Finance and Economic

Malaysian Premier Abdullah Ahmad Badawi cut taxes, promised free electricity for the poor and raised food subsidies in a budget designed to fight inflation and prevent the opposition from seizing power.

Announcing a 5.1 percent increase in next year's spending, Abdullah today pledged bonuses to civil servants, lowered duty on home purchases and doubled the number of households on state welfare. Higher spending in 2008 will reverse five years of shrinking budget deficits and create Malaysia's biggest overspend since 2003.

Abdullah, 68, is facing renewed calls from his own ruling National Front coalition to resign after leading the government in March to its worst election performance in half a century. Today's handouts may soften the impact of the fastest inflation in 26 years and stall a campaign by opposition leader Anwar Ibrahim to oust the government.

“These are populist measures,'' said Singapore-based Kelvin Miranda, an investment strategist at Blufire Asset Management Sdn., which manages $110 million in assets. “He's trying to buy time.''

The government will reduce the top personal tax rate to 27 percent in 2009 from 28 percent, Abdullah said in a speech to parliament. About 1.1 million lower-income households will be eligible for free electricity, while the premier allocated an extra 3.6 billion ringgit for food subsidies this year.

Suffering Poor

The handouts are “not commensurate with the vast increase in inflation and high costs,'' Anwar said after Abdullah's speech. “What is given does not actually alleviate the problems and sufferings of the poor.''

The government's 2008 budget shortfall will reach 34.5 billion ringgit, or 4.8 percent of gross domestic product, the Ministry of Finance said today. The deficit last grew in 2002.

Abdullah increased by 20 percent the tax on cigarettes sold by companies including British American Tobacco (Malaysia) Bhd. to help offset the widening gap between spending and revenue.

Voter anger over rising prices contributed to opposition gains in the March vote that deprived Abdullah's coalition of its two-thirds majority in parliament. Malaysia's inflation accelerated to 8.5 percent last month after the government raised fuel prices to lower subsidies as crude surged.

Malaysian stocks jumped the most in more than five months on speculation that the first cut to the personal income tax rate in seven years will spur consumer spending. Abdullah proposed a range of tax exemptions for employers, from medical costs to maternity expenses faxless payday loans.

Economic Growth

Abdullah needs Malaysians to spend more as exports slow to the U.S., Malaysia's largest trading partner. The Asian nation's economy expanded at the slowest pace in a year in the second quarter as manufacturing eased amid a global slowdown and faster inflation hurt consumer spending.

Southeast Asia's third-largest economy grew 6.3 percent in the three months ended June from a year earlier, down from a 7.1 percent gain in the first quarter, the central bank said today. Economic growth is forecast to ease to 5.7 percent this year and 5.4 percent in 2009, the weakest pace since 2005.

Anwar, who won a parliamentary by-election this week, has said he plans to lure enough lawmakers from the ruling coalition to form a new government next month. The former deputy premier has promised to reduce fuel prices should he seize power.

“The government is responsive to the concerns of the people and has taken measures to lighten the burden of all Malaysians,'' Abdullah said in his speech. “Efforts by certain parties to destabilize the country by attempting to seize power through illegitimate means, and without the mandate of the people, must be rejected.''

Gasoline Prices

Governments across Asia are spending more on subsidies to help the poor cope with higher oil and food costs. Inflation that the Asian Development Bank estimates may reach the highest in a decade in 2008 has stoked voter unrest in the region.

In response to public discontent over costlier fuel, Abdullah last week cut gasoline prices by 5.6 percent and lowered diesel costs by 3.1 percent, saying he wants to ease the burden of consumers and reduce inflationary pressure. The government will also spend 5 billion ringgit on cash rebates to car owners this year, is subsidizing gasoline for taxis and has allocated 2.5 billion ringgit for food security.

Malaysia's government subsidies on bread, cooking oil, fuel and programs to enhance food security will jump to 34.1 billion ringgit this year and total 33.8 billion ringgit in 2009, according to the finance ministry. Still, the ministry expects the budget deficit to narrow to 3.6 percent of GDP next year.

Inflation in Malaysia will remain high until early 2009 before “moderating towards mid-year,'' according to today's report by the Finance Ministry. The government will introduce new measures to boost its social assistance program, it said.

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Nintendo Co (7974.OS: Quote, Profile, Research, Stock Buzz) boosted its annual profit outlook by 23 percent on white-hot demand for its Wii video game console and DS portable player, beating market expectations and sending its shares more than 8 percent higher.

As consumers in the United States and Europe snap up its game machines, Nintendo hiked forecasts for the Wii 6 percent and for the DS 9 percent, pushing the company to the limits of current production capacity.

