Finance topics

European Union finance ministers will give Chancellor Angela Merkel’s government until 2013 to bring Germany’s budget deficit back in line with EU fiscal rules, a draft document shows.

The German government should start reducing the budget deficit in 2011, cutting the shortfall by 0.5 percent of gross domestic product per year, according to the draft recommendation scheduled for adoption by ministers at a meeting in Brussels next week. The deficit, projected to reach 5 percent of GDP next year, should be back below 3 percent by 2013, according to the draft, which was obtained by Bloomberg News.

“In addition, the German authorities should seize any opportunity beyond the fiscal effort, including from better economic conditions, to accelerate the reduction of the gross debt ratio back toward the reference value” of 60 percent of GDP, according to the recommendation.

The document, prepared by a group composed of officials from the 27 EU nations, the European Central Bank and the European Commission, will be discussed by finance ministers at a meeting in Brussels on Dec. 1 and 2.

German Finance Minister Wolfgang Schaeuble has said he will bow to EU pressure to help strengthen the Stability and Growth Pact that was put in place to protect the euro. France has asked for an extra year to cut its deficit to 3 percent of GDP.

Merkel’s government has until June 2, 2010, to outline in detail how it intends to comply with the EU’s consolidation demands, according to the document. Merkel should enact policy measures that would help Germany’s economy grow at a faster pace in times of normal economic growth, the recommendation shows.

Economic Stimulus

EU finance ministers have committed to withdrawing economic stimulus after 2010 and to start reining in deficits that have swelled because of the recession. Germany’s budget shortfall will peak at 5 percent of GDP in 2010, and France’s deficit at 8.3 percent this year, the commission forecast on Nov. 3.

“For this government, the Stability and Growth Pact is not up for discussion and we will do everything to make sure it stays strong,” Schaeuble told reporters in Brussels on Nov. 10. To afford tax cuts promised to voters, Germany needs “a strict budget policy,” he said.

Merkel’s Cabinet on Nov. 9 approved tax cuts for 2010 totaling 6 billion euros ($8.9 billion). The measures, including expanded children’s benefits, are supplementary to about 10 billion euros in tax reductions taking effect on Jan. 1 that were approved in June by Merkel’s previous coalition.

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European exports to China, the world’s fastest-growing major economy, fell 5.3 percent in the first half of the year as the euro’s appreciation made the goods from the region less competitive abroad.

The value of exports from the 27-nation European Union to China declined to 37.4 billion euros ($55.8 billion) from 39.5 billion euros in the year-earlier period, the EU’s statistics office in Luxembourg said today. EU imports from China fell 8.4 percent to 102.7 billion euros, narrowing the trade deficit to 65.3 billion euros from 72.7 billion euros.

European officials have called on China to let the yuan strengthen and European Central Bank President Jean-Claude Trichet will travel to China this weekend to discuss the matter cheap payday loan. The euro has gained 15 percent against the Chinese currency in the past year, fueling complaints that yuan’s peg to the weakening U.S. dollar is creating an unfair advantage for China’s exporters.

China is the EU’s second-largest trading partner, after the U.S., with machinery and vehicles accounting for about 60 percent of European goods shipped to the Asian nation. The value of German exports to China decreased to 16.2 billion euros in the first half from 16.8 billion a year earlier, according to today’s report.

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The independence of the Federal Reserve is essential for credible monetary policy and doubts about the U.S. central bank’s ability to do its job without political interference could hurt the nascent economic recovery, a senior Federal Reserve official said on Sunday.

“Talk of eroding the Fed’s independence can be counterproductive for economic recovery,” St. Louis Federal Reserve Bank President James Bullard said in slides to accompany a presentation prepared for a panel discussion in New York.

Bullard said that non-independent central banks have historically been forced to finance large government budget deficits. “This can be very inflationary,” he added.

Last week, a U.S. congressional panel approved a measure to open the Fed’s monetary policy decisions to government audits — a surprise blow to the central bank’s efforts to shield its independence and a signal of the frustration on Capitol Hill with the central bank.

The amendment was a further congressional slap at the U.S. central bank after a Senate regulatory overhaul proposed stripping the central bank of its regulatory authority.

Some lawmakers fault the Fed for failing to anticipate or prevent the financial crisis that pitched the economy into a deep recession.

Bullard batted back criticism that the Fed missed the brewing crisis, saying the central bank provided “important warnings” before the crisis began.

