Financial Freedom. Best business news.

Sales at U.S. retailers surged in August by the most in three years, showing unexpected strength in consumer demand that extended beyond auto purchases spurred by the government’s “cash-for-clunkers” program.

The 2.7 percent increase exceeded economists’ forecasts and followed a 0.2 percent drop in July, Commerce Department figures showed today in Washington. Purchases excluding automobiles climbed 1.1 percent, topping the highest forecast.

Stocks climbed as the report eased investor concerns that consumers will make a limited contribution to the recovery, leaving the economy dependent on government spending a year after the collapse of Lehman Brothers Holdings Inc. Morgan Stanley was among banks and investment firms raising forecasts for third-quarter economic growth after the report.

“The most remarkable thing is it wasn’t all cash-for- clunkers,” said Robert Stein, a senior economist at First Trust Advisors LP in Lisle, Illinois, who forecast a gain of 2.9 percent. “The consumer is in recovery and the U.S. economy is in recovery.”

Stocks advanced for the seventh time in eight days. The Standard & Poor’s 500 index rose 0.3 percent to close at 1,052.63, its highest level in almost a year. The yield on the 10-year Treasury note rose two basis points, or 0.02 percentage point, to 3.44 percent at 4:45 p.m. in New York. It climbed as high as 3.49 percent immediately after the report.

Retail sales were projected to rise 1.9 percent after an initially reported 0.1 percent decline in July, according to the median estimate of 73 economists in a Bloomberg News survey. Forecasts ranged from gains of 0.8 percent to 3.8 percent. Last month’s gain was the biggest since January 2006.

Year-Over-Year

Purchases were down 5.3 percent from August 2008, the smallest year-over-year drop since October.

Separate reports today signaled manufacturers will help the economy pull out of the worst slump since the Great Depression as they ramp up production after a record inventory drawdown in the first half of 2009.

Business inventories declined 1 percent in July, exceeding economists’ forecasts, to $1.33 trillion, the lowest level since March 2006, a Commerce Department report showed today. Sales climbed 0.1 percent after a 1.1 percent gain in June.

Manufacturing in the New York region grew in September at the fastest pace in almost two years, according to the Federal Reserve Bank of New York. The New York Fed’s general economic index increased to 18.9 from 12.1 in August, the bank said today.

Median Forecast

Excluding automobiles, the increase in sales was the biggest in six months. Purchases minus cars were forecast to increase 0.4 percent, according to the survey median.

The auto plan, which ended Aug. 24, offered buyers discounts of as much as $4,500 to trade in older cars and trucks. The program prompted almost 700,000 purchases, the Transportation Department said.

The economy has lost about 6.9 million jobs since the recession started in December 2007, the worst of any downturn since World War II. Gross domestic product contracted at a 1 percent annual rate in the second quarter, the fourth consecutive drop.

President Barack Obama yesterday said job losses are “bottoming out” and pointed to gains in exports and manufacturing as signs the U.S. economy is expanding again.

Obama

“I don’t think we’re out of the woods yet,” Obama said in an interview with Bloomberg News. “What we have to be careful about is taking the crutches away from the patient too early.”

Fed Chairman Ben S. Bernanke added to the note of caution as he answered questions today following a speech at the Brookings Institution in Washington.

“Even though from a technical perspective the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time,” he said.

Economists also warned that stagnant wages and a loss of wealth resulting from the drop in home prices will probably restrain consumer spending in the months to come.

“All the reasons for concern about consumer spending are still out there,” said Louis Crandall, chief economist at Wrightson ICAP LLC, a Jersey City, New Jersey-based research firm. “If there is any sign of resilience in September, that will be very encouraging.”

Sales at automobile dealerships and parts stores jumped 11 percent, today’s report showed, the most since October 2001 when carmakers such as General Motors Corp. offered zero- percent financing to spur sales following the terrorist attacks the previous month.

Broad-Based

Service stations, clothing, sporting goods and department stores all recorded gains of more than 2 percent last month, today’s report showed. Only furniture and building-material stores showed losses.