“The fact that Nintendo is confident to say even before the end of the first half, that overseas sales are this strong, will likely help the stock ride a wave towards the Christmas shopping season,” said Koki Shiraishi, an analyst at the Daiwa Institute of Research.

The Wii, launched in late 2006, has outsold Sony’s (6758.T: Quote, Profile, Research, Stock Buzz) PlayStation 3 and Microsoft’s (MSFT.O: Quote, Profile, Research, Stock Buzz) Xbox 360 in the $57 billion video game industry, thanks to its easy-to-learn motion-sensing controller, low price and innovative titles like the “Wii Fit” exercise game cash advance now.

Nintendo said it now expects an operating profit of 650 billion yen ($6 billion) in the year to March, up from its previous forecast of 530 billion yen, also helped by a softer yen.

It sees sales of 2 trillion yen, 11 percent higher than its previous estimate.

The new profit forecast trounced a Reuters Estimates consensus of 605 billion yen from 20 analysts.

Nintendo’s shares rose by their daily limit of 4,000 yen to close at 51,800 yen, outperforming a 2.4 percent climb for the Nikkei benchmark .N225. 

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The European Central Bank must ensure cash-strapped financial institutions don't take advantage of its money-market auctions, council member Axel Weber said.

“We are monitoring banks' use of the collateral framework very closely,'' Weber, who heads Germany's Bundesbank, said in an interview in Frankfurt yesterday. “We must ensure that our framework is not abused.''

The ECB will soon announce changes to the rules governing its auctions, council member Yves Mersch said in an Aug. 23 interview. The growing concern of officials is that banks struggling to sell securities damaged by the credit-market turmoil will dump them on the ECB and become overly reliant on central-bank funds.

“The collateral that we take must also be traded in the market because only then is it priced accurately,'' Weber said. “We aim at taking final decisions in autumn which will be communicated immediately.''

The ECB's Governing Council next meets on Sept. 4.

Banks with operations in the 15 countries sharing the euro can raise funding from the ECB by pledging certain types of collateral including asset-backed securities. Bonds backed by mortgages and other assets accounted for 18 percent of the ECB's loan collateral at the end of 2007, up from 4 percent in 2004, Fitch Ratings data show.

The ECB lends to banks mostly through the main refinancing operations maturing in one week. Longer-term auctions provide financing to banks during three- and six-month periods.

Governing council member Michael Bonello said in an interview with Reuters published today that he didn't expect “major fundamental change.''

`Funding Opportunities'

Spain's banks in particular are struggling to attract investors as a decade-long property boom ends and mortgage delinquencies soar to the highest in at least six years. Investors demand higher rewards to buy bonds backed by Spanish mortgages than any other home loans in Europe. The ECB lent Spanish banks a record 49.4 billion euros ($73.1 billion) in July no fax payday advance.

The ECB's money-market system is also attracting demand from outside the euro region. The Frankfurt-based central bank said in June it will accept asset-backed bonds sold by Macquarie Group Ltd., Australia's biggest securities firm, and backed by Australian consumer loans as collateral. U.K. mortgage lender Nationwide Building Society said Aug. 18 it's planning to expand into Ireland, a member of the euro region, to take advantage of “funding opportunities.''

`React Quickly'

Weber defended the ECB's approach to date, saying the fact it had the widest collateral framework among major central banks “helped us to react quickly when the financial crisis broke out.'' The task is now to carry out the central bank's routine two-year review of its collateral framework, he said.

Former Bank of England policy maker Willem H. Buiter says the ECB may be assigning unrealistically high prices to the debt it accepts as collateral for bank borrowing, which risks delaying the recovery of the mortgage-backed bond market.

“There is almost certainly an overpricing of the bonds,'' Buiter, now a professor at the London School of Economics, said in a telephone interview yesterday. “By artificially supporting the market the ECB may be crowding out private purchasers.''

Mersch said last week that there will be no “broad-based revolution'' and that changes to the collateral framework would be unveiled within weeks.

“At the margins there can still be cases where you see dangers of gaming the system,'' Mersch said in Jackson Hole, Wyoming. “The Governing Council has been discussing the whole issue'' and has agreed on a “certain amount'' of refinement to the existing rules, he said.

“We certainly won't tolerate the creation of collateral for central banks only without the intention of trading them,'' Weber said.

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Producer prices in Spain rose at the fastest pace in almost 24 years in July as record oil prices increased costs for manufacturers.

The price of goods leaving Spain's factories, refineries and mines increased 10.2 percent from a year earlier after advancing 9 percent in June, the National Statistics Institute in Madrid said in an e-mailed statement today. Producer prices gained 1.4 percent from June, the biggest monthly increase in more than two years.

