tomorrow in the French resort of Deauville, where the succession at the IMF is likely to be discussed.

Poland joined the list of those backing Lagarde, PAP newswire cited Jacek Rostowski, the Polish finance minister, as saying. “Minister Lagarde’s candidacy is very good, it’s difficult to imagine a better one, and it has the full support of the Polish government,” Rostowski said today, according to PAP.

Carstens remains the Mexican government’s choice for the IMF even after Lagarde announced her candidacy, Mexican Finance Minister Ernesto Cordero said.

“They are both strong, credible candidates,” Cordero said in Paris after a meeting with Lagarde. “We agreed that what the IMF needs is an open, transparent, merit-based process.”

Developing Nations

Cordero said he wasn’t surprised that other developing nations haven’t openly supported Carstens. “It’s early in the process,” he said. “Everyone is being prudent, which is what we need at this stage.”

Lagarde, 55, has an 88 percent chance of becoming the IMF’s 11th managing director and its fifth from France, according to Dublin-based odds-maker Intrade.com. The 187-member IMF aims to pick a successor to Strauss-Kahn by the end of June, little more than a month after he resigned following his arrest in New York on charges of attempted rape and sexual assault.

A lawyer who practiced in the U.S. before entering French government in 2005, Lagarde would bring frontline experience of the sovereign-debt crisis at a time when Greece is striving to persuade investors it can avert default.

The Swiss franc climbed against all of its 16 most-traded peers, reaching a record versus the euro, on concern Greece’s debt crisis threatens the region’s economic recovery. The franc strengthened 1 percent to 1.2287 per euro at 12:20 p.m. in New York after reaching 1.2272.

U.S. Backing

“No doubt Mr. Obama will come under pressure in Deauville about all of this,” Edwin Truman, a former official at both the U.S. Treasury Department and the Federal Reserve who is now a senior fellow at the Peterson Institute for International Economics in Washington, said by telephone.

Rather than jumping on the European bandwagon, the U.S. will probably reserve its backing for Lagarde until it becomes clear she has the broad support of IMF membership, Truman said.

While the fund’s executive board has pledged to act transparently and make an appointment based on merit, European leaders have moved swiftly to support Lagarde. U.K. Chancellor of the Exchequer George Osborne praised her leadership skills during France’s current presidency of the Group of 20, while Italian Prime Minister Silvio Berlusconi called her “excellent.” Jose Barroso, the European Commission president, said he “fully endorsed” Lagarde’s candidacy in an e-mailed statement today.

China is also “favorable” on the prospect of Lagarde leading the IMF, French government spokesman Francois Baroin said yesterday. Chinese officials haven’t publicly commented on specific candidates.

Strauss-Kahn Term

In exchange for its private support for the European contender, Brazil will push for Lagarde to run the fund only until the end of next year, when Strauss-Kahn’s term would have expired, said the Brazilian official, who requested anonymity because he isn’t authorized to speak publicly about the issue.

Lagarde said today that if named to the job, she’ll stay in it for a full five years, unlike Strauss-Kahn or his predecessor Rodrigo de Rato. “To me, it’s essential that the whole mandate be fulfilled,” she said. “If I’m elected, I promise to complete the mandate.”

“In a large number of countries there are extremely good people,” Charles Wyplosz, director of the International Center for Money and Banking Studies in Geneva, said in a radio interview with Tom Keene on “Bloomberg Surveillance.”

“The field should be open, and I personally am very upset that the Europeans are trying to close it down and prevent any serious competition,” he said.

The IMF provided a record $91.7 billion in emergency loans last year and accounts for one-third of the euro-region’s bailout packages. Its next chief will be at the center of debates on determining an escape route for the euro out of the debt crisis, which still threatens to push Greece, Ireland and Portugal into default and raised concern about the currency’s longevity.

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DNA taken from former International Monetary Fund leader Dominique Strauss-Kahn matches material on the uniform of a hotel maid who says he sexually assaulted her, two people familiar with the investigation told The Associated Press.

The two people would not describe the material found on the shirt but said DNA matched a sample from Strauss-Kahn, who submitted to testing after his arrest more than a week ago. He denies the maid’s allegations.