Excluding autos, gasoline and building materials — the retail group the government uses to calculate gross domestic product figures for consumer spending — sales increased 0.7 percent, after a 0.3 percent decrease. The government uses data from other sources to calculate the contribution from the three categories excluded.

“This is a sign that consumers are beginning to feel a little more comfortable about the economy,” Rebecca Blank, Commerce undersecretary for economic affairs, said in an interview. “I wouldn’t want to say that we are solidly there yet. We need several more months of these types of numbers.”

Spending Outlook

Consumer spending, which accounts for 70 percent of the economy, is projected to grow at a 1.7 percent pace from July through September and then slow to 1 percent in the last three months of the year, according to the median estimate of economists surveyed this month by Bloomberg News.

Purchases rose at an average 3.5 percent pace in the decade before the current recession began in December 2007.

Economists at Morgan Stanley raised their estimate for third-quarter growth to 3.9 percent from 3.7 percent after the sales report.

In the Fed’s Beige Book business survey, published two weeks before officials meet to set monetary policy, the central bank reported “flat” retail sales in July and August and cited some auto-industry contacts as saying the cash-for- clunkers effect may be temporary. The Fed released the survey on Sept. 9.

“Despite some encouraging signs in the global economy, it is difficult to predict the timing and pace of any economic recovery,” Alan Graf, chief financial officer for FedEx Corp., said last week in a statement. FedEx, the second-largest U.S. package-shipping company, said first-quarter profit topped its forecast.

FedEx and larger rival United Parcel Service Inc. are considered proxies for the U.S. economy because they handle almost 80 percent of domestic package shipments.

Source

Europe’s economy probably returned to growth in the current quarter after governments spent billions of euros to pull the region out of the worst recession in more than six decades, the European Union said.

The euro-area economy may expand 0.2 percent in the third quarter and 0.1 percent in the fourth after contracting 0.1 percent in the three months through June, the European Commission, the EU executive in Brussels, said today in updated economic forecasts. For the full year, the economy may shrink 4 percent, the commission said, maintaining its May projection.

European companies from Germany’s ThyssenKrupp AG to France’s L’Oreal SA have reported results that beat analysts’ estimates, suggesting government efforts to encourage spending are feeding into the broader economy. European Central Bank President Jean-Claude Trichet on Sept. 3 cited “increasing signs” of stabilization. EU Monetary Affairs Commissioner Joaquin Almunia said today that the second-half outlook may be revised upward by one-quarter percentage point.

“We expect to see a relatively good third quarter partly as a consequence of fiscal and monetary stimulus,” said Laurent Bilke, a senior economist at Nomura in London. “I wouldn’t call it a recovery, however. The economy will be a bit more resilient in 2010 to face the end of stimulus measures.”

Largest Economy

The economies of Germany and France unexpectedly returned to growth in the second quarter. In Germany, Europe’s largest economy, gross domestic product will probably rise 0.7 percent in the third quarter and 0.1 percent in the fourth, the commission said today. The French economy probably will expand 0.4 percent in the current quarter.

Italy probably emerged from the recession during the third quarter, while Spain’s economy will continue to shrink through 2009, according to the forecasts. The U.K., which isn’t in the euro region, may resume growth this quarter and expand 0.5 percent in the fourth quarter, the EU estimates.

“We know that part of these improvements are due to policy-driven measures and factors,” Almunia told a press conference in Brussels. “We’re not sure that this positive evolution will be sustained during 2010, so we need to be very prudent.”

The ECB earlier this month raised its forecasts for the euro region to predict expansion of about 0.2 percent in 2010 instead of a previously projected 0.3 percent contraction. In 2009, the economy will shrink about 4.1 percent, less than the 4.6 percent contraction predicted three months ago. The EU forecasts a 0.1 percent contraction next year.

Cosmetics Maker

Paris-based L’Oreal, the world’s largest cosmetics maker, on Aug. 28 posted a smaller-than-forecast drop in earnings and said sales will gradually improve through the second half. Dusseldorf-based ThyssenKrupp, Germany’s biggest steelmaker, last month said there are signs that prices and sales volumes for some products have bottomed out.