Crude oil prices have risen by 60 percent in the last year and touched a record $147.27 a barrel in New York in July. That helped push euro-zone consumer price inflation to more than a 16-year high, making it harder for European Central Bank to cut interest rates, even as the region's economy slows.

The price of intermediate goods in Spain rose 7.3 percent from a year earlier, compared with 6.3 percent in June, signaling further rises in consumer prices.

“This warns us about the performance of other prices further ahead and that is why it worries us,'' said Diego Fernandez, an economist at Fortis Bank in Madrid no fax payday loans. He estimates that rises in the price of intermediate goods take about a year to pass through to final prices.

Still, oil has eased 22 percent from its July record and economists said Spain's producer price inflation probably peaked in July. An economic slowdown in Spain would make it difficult for companies to pass on higher production costs to consumers, they said.

Spain's consumer prices gained 5.3 percent from a year earlier in July, the fastest in more than a decade and above the average for the euro region, previous data showed.

The increase in Spanish producer prices was led by energy as the cost of products from oil refineries rose 52 percent from a year earlier. Food and drink products added 10 percent, the institute said.

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August Busch IV, chief executive of Anheuser-Busch Cos. Inc. will be paid nearly $10.4 million after the brewer is sold to InBev SA and $120,000 a month to consult for the new company through the end of 2013.

Terms of the consulting deal are currently being negotiated, according to a filing with the Securities and Exchange Commission made Friday.

Busch, a member of the St. Louis-based brewer’s founding family, will also be eligible for an additional payment of $13.3 million on various change-in-control payments and benefits, the filing said.

Last month, the brewer of Bud Light and Budweiser announced it had agreed to be sold to InBev, the Belgium-based maker of Stella Artois, Beck’s and Bass. The deal is worth $52 billion.

The two companies will combine to create Anheuser-Busch-InBev NV SA. The combined company’s North American headquarters will remain in St. Louis.

Busch will advise the company on new products and business opportunities, review marketing programs, and meet with retailers, wholesalers and advertisers as part of his new duties.

He will be given an office in St. Louis, administrative support, and insurance such as medical, dental and vision, the filings said.

Busch will also be given personal security services through the end of 2011 in St. Louis, in accordance with Anheuser-Busch’s past practices, the filing said. He will also get free tickets to Anheuser-Busch sponsored events.

Busch will not be able to disparage the company, or solicit employees or customers for business, according to the agreement.

Also in the filing, InBev maintained its promises to keep Anheuser-Busch’s 12 U.S cheap payday loans. breweries open, on the condition that, "there are no new or increased federal or state excise taxes."

St. Louis will remain the home of the Budweiser brand, the filing said. InBev said it would continue to support Anheuser-Busch’s charitable causes and other operations, such as its trademark Clydesdale horses.

Anheuser-Busch will have to pay $1.25 billion if the deal falls through for one of several reasons, such as Anheuser-Busch accepting another offer. InBev will pay Anheuser-Busch the same amount if Anheuser-Busch’s shareholders reject the deal.

Anheuser-Busch said in the filing it planned to hold a special shareholder meeting to vote on the deal and would announce that date as soon as the deal receives regulatory clearance.

On Monday, InBev said the U.S. Department of Justice was seeking additional information about the deal. InBev said in a statement it would "respond expeditiously" to the so-called "Second Request" that pertains to antitrust regulations. It said the request was normal and it expected the deal to close by the end of the year.

Shares of Anheuser-Busch (BUD, Fortune 500) fell 37 cents to close at $67.82 Monday. 

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Prices paid by New Zealand farms, factories and other producers for commodities and services needed to run their businesses posted the biggest rise in 28 years in the second quarter led by electricity and fuel.

Producer input prices gained 5.6 percent in the three months ended June 30, the most since the first quarter of 1980, Statistics New Zealand said in Wellington today. From a year earlier, input prices rose 12 percent.

Prices paid for electricity increased 51 percent from the first quarter, the statistics agency said. Low hydro lake levels increased wholesale electricity prices, prompting companies to pay more for power and increase charges for their customers. Power prices rose 86 percent from a year earlier.

Rising crude oil and jet fuel prices increased the fuel costs paid by wholesalers and airlines http://paydayintime.com. The air transport index rose 13 percent. Manufacturers paid more for steel and meat processors paid more for livestock.

Producer output prices, which are paid to factories, farms and other producers, rose 3.5 percent in the second quarter, the agency said. That's the biggest gain in 23 years. From a year ago, output prices increased 8.5 percent.

