Finance and Economic

Australian exports of commodities will benefit from China’s commitment to maintain policies that support economic growth, Australian Treasurer Wayne Swan said.

China’s economy expanded 8.9 percent in the third quarter from a year earlier, the fastest pace in a year, as stimulus spending and record lending growth helped the nation lead the world out of recession. China’s cabinet said Oct. 21 that it will continue with monetary and fiscal stimulus measures even after the economy’s expansion exceeded officials’ expectations.

China’s commitment to stimulate growth “will provide further support to Chinese demand for commodity and capital- goods imports, with implications for exports here in Australia,” Swan said in an e-mailed note. “As a resource-rich nation on Asia’s doorstep, Australia is uniquely placed to capitalize on this Asian century.”

Australia’s proximity to Asia is helping it rebound faster than most other developed economies. Trade figures show the nation’s largest export customers this year are China, Japan, South Korea, India and the U.S. Six years ago, the U.S. was ranked second.

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Morgan Stanley’s riskier trading operations have stolen the thunder from its growing brokerage — at least for now.

Strong fixed income sales and trading revenue and improved investment banking underwriting results broke a three-quarter losing streak as Morgan Stanley belatedly joined rivals like Goldman Sachs Group Inc in returning to the black after the collapse of the financial sector a year ago.

The New York-based bank reported third quarter net income of $498 million, or 38 cents a share, beating analysts’ average forecast of 27 cents a share, according to Thomson Reuters I/B/E/S.

Morgan Stanley shares were up 7 percent to $34.80 in afternoon trading on the New York Stock Exchange after earlier touching a 13-month high of $35.00.

In the 2008 third quarter the bank earned $7.7 billion, or $7.38 a share, boosted by a one-time accounting gain from declines in the value of its debt.

Scarred by the collapse that claimed competitors like Lehman Brothers, Morgan Stanley has pledged to play a more conservative hand as it develops its brokerage business.

Co-president James Gorman is set to succeed Chief Executive John Mack — credited with keeping the bank alive during the darkest days of the crisis, but criticized for struggling to manage risk — early next year.

Many analysts view Gorman’s appointment as evidence that Morgan Stanley is trying to dial down the riskier trading business in favor of a steadier stream of income from the wealth management business payday loans with no fax.

MAKING UP GROUND

Morgan Stanley Chief Financial Officer Colm Kelleher said in an interview that the third-quarter results were an “affirmation” that the firm’s strategy was bearing fruit.

The third-quarter rebound came largely because of solid results in trading, a riskier area of the business.

“They made up the ground on the trading side,” said Brad Hintz, an analyst with Sanford C. Bernstein in New York and former treasurer at Morgan Stanley. “The issue that Morgan Stanley faced is they cut too deeply in fixed income and markets came back more quickly than they anticipated.”

Kelleher said during a call with analysts that the firm is about halfway through a hiring spree it initiated earlier this year to restock its trading and sales ranks. Kelleher said more than 400 were expected to be hired.

“It is good that they are starting to see some of the early benefits of that,” said Michael Hecht, an analyst with JMP Securities.

The firm’s institutional securities group, which includes the advisory, underwriting and trading units, posted pre-tax income of $1.3 billion in the quarter. 

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Seattle-based Nordstrom Inc. has announced plans to open its first Nordstrom Rack store in St. Louis. This will also be the first in the state.

The 34,000-square-foot store will be in the Brentwood Square shopping center — in the old Circuit City space. It is expected to open in fall 2010.

Now, don’t get confused. Nordstrom is still planning to open a regular Nordstrom store in the St. Louis Galleria mall down the street from this location in fall of 2011. There’s already a Nordstrom in West County Mall.

But Nordstrom Rack is a unit of the company’s off-price retail division that carries merchandise from Nordstrom stores and Nordstrom.com at 50 percent to 60 percent off original Nordstrom prices payday loans.

Nordstrom spokesman Colin Johnson said the company was able to take advantage of some of the effects of the economy with finding prime space for the store.

But he wouldn’t admit that an off-priced Nordstrom Rack is preceding the long-discussed and rescheduled opening of the regular Nordstrom store opening because of the economy.