He noted that his predecessor at the St. Louis Fed, William Poole, argued in the early 2000s that Fannie Mae and Freddie Mac were “ticking time bombs,” while former Federal Reserve Bank of Minneapolis President Gary Stern published a book entitled “Too Big To Fail,” warning some financial firms were growing too large for proper supervision payday loan.

“These types of warnings show that the Fed is well aware of systemic risk concerns in real time,” Bullard said in his slides.

He argued the Fed needs a role in regulating institutions to whom it may lend if required to as the “lender of last resort.”

Bullard also said that to do its job of setting monetary policy effectively, the Fed needs to know the conditions of the financial system.

“The need to know the status of financial markets has been underscored by recent events,” Bullard said. The United Kingdom’s model, in which the Financial Services Authority is in charge of regulation and the Bank of England is in charge of monetary policy “did not work well during this crisis,” he said.

“The crisis in the UK has been even worse in some dimensions than in the U.S.,” Bullard said.

He also said that despite the current crisis, the Fed’s track record of handling crises in the last 25 years has been “reasonably good.”

Bullard, who will vote on the Fed’s policy-setting panel next year, did not comment on outlook for monetary policy.

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GATINEAU, QUE.–Canadian television could get skinnier.

Some of the nation’s broadcasters are suggesting Canadians be offered a "skinny basic" package of TV channels, a smaller but cheaper version of the basic channels available today.

They made their arguments Tuesday during hearings before the Canadian Radio-television and Telecommunications Commission, though cable and satellite providers are vehemently against the idea.

For consumers, the proposition might mean giving up channels on the current basic package and paying a low fee set by the CRTC for a smaller set of channels consisting of local, regional and some national programming.

It is one of several ideas Canada’s conventional broadcasters are offering to help their ailing industry, at a time when falling advertising revenue and the splintering of ad dollars among scores of channels have made local programming unprofitable.

"We know it can work. We know, on a cost basis, it can be done by cable companies," said Steven Guiton, chief regulatory officer at CBC/Radio Canada. "And that’s why we think it’s realistic."

When pressed for details of such a proposal, Hubert Lacroix, president and CEO of CBC/Radio Canada, said the state-owned broadcaster is holding its comments for a separate set of CRTC hearings scheduled for early December.

The CRTC’s commissioners quizzed CBC officials on the subject repeatedly, and threw questions about a basic package at officials of Bell Canada, who also appeared before the commission.

Both Monday and Tuesday, CRTC chair Konrad von Finckenstein seemed almost to beg the broadcasters and their rivals, the cable and satellite carriers, to negotiate a deal among themselves and come to him for approval. The carriers have refused to negotiate, saying they have nothing to gain.

The cable and satellite carriers are dead set against the idea of a smaller basic cable package. Bell Canada said its own basic service – which is larger than the one broadcasters are suggesting – is a loss-making venture that attracts few customers cash till payday.

"There’s little take-up, so what’s the point?" asked Mirko Bibic, Bell’s vice-president for regulatory and government affairs.

Rogers Communications Inc. argued a slightly different position on Monday: that a basic TV package, such as the one suggested by the CBC, would remove channels from Canadians and force them to replace them at a cost, leading to a widespread consumer backlash.

Pam Dinsmore, vice-president, regulatory, for Rogers Cable, said a "skinnier" package is a customer-friendly way of loading additional fees onto consumers.

Earlier, in a formal presentation to the CRTC, CBC/Radio Canada used the example of Quebec’s Vidéotron as a possible model. Under that system, consumers pay a cheaper rate for a more basic package and extra for non-basic, specialty channels.

CBC also argued Tuesday for the right to negotiate a fee for its local signals.

The CRTC has twice rejected proposals by broadcasters for so-called "fee-for-carriage," but is hearing from both sides in the debate for a third time.

Broadcasters including the CBC, Global and CTV are asking the federal government to step in and find a way to force cable and satellite providers such as Rogers Communications, Bell Canada and Shaw to sit down and negotiate a fee to carry local TV.

The carriers want to keep the status quo, which is profitable for them. However, broadcasters say their current business model is "broken" and losing them money as advertising declines.

If broadcasters win before the CRTC, the cable and satellite providers have said they would have no choice but to pass the cost on to consumers in the form of what they call a TV "tax."

The hearings continue until Nov. 27.

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World Bank chief economist Justin Lin said the global recovery is still “fragile” and governments should maintain fiscal stimulus measures.