Generators received more for electricity as wholesale prices rose, the agency said. Oil companies were paid more for gasoline and farmers received more for lambs and cattle.

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CVS Caremark Corp (CVS.N: Quote, Profile, Research, Stock Buzz) will fill gaps in its U.S. drugstore footprint by acquiring Longs Drug Stores Corp (LDG.N: Quote, Profile, Research, Stock Buzz), but the benefits might take a while to realize.

The $2.54 billion pricetag also renewed concerns among some analysts that capital was being siphoned off from the Caremark pharmacy benefits management (PBM) business to feed a drugstore business during a time when retailers are being hurt by a weak U.S. economy.

“We believe the 32 percent premium … is excessive,” BMO Capital Markets analyst Dave Shove said.

Though Shove said the deal gives CVS a “formidable presence” in a number of valuable regions, such as northern California, it is not positive for shareholders, given how much it will cut into 2009 earnings payday loan.

Despite expected dilution, CVS shares were down less than 1 percent on Wednesday.

CVS announced the $71.50-a-share deal after the market closed on Tuesday.

It estimated the acquisition will cut earnings per share by 1 cent to 2 cents in 2008 and 5 cents to 6 cents in 2009, before adding to earnings by 4 cents to 5 cents in 2010.

The pricetag was flagged as high by other analysts on Wednesday, and some questioned whether the deal signaled that CVS was using cash from its PBM business to grow its retail business. 

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Times are tough, and understanding your credit score is crucial to financial survival. But knowing your score and getting access to it isn’t so easy.

Credit scores affect everything from rates on mortgages and car loans, to credit card terms and even whether you get a job. Lenders use them as an indication of how likely you are to repay a loan. The most widely used credit score is known as FICO, which ranges from 300 to 850. Credit scores change over time, depending on your credit history, which is explained in your credit report.

In recent years consumers have had the ability to access one free credit report a year. But getting an accurate reading of your credit score remains problematic and costly.

With loan delinquencies and foreclosures more common, lenders are tightening their standards and that means that a low score can prevent you from getting access to credit, and you’ll need an even higher score to qualify for the best interest rates.

Last week, the House Subcommittee on Oversight and Investigations took up the discussion in a hearing to examine credit scoring and whether consumers are granted fair access to their own three-digit numbers.

Thanks to the Fair and Accurate Credit Transactions Act, or FACT Act, enacted by Congress in 2003, consumers can get one free credit report a year from the three major agencies - Equifax, Experian and TransUnion. But that doesn’t include scores, which come at an added cost of around $6 to $16. That’s the "fair and reasonable" fee credit rating agencies can charge consumers under the legislation.

Some consumer advocates argue that scores should be free too, and included in the free annual credit report consumers are entitled to.

But the credit rating agencies argue that it costs them money to compile and maintain those scores, and lawmakers should not interfere with their ability to sell credit reports and credit scores at a profit.

If legislation were proposed that mandated giving consumers a score along with their annual free credit report, that would be "legislating revenue right out of my pocket," said Steve Ely, president of Equifax.

According to Ely, Equifax makes $154 million a year from selling credit reports, credit scores and credit monitoring products to consumers.

Evan Hendricks, editor of Privacy Times and author of "Credit Scores and Credit Reports: How the System Really Works, What You Can Do," argues the credit rating agencies could still maintain a profitable business, just as they did after the FACT Act mandated that they give annual reports away for free.

Originally, Hendricks said, the credit rating agencies fought the free credit report legislation but now "they’re selling more reports than they are giving away for free." The credit rating agencies argue that is not the case.

"I would dispute that considerably," said Ely.

"We do give away significantly more free credit report disclosures than the reports that we charge for," confirmed Steven Katz, a spokesman for TransUnion.

Hendricks also argues that consumers pay $5.95 to $15.95 to see their credit score while lenders buy those scores from the credit bureaus for less than a dollar payday loan online. Ely counters that business-to-business customers buy in large volumes, and therefore get a discount.

Another issue up for debate is the number of different kind of credit scores out there, often confusing or misleading consumers. FICO, the scoring system devised by Fair Isaac Corp., is the one most commonly used by lenders in determining consumer credit worthiness.

But some credit rating agencies sell "educational scores," sometimes referred to as "FAKOs," (as in a fake FICO score) that are similar to FICO scores, but can differ by up to 20 points or more.

So consumers who purchase scores directly from one of the three credit agencies might not be seeing the same score that lenders are using.

While Equifax sells FICO scores, Experian offers their own proprietary PLUS Score and TransUnion sells a "Vantage Score," another variation on the FICO scoring system created by the three credit bureaus. Vantage Scores range between 501 and 990 and includes a letter grade, which can help consumers gauge how they rank compared to others.

