Finance and Economic

Societe Generale’s lower-than-expected third quarter profit has highlighted the French bank’s weakness compared to many of its rivals and its position as a possible bid target if there is a sector shake-up.

Like peers Credit Suisse and Deutsche Bank, SocGen’s investment banking results powered the profit line although debt provisions rose to cover an expected further rise in bad loans in 2010.

Net profit rose to 426 million euros ($623 million) euros from 183 million a year earlier, mainly due to the fact that SocGen’s investment banking arm swung to a profit from a year-earlier loss.

However, the bank missed the average estimate of 481 million euros in a Reuters poll of 10 analysts as group revenues were weaker-than-expected and provisions were higher. The banking group’s revenues took a hit at its international arm, affected by the Russian economic slowdown and its investment management arm, due to outflows.

France’s second-biggest and the euro zone’s No.6 bank by market value has been steadily recovering since a 4.9 billion euro trading loss in January 2008, which it blamed on unauthorized deals carried out by Jerome Kerviel, a former junior trader at the bank.

However, SocGen remains the subject of persistent bid speculation in France. Last week, Credit Agricole — the country’s biggest bank by branches — denied a report in Le Monde that it was considering a merger with SocGen and insurer Groupama.

La Tribune newspaper said on Wednesday that BNP Paribas was looking at SocGen.

BNP Paribas, France’s biggest bank by market capitalization, denied the Tribune article. BNP reiterated that its immediate focus was on integrating its recent buy of Fortis assets.

“This rumor is unfounded from A to Z!,” a BNP spokesman said in an emailed statement to Reuters.

SHARES RECOVER

Nevertheless, the Tribune article helped push up SocGen’s shares, which were also boosted by the company’s solid performance at its French retail banking division.

“Even though BNP has denied it, it would be a good opportunity for them,” said Agilis Gestion fund manager Arnaud Scarpaci. Agilis Gestion owns some SocGen shares.

SocGen shares, which fell 4 percent on Tuesday, were up 4.6 percent at 45.65 euros in early morning trade. At that price, SocGen has a market capitalization of around 34 billion euros.

BNP Paribas shares were up 2.3 percent at 52.06 euros, giving BNP a market capitalization of around 62 billion euros.

SocGen’s results kicked off the third-quarter earnings season for French banks, with BNP Paribas also expected to post higher earnings on Thursday. 

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The U.S. economy may have turned a corner after the deepest recession in some 70 years, but Federal Reserve policymakers appear to be in no rush to raise interest rates.

The Fed is widely expected to keep its benchmark interest rate where it has been since December — near zero — when it meets this week.

With underlying inflation pressures actually decreasing and most Fed officials expecting the recovery to be slow, there is little incentive for the Fed to change its easy money policy.

“Anybody who expects major changes to the Fed’s statement is likely to be disappointed,” said Stephen Stanley, U.S. economist at RBS.

Fed officials, who meet on Tuesday and Wednesday, could discuss how they will prepare markets for an eventual policy shift, but analysts say it is too soon for the Fed to even hint toward an exit by tweaking its pledge to keep rates extraordinarily low for an “extended period.”

Even as the U.S. economy appears to be still in need of Fed support, the repercussions of emergency monetary policies are being felt around the world.

Brazil has acted to stem the flood of speculative capital to its economy by adopting a 2 percent tax on foreign investment. Other nations have begun to intervene to keep their currencies from rising too sharply against the falling dollar.

Among top Fed officials a debate has broken out about how soon the central bank will need to act to nip inflation in the bud, although none are advocating a move now.

Financial markets will comb through the central bank’s policy statement, which will be released at around 2:15 p easy online payday loans.m. EST (1915 GMT) on Wednesday, for any clues on when the easy money period will start drawing to a close.

Most analysts at top U.S. banks expect the Fed’s policy-setting Federal Open Market Committee to keep interest rates on hold until mid-2010 or later, though interest-rate futures markets are pricing in an increase earlier in 2010.