Rising unemployment and the expiration of government stimulus packages may damp economic growth next year. International Monetary Fund Managing Director Dominique Strauss- Kahn said on Sept. 4 that there is a “real danger” policy makers will withdraw support measures for their economies too soon, jeopardizing the global recovery from recession.

In the U.S., the world’s largest economy, the recovery may be the slowest since World War II to regain all the ground lost during the recession, according to JPMorgan Chase & Co. chief economist Bruce Kasman. The Federal Reserve may hold U.S. rates between zero and 0.25 percent through 2010, he said.

Key Rate

The ECB on Sept. 3 kept its key rate at a record low of 1 percent to encourage spending. The Frankfurt-based central bank providing banks with unlimited cash for 12 months and is buying covered bonds to fight the crisis.

“It seems that the period of strong economic contraction is behind us,” ECB council member Yves Mersch wrote in the quarterly bulletin of the Bank of Luxembourg published on Sept. 10. Still, the recovery will “be very gradual and volatile, partly because of the temporary nature of some of its underpinnings, such as government stimulus,” he said.

The financial “crisis, with a lag of two or three quarters, is taking a serious toll on our labor market,” Almunia said. The job market “is still in very bad shape.”

Air France-KLM Group said on Sept. 4 that it will eliminate 1,500 jobs and slash capacity by 5 percent in order to bring down costs. Siemens AG, Europe’s largest engineer, has said that it plans 1,600 job cuts beyond the 17,000 announced last year and has placed 15,000 workers on reduced hours. Euro-area employment declined 0.5 percent in the second quarter, while industrial output fell 0.3 percent in July, data showed today.

European Stocks

European stocks pared their declines after the EU forecasts were published. The Dow Jones Stoxx 600 Index was 1 percent lower at 3:05 p.m. in London, after trading down as much as 1.6 percent earlier.

Companies are cutting costs just as retreating oil prices are pushing down inflation. Euro-area consumer prices have posted annual declines for three straight months. The ECB said on Sept. 10 that, while “inflation rates are projected turn positive again within the coming months,” price developments will remain “subdued” amid “ongoing sluggish demand.”

Euro-area consumer prices probably will drop 0.3 percent this quarter before rising 0.7 percent in the three months through December, the commission forecast today. For the full year, inflation may average 0.4 percent, it said. The ECB aims to keep inflation just below 2 percent.

Source

Israel’s August inflation figures may provide a sneak preview for investors eager to learn whether Bank of Israel Governor Stanley Fischer will raise rates again at the end of the month.

Fischer, who became the first central bank governor to lift rates since signs of easing in the global recession began, may decide on a further increase if the inflation rate is higher than expected, said Ayelet Nir, chief economist at Tel Aviv- based Israel Brokerage & Investments Ltd. The components of the August consumer price index, and whether they show demand-pull inflation or one-time, government-initiated increases, will also play a role, she said.

“The difficulty in the decision is that the Bank of Israel is trying on the one hand to avoid high inflation and on the other hand not to harm growth,” Nir said. Growth “is still very fragile so the decision is very, very hard.”

Fischer has been trying to find a balance between unwinding an expansionary monetary policy while containing a shekel rally in a country where exports make up almost half of gross domestic product. The bank said its Aug. 25 decision to raise the key rate by a quarter point to 0.75 percent was aimed at returning inflation to within the target range of 1 percent to 3 percent.

If Fischer raises rates too early he can harm growth, both because it may cause the shekel to appreciate, which hurts exporters, and also because it dampens spending, Nir said. On the other hand, inflation also has repercussions for growth, she said.

Unanimous

The August consumer price index is expected to dip to 3 totally free credit score.2 percent from 3.5 percent the previous month, according to the median estimate of a Bloomberg survey of nine economists. The Jerusalem-based Central Bureau of Statistics will report the inflation data at 6:30 p.m. on Sept. 15.

All four central bank officials who participated in the rate-setting meeting last month favored raising the rate, with one of the four supporting a half-point increase, according to the minutes.