"Accordingly, Congress needs to act to bring the appropriate level of transparency and fairness to credit scoring," Hendricks said in his testimony before the subcommittee.

"People don’t realize that the credit score they are buying isn’t the score used by lenders," Hendricks said. "At a minimum, fundamental fairness dictates that sellers of knock-off scores clearly and conspicuously disclose that their scores are not used by lenders and may differ significantly from the ones that are."

Stuart Pratt, president and CEO of the Consumer Data Industry Association, the credit reporting agencies’ trade association, said that consumers can’t get a free credit score with their annual report precisely because there is no single universal score.

Further complicating matters, some lenders devise their own scoring systems in addition to using the ones provided by the credit agencies.

In written testimony before the subcommittee, Jack Forestell, vice president of marketing and analytics at Capital One Financial Corp. said "Capital One uses a blend of internally derived and externally available consumer data to develop its own credit scoring models."

Steven Katz, a spokesman for TransUnion warns consumers not to key in on the specific number and instead look at all the information that is provided in the report.

So what should consumers seeking credit be doing? Ultimately, focusing on a single score, whether it will one day be free with your credit report or remain available for a price, is only one aspect of your credit worthiness. The credit report shows what you can do to improve and protect your overall financial health. So viewing both the score and the report is the best way to determine your level of risk as a borrower.

For a free copy of your credit report, visit http://www.annualcreditreport.com/ or call 877-322-8228. 

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Business activity in the service sector contracted for the second straight month in July, although at a slower rate than in June, according to a key survey of industry executives released Tuesday.

The Institute for Supply Management’s (ISM) non-manufacturing index rose to 49.5 from 48.2 in June. Economists were expecting a reading of 48.7, according to a consensus compiled by Briefing.com.

A reading above 50 indicates growth in the sector, and a reading below 50 means that the sector is contracting.

Still in contraction. Despite the rise, one analyst cautioned that the reading is still an indication of contraction in services.

"It is higher, no doubt about that, but the problem is that it is still below 50 and any measure below 50 is still in contraction," said Christian Menegatti, lead analyst with of RGE Monitor, an online economic research company.

"Saying things are better because the non-manufacturing index is at 49.5 rather than 48.2 is a little big far-fetched - it is a wrong interpretation of this economy right now," he said.

The service sector includes real estate, construction, mining, fishing, agriculture, health care, finance, insurance and administration.

"Members’ comments in July indicate concern about inflationary pressures and the effect on the economy," said Anthony Nieves, chair of the ISM Non-Manufacturing survey committee in a written report.

The employment component increased to 47.1 from 43.8 in June, indicating contraction in the sector, but at a slower rate fastcash.

Menegatti said that even though the reading ticked up, it was still not a strong labor market reading.

The employment index "is improved but it is far from 50," he said. "I would be careful in seeing this as a significant improvement."

The reading on business activity for July decreased to 49.6 from 49.9 in June, a signal of slightly faster contraction.

The survey showed that demand for new orders also contracted faster in July, with the component slipping to 47.9 from 48.6 in June.

Prices increases for 62nd month in a row. Of particular concern for business owners, prices paid for materials and services by businesses increased in July for the 62nd consecutive month.

But the measure slipped to 80.8 from 84.5 in June.

The percentage of survey respondents reporting higher prices was 66%, while 30% indicated no change in prices. Only 4% of respondents reported lower prices.

Higher energy and commodity prices are hitting the service sector, but business owners are having a hard time passing on the higher costs to consumers, according to Menegatti.

"There is no way that businesses are not feeling the heat from high energy prices, especially since they are having a very hard time passing on these high costs to the consumer," he said. The consumer "is completely shopped out."  

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Lufthansa said Wednesday it canceled its first international long-haul flights as a strike by ground and cabin crew at Germany’s biggest airline entered its third day.

Deutsche Lufthansa AG said it canceled four flights to the U.S., India and Canada. The rest of the 78 flights canceled Wednesday were for destinations in Germany and Europe.

Spokeswoman Amelie Lorenz said the canceled flights accounted for about 4% of the airline’s total flight capacity. She said that affected passengers were being put on flights operated by other airlines.

The ver.di union, which represents about 50,000 ground service personnel and a small number of cabin staff, started an open-ended strike for more pay Monday faxless payday loans.

The union is seeking a 9.8% pay rise for a year, while the airline has offered 7.7% for 21 months including a one-time bonus payment.

The first day of strikes had little effect on the Cologne-based airline’s flights, but approximately 70 flights were canceled Tuesday. 

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