The most significant outcomes of the Fed’s last two policy meetings concerned the central bank’s purchases of U.S. government and mortgage-related debt. The Fed stopped buying longer-term Treasury debt last week, while the mortgage-related asset purchase program has been extended into early 2010 to provide for an orderly wind down.

“Things are going to start to get interesting in 2010, but for the moment they’ve got all their ducks in a row,” Stanley said.

GROWTH HAS ARRIVED, BUT JOBS HAVE NOT

The Fed will note that the economy grew in the third quarter, snapping a deep four-quarter plunge and likely ending the U.S. recession. The officials are also likely to repeat there is still enough slack in the economy for inflation not to be an immediate worry.

Last week, data showed U.S. GDP rebounded at a solid 3.5 percent annual pace in the third quarter. A separate report showed inflation, outside of food and energy costs, bumping along at a eight-year low. 

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Some of the nation’s largest companies pushed back against U.S. Democrats’ plans to deliver a government-run insurance option in a healthcare overhaul, decrying it as a step backward that would drive up costs for employers and their workers.

The Business Roundtable, comprised of chief executives at Verizon Communications, JPMorgan, General Electric, Wal-Mart and other companies that together employ more than 12 million people, said the federal government is inefficient and would underpay providers. That would result in providers boosting prices for private insurers and employers, the group said on Wednesday.

“A public plan would neither manage cost nor encourage innovation,” said Antonio Perez, chief executive of Eastman Kodak Co and head of the Business Roundtable’s health initiative. “We believe it is the wrong direction for fixing our health care system.”

On Monday, Senate Majority leader Harry Reid said his bill would include a so-called “public option” as an alternative to those sold by private insurers. Individual states could “opt out” against offering the plan.

President Barack Obama, who has made health reform his top priority this year, has said a government alternative will force private insurers to be more competitive.

The U.S. House of Representatives’ proposals also contain a public insurance option.

Although an earlier congressional analysis found that about 9 million to 10 million people, most uninsured, would opt for the public plan, the Business Roundtable fears that number will jump as people see their private plan premiums climb.

“The costs for all of us in the system will continue to go up and again put pressure on employers to get out of the healthcare system,” John Castellani, president of Business Roundtable, told reporters at a news conference payday advances.

Other business groups also oppose a public insurance option and are pushing for alternative cooperative exchanges. The U.S. Chamber of Commerce launched television ads on national cable stations and in seven states on Wednesday to fight the government option.

‘ORBITZ’ FOR HEALTH PLANS?

The United States is the only developed nation that pays for the bulk of its health care through private employers rather than the government, and studies have shown premiums for workers and their companies continue to rise each year.

Health insurers earlier said they would back some reforms as long as a bill included a strong requirement for people to buy health insurance policies, a move they said would spread risk among a wider pool of people and disperse costs. Insurers also vowed to pass through additional taxes and costs onto purchasers.

While details from the final Senate and House bills have yet to emerge, so far the proposals differ somewhat on what penalties either individuals or companies would face for not buying or providing health insurance.

Companies want to offer employees health care to recruit and retain talented workers, said Bruce Josten, a vice president at the Chamber of Commerce.

The chamber backs an national exchange “with an Orbitz-like website,” Josten told Reuters, referring to a popular travel site that compares deals among various providers. 

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St. Louis County residents now have greater shopping choices as Schnuck Markets Inc. and Wal-Mart Stores Inc. add bigger stores this week.

On Tuesday, Schnucks opened its new 74,000-square-foot flagship store at 12332 Manchester Road, near West County Center in Des Peres. It replaces the original Schnucks store in Des Peres, which has been closed.

The new Schnucks store, which includes the grocery chain’s first cooking school, offers a Kaldi’s coffee shop, a walk-in beer cooler, an aged beef cooler, a cheese room and wine display.