Either way, we here at Style File are not complaining. Ever since Saks Off Fifth (at St. Louis Mills) left us a few years ago, our shopping life has not felt complete. (10/1)

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Northrop Grumman Corp beat rival Boeing Co to win a major $3.8 billion contract to maintain and service the U.S. Air Force’s fleet of KC-10 refueling tankers, the Pentagon said on Thursday.

Boeing holds the current contract for servicing the aircraft, which expires in January, and has provided support for the KC-10s for more than a decade.

Boeing said it was disappointed by the Pentagon’s decision.

“We presented a competitive proposal that leveraged Boeing’s tremendous experience from over 80 years of building and maintaining tankers as well as inventing boom technology,” Boeing spokesman Forrest Gossett said.

“We now need to review the Air Force’s selection decision and process before deciding on our next course of action.”

Large Pentagon contracts are often appealed to the U.S. Government Accountability Office, the audit arm of Congress.

The Air Force had planned to award the contract in June 2008, but a decision was delayed because bidders submitted insufficient cost and pricing data.

“This is a stunning upset,” said defense analyst Loren Thompson with the Virginia-based Lexington Institute. Boeing has been servicing this plane since it was first introduced, Thompson said, adding “so for Boeing to lose to Northrop is truly amazing.”

Northrop, with its European partner, Airbus-maker EADS, is also in a battle with Boeing to win a contract to supply at least 179 new tankers to the Air Force, work that could be worth up to $50 billion.

The Air Force’s oldest tankers are the KC-135s, some of which are 50 years old.

The Air Force’s refueling fleet includes nearly 60 KC-10s, which were purchased in the 1970s and are modified DC-10 aircraft made by McDonnell Douglas, which was bought by Boeing in 1997.

(Reporting by Julie Vorman and Andrea Shalal-Esa; editing by Andre Grenon and Tim Dobbyn)

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The number of home foreclosures in process and delinquent mortgages rose during the second quarter, while home retention actions also increased, U.S. bank regulators said on Wednesday.

Foreclosures jumped 16 percent to 2.9 percent of serviced mortgages, while home retention actions such as loan modifications rose 21.7 percent, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said in a report.

“The mortgage data reported for the second quarter of 2009 continued to reflect negative trends influenced by weakness in economic conditions, including high unemployment and declining home prices in weak housing markets,” the report said.

The report covers mortgages serviced by most of the industry’s largest mortgage servicers, whose loans make up about 64 percent of all mortgages outstanding in the United States.

The regulators said there was a lull in newly initiated foreclosures during the second quarter as mortgage servicers worked to implement the federal “Making Home Affordable” program.

The $50 billion program, launched in March, is designed to stabilize the housing market by helping up to 9 million Americans reduce their monthly mortgage payments to more affordable levels.

The OCC and OTS said the emphasis on the program contributed to a dramatic shift in the composition of home retention actions toward lowering payments. Previously, the vast majority of loan modifications either did not change or increased monthly payments.

The weak economy continued to drive up the number of delinquent mortgages. The number of mortgages delinquent 30 to 60 days jumped 10.9 percent during the second quarter to 3.2 percent of all mortgages covered by the report.

The number of mortgages that were more than 90 days delinquent increased 11.5 percent, rising to 5.3 percent of serviced mortgages.

Separately, the Mortgage Bankers Association said on Wednesday that U.S. mortgage applications fell last week despite the lowest loan rates in four months, another sign that housing will likely recover slowly from its three-year plunge.

(Reporting by Karey Wutkowski, editing by Gerald E. McCormick and John Wallace)

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New orders for long-lasting U.S. manufactured goods fell in August and sales of new homes rose below expectations, government data showed on Friday, fanning fears that recovery from recession would be anemic.

The Commerce Department reports overshadowed a jump in consumer confidence this month to its highest since January last year and were the latest indication that growth could taper off once the government stimulus expired.

Durable goods orders tumbled 2.4 percent in August, the largest percentage decline since January, after rising 4.8 percent in July, the Commerce Department said. That was well below market expectations for a 0.5 percent rise in August.

In another report the department said sales of newly built single-family homes rose 0.7 percent in August for a fifth straight month, to a 429,000 unit annual pace, the highest since September last year. However, the increase was below market expectations for a 440,000 unit rate.

