Finance and Economic

Ralcorp Holdings’ acquisitions in 2010 drove the food company’s profit up 6 percent in the first fiscal quarter, but the company said higher commodity costs are prompting the manufacturer to raise prices.

St. Louis-based Ralcorp., which makes Post branded cereals and private label foods, reported first quarter net income of $71.3 million, or $1.28 a share, up from $67.2 million and $1.19 a share a year ago. Ralcorp’s net sales, $1 no checking account payday advance.2 billion, were up 18 percent in the first quarter, compared to $992 million a year ago.

In a statement, Ralcorp attributed the profit and sales gains to its  $1.2 billion acquisition of Kansas City-based American Italian Pasta Co., t

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Sweden is selling part of its stake in Nordea Bank AB, the Nordic region’s largest lender, in a move that will reduce state debt by as much as $3 billion.

The government of Prime Minister Fredrik Reinfeldt ear- marked Nordea for divestment back in 2006, as part of a broader strategy to sell off holdings in assets including phone company TeliaSonera AB and mortgage lender SBAB. Nordea, created after Sweden’s 1990s banking crisis through a series of state- orchestrated mergers, this week posted a 72 percent surge in fourth-quarter profit to 769 million euros ($1.06 billion).

The transaction, known as an accelerated bookbuilding, is expected to be priced and allocated today, the ministry said. The order book in the sale closed before 10 a.m. local time, according to two people familiar with the offering. The Swedish government appointed Nomura Holdings Inc. as global coordinator and joint bookrunner and Morgan Stanley and SEB Enskilda as joint bookrunners. Sweden has agreed not to sell any additional shares in Nordea for 90 days after the completion of the sale.

The Nordea sale is “bullish for Swedish long bonds and we reiterate our view to stay long Sweden versus Germany in 10 year bonds,” said Lars Martinsson and Martin Tallroth, interest-rate strategists at Swedbank AB in Stockholm, in a client note. “In a country with one of the lowest debt-to-GDP ratios to start with, this is obviously good news for holders of Swedish bonds.

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When Robert Weaver and his wife took ownership of their new home last November, they received a nasty shock.

The previous owner had changed the rental water heater three days before the deal closed, choosing an updated model from Direct Energy.

They decided to have it removed because it didn

Sometimes it seems there’s only one way for the public to find out what’s really going on inside our most important institutions. And that’s for some juicy document from deep inside their bowels to magically find its way to an enterprising journalist, as if delivered by an occult hand.

The best leaks enlighten and inform us in ways we could not have imagined before. That’s what readers of a Bloomberg News story this week about Freddie Mac and Citigroup Inc. were treated to. Whoever made this leak possible, the public is better off for it.

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China’s real estate prices rose for a 19th month in December, raising concerns that the government will expand curbs to limit the risk of asset bubbles in the world’s fastest-growing major economy. Property stocks fell.

Prices in 70 cities rose 6.4 percent in December from a year earlier, the smallest increase in 13 months, according to data from China Information News, the statistics bureau’s newspaper. That’s less than the 7 percent median estimate in a Bloomberg News survey of six economists. Prices gained 0.3 percent from November, the newspaper said today.

Home prices increased even as China suspended mortgages for third-home purchases and pledged to speed up trials of real estate taxes. The People’s Bank of China raised interest rates again on Dec. 25, after increasing them for the first time in three years in October.

“Home prices are still rising, especially for existing homes, and that may lead to concerns that the government will continue its tightening of the property market and more cities will impose a limit on home purchases,” said Cathy Yin, an analyst at Shenyin Wanguo Securities Co. in Shanghai. “Investors are using that as a catalyst to sell property stocks.”

Prices of existing homes climbed 0.5 percent in December, the most in three months, according to the report.

Property Stocks Fall

The gauge tracking property stocks on the benchmark Shanghai Composite Index slumped 5.4 percent at the close, the most among five industry groups on the measure. China Vanke Co., the nation’s biggest listed developer, lost 7 percent to 8.42 yuan, and Poly Real Estate Group Co., the second biggest, dropped 8.7 percent to 13.60 yuan, the most since April 19.

China’s central bank told lenders on Jan. 14 to hold more deposits as reserves for the fourth time in two months, lifting required ratios by half a percentage point. Premier Wen Jiabao said in a National Radio broadcast on Dec. 26 that measures to curb the country’s property market weren’t well implemented. The government also pledged to almost double the number of affordable housing to 10 million units in 2011.

“Continued increases in prices will worry policy makers, given how unaffordable homes have become,” said Dariusz Kowalczyk, economist with Credit Agricole CIB in Hong Kong. The slower price gain in December “is unlikely to be enough to prevent further measures to cool the market,” he said.

Rising Investment

Investment in real-estate development in December rose 12 percent to 557 billion yuan ($84 billion) from a year earlier, according to the report, while full-year investment climbed 33 percent to 4.83 trillion yuan. Property sales increased 22 percent to 1.02 trillion yuan during the month, with 218 million square meters (2.3 billion square feet) of real estate sold, a 12 percent gain from a year earlier, the newspaper said.

“There’s a lot of money in the system, interest rates are close to zero, so it is only natural” that money should be invested in real estate, said Ronnie Chan, chairman of Hang Lung Properties Ltd., Hong Kong’s third-biggest developer by market value which has almost half of its assets in China. “The fact that the government is able to perhaps slow it is a good sign” because it’s “very determined” to contain prices.

Sanya, a resort city on Hainan island in China’s south, posted the biggest price advance in December among the 70 cities monitored, with values rising 43 percent from a year earlier. That’s followed by 36 percent gain in Haikou, the capital city of the island province.

Meeting Targets

Guangzhou, capital of south China’s Guangdong province, and Quanzhou, a city in Fujian province, reported the smallest prices gains among the 70 cities, each rising 0.4 percent in December from a year earlier.

“The growth slowed because developers didn’t dare to raise prices in fear of more government curbs,” said Jinsong Du, head of property research for Credit Suisse Group AG. “Many developers launched more homes in the market last month to meet their annual sales target.”

Today’s numbers came after private data indicated higher sales in December. SouFun Holdings Ltd., the country’s biggest real-estate website owner, said home prices in 100 cities it monitors advanced 0.9 percent in December from November, the biggest gain for at least six months.

China Vanke said revenue jumped 71 percent last year to 108 billion yuan, becoming the first developer in China to exceed sales of 100 billion yuan, a target it earlier set for 2014. Shanghai-based Shimao Property Holdings Ltd. said 2010 sales rose 34 percent to 30.5 billion yuan, and set a target of 36 billion yuan for this year.

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The government will wind down its largest and most complex rescue from the 2008 financial crisis, a $182 billion package to save insurer AIG, by selling stock over the next two years. The plan could net taxpayers billions in profits.

American International Group Inc. paid its $21 billion outstanding balance to the New York branch of the Federal Reserve on Friday and converted preferred stock owned by the Treasury Department into more than 1.6 billion shares of common stock that can be sold on the open market.

The common stock gives the government a 92 percent ownership stake. The Treasury Department is expected to start selling its shares in March.

Converting the government’s $47.5 billion investment in preferred shares into 1.6 billion common shares means the government paid about $30 for each share. AIG stock closed at $54 on Friday on the New York Stock Exchange. If it holds that value over the next two years, as the government unloads its shares, taxpayers would clear about $40 billion profit.

“We will work to make sure that the U.S. taxpayer will get back all of its money with a healthy profit,” AIG CEO Robert Benmosche told The Associated Press in an interview.

Treasury Secretary Timothy Geithner said in a statement that the government “remains optimistic that taxpayers will get back every dollar of their investment in AIG.”

The government came to the rescue of AIG in September 2008, at the depths of the financial meltdown. It did business with hundreds of firms around the world, and officials feared its collapse would wreck the financial system.

AIG became a symbol for excessive risk on Wall Street and a touchstone of public anger. It was criticized by some members of Congress for spending $440,000 on spa treatments for executives only days after it was bailed out.

The bailout, which included loans and federal guarantees, was the largest of a series of rescues announced during the stomach-churning weeks of the financial crisis in the fall of 2008.

Much of the $700 billion fund set up by the government to help wobbling banks, plus AIG, General Motors and Chrysler, was never disbursed. About $385 billion in cash had been handed out as of Sept. 30, according to the Government Accountability Office.

Almost $204 billion has been paid back to the government, and the fund has made $28 billion more on interest, dividends and profits on investments in companies like Citigroup. About $180 billion is outstanding, most of it with pieces of AIG, auto companies and small banks.

The Congressional Budget Office estimated in November, the fund, the Troubled Asset Relief Program, will wind up costing taxpayers $25 billion.

The government sold the last of its stake in Citigroup in December payday loans no teletrack. The transaction was smaller, but similar in structure, to the unwinding of the federal stake in AIG: The government converted its investment into common stock and sold it publicly. The government owns about a third of the common stock of GM and is paring that down gradually as well.

Most of the large banks have repaid their bailout amounts in full.

AIG first announced its repayment plan in September. Since then, the company has worked to raise cash to pay back the government by selling parts of itself around the world.

On Thursday, it agreed to sell its 98 percent stake in Taiwan’s third-largest insurance company. Before that, it took Asia’s AIA Group life insurance company public, raising $20 billion. It raised $16 billion by selling American Life Insurance Co. to MetLife.

The pace at which AIG moved toward ending its government involvement surprised Kevin Ahern, a credit analyst at Standard & Poor’s, who raised the insurer’s rating from junk status to a more respectable BBB+ last month.

Ahern said that while AIG may have given up some of its jewels to raise cash, it has offered the government “a simpler path to exit its stake.”

The bailout of AIG had been expected to result in massive losses, but the Treasury Department now believes it will book a multibillion dollar profit. AIG stock has nearly doubled over the last year as the company sold off assets and trimmed its business.

The AIG rescue was complex. The government still has $20 billion tied up in shares of MetLife and AIA. And the Federal Reserve still holds many of the $50 billion worth of complex derivatives that it took off AIG’s books.

How much the government makes or loses on those other parts of the AIG rescue will determine whether it comes out in the black on the overall bailout of the insurer.

AIG itself is today a much smaller and less flashy company than it once was. It was undone by its financial products division, which bought and provided insurance on risky investments that got other financial companies in trouble.

The financial products division held $2 trillion in assets in September 2008. It had little more than $500 billion at the end of September 2010.

Today, the company is mostly a global property and casualty insurer and a U.S. life insurance business. And it still has work to do to rebuild its reputation.

“Both of the core businesses are less profitable now than they were before the crisis,” said Bruce Ballentine, lead analyst for AIG at Moody’s, the corporate ratings company.

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Democratic state lawmakers in Illinois are scrambling to pass massive personal and corporate income tax hikes Tuesday to bring their state budget back from the fiscal abyss.

Timing is critical because it will be much harder to raise taxes after Republicans take over more seats on Wednesday. The state GOP is firmly opposed to hiking taxes, preferring instead to cut spending. (Update: Tax hikes approved)

While the proposal is still in flux, it contains a mix of tax increases and new borrowing, with a nod to keeping spending under control. Democrats are trying to garner more support for the measure by scaling back the tax spike to 66%, down from an initial proposal of 75%.

Among the measures on the table are:

Temporarily raising the personal income tax rate to 5%, from 3%.Temporarily hiking corporate income taxes to 7%, from 4.8%.Increasing the tobacco tax to $1.99 per pack, from 98 cents.Imposing a moratorium on new programs with spending growth capped at 2% per year, with the exception of increased school aid of more than $700 million.Borrowing $8.5 billion to clear the current stack of unpaid bills.Borrowing $3.7 billion for the fiscal 2011 pension payment.

Deficits and unpaid bills

Illinois is not alone in its budget problems. States are facing a collective $41 billion budget gap, according to a recent survey. California’s new governor, Jerry Brown, just unveiled a budget proposal that will slash funding for social services, universities and aid to the needy.

But the Illinois budget crisis, which has been decades in the making, is arguably among the worst in the nation. The state’s income tax rates have not risen since 1989.

The state is facing a $13 billion shortfall that must be resolved by the end of the fiscal year on June 30. Illinois has $6 billion in unpaid bills to social service agencies, healthcare providers, contractors and others. And its state pension plan is severely underfunded.

"This is unprecedented," said Richard Dye, professor at the Institute of Government and Public Affairs at the University of Illinois. In a recent report he co-authored, he wrote it is hard to overstate the depth of the fiscal hole the state is in.

If the legislature doesn’t act by Wednesday, Gov. Pat Quinn will have tougher decisions to make when he introduces his Fiscal 2012 budget in mid-February. He may have to suggest deep spending cuts, which he has been loath to do.

And he may find it harder to turn to the bond markets since investors are growing increasingly skittish. Illinois relies on borrowing more than most states because it is allowed to use debt to fill budget shortfalls.

Republicans, meanwhile, are firmly opposed to raising taxes, saying it will hurt businesses and discourage new ones from moving to Illinois.

"While Illinois’ budget problems are grave, the answers lie in first attacking the excessive spending and enacting structural reforms that are needed before any new revenues are even considered," the Illinois Republican Party said in a statement. "We cannot let the Democrats drive business out of Illinois and all of the jobs that go with it."

The governor has promised to deal with the state’s financial problems very soon.

"We will pay our bills," he said in his inaugural address Monday. "We will stabilize our budget."

Even if Democratic lawmakers manage to pass the tax hikes, it won’t be enough to fully close the budget gap, Dye said. His analysis, which was based on the initial tax hike proposal of 75%, showed the state would still have to battle deficits in the coming fiscal year.

"It only solves half the problem," he said. 

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SAN DIEGO

NEW YORK, N.Y.

China’s plans to attack inflation with subsidies, sales of food reserves and the threat of price controls are likely to prove insufficient, and the central bank will have to raise interest rates further, economists said.

Analysts at nine banks surveyed this week by Bloomberg News predict the People’s Bank of China will add to last month’s rate rise, the first since 2007, by the end of December. Concern that rising consumer prices, which surged the most in two years in October, will undermine the economy spurred Premier Wen Jiabao to hold a cabinet meeting on the issue this week.

The measures contemplated by the State Council, ranging from a crackdown on speculation in agriculture goods to the imposition of price caps on “daily necessities” if needed, do nothing to address China’s credit growth. China’s benchmark stock index has had its biggest two-week sell-off since May amid concern that monetary tightening will hamper spending in the world’s fastest-growing major economy.

“Price intervention could be counter-productive because it may cause panic and worsen inflation expectations,” said Liu Li-Gang, a Hong Kong-based economist at Australia and New Zealand Banking Group Ltd. who previously worked at the Hong Kong Monetary Authority and World Bank. The steps announced this week “may not be sufficient to bring down inflation quickly.”

The Shanghai Composite Index closed 0.8 percent higher today, after swinging between gains and losses at least 10 times, paring this week’s decline to 3.2 percent. The benchmark fell 4.6 percent last week.

Rate Forecasts

Standard Chartered Plc, HSBC Holdings Plc, BNP Paribas SA, Citigroup Inc., Credit Suisse Group AG, Mizuho Securities Asia Ltd., Royal Bank of Canada, UBS AG, and ANZ predict the central bank will add to the quarter-point increases that took the benchmark one-year lending rate to 5.56 percent and the one-year deposit rate to 2.5 percent.

“Every Friday there is always a chance that China is going to do something,” Qu Hongbin, co-head of Asian economic research at HSBC in Hong Kong, told Bloomberg Television, indicating a PBOC announcement can’t be ruled out for today. At the same time, given this month’s increase in banks’ reserve requirement ratios and the steps taken this week, a boost to borrowing costs is more likely next month, he said.

The so-called supply-side measures may help damp price pressures, along with a slowing pace of economic growth, Qu said.

Threat to Poor

China’s inflation rate reached 4.4 percent in October, exceeding economists’ forecasts. Standard Chartered analysts yesterday lifted their projection for the consumer price index for next year to an average of 5.5 percent, from about 3.2 percent for 2010.

The State Council’s meeting came amid rising concern at the threat that increased food costs pose to the poorest people in the world’s most populous nation. More than 81 million people in China will need food rations to survive the winter and spring after natural disasters, the official Xinhua News Agency reported, citing the Ministry of Civil Affairs.

“Inflation is showing up in food most obviously, but also in rents, service sector wages, and non-food commodities,” analysts including Stephen Green, head of research for Greater China at Standard Chartered, wrote in a report today. The bank anticipates a rate increase by Dec. 31 and three more by June 30.

Inflows of money from the trade surplus, foreign direct investment, and investors betting on gains by the yuan threaten to propel consumer prices after unprecedented lending by banks flooded the economy with cash from late 2008.

‘Root’ of Problem

Across Asia, China’s inflation compares with deflation in Japan and, at the other extreme, a 9.8 percent rate in India. In the U.S., consumer prices rose 1.2 percent last month from a year earlier. China’s inflation has mostly been driven by food costs.

Excess liquidity is the “root of the problem,” Tao Dong, a Credit Suisse Group AG economist in Hong Kong said this week.

At Societe Generale, Hong Kong-based economist Yao Wei said that China’s “old-fashioned price stabilization policies” will not be enough to reduce the case for monetary tightening. The possibility of “more interest-rate hikes by the year-end remains relatively high,” she said.

The central bank has raised lenders’ reserve requirements to drain cash from the financial system four times this year and last month raised rates for the first time since 2007.

–Li Yanping, Sophie Leung. With assistance from Susan Li in Hong Kong. Editors: Paul Panckhurst, Chris Anstey

To contact Bloomberg News staff for this story: Li Yanping in Beijing at +86-10-6649-7568 or yli16@bloomberg.net

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