Meanwhile, a new Walmart Supercenter opens today at Manchester Highlands, located at the northeast corner of Highway 141 and Manchester free credit report instantly. It replaces a Walmart store in Town and Country’s Manchester Meadows shopping center.

Among the features of the almost 204,000-square-foot store will be a bakery, a deli, meat and dairy products, fresh produce, and a full liquor department.

Margaret Gillerman

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A gaunt-looking Steve Jobs stepped back into the spotlight for the first time in more than half a year on Wednesday, unveiling new iPods for Apple Inc and drawing a standing ovation.

But Apple’s shares fell nearly 2 percent after hitting a year-high earlier in the session, with some analysts remarking on how thin the 54-year-old chief executive appeared.

Dressed in his trademark black turtleneck and jeans, Jobs took the stage and thanked everyone in the Apple community for their “heartfelt support.” It was his first public appearance since returning to work in June after six months of medical leave, during which the charismatic corporate showman underwent a liver transplant.

“I now have the liver of a mid-20s person who died in a car crash and was generous enough to donate their organs. I wouldn’t be here without such generosity,” an emotional Jobs told the audience, exhorting them to all become organ donors.

Apple shares initially rose about 1 percent to a year’s high before retreating to trade down 1.6 percent at $170.14.

“I’m sure (Jobs) looking so frail — the guy’s had the most extreme surgery you can have — didn’t help matters, but I think people have come to grips that the torch is going to be passed, it’s just a matter of when,” said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams.

Jobs, a pancreatic cancer survivor, started off by announcing a new version of Apple’s popular online media store, iTunes, and updated software for the iPhone.

He then unveiled new iPod features and colors, including adding a video camera to the iPod nano, as well as price cuts for other models, ahead of the crucial holiday season free credit reports.

Analysts had expected an appearance by Jobs to give Apple’s stock a boost. The shares rose in the afternoon to $174.47, their highest since August 28, 2008. But they quickly retreated.

“While he was gone, Apple innovated and the product pipeline is set for the next three years,” said Canaccord Adams analyst Peter Misek. “He is clearly a genius. It’s great to have him back. It’s great for the industry, but I don’t think he’s back full-time and I don’t think he’s going to come back full-time.

RUMORS OF MY HEALTH

Jobs’s return is well-timed. The holiday season is a critical period for Apple, as it is for many consumer electronics companies, as shoppers fill stores and spend their precious discretionary income on the latest gadgets.

December-quarter sales made up around 30 percent of Apple’s revenue last fiscal year.

Jobs stepped away from day-to-day operations in January after months of rumors about his health and noticeable weight loss. He returned early this summer, but had not been seen at a public event until Wednesday.

As expectations of a high-profile product launch faded in the run-up to the event, much of the speculation centered on whether Jobs would appear. 

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Online video site YouTube is in talks with several major movie studios about renting movies to users by streaming the movies over the Internet according to a person familiar with the talks on Wednesday.

It would mark the first time the world’s most popular video site would charge its users to watch videos.

YouTube, which is owned by Internet search giant Google Inc, has held discussions with Lions Gate Entertainment Corp, Sony Pictures, a unit of Sony Corp, and Time Warner Inc’s Warner Brothers about online movie rentals, the person said.

In many cases, the movies would be available for rental for a fee in a system similar to Web rental programs from Apple Inc’s iTunes, Netflix and Amazon.com with newer movies. YouTube would likely charge a similar fee around $3.99 a rental.

YouTube, which is the world’s No.1 video website, currently offers video for free, on an advertising-supported basis.

It currently has a range of archive movies, TV shows and promotional clips from the three named studios and other partners on its site.

“We hope to expand on both our great relationship with the movie studios and the selection and types of videos we offer our community,” said YouTube spokesman Chris Dale.

YouTube is in the midst of talks and negotiations with a wide range of media content partners as it ramps up efforts to build a substantial library of current and archive professional movies and videos that it can monetize.

The site, best known as a place to seek out fun videos uploaded by users that feature themes such as skateboarding dogs and dancing babies, recently started to emphasize a growing amount of professional videos.