“The trend is continuing to be positive, but not gigantically robust for growth because we don’t have a lot of consumer spending going on,” said Kurt Karl, head of economic research and consulting at Swiss Re in New York.

U.S. stocks fell on the data, which, coming a day after a survey showed a drop in existing home sales in August, served as a reminder that recovery from the worst recession since the 1930s would be protracted and bumpy.

Government bond prices rose on the news.

“While the recovery is gaining momentum, there are a number of major speed bumps on the horizon,” said Brian Bethune, chief U.S. financial economist at Global Insight in Lexington, Massachusetts.

“These include the expiry of fiscal stimulus measures supporting the housing market in November and uncertainty about the potential impact of the Federal Reserve’s ‘exit strategy’ availability of credit to critical areas such as auto and mortgage finance.”

Federal Reserve Chairman Ben Bernanke said on Friday consumer and small business loans remained in great need of the U.S. central bank’s support even as use of other financial backstop programs tapered off as markets regained balance.

Leaders from the Group of 20 rich and developing countries meeting in Pittsburg pledged to keep emergency economic support in place until sustainable recovery was in place, according to a draft communique obtained by Reuters.

AIRCRAFT HIT DURABLE GOODS

The drop in durable goods orders, a leading indicator of manufacturing activity, was largely caused by a decline in new orders for commercial aircraft — likely reflecting a drop in orders received by Boeing.

Still, new durable goods orders excluding transportation were flat in August after rising for three straight months, the Commerce Department report showed. The market had expected a 1 percent gain after a 1.1 percent rise in July.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, unexpectedly fell 0.4 percent in August — confounding market forecasts for a 1.3 percent rise. Core capital goods fell 1.3 percent in July. 

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The U.S. Federal Reserve is studying the idea of borrowing from money market mutual funds as part of eventual steps to withdraw stimulus, the Financial Times reported on Thursday.

The Fed would borrow from the funds via reverse repurchase agreements involving some of the huge portfolio of mortgage-backed securities and U.S. Treasuries that it acquired as it fought the financial crisis, the newspaper reported, without citing any sources.

This would drain liquidity from the financial system, helping to avoid a burst of inflation as the economy recovered.

The FT said Fed officials had in recent days held discussions with market participants on how it might implement such a scheme.

The Fed is considering whether to conduct a pilot scheme, but worries such a test might be seen as a signal that the central bank was about to drain liquidity on a large scale, the newspaper said. In the near term, a big drain remains unlikely, it added.

The central bank held interest rates at close to zero on Wednesday and upgraded its assessment of the U.S. economy, saying growth had returned after a deep recession.

The Fed also said it would slow its purchases of mortgage debt to extend that program’s life until the end of March, in a move toward withdrawing the central bank’s extraordinary support for the economy and markets during the contraction.

The idea of the Fed using reverse repos to help unwind policy is not new; Fed chairman Ben Bernanke identified them as a potential means of soaking up liquidity in July. But the market had previously expected the repos to be done with primary dealers, including former Wall Street investment banks.

The central bank is now considering dealing with money market funds because it does not think the primary dealers have the balance sheet capacity to provide more than about $100 billion, the Financial Times said.

Money market mutual funds have about $2.5 trillion under management so they could plausibly provide between $400 billion and $500 billion, it said.

The newspaper added that the Fed did not think it would need to drain liquidity all the way to where it was before the crisis, because it was confident it could raise interest rates even with a much larger amount of reserves in the system than existed before the crisis.

(Reporting by Andrew Torchia, editing by Mike Peacock)

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Bank of America Corp CEO Ken Lewis has survived troubled acquisitions, massive credit losses and two government bailouts, but experts question whether he can survive a series of investigations.

Lewis and other senior bank executives face intense scrutiny from regulators, state attorneys general and the U.S. Congress over whether they failed to disclose key information about Merrill Lynch’s financial health and bonus plans before Bank of America bought the brokerage.

“It comes to a point that the company is so completely distracted by the legal fight it can’t focus on the business,” said Tony Plath, banking professor at UNC-Charlotte who follows the bank closely. “This is becoming a significant impediment to management’s job.”

A Bank of America spokesman said the board fully supports Lewis, but did not elaborate further.

