Finance and Economic

South Korea authorities will work to halt “excessive'' moves in the won, Asia's second-biggest declining currency this year, including using foreign-exchange reserves to stem its drop.

The won climbed 1.1 percent to 1,038.30 per dollar at 9:48 a.m. in Seoul after the finance ministry and Bank of Korea issued statements today addressing their concern over the currency's more than 10 percent decline in 2008. “We'll take stern action if necessary when the market imbalance becomes excessive,'' the ministry said in Gwacheon.

“It is urgent to restore credibility in the market,'' Ahn Byung Chan, director-general of the central bank's international bureau, told reporters. “Perceptions in the market are not in line with the government's intention.''

Asia's economies were crippled by a currency crisis a decade ago when Thailand's devaluation of the baht prompted investors to pull money from the region. Countries including Indonesia, Thailand and South Korea spent most of their foreign reserves to prop up their exchange rates and had to borrow more than $100 billion from the International Monetary Fund.

“Authorities are concerned about the foreign-exchange market moving in only one direction too much,'' the finance ministry said in today's statement.

South Korea's won 10.2 percent drop this year is second only to an 11.7 percent slump in the Thai baht, according to Bloomberg data. A declining won has exacerbated the nation's inflation pressures by making imports more expensive.

Consumer prices in South Korea surged 5.5 percent in June from a year earlier, the biggest increase in a decade and exceeding the central bank's target for an eighth straight month.

`Top Priority'

“The government has set top priority on stabilizing inflation and we will have to manage the foreign-exchange market to meet that goal,'' said Choi Jong Ku, head of the ministry's international finance bureau. “We will use foreign-exchange reserves again if necessary'' to curb the won's decline, he said.

Asia's policy makers have accumulated foreign-exchange reserves since the 1997 crisis. South Korea had $258 billion in reserves at the end of June, the sixth-highest in the world, trailing only China, Japan, Russia, India and Taiwan.

Financial authorities bought $7 billion of won since the end of May to help support the currency, the JoongAng Ilbo newspaper reported on July 1.

“Policy makers are trying to suppress a rise in import prices by intervening in the foreign-exchange market,'' said Chun Chong Woo, an economist at SC First Bank Korea Ltd. in Seoul.

No Crisis

Bank of Korea Deputy Governor Rhee Gwang-Ju, in a July 2 interview, said this year's decline in Asian currencies doesn't signal a repeat of the region's 1997 crisis.

Those comments were echoed by Asian Development Bank President Haruhiko Kuroda. “I don't think currencies in the region would be under significant pressure in the coming months or years,'' he said in Tokyo last week.

Finance ministers from 13 Asian nations, including South Korea, Japan and China, agreed in May to create a pool of at least $80 billion in foreign-exchange reserves to be tapped by nations in case they need to protect their currencies. That was an expansion of the so-called Chiang Mai Initiative under which pairs of nations would lend each other money at favorable terms if help is needed to support their exchange rates.

“I don't think any of them would request IMF or Chiang Mai Initiative supports,'' Kuroda said on July 4.

Sourse

Russian President Dmitry Medvedev on Saturday criticized the United States for "economic egotism," saying it has fueled global troubles, and portrayed Russia’s growing economic might as a force for worldwide stabilization.

Recklessness by big banks and "the aggressive financial policies of the biggest economy in the world" have not just hurt corporations, Medvedev said. "Unfortunately, most people on the planet have become poorer," he said.

Medvedev’s comments to the St. Petersburg International Economic Forum, a gathering of thousands of businessmen, came exactly a month after his inauguration. It was one of the most high-profile domestic appearances of his presidency, which so far has been marked mostly by issuing decrees.

Although Medvedev has not shown much of his predecessor Vladimir Putin’s penchant for sharply criticizing the United States, his speech showed he shares Putin’s views of America as a power-hungry and sometimes irresponsible country intent on dominating world affairs.

He said some countries increasingly strive to help themselves while ignoring the interests of others.

"In fact, this is growing economic egotism," Medvedev said. He said that while this is natural in some respects, it sometimes amounts to "economic nationalism — when pragmatic interests are replaced with political considerations."

Many observers have criticized Russia for similar nationalism, seeing the country use its enormous gas and oil reserves as instruments of political power.