Testing was being performed on other items, said the two people, who were not authorized to speak publicly about the matter and spoke to the AP on Monday on condition of anonymity.

During their investigation, authorities cut out a piece of carpet and swabbed sinks and other surfaces in his hotel room. Investigators told the AP they believed the carpet in the hotel room may contain Strauss-Kahn’s semen, spat out after an episode of forced oral sex by the maid.

The forensic evidence is the first to link Strauss-Kahn to the woman _ and it’s also on track with what his lawyers have suggested would be his defense.

Strauss-Kahn’s attorney Benjamin Brafman declined to comment on Monday. At a court hearing last week, he told a judge that forensic evidence developed in the investigation “will not be consistent with a forcible encounter” _ leading to speculation that Strauss-Kahn’s defense would argue that it was consensual.

New York Police Department spokesman Paul J. Browne and the Manhattan district attorney’s office wouldn’t comment.

The one-time French presidential contender has been charged with a criminal sex act, attempted rape and sexual abuse and is free on $1 million bail, under house arrest at a lower Manhattan apartment. He’s been accused of attacking the 32-year-old West African immigrant on May 14 in his luxury suite at the Sofitel hotel near Manhattan’s Times Square. His lawyers say he’s innocent.

Staff at the Sofitel told authorities that the 62-year-old Strauss-Kahn had made passes at them the day before the attack was reported, including flirting with a clerk and calling another employee to ask her up to his room, according to a third person with direct knowledge of investigators’ interviews with staff paydayloans.

Strauss-Kahn had flirted with one female staff member who accompanied him to his suite to make sure his accommodations were satisfactory after he checked in on May 13, the person said. Later, he phoned the desk clerk who had checked him in, asking her if she would like to get together with him when she got off duty, the person said. The desk clerk refused, saying she was not allowed to socialize with the VIP guest, the person said.

That person also wasn’t authorized to speak publicly and spoke to the AP on condition of anonymity.

On Monday, lawyers for Strauss-Kahn continued to search for new housing for their client as he awaits trial. His bail agreement hit a snag late last week after tenants at the Upper East Side apartment building chosen for his house arrest refused to allow him, citing unwanted media attention.

Strauss-Kahn has been staying at a temporary location under watch by armed guards with Stroz Friedberg, the same company that guarded disgraced financier Bernard Madoff. It wasn’t clear when he would be moved. French and U.S. media have been staking out the building where Strauss-Kahn spent the weekend after he was released from his Rikers Island jail cell.

He resigned last Wednesday from the IMF.

His attorneys have described Strauss-Kahn as a loving father and family man. They say his actions after the attack was reported are not those of a guilty man eager for a quick escape. He left the hotel, had lunch and then phoned later to ask if he’d left anything behind. When hotel staff said he had left his cellphone, he told them exactly where he was: at John F. Kennedy International Airport on a flight bound for Paris. Authorities pulled him from the jetliner.

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Success breeds followers. So will LinkedIn’s blockbuster IPO lure scores of private companies to the stock market?

“One company does not make a trend, but it can certainly help,” says Mark Heesen, president of the National Venture Capital Association, the venture-capital community’s trade group.

LinkedIn Corp. jumped 109 percent on its first day of trading Thursday. Financial news channels tracked the company’s soaring stock as it lifted off, turning its backers into millionaires and maybe more on paper. A dazzling debut like that, Heesen says, is bound to encourage eager entrepreneurs and the investors who back them to follow LinkedIn’s lead.

The networking web site raised $352 million from investors, and then more than doubled from its $45 opening price. The stock slipped 1 percent Friday to $93.09.

LinkedIn is the biggest example of a trend that’s already under way but has escaped much notice until now. The market for initial public offerings has finally emerged from a long drought. Car-sharing service Zipcar Inc., hospital chain HCA Holdings and others have raised $24 billion through initial public offerings so far this year, according to data provider Dealogic. That’s more than triple the amount during the same period a year ago.

Kathleen Smith, a principal at the IPO advisory firm Renaissance Capital, says that if companies keep going public at their current pace, more than 200 companies would raise $50 billion this year. It would easily be the best year for IPOs since the Internet bubble popped.