Advertisers are believed to favor professionally made videos over those of users. Hulu, a video site owned by News Corp, Walt Disney Co and NBC Universal, has had relative success attracting both users and advertisers with a range of full-length TV shows and older movies.

Last month, YouTube announced a partnership with Time Warner Inc properties including CNN and TNT. It agreed a similar deal in March with Walt Disney.

YouTube owner Google has come under growing criticism from Wall Street analysts and investors concerned the expense of serving millions of videos to users around the world everyday is costing the company more money than it earns from advertising.

(Reporting by Yinka Adegoke and Alexei Oreskovic; editing by Andre Grenon.)

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Toyota Motor Corp, the world’s largest automaker, said it would halt a production line in Japan as it looks to cut excess capacity to return to profitability amid an industrywide sales slump.

Car plants around the world are idle or running below capacity as the industry copes with a slide in sales that sent General Motors Co GM.UL and Chrysler Group LLC into bankruptcy and has Toyota headed for a record loss this year.

Total cuts could reach 700,000 cars, or 7 percent of Toyota’s global capacity, including a production line in Britain that may be halted and a joint venture with General Motors in the U.S. likely to be closed, a source with knowledge of the matter said.

“Though sales in some countries have been picking up, the outlook for global car demand is still uncertain,” and the company thinks it should be prepared, the source said.

Toyota’s sales have been boosted over the past few months by government incentives aimed at kick-starting demand, but it is still plagued by an excess capacity of more than 3 million vehicles following a rapid expansion earlier in the decade.

The company said it has decided to halt a production line in Japan for about a year and a half from next spring.

“The production cut is positive for its earnings, but there is room for further capacity cuts in the United States and elsewhere,” said Yoshifumi Tabei, an auto analyst at Kazaka Securities.

Shares of Toyota closed up 1.5 percent, in line with the benchmark Nikkei .N225 average, which rose 1.4 percent.

Toyota expects to lower its break-even point by halting some assembly lines, but will not dispose of them so that it can quickly raise production in the event of a demand recovery. Workers on the halted Japanese production line will be employed at other Toyota factories.

The source said the extent and timing of the output cuts had not yet been set but the Nikkei business daily reported that Toyota planned to reduce its global capacity by 10 percent, or 1 million vehicles, as early as the current financial year to March 2010.

The source, who declined to be named because the matter was not public, said Toyota was also considering halting a line at a UK plant.

Toyota has said it will decide this month whether to pull out of New United Manufacturing Inc (NUMMI), a California joint venture with General Motors.

Those three moves would cut capacity by 700,000 vehicles, based on Toyota factory data, from Toyota’s annual output capacity of 10 million vehicles.

Toyota has begun restoring some production cut in the wake of the global financial crisis as inventories shrink, but has yet to announce whether it plans longer-term cuts in factory capacity.

It has seen a recovery in sales of fuel-efficient cars helped by government measures to promote such vehicles, with its Prius hybrid ranking as Japan’s top-selling car in July for the second straight month, but has lagged behind its rivals in cost-cutting. 

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South Korea’s LG Electronics Inc beat expectations with a record second-quarter profit and is set to outperform its peers this year thanks to a weak local currency and a strong lineup of mobile phones, TVs and appliances.

Although the results were better than expected, the world’s No.3 phone maker cautioned that third-quarter mobile margins could slip, and analysts also voiced concerns about the economic outlook and rising competition.

“The second quarter is usually the peak season for LG,” said Choi Hyun-jae, an analyst at Tong Yang Securities. “Global economic risks remain and fierce marketing competition among new products could also result in price reductions.”

But new premium products such as the multimedia touch screen phone ARENA, plus steady sales of mid-range phones are helping LG expand market share in mobile phones despite the current downturn.

LG, the No.3 globally in liquid crystal displays (LCD), is also benefiting from strong sales of flat-screen TVs and improving earnings at affiliate LG Display Co Ltd.