“If inflation is as expected or higher, there is a good chance of another rate hike,” said Jonathan Katz, a Jerusalem- based economist at HSBC Holdings Plc., who predicted the last increase. The minutes of the last rate meeting show that the “monetary bias is still toward higher rates.”

Israel’s growth rate is expected to be flat this year, and will rise to 2.5 percent in 2010, the Bank of Israel said Sept. 1. The bank’s previous forecast in April was for a 1.5 percent contraction this year and growth of 1 percent next year.

Water Tax

Much of the rise in the August consumer price index is likely to be due to the government’s new drought tax on water, which isn’t relevant in the interest rate decision, Nir said.

There will also be “demand-based inflation,” she said, citing increases in the consumer confidence index, retail sales and credit card spending. “Part of the price increases are because of this.”

Source

Russia is poised for an economic recovery after domestic cargo volumes, a leading indicator for growth, rebounded from the steepest slump since at least 2000.

The CHART OF THE DAY shows the year-on-year change in an index of freight transport by rail, road, air and pipeline, in red, rebounded from a record low in April. Economic growth, in white, extended annual declines through the first half.

“The recovery in cargo turnover provides more proof of an improving economic outlook,” said Georgy Tarakanov, Moscow- based analyst at VTB Capital, the investment-banking unit of Russia’s second-biggest lender. “The slump is easing and that is seen in the rising volumes of rail shipments.”

The economy shrank a record 10.9 percent in the second quarter from a year earlier, after declining 9.8 percent in the first, following 10 years of annual expansion averaging almost 7 percent. Domestic cargo volumes have rebounded 14 percent from a six-year low in April to 377.8 billion metric tons a kilometer (0.6 mile).

“The only accurate proxies that tell you the current state of affairs are railway cargo and power,” said Pavel Teplukhin, president of Troika Dialog, Russia’s oldest investment bank.

OAO Russian Railways, whose sales account for almost 3 percent of nominal gross domestic product, said cargo traffic advanced 2.5 percent in August from the previous month. The shipments fell 23 percent in the first half from a year before. The economy will contract 7.2 percent this year, according to the median estimate of 10 economists surveyed by Bloomberg.

(To save a copy of the chart, click here.)

Source

Paul O’Neill remembers feeling a little short of oxygen at the New York Stock Exchange as the market prepared to open six days after the Sept. 11 attacks.

“I have to tell you I was holding my breath that we weren’t going to blow the fuses,” O’Neill, the Treasury secretary from January 2001 to December 2002, said in an interview today.

Concern about a possible plunge in stock prices — the Dow Jones Industrial Average ended the day 685 points lower — was secondary to worries that trading systems might not work. “It was functional, which was the point,” he said.

The opening bell on Sept. 17, 2001, was the outcome of efforts by scores of people in and out of government who restored crippled computer networks. For O’Neill, that day capped a weeklong odyssey that cut short meetings with officials in Japan and placed him in the middle of the drive to help Wall Street rebound from the worst terrorist attacks in U.S. history.

As the first plane struck the World Trade Center eight years ago today, O’Neill was settling down in his suite at the Imperial Hotel, in the early evening in Tokyo. He, his staff and reporters covering the trip had just arrived from Beijing, where he met with Chinese officials for talks about the country’s currency policy and other issues.

Tim Adams, O’Neill’s chief of staff, alerted him to the news that a plane had hit one of the towers.

“It was there for us to see” on television, O’Neill said. In a matter of hours, after telephone calls back and forth with the White House, a decision was made that O’Neill would be flown back to Washington in a military plane from the U free instant credit report.S. base at Okinawa, he said.

The next day, as O’Neill’s motorcade left the Imperial Hotel, cooks, housekeepers and waitresses applauded.

Refueling Over Alaska

O’Neill, 73, said the flight was nonstop, refueling in the air over Alaska and landing at Andrews Air Force Base outside the U.S. capital.

“It was eerie,” he said. “You could see that there were no planes on the ramp at National airport and there were no planes in the sky.”