“2011 could be the best year since 2000,” Smith says.

One reason for the rush of companies wanting to go public: They are joining a two-year rally. The typical newly listed company lost half its value in 2008, using Renaissance Capital’s IPO index as a gauge. The index, which tracks returns on companies listed in the previous two years, jumped 20 percent last year and is up 3.4 percent so far this year.

“In the long run, the market only works if these stocks trade up,” Smith says.

Strength in the IPO market can start a virtuous cycle, Heesen says. Venture capital firms hoping for a LinkedIn-sized payday are encouraged to back more entrepreneurs. Investment banks are more willing to line up investors and take companies public. And after going public, companies are likely to use their cash to hire more workers.

The financial crisis upended all markets in the fall of 2008. But the market for IPOs remained bleak longer than others. Just two companies went public in the first three months of 2009.

“Those were the Death Valley days,” Smith says.

Now, some 165 companies have filed with the Securities and Exchange Commission to open their companies up to public investors, the largest lineup since 2000. The list includes Dunkin’ Donuts, Spirit Airlines and Yandex, a Russian internet search company. Both Spirit and Yandex are set to debut this week.

LinkedIn’s ascent on Thursday naturally brought comparisons with the tech bubble and IPOs from companies like Netscape, Amazon.com and Pets.com. Consider LinkedIn’s valuation. At a market value of $8.8 billion, the company is already worth 18 times its projected sales this year. Major internet companies like Google go for an average of five times projected sales, according to an analysis by Capital IQ.

But the current breed of IPOs is different, says Jay Ritter, a finance professor at the University of Florida. In the 1990s, an average of 300 companies went public a year, and they were mostly small start-ups. In 2010, 171 companies went public and many were established companies.

LinkedIn is hardly a fledgling Internet website. It earned $3.4 million last year on $243 million in revenue. “LinkedIn is not a small company,” Ritter says.

Another key difference: the companies going public now are more likely to be profitable, whereas tech-bubble companies were more likely to sell the promise of profits. According to Renaissance Capital’s data, 70 percent of companies that went public in the tech bubble were losing money. Today, 70 percent of companies that go public have already turned a profit.

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Chip Cutter contributed to this report.

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TMX Group

Sears Holding Corp. moved to a first-quarter loss, dragged down by the absence of a government appliance rebate program and softer sales at its Kmart and Sears stores.

Earlier this month the company led by billionaire Edward Lampert cautioned that it would post a bigger-than-expected loss due mainly to a drop in appliance, clothing and consumer electronic sales.

Sears lost $170 million, or $1.58 per share, compared with net income of $16 million, or 14 cents per share fast cash loans. The adjusted loss was $1.39 per share.

Revenue fell 3 percent to $9.71 billion.

Analysts expected a loss of 99 cents per share on revenue of $9.73 billion.

Sears is also considering a possible move of its headquarters. State and local incentives it receives expire next year.

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Housings starts in the U.S. unexpectedly fell in April as flooding and tornadoes in the South shut down construction sites and homebuilders continued to struggle almost two years into an economic recovery.

Work began on 523,000 houses at an annual pace, down 11 percent from the prior month and less than the 569,000 median forecast of economists surveyed by Bloomberg News, figures from the Commerce Department showed today in Washington. Building permits, a sign of future construction, also decreased.

Falling home values and the prospect of more foreclosures entering the market mean home construction will be slow to gain traction. Unemployment at 9 percent and stagnant wages indicate any recovery in housing may take years to unfold.

“Job growth is essential to household formation and to keep home prices from falling further,” said Eric Green, chief market economist at TD Securities Inc. in New York, who forecast permits at 550,000. “I don’t see home sales doing much of anything” for the foreseeable future.

Another report today showed industrial production unexpectedly stalled in April, reflecting a temporary drop in auto making after supplies of parts were disrupted by the Japanese earthquake and tsunami, according to data from the Federal Reserve. Output was unchanged after a 0.7 percent gain in March, figures from the Federal Reserve showed. Manufacturing fell 0.4 percent, the report showed.