At a Monday meeting, the bank’s directors were expected to discuss legal options if he is charged with civil fraud, The Wall Street Journal said.

In the latest in a series of investigations and lawsuits, a U.S. House of Representatives panel gave the bank until noon Monday to provide additional information about its purchase of Merrill Lynch. The panel said the bank cannot use attorney-client privilege to withhold details of the deal from Congress.

And New York Attorney General Andrew Cuomo’s office is considering filing civil charges against Lewis,

Whatever Cuomo and other investigators decide, legal issues can drag on for years, and companies often cut ties with executives to minimize such distractions, according to corporate governance experts free insurance quotes.

“Whether a management change happens depends on the size of the distraction,” said Karen Brenner, a business professor at New York University specializing in ethics and corporate governance. “Legal issues can ebb and flow, but the company is dealing with a great deal of pressure now.”

Brenner said while it is early to assume the pending legal issues will quickly force wholesale management change, such changes are not unprecedented.

Some investors are already getting restless.

Michael Nix, co-chief investment officer for Greenwood, South Carolina-based Greenwood Capital Associates, said the firm is considering selling its 100,000 Bank of America shares because of short-term performance and long-term litigation worries.

“We’ll still be talking about these lawsuits three to five years from now,” Nix said. “A lot of people will get pulled into this thing.”

Bank of America shares were down 2 percent at $17.28 in Monday afternoon trading.

ABRUPT ENDS 

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President Barack Obama warned financial firms on Monday to heed the lessons of Lehman Brothers’ collapse a year ago and get behind a regulatory overhaul he wants Congress to pass this year.

Obama, who has focused most of his energy on healthcare reform in recent weeks, went to Wall Street to highlight another top priority of his administration — updating financial rules to prevent another economic collapse.

While the economy and the financial system are showing signs of recovery, Obama said that was not an excuse to avoid reform.

“Normalcy cannot lead to complacency,” he said at Federal Hall in the heart of Wall Street.

“Unfortunately, there are some in the financial industry who are misreading this moment. Instead of learning the lessons of Lehman and the crisis from which we’re still recovering, they’re choosing to ignore those lessons.”

Lehman, once the fourth-largest U.S. investment bank, filed for bankruptcy on September 15, 2008, triggering a global financial crisis that also helped propel Obama to the presidency as Americans welcomed his cool response to the problem.

In a television interview later on Monday, Obama said he was not leaning toward a second round of economic stimulus, after the $787 billion package passed earlier this year.

“I have a strong inclination not to do it,” he told CNBC. “We’re monitoring the situation carefully. I think that most folks believe that we’ve now turned the corner where we might actually see some economic growth in the months to come.”

SLOW PROGRESS ON GLOBAL ISSUE

Financial reform will be a central issue at a G20 summit of leading developed and developing nations in Pittsburgh next week but progress on Obama’s agenda has been slow.

Obama’s speech also sought to show other countries his administration is serious about tackling U.S. weaknesses and excesses blamed for setting off the global crisis.

“As the United States is aggressively reforming our regulatory system, we’re going to be working to ensure that the rest of the world does the same,” he said.

Under a proposal put forward in June, the Federal Reserve would get new powers to monitor big financial firms and a new Consumer Financial Protection Agency would be created.

Obama emphasized the CFPA as he outlined his proposals, indicating it has become a top priority.

“This crisis was not just the result of decisions made by the mightiest of financial firms. It was also the result of decisions made by ordinary Americans to open credit cards and take on mortgages,” he said, adding some lenders were deceitful even as some people took on loans they could not afford. 

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Missouri’s struggling dairy farmers are asking Gov. Jay Nixon to call a special session of the state Legislature so lawmakers can approve emergency funding to help keep them in business.

The farmers asked in August for a nearly $16.5 million emergency payment from federal stimulus funds but were told that only the Legislature could approve distribution of the funds, not the governor, according to the Missouri Dairy Association.

The association is pointing to lawmakers in other states who are trying to secure funds from the $787 billion stimulus package for dairy farmers in their states. About $1 billion of that package is eligible for states, according to association leaders.

Dairy farmers are facing their worst economic crisis in decades, with prices $5 below the cost of production, per hundred pounds of milk