Once back at the Treasury Department, O’Neill said his focus was getting the stock market restarted. The talks included Peter Fisher, the Treasury undersecretary for domestic finance; then-NYSE Chairman Richard Grasso; and Salvatore Sodano, then the chairman of the American Stock Exchange Inc.

“I had endless quick phone calls with Peter Fisher telling me, ‘You’ve got to get the White House to back off, because they’re insisting they want us to open the market tomorrow morning and the computer center in New York is under 30 feet of water,’” he recalled.

More important than the resumption of markets was ensuring the restart wouldn’t fail, he said. “I don’t remember it being a hard sell — I basically said we should not have a failed restart,” he said. “It worked.”

Source

President Barack Obama’s $787 billion fiscal stimulus program has created or saved as many as 1.1 million jobs since its implementation in February, the White House said today.

The stimulus added 2.3 percentage points to gross domestic product in the second quarter, the Obama administration said today in its first quarterly report to lawmakers in Washington on the economic impact of the program. The White House said it expects the stimulus to add up to 3 percentage points to growth in July through September.

Unemployment is forecast to rise even as the economy starts to recover from its deepest recession since the 1930s. The stimulus package aims to stabilize the economy through tax cuts and infrastructure spending and creating or saving about 3.5 million jobs.

“We think we are on track” to achieve that goal, Christina Romer, chairman of the White House Council of Economic Advisers, said today in a conference call with reporters.

The administration’s figures were met with skepticism from Republicans in Congress, who noted that 2.4 million jobs have been lost since March.

“How can anyone tell the American people with a straight face that the more than 2 million jobs that have been lost since the stimulus was enacted is actually 1 million jobs ‘saved or created?’” Senate Republican Leader Mitch McConnell of Kentucky said in a statement.

Payroll Cuts Peak

Since the slump began in December 2007, the U.S. has lost 6.9 million jobs. Payroll cuts peaked at 741,000 in January and have since subsided, with 216,000 job losses in August, according to the Labor Department. The jobless rate rose to 9.7 percent in August, a 26-year high, from 9.4 percent.

John Makin, a visiting scholar at the American Enterprise Institute in Washington, questioned the assumptions used to measure the impact of the stimulus.

“They can say whatever they want, and they have,” Makin said.

Separately, Treasury Secretary Timothy Geithner said the government is moving to withdraw some of its support for financial markets, while cautioning that the recovery will have “more than the usual ups and downs.”

The jobless rate will increase next year to 10.2 percent before falling to 9.1 percent in 2011, the Congressional Budget Office forecast last month.

“The fiscal stimulus is still ramping up,” Romer said when asked about the need for a second stimulus package. She added that the administration will re-evaluate “the trajectory” of the program as early as December to determine if further measures are needed.

New Phase

“As we enter this new phase we must begin winding down some of the extraordinary support we put in place,” Geithner told the Congressional Oversight Panel that monitors the $700 billion Troubled Asset Relief Program.

The world’s largest economy contracted 1 percent from April through June, according to the Commerce Department. The drop was the fourth in a row, making it the longest contraction since quarterly records began in 1947.

“The economy is obviously still far from healthy,” the CEA said in today’s report. Economists surveyed by Bloomberg News forecast growth of 2.2 percent for the current quarter.

The Federal Reserve yesterday said 11 of its 12 regional banks reported signs of a stable or improving economy in July and August.

The labor market “remained weak across all districts,” while some regions reported an “uptick in temporary hiring and a decline in the pace of layoffs,” the Fed said in its Beige Book business survey, published two weeks before officials meet to set monetary policy.

Source

The Bank of England is throwing open its doors to the public again in an annual event that was pared back a year ago following the collapse of Lehman Brothers Holdings Inc., a sign the financial crisis has now abated.

The central bank will allow visitors to see parts of its main building including the Court Room, where its governing board meets, as part of the Open House London weekend event on Sept. 19-20, according to the bank’s Web site. Last year the bank limited the tour to its museum as staff worked overtime on the Saturday and Sunday of Sept. 20-21 to save Britain’s financial system.