Treasuries Rise

Treasury securities rose after the reports as the slowdown in construction and manufacturing gives Federal Reserve policy makers reason to keep interest rates low. The yield on the benchmark 10-year note, which moves inversely to prices, fell to 3.12 percent at 10:09 a.m. in New York from 3.15 percent late yesterday. The Standard & Poor’s 500 Index fell 0.4 percent to 1,324.51.

Housing starts estimates ranged from 500,000 to 600,000 in the Bloomberg survey of 74 economists.

The Commerce Department revised March’s total to a 585,000 pace, up from a previously estimated 549,000. Starts reached a record low 477,000 pace in April 2009.

Building permits fell 4 percent to a 551,000 annual pace in April. They were projected to rise 0.9 percent to a 590,000 level, according to the survey median.

Construction of single-family houses decreased 5.1 percent to a 394,000 rate in April from the prior month. Work on multifamily homes, such as townhouses and apartments, fell 24 percent to an annual rate of 129,000, the weakest so far this year.

Plunge in South

Starts dropped in two of four regions, led by a 23 percent decrease in the South, the largest area. They fell 4.8 percent in the Northeast and climbed 16 percent in the Midwest and 3.7 percent in the West.

All of the weakness in starts was due to the plunge in the South, reflecting flooding on the Mississippi River that continued into May, Morgan Stanley economists David Greenlaw and Ted Wieseman wrote in a note to clients today. They forecast starts to show “little increase” this year.

Last month was the 10th wettest April since record-keeping began in 1895, with 875 preliminary reports of tornados, a record for any month, according to the National Climatic Data Center. Most wind damage occurred from the southern and central plains to the Atlantic coast.

Confidence among U.S. homebuilders was little changed in May, restrained by a drop in the sales outlook, a report from the National Association of Home Builders/Wells Fargo showed yesterday. The group’s sentiment index held at 16 for a second month. Figures less than 50 mean more respondents view conditions as poor.

Existing-Home Sales

Sales of existing homes, which make up more than 90 percent of the market, rose 2 percent to a 5.2 million annual pace in April, economists surveyed by Bloomberg forecast the National Association of Realtors may report on May 19. Purchases of previously owned houses have been increasing on demand for lower-priced distressed homes.

CoreLogic Inc. in March estimated about 1.8 million homes were delinquent or in foreclosure, a so-called “shadow inventory” set to add to the 3.5 million existing homes already on the market.

Toll Brothers Inc. Chief Executive Officer Douglas Yearley Jr. last week said the April through June home selling season, typically the busiest of the year, has been “disappointing” and that “people are still scared.”

Demand for new houses will remain weak into 2012, said Bill Wheat, chief financial officer of D.R. Horton Inc., who last week also projected a housing recovery will take time to develop.

Jeffrey Mezger, chief executive officer of Los Angeles- based KB Home (KBH), said he expects sales to “bump along for the next 18 months.”

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Residents from two towns in an expanded exclusion zone around Japan’s damaged nuclear power complex were adjusting to life in evacuation centers Monday after leaving their homes on government orders.

The towns are among several that have registered relatively high radiation readings but are outside a previous 12-mile (20-kilometers) radius evacuation zone around the tsunami-crippled Fukushima Dai-ichi nuclear power plant. In late April, the government said residents in these areas should prepare to evacuate over the coming month due to concerns about cumulative radiation levels.

Town officials said Monday that about 50 residents from Kawamata and four families from Iitate vacated their homes over the weekend.

Officials in Iitate said they intend to have most of the town’s residents evacuated by the end of the month. The scenic, rural village had a population of 6,500 before the earthquake and about 2,000 people have already moved out voluntarily saving account payday loan.

On Sunday, four families with babies or pregnant women relocated out of town, according to an Iitate official who did not give his name because he was not authorized to make public comments to the media.

He said it is difficult to estimate how many people remain in the town because many are evacuating on their own and the village does not have details on their circumstances.

Officials said they have not set an exact date for the final evacuations because some residents may have trouble leaving _ because they own livestock or for other reasons _ and may require extra time.

Workers have been trying to bring the Fukushima plant under control for more than two months since the March 11 earthquake and tsunami knocked out the complex’s cooling system and it began leaking radiation.

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