“LG Electronics expects sales to grow over 10 percent year-on-year (in the third quarter) as demand for LCD TVs and mobile phones continues to expand, with profitability comparable to last year’s level,” LG said in a statement on Wednesday.

LG shares fell 1.9 percent against a flat broader market as the strong results had been largely priced in. The stock has risen about 76 percent so far this year, outperforming the broader market’s 32 percent gain fast cash payday loans.

PHONE MARGINS

LG, which trails Nokia Oyj and Samsung Electronics Co Ltd in mobile phones, sold a record 29.8 million handsets in the second quarter, up from 22.6 million units in January-March.

LG posted an 11 percent operating profit margin in handsets, compared with 6.7 percent posted in the first quarter, a figure Choi said was “pretty remarkable.”

Last week, Nokia downgraded its expectations for second-half underlying operating margin to the first-half level of 11.3 percent, compared with expectations of 17.4 percent. Nokia also slashed market share forecasts, and analysts say increasingly aggressive price competition from Samsung and LG is hurting the world’s top cellphone maker.

World No. 5 maker Sony Ericsson is also braced for a tough second half of 2009 as a demand slump hits its stronghold mid-range products focused on camera and music features.

Samsung posts earnings on Friday and indicated earlier this its profits would be above expectations.

62 PERCENT JUMP IN NET

LG’s global-basis operating profit, which includes foreign affiliates, was a record 1.13 trillion won ($903 million) for April-June, soundly beating a 988 billion won average profit forecast from nine analysts polled by Reuters. 

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Murray Harris had an energy audit done last year and spent $30,000 to install a geothermal heating system at his home in Owen Sound.

He’s not happy. Far from it.

"It is costing more to heat our 2,400 square foot home now than before, when we had an electric furnace and an air-source heat pump," he says.

"We have the hydro bills to prove the higher usage."

While Harris did get a $7,000 rebate from the ecoEnergy home retrofit program, he feels he wasted his money.

Next winter, he plans to switch off his geofurnace and use old-fashioned technology – a log splitter and fireplace insert – to heat his home.

Ron Dembo, on the other hand, is happy with the geothermal unit he installed at his farm.

"The savings are substantial," says the founder of Zerofootprint, which develops carbon management software.

"These kind of cases are very unfortunate," he says about Harris’s disappointing experience.

"Often, they are a result of improper sizing of the units and a lack of expertise on the part of the installers."

Harris contacted the manufacturer, NextEnergy, which sent the installer to check the system.

"The installer verified it was working perfectly. They would only say it is proven technology and they had no control over the cost of heating the house," he says.

Geothermal installations are expensive – typically $25,000 to $40,000 – because of the cost of drilling and burying pipes underground.

In contrast, you will pay about $7,000 to $10,000 to install solar panels on your roof to heat your water in all seasons.

So, how much will you save with solar hot water heating?

"The payback is eight to 12 years," says Rob McMonagle, a senior consultant with Toronto’s energy efficiency office quality business cards.

(He’s referring to the net cost of the investment after government grants and loans.)

Toronto is running a pilot project in the Riverdale area to encourage homeowners to install solar panels.

"We’re experimenting with interest-free loans that are longer than the payback of the product, say 10 years, so there’s positive cash flow from the beginning."

To install solar water heating, your house must meet several requirements:

• The roof must face south, southwest or southeast and must be exposed to good sun and not in the shade of a big building.
• The basement or utility room has to accommodate a large solar tank along with a conventional tank for back-up heating.

Shading will be a big issue as solar water heating grows more popular.

"Canada … doesn’t have `right to light’ legislation," says McMonagle. "There’s no guarantee that someone won’t put up a building and cut off your sun."

Only 20 Riverdale homes have taken up the city’s offer.

"There’s so much money at stake that not a lot of people want to be first on the block. They want to see their neighbours doing it first," McMonagle says.