That was the weekend after Lehman filed for the biggest bankruptcy in history and the U.S. loaned $85 billion to bail out American International Group Inc. Bank of England staff then went to work on a plan to rescue the banking system, which Deputy Governor Paul Tucker said afterward came “preciously close” to collapse.

“People get pulled off teams and put into crisis groups where they’re often not allowed to talk to each other, and that happened when Lehman went under,” said Colin Ellis, who worked at the central bank until October and is now an economist at Daiwa Securities SMBC in London. “All those people who had been running to stand still are now able to go out and smell the roses more.”

Lehman filed for bankruptcy on Sept. 15, 2008, and the Federal Reserve rescued AIG the next day. Meanwhile, U.K. officials struggling to shore up HBOS Plc engineered the bank’s acquisition by rival Lloyds TSB Group Plc. That was announced on Sept. 18, the same day the Bank of England participated in a joint coordinated dollar swap with the Fed.

Economic Recovery

Bank of England Governor Mervyn King said Aug. 12 the U.K. may be heading for a “relatively slow recovery” as it emerges from the worst contraction in a generation, though the world financial system is in “a fragile condition.” To battle the crisis, the bank has cut the key interest rate to 0.5 percent, the lowest since it was founded in 1694, and is printing 175 billion pounds ($290 billion) of money to buy bonds. An official at the bank had no comment on this year’s tour.

Bank officials may have met and worked in rooms visitors would otherwise have seen on the tour of the historic chambers. Its headquarters take up a 3 1/2-acre block in the heart of London’s financial district, designed by Herbert Baker between 1925 and 1939 and incorporating elements of a previous building by Sir John Soane, the bank’s architect from 1788 until 1833.

Weather Vane

In the Court Room, a remnant of the original building close to where the bank’s Monetary Policy Committee meets to set interest rates each month, visitors will be able to see a dial linked to a weather vane and once used to set policy free credit report online. Changes in wind speed and direction on the River Thames signaled that cargo ships may dock more quickly, and the heavier trading could boost demand for money and credit.

The Lehman collapse provoked a storm in financial markets. Bank officials started work “pretty much straight away” on a rescue plan which led to the government taking stakes in Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc, former Deputy Governor John Gieve told the BBC last month.

“The pace at which things were moving in those two weeks after the Lehman’s bankruptcy is almost impossible to exaggerate,” Adair Turner, chairman of the U.K. Financial Services Authority, told lawmakers in November 2008.

Joint Action

The U.K. rescue plan was announced on Oct. 8, the same day the central bank made a surprise half-point interest rate cut in joint action coordinated with other central banks.

Alan Greenspan, former chairman of the U.S. Federal Reserve and an informal adviser to Prime Minister Gordon Brown, said today Britain will be slow to rebound from the slump after the global recession battered exports.

“It’s going to take a long while for you to work your way through this,” he told the BBC. “Britain is more globally oriented as an economy.”

“The prime minister’s view is that this is not a time for complacency,” Simon Lewis, Brown’s spokesman, told reporters today in London. “The prime minister feels strongly about the need to keep recovery going by maintaining the appropriate level of expenditure.”

The crisis created “exceptional levels of stress” in many parts of the bank, according to its annual report released in May. The Bank of England expanded its bonus pool and took on the most staff in more than two decades as events unfolded. The number of employees rose by about 6 percent and the bonus pot was widened to encompass 8.1 percent of salaries.

“It really struck me just how hard people were working,” said Daiwa’s Ellis. “The bank’s very lucky to have such a dedicated and able staff at its fingertips. Now the projects that had been put on hold can start up again.”

Source

Nations in Asia and Europe wouldn’t automatically return to recession if the U.S. economy contracts again, Nobel Prize-winning economist Joseph Stiglitz said.

Stiglitz forecast last week a “significant chance” the U.S. will slip back into recession after a brief recovery. While that would have a “negative effect” on the rest of the world, it wouldn’t prevent other economies from expanding, he said in an interview today in Reykjavik, Iceland.