But Medvedev claimed Russia is only using its resources to become more integrated in the global economy.

"Russia is a global player today. Understanding our responsibility for the fate of the world, we wish to participate in forming new rules of the game, not because of the notorious ‘imperial ambitions’ but because we have the appropriate opportunities and resources here," he said.

Medvedev wants to develop Russia’s hydrocarbons business further through liberalizing the gas market and easing the tax burden on the country’s oil sector. He said such steps would help ensure stability on global energy markets.

He also repeated previously expressed desires to see Russia become an international financial center of the order of New York or London, and proposed holding an international financial conference this year.

U.S. Commerce Secretary Carlos Gutierrez sidestepped the criticism of the United States and suggested Medvedev’s reference to a global economic crisis was overstated, saying "we have said we are going through a downturn in growth."

"The president’s speech, I thought, contained some very powerful statements and some very welcome statements for the business community," Gutierrez told reporters. "He talked about the need for openness, he talked about the risk of economic nationalism, he talked about the risk of economic egoism, he talked about the importance of institutions, about the importance of transparency."

Recent pressure by tax authorities on the British-Russian joint venture oil company TNK-BP has raised questions about Russia’s sincerity in calls for respecting institutions. Many observers see the pressure as ultimately aimed at forcingBP PLC (BP) to turn over its stake to state-controlled oil company OAO Rosneft or to Russian businessmen.

"What the international community would like to see is that (the case) is dealt with in a way that is transparent, that institutions not be abused," Gutierrez said.

BP CEO Tony Hayward separately told a panel that he was confident TNK-BP "has a big future ahead of it and that we will resolve our well-publicized differences."

In turn, the CEO of state natural gas monopoly Gazprom rejected contentions that Russia is using energy as a political tool, and suggested Europe would be in trouble without Russian supplies.

"Some European officials are having trouble deciding what they fear more — severe energy shortages or a fictitious Russian threat," Alexei Miller said.

He also dismissed concerns that Gazprom’s key fields were losing capacity and that new developments will not be able to keep up the production level.

"Gazprom is able to meet any solvent consumer’s demand," he said. 

Sourse

The dollar sank against the euro and fell against the other major currencies on Wednesday.

Oil soared to a new record past $133 and the Federal Reserve, in the release of minutes from its April meeting, forecast a softening economy and higher unemployment in 2008.

Meanwhile, an important index of German business confidence climbed unexpectedly.

The 15-nation euro rose to $1.5780 late in New York from $1.5669 late Tuesday.

The British pound climbed higher to $1.9689 from $1.9677, while the dollar was unchanged at 104.17 Japanese yen.

In later trading, however, the dollar sank to 102.97 yen.

The Fed’s minutes cut growth estimates for the rest of 2008. Economic activity was "likely to be particularly weak in the first half of 2008; some rebound was anticipated in the second half of this year," the minutes said. The central bank predicted higher unemployment and growing inflation.

But in Germany, Europe’s biggest economy, the Ifo Institute said business confidence posted an unexpected increase for May, retreating from the more than two-year low set a month earlier. That suggested that German companies have so far weathered the euro’s near-record strength against the dollar and soaring oil prices.

The unexpected increase "is accelerating the pace of the dollar decline, broadening the sell-off beyond just rising oil," said Ashraf Laidi, an analyst at CMC Markets in New York in a research note. "Considering that the US downturn has been deeper than its euro zone counterpart, a recovery in the latter suggests more positive ground for the euro than the dollar, especially as it means a possible rate hike," he said.

Oil and gas prices have hit a string of records recently, compounding inflation fears around the world. On Wednesday, oil prices rose to a new record above $133 a barrel.

Skyrocketing oil prices have contributed to worries that consumers will buy less as fuel takes a larger share of their budgets.

In other New York trading, the dollar slid to 1.0272 Swiss francs from 1.0368 francs late Tuesday, and fell to 98.48 Canadian cents from 99.23 Canadian cents. 

Sourse

FBI officials Tuesday disclosed complaints of mortgage fraud are piling up at record levels this year, and appear certain to shatter last year’s record.

Financial institutions received 33,359 "suspicious activity reports" through the first six months of the current fiscal year, which ended April 30, compared with 46,717 for the entire previous year, the FBI said.