The lesson for homeowners: Don’t buy energy-saving equipment just because grants subsidize the cost. Ask how long it will take to pay back the investment, using different estimates of future energy costs, and get it in writing.

This wraps up a Sunday series on home energy.

I’ll be back in two weeks with a new Money 911 series.

eroseman@thestar.ca

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Mexico’s central bank will probably reduce its benchmark interest rate for a sixth consecutive month in a bid to revive a shrinking economy plagued by falling exports, plunging remittances and a swine flu outbreak.

The bank’s five-member board, led by Governor Guillermo Ortiz, will cut the overnight rate a half percentage point to 4.75 percent, according to 20 of 22 economists surveyed by Bloomberg. One analyst expects a quarter-point cut and one forecasts a 0.75 percentage point reduction.

Latin America’s second-biggest economy shrank the most since the 1995 Tequila Crisis in the first quarter, industrial output has tumbled for nine straight months and sales of goods abroad have fallen by more than a third in the last year. Policy makers have room for a half-point cut because they remain more concerned about the recession than increases in consumer prices, said Pedro Tuesta, an economist at 4Cast Inc. in Washington.

“They can’t cut a quarter point because the economy is still a wreck,” Tuesta said. “All the data is bad. The recovery isn’t going to be robust.”

Policy makers won’t reduce borrowing costs by more than a half point after saying last month that they may slow the pace of cuts from 0.75 percentage point, Tuesta said. The bank has lowered the overnight rate by 0.75-point for three straight months.

Economy

The economy has plummeted and job losses have accelerated this year as the recession in the U.S., which buys around 80 percent of Mexican exports, saps demand for products.

The economy contracted 8.2 percent in the first quarter from the same quarter a year earlier, prompting Goldman Sachs Group Inc. to forecast that Mexico’s gross domestic product will contract 8.5 percent this year, the most since 1932.

Remittances from abroad, the second-biggest source of dollars coming into Mexico after oil exports, fell a record 19 percent in April. Industrial production in April fell 13.2 percent, the most in 14 years and second-lowest reading since March 1983. Consumer confidence dropped to the lowest level ever in May. Mexican production of cars and light trucks fell 39.4 percent last month from May 2008, the nation’s Automobile Industry Association said no fax cash loans.

The swine flu outbreak in April and May also battered the economy as the government shut schools, restaurants and theaters and foreign tourism revenue plunged. The flu may reduce GDP by 0.5 percent this year, Ortiz said last month.

Inflation

Mexico’s central bank, unlike the U.S. Federal Reserve, has only one mandate: to keep inflation in check.

Still, according to Benito Berber, an economist at RBS Greenwich Capital Markets, consumer prices aren’t a big concern for policy makers with recession choking off domestic demand.

“Inflation is sticky, but who cares,” said Berber, who is based in Greenwich, Connecticut. “The bank should only worry about inflation when it has to do with demand because that is what the rate can affect.”

Ortiz said in a June 11 interview that inflation will slow at a “rapid rate” and that a recent rise in global commodities prices is “less threatening” than when those costs reached their peak. The effect of a weaker peso on prices has mostly ended, he said.

Annual inflation slowed to within the bank’s second-quarter forecast of 5.5 percent to 6 percent for the first time in May as the monthly rate fell the most in two years. Ortiz said inflation will meet the bank’s forecast for the quarter.

The central bank forecasts an inflation rate of as high as 5.25 percent in the third quarter, as high as 4.5 percent in the fourth quarter and as high as 3.5 percent at the end of 2010.

Policy makers will cut borrowing costs to 4.5 percent by the end of the year, according to the median forecast of economists surveyed by Citigroup Inc.’s Banamex unit. BBVA Bancomer SA, Mexico’s largest lender, forecasts the rate will remain at 4.5 percent until the fourth quarter of 2010.

Lower interest rates can help prompt businesses to invest and consumers to buy on credit. Cheaper loans also can spur inflation by strengthening demand.

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