“Asia is restructuring itself to be less dependent on the U.S. and they have huge reserves,” Stiglitz, a Columbia University professor, said. “So they could continue on the path of recovery.”

Although it would be “very hard for Europe to have a robust recovery with a weak America,” Stiglitz said, “one of the things that brought down the markets over the world was the credit crunch. The credit crunch was a result of a total lack of faith in the banks. What we’ve done is we’ve put enough capital in the banks, so people are probably willing to say that the banks can meet their obligations payday loans.”

That doesn’t mean the U.S. banking system is out of the woods, he said. There are still millions of mortgages in the process of being foreclosed, and commercial real estate “is in a shambles,” Stiglitz said. That makes it likely many more banks will be taken over by the government, although “enough conniving between the regulators and the banks might get us to muddle through.”

The U.S. government doesn’t want a major bank to fail and imperil the financial system, he said. “Banks aren’t bankrupt unless the government says they are,” Stiglitz said. “So there is a reasonable chance that even if the banks are truly bankrupt, they won’t be bankrupt.”

Stiglitz, 66, won the Nobel Prize in economics in 2001 for showing that markets are inefficient when all parties in a transaction don’t have equal access to critical information, which is most of the time.

Source

World leaders gathering in Pittsburgh this month may take the biggest step to curbing the pay and profits of bankers after their economic policy makers narrowed differences over bonuses and capital rules.

Finance ministers and central bankers from the Group of 20 nations left weekend talks in London with a regulatory blueprint for a financial industry whose risk-taking triggered a global recession and required taxpayer-funded bailouts. The pledge to shore up the international financial system spurred European and Asian shares higher today.

“The G-20 has shown once again that governments from around the world can come together to agree on the global governance the new global economy needs,” U.K. Prime Minister Gordon Brown said. “This is an important step on the way to Pittsburgh.”

With the G-20 authorities vowing to sustain a nascent economic recovery, the U.S. and euro area found common ground on the push to revamp bank rules. The effort may still founder on trans-Atlantic divisions. And the specifics, being written for the Sept. 24-25 summit to be chaired by U.S. President Barack Obama, run the risk of being unenforceable, say analysts.

‘Living Wills’

Finance chiefs agreed that elements of a global pay code include forcing banks to “claw back” cash awards if earnings falter; better tying compensation to long-term performance and base pay; deferring payments and disclosing more on what they hand top earners, according to a Sept. 5 statement.

Banks will also have to curb leverage and raise the amount and quality of assets they keep in reserve once growth takes hold. They were also prodded to use profits to raise capital and lending and to outline “living wills” on how to fold international operations in crises.

The ministers left it to the Financial Stability Board, a Basel-based panel of regulators that the G-20 established five months ago, to flesh out the plan. The board will also research whether there needs to be a limit on bonuses as a percentage of a bank’s profits.

Separately, a panel of central bankers and regulators that oversees the Basel Committee on Banking Supervision yesterday agreed on new standards calling for lenders to raise the quality of their capital, introduce a leverage ratio and devise ways to boost reserves when the economy is robust.

“Capital requirements even during non-crisis periods have to have a larger buffer,” former Federal Reserve Chairman Alan Greenspan said today via satellite to a conference in Mumbai. “We do need significant changes. There’s no substitute for capital.”

‘No Teeth’

Even if the deadline for detailed proposals wasn’t in less than three weeks, officials would struggle to control how bankers pay themselves, said Nicholas Stretch, a London-based partner at law firm CMS Cameron McKenna.

“There’s no teeth here,” Stretch said. “If you push too far in one direction, banks will just move in the other.”

Political leaders expressed doubts that financial-industry interests can be overcome.

“Will the U.S. follow us? Will President Obama have the courage to tackle the ancient order?” French Prime Minister Francois Fillon said yesterday in Seignosse, southwestern France. “We will know in a few days if actions live up to speeches.”

Public Anger

The weekend agreement built on G-20 efforts born in the wake of the crash of the U.S. housing market and the collapse of Lehman Brothers Holdings Ltd. almost exactly a year ago. The ensuing crisis led to $1.6 trillion in bank losses and writedowns.

The G-20 is also seeking to quell public anger after governments rescued banks only to see them soon return to profit and awarding bonuses.

“Greed was one of the reasons for this crisis,” Italian Finance Minister Giulio Tremonti said. Because of the bailouts, “limiting bonuses isn’t only about how much a banker earns, but it’s about the relationship between banks and governments.”

Goldman Sachs Group Inc. set aside a record $11.4 billion for compensation and benefits in the first half of 2009, up 33 percent from a year earlier, while Morgan Stanley allotted 72 percent of its second-quarter revenue.

In France, BNP Paribas SA and Societe Generale SA were among the banks that bowed last month to President Nicolas Sarkozy, deferring for three years two-thirds of bonuses and paying a third of them in shares. They also vowed to stop offering guaranteed payouts to new hires.

‘Common Purpose’

“We need to bring the sense of common purpose and urgency that we demonstrated at the peak of the crisis to the challenges of restoring growth and to reforming the financial system,” said U.S. Treasury Secretary Timothy Geithner, who wants new capital rules in place by the end of 2012.

Finance ministers from France and Germany, who spoke to reporters together after the meeting, claimed credit for what they called a successful push to contain bonuses, overcoming initial resistance from the U.S. and U.K. The Europeans relented on a proposal to limit individuals’ compensation.

“Without Germany and France insisting, we wouldn’t have come this far,” said Germany’s Peer Steinbrueck. Christine Lagarde of France called bonuses “quite outrageous.”

While the ebbing of the crisis may still slow the reform effort as banks regain strength and attention wanes, the re- election campaigns of German Chancellor Angela Merkel this month and the U.K.’s Brown next year may provide momentum.

Basel II

“The finance ministers provided a good foundation for the leaders meeting,” said Daniel Price, who organized last November’s G-20 summit in Washington for President George W. Bush and is now a partner at law firm Sidley Austin LLP in Washington. “Leaders shouldn’t lapse into demonizing or demagoguing particular products or practices.”

They also narrowed a trans-Atlantic divide on capital rules. The U.S. agreed to implement Basel II capital rules, acknowledging French criticism that Obama’s administration was beginning a new reform drive without enacting existing capital standards.

Setting aside more capital may hurt banks’ earnings. That concern pushed up the cost of protecting their bonds from default by the most in a month in Europe on Sept. 2. Credit- default swaps on the Markit iTraxx Financial index linked to 25 European banks and insurers jumped 5.5 basis points that day to 94 basis points, the biggest one-day increase since Aug. 8, according to JPMorgan Chase & Co. prices.

IMF Raises Forecast

Expressing caution on the outlook for the world economy, the G-20 officials judged it premature to start unwinding record-low interest rates and more than $2 trillion in fiscal stimulus. At the same time, they agreed the eventual exit from emergency measures should be coordinated across borders to avoid distorting markets.

The policy makers were told by the International Monetary Fund that it had raised its forecast for global growth next year to 2.9 percent from July’s 2.5 percent estimate. The Washington- based lender cut its projection for contraction this year to 1.3 percent from 1.4 percent, according to an official from a G-20 government, citing a paper prepared for the meeting.

The G-20 members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the U.S., the U.K. and the European Union.

Source

British bank HSBC has made a bid of about 1 billion pounds ($1.63 billion) for Dutch financial group ING’s private banking businesses, according to a report in The Sunday Times.

The report said DBS, a Singaporean investment fund, and Julius Baer, the Swiss wealth manager, would also likely bid for the unit and that a preferred bidder would be named in the next 10 days.

ING, which has put its private banking operations in Switzerland and Asia up for sale to pay down bailout funds it received from the Dutch government, is also considering plans to split its insurance arm from its banking business, said the report fast cash without a hassle.

The Sunday Times said DBS was interested only in the Asian unit but that Julius Baer was keen on both assets.

Neither HSBS nor ING was immediately available for comment.

($1=.6123 Pound)

(Reporting by Rhys Jones; editing by Karen Foster)

Read more