"We could be headed for 70,000 for this year," said FBI spokesman Stephen Kodak, who acknowledged the increased complaints to be among the reasons FBI Director Robert Mueller predicted last month the mortgage fraud problem will get worse this year.

The new volume of formal complaints buttresses Mueller’s public warning that "as housing prices continue to fall, more financial misdeeds will no doubt come to light."

Integrity needed: In a speech in April to the American Bar Association, Mueller called for a "culture of integrity" to combat rampant corporate fraud and other white collar crime.

He said the FBI is investigating more than 1,300 mortgage fraud cases, including 19 that involve potential crimes by corporate entities.

The FBI Tuesday also released its finalized mortgage fraud report for fiscal year 2007, which ended October 31. It showed mortgage fraud investigations increased by 47% over the previous year.

Fraud hotspots: The report also showed the 10 "hot spots" for mortgage fraud last year were generally states where real estate prices had soared most during the early 1990s.

Those hot-spot states, in order, were: Florida, Georgia, Michigan, California, Illinois, Ohio, Texas, New York, Colorado, and Minnesota.

The report also identified 10 "other states significantly affected by mortgage fraud": Arizona, Maryland, Utah, Nevada, Missouri, Indiana, Tennessee, Virginia, New Jersey and Connecticut. 

Sourse

It’s official: the guys who founded Google are grown up.

That was the pronouncement on Thursday from Google (GOOG.O: Quote, Profile, Research) Chief Executive Eric Schmidt, who was hired in 2001 to provide mature, traditional business savvy to the Internet search company founded by whiz kids Larry Page and Sergey Brin.

“The boys have grown up,” Schmidt told a news conference ahead of the wildly successful company’s annual meeting.

Now billionaires, the two who formed the company, which has the motto “Don’t Be Evil,” were seen as “brilliant young founders,” Schmidt said.

“They now function in the company as the senior executives with the kind of skills and experience –”

“– We wish he had five years ago,” Page said, finishing Schmidt’s thought.

Page, 35, and Brin, who was born in the Soviet Union 34 years ago, made history in their 20s when they set up the Google search engine.

“Now we don’t have to have the same kind of arguments,” said Schmidt, who at 53 qualifies as an old man by the standards of the youthful Google campus. 

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Financial services companies have pulled in desperately needed capital through a string of discounted stock sales to outside investors, but many existing shareholders have found the deals a bitter pill to swallow.

Shareholders, already suffering as the banks and lenders posted big losses as a result of the U.S. housing crisis, are now seeing their stakes diluted through some of these equity infusions.

But while they may be unhappy about being shut out of the discounted shares, which instead were offered to outside investors such as private equity firms or sovereign wealth funds, big mutual funds and large pension plans have not expressed much anger publicly.

The silence shows how the push for greater shareholder democracy has made only small steps, leaving many smaller investors with a sense of impotence. Legal action may offer little recourse since the courts often side with boards in challenges over stock sales.

“Shareholders are kind of stuck at this point,” said Janna Sampson, co-chief investment officer at OakBrook Investments, a suburban Chicago asset manager that oversees $1.3 billion.

“If banks don’t raise enough capital, you might not have any equity value,” she said. “I think what’s most disappointing is the failure of the risk management teams to have controlled this better.”

Shareholders have seen the value of their holdings reduced by deals in which U.S. lenders such as National City Corp (NCC.N: Quote, Profile, Research) and Washington Mutual Inc (WM.N: Quote, Profile, Research) have sold newly issued stock to private equity firms and large investors at discounted prices.

The sales come as companies rush to raise money amid regulatory pressure to increase their capital cushions. 

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Senior Democrats and at least one Republican on Wednesday demanded details on the role the Federal Reserve and the U.S. Treasury Department played in helping JPMorgan Chase & Co’s (JPM.N: Quote, Profile, Research) buyout of Bear Stearns Cos Inc (BSC.N: Quote, Profile, Research).

The Senate Banking Committee set an April 3 hearing to examine the Fed’s role in the transaction brokered by U.S. Treasury Secretary Henry Paulson.