“It’s important to discuss the quality of the fiscal stimulus instead of an exit,” Lin told reporters in Seoul. Measures should be withdrawn when “we see private sector investment resume as well as unemployment decline to an acceptable level. So far I think we’re still in a fragile state of the economy and maintaining fiscal stimulus is important.”

Leaders of the 21-member Asia-Pacific Economic Cooperation group, including U guaranteed online payday loans.S. President Barack Obama and his Chinese counterpart, Hu Jintao, pledged in Singapore two days ago to maintain stimulus policies until a “durable” economic recovery is secure.

Lin said China’s economy may grow at an annual pace of between 8 percent and 10 percent in coming years. He declined to comment on China’s currency policy.

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China should keep the yuan stable, in part because that is beneficial for a global economic recovery, a Commerce Ministry spokesman said on Monday.

The yuan’s exchange rate has little to do with its trade imbalance, spokesman Yao Jian told a news conference.

He added that it was unfair to urge just one country to increase the value of its currency, as other currencies fall in value.

Yao was speaking shortly after International Monetary Fund Managing Director Dominique Strauss-Kahn said a stronger yuan is part of the reforms that Beijing needs to implement to increase domestic consumption and help ease global imbalances.

(Reporting by Aileen Wang and Jason Subler; Editing by Ken Wills)

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U.S. retailers are poised to defy gloom this week as earnings expectations have improved, but the big test will be what they say about holiday shopping.

Earnings estimates for Standard & Poor’s 500 retailers have headed higher in recent weeks, some after October same-store sales figures were released Thursday, leaving strategists optimistic about next week’s retail results.

The sector takes center stage just as the earnings calendar winds down, with results already in from almost 90 percent of S&P 500 companies.

Same-store sales were mixed. But several retailers expected to post results this week, including upscale department store chain Nordstrom JWS.N, performed better than expected on the same-store sales front.

That bodes well for the week’s results, analysts said, but commentary about store traffic, with the start of holiday shopping less than three weeks away, could be just as important to investors.

“It’s all about perception going into Christmas,” said Todd Leone, head of listed trading at Cowen & Co. in New York.

The S&P 500 is up 58 percent since its 12-year closing low in early March. But it’s down more than 2 percent since mid-October, and investors are anxious to see if the market can hold those gains through the end of the year.

The Friday after the Thanksgiving holiday marks the start of the holiday shopping period, when most retailers traditionally make most of their profits.

Third-quarter earnings for retail apparel S&P 500 companies are seen rising 18 percent, compared with expectations for a gain of just 4 percent just three weeks ago, said John Butters, director of U.S. earnings for Thomson Reuters, in New York.

SLIGHTLY BRIGHTER PROSPECTS

S&P 500 department store earnings are seen declining 48 percent, but that’s an improvement from expectations for a drop of 54 percent three weeks ago, he said.

Earnings for the entire consumer discretionary S&P sector, which includes most retailers, are expected to increase 44.7 percent from a year ago, compared with October 1 expectations for a gain of 16 percent, Thomson Reuters data showed.

“If comps (same-store sales) are any indication, there should be some positive surprises,” said Fred Dickson, market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon.

Retailers have been helped by economic growth, even though employment levels are falling, analysts said.

Friday’s government jobs report put the nation’s unemployment rate at 10.2 percent, the highest in 26-1/2 years. 

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U.S. companies hurt by the global credit crisis are continuing to hold more cash, even as the economy begins to show signs of improvement, the Wall Street Journal said, citing its analysis of company filings.

In the second quarter, the 500 largest non-financial U.S. companies by total assets held about $994 billion in cash and short-term investments, or 9.8 percent of their assets, according to the paper’s analysis of corporate filings.

In contrast, the companies held $846 billion, or 7.9 percent of assets, a year ago, the paper said.

The trend seems to have continued in the third quarter, despite an improving economy, the paper said companies making payday loans.

The 248 companies that have reported third-quarter results so far saw their cash holdings go up by a percentage point sequentially to 11.1 percent of assets, the paper said.

Companies such as Alcoa Inc, Google Inc, PepsiCo Inc and Texas Instruments Inc reported big third-quarter increases in cash holdings, the paper said.

(Reporting by Sakthi Prasad in Bangalore; Editing by Muralikumar Anantharaman)

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Yahoo Inc beat Wall Street’s profit and sales expectations as spending by advertisers showed signs of life in the third quarter and as months of cost-cutting and restructuring boosted the Internet company’s bottom line.

Shares of Yahoo, the top U.S. seller of online display ads but a distant No. 2 to Google Inc in search, jumped 5 percent after the results, which analysts said boded well for the fourth quarter, when ad spending should improve further.

Yahoo’s revenue from display advertising was much better than expected, said RBC Capital Markets analyst Ross Sandler, citing the 2 percent sequential increase in U.S. display ad sales.

“That basically says that large Fortune 500 advertisers who want high-quality, premium inventory are going back to Yahoo more in the third quarter than they were in the first or second,” he said.

Yahoo’s net profit more than tripled year-over-year, though a big chunk of the upside came from the sale of its stake in Chinese Web site alibaba.com.

Yahoo has undergone significant restructuring since Chief Executive Carol Bartz took over in January. It said in April it would lay off 5 percent of its workforce, or about 675 jobs, and it also pulled the plug on underperforming properties.

Yahoo also signed a 10-year Web search partnership with Microsoft Corp to challenge Google, a pact that U.S. and European antitrust regulators are evaluating.

Chief Financial Officer Tim Morse said on a conference call that the company still believes the deal will close in early 2010, and that they can make significant progress on integration in one or two major markets next year 24 hour payday loan.

Morse, who began as Yahoo CFO in July and handled Tuesday’s earnings conference call on his own due to Bartz’ having “come down with something” — which he characterized as not serious — said large advertisers began to spend again in the third quarter.

“I’m not going to predict when the growth rebounds, but I feel good that things are no longer on the downward trend.”

Excluding traffic acquisition costs that Yahoo shares with partners, net revenue was $1.13 billion in the third quarter, close to the average analyst forecast of $1.12 billion. That compared with net revenue of $1.14 billion in the June quarter and $1.33 billion in the year-earlier period.

RISING TIDE LIFTS ALL YAHOO BOATS?

Some analysts said the improvement that Yahoo experienced was a reflection of a brightening overall economic climate as much as anything else.

“Most of the benefit that they are seeing is because the economy is improving — a rising tide — not because of all the changes they’ve made,” said JMP Securities analyst Sameet Sinha.

Net income was $187.8 million, or 13 cents a share, in the third quarter, up from $54.3 million, or 4 cents per share, in the year-earlier quarter. Analysts were looking for 7 cents per share, according to Thomson Reuters I/B/E/S. 

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As the deadline passes on a U.S. tax amnesty program that has lured thousands of wealthy Americans to declare offshore assets, attention now turns to prosecutions of those who kept their holdings hidden.

The Internal Revenue Service’s amnesty program, which ends at 5 p.m. EDT on Thursday, has seen 7,500 individuals come forward over six months, getting in before the IRS pursues them. In exchange they get vastly lowered penalties and in most cases protection against criminal prosecution.

For those who failed to turn themselves in, the Justice Department is pursuing criminal cases.

The U.S. government has already opened cases against about 150 clients of UBS AG, names it obtained when the Swiss bank paid $780 million to settle a criminal suit in February after admitting it helped Americans skirt the law.

In August, UBS settled a related civil case by agreeing to turn over about 4,450 client names.

Government officials say the issue is bigger than UBS and any one country.

“The IRS has new momentum in this entire area and in the coming months our efforts will only intensify,” IRS Commissioner Doug Shulman said on Wednesday. He added that the government will be “scouring” the amnesty forms for clues of other financial advisors who aided evaders.

A top U.S. prosecutor recently said cases will be brought every few weeks. Private lawyers say the cases are crucial for deterrence.

“The criminal tax prosecutor’s job is to keep a handful of cases in the media so that everyone will see that there is at least that potential for being prosecuted,” said Mark Matthews, a former IRS deputy commissioner for enforcement who now counsels private clients.

He said to keep the momentum going, the government will need to shift resources beyond UBS.

“This story has understandably focused on one financial institution and one country, but the truth is this was a global offer,” for amnesty, Matthews said.

Indeed, IRS announced on Wednesday it was broadening its international presence, opening new offices in Beijing, Sydney and Panama City.

Clients of other banks have come in under the amnesty program, including those of UBS rival Credit Suisse and London-based HSBC, lawyers said.

“The IRS has done a very good job of scaring the hell out of everybody,” said Ken Rubinstein, a lawyer with his own firm who counsel clients in tax matters. He said he expects more prosecutions to keep the heat on offshore bank customers.

The precedent set by the UBS case will allow the government to get more information from other countries and banks, he added. 

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