The Fed guaranteed some $29 billion of illiquid Bear Stearns’ assets and allowed JPMorgan to offer $2 a share for what was the fifth-largest U.S. bank. Shareholder protests forced JPMorgan to raise the bid to $10 a share, 93 percent less than its 52-week high of $159.34.

Some lawmakers question why the U.S. government is prepared to help rescue a failing Wall Street bank while refusing to rescue millions of home owners facing foreclosure. Lawmakers return to work Monday from a two-week spring break where they heard from the voters.

“The unprecedented nature of some recent actions by the Federal Reserve, Department of Treasury and others merits a full and public examination by the committee,” Christopher Dodd, chairman of the Senate Banking Committee, said in a statement.

The Connecticut Democrat also expressed concern that JPMorgan’s chairman James Dimon held a Federal Reserve Bank of New York board seat while trying to acquire Bear Stearns.

Dodd invited Dimon and Bear Stearns Chief Executive Alan Schwartz to testify along with Fed Chairman Ben Bernanke and Secretary Paulson.

He also asked U.S. Securities and Exchange Commission Chairman Christopher Cox and Federal Reserve Bank of New York President Timothy Geithner to testify. 

Read more

Sigma-Aldrich Corp. said Wednesday that it is expanding a research facility in Cambridge, England, to serve drug development customers in Europe, the United States and the Asia-Pacific region.

The St. Louis-based company said it is adding 7,500 square feet of laboratory capacity to the facility, and reorganizing offices to accommodate the installation later this year of state-of-the-art spectroscopic and diffraction equipment.

It is the second phase in a multi-step development program that in total will cost $600,000.

Sourse

Barring a change in the rules, my wife, Georgina, and I are set with our plan for when to claim — or wait on — Social Security benefits.

Using a little known “file and suspend” strategy, I expect us to receive higher combined benefits over the long run, while protecting Georgina if I die first. We also expect to save on taxes.

Discussed in a working paper for the Pension Research Council at the University of Pennsylvania’s Wharton School, this strategy calls for the lower-earning spouse — Georgina in our case — to file for benefits first under her work record.

Depending on their circumstances, some spouses may wish to do so as early as possible, which is age 62. Georgina will wait until her full retirement age of 66 in 2010 primarily because her earnings from freelance work would reduce her benefits until then.
As the higher-earning spouse, I will then “file and suspend” when I reach my full retirement age of 66 in 2011.

That means I will file for my full retirement benefits but immediately ask that they be voluntarily suspended, which can be done in the remarks section of the application, said Dorothy Clark, a Social Security spokesperson.

I then will wait to collect until I am 70. If we need money before then, we can tap our IRAs and other retirement plans.

Why do this?

•Once I file for benefits, even if I immediately suspend them, Georgina will become eligible for the spousal benefit.

•This benefit — 50 percent of what I would have received at full retirement age — will be higher than the benefit under her work record. (If the lower-earning spouse files for benefits before full retirement age, the spousal benefit is reduced.)

•My benefit at age 70 will be considerably higher than at 66. For every year I wait up to age 70, I get a credit of 8 percent a year on top of annual cost-of-living adjustments.

•If I die before Georgina, instead of the spousal benefit, she would receive a survivor benefit equal to whatever I was getting (or, generally, was entitled to get if I die before age 70).

•By taking withdrawals from IRAs if needed, we reduce mandatory distributions after age 70 1/2, potentially keeping more Social Security benefits tax free.

Intrigued? The paper for the Pension Research Council argues that the full value of delaying Social Security, particularly for the higher-earner spouse, has not been properly measured because the tax advantages and spousal, survivor and cost-of-living-adjustment benefits have not been adequately considered.

“In the future, Social Security benefits will become increasingly valuable due to their tax-favored status, inflation protection, survivor protection and longevity protection,” said the paper, “Rethinking Social Security Claiming in a 401(k) World,” by James Mahaney and Peter Carlson of Prudential Securities. (Even under the worst-case tax scenario, depending on other income, 15 percent of Social Security benefits are tax free. Under the best-case scenario, all is tax free.)

“This strategy gives you the best of both worlds,” that is, allows the lower-earner spouse to collect spousal benefits while the higher earner waits to receive higher benefits later, said Taylor M. Gang, an investment adviser with Evensky & Katz in Coral Gables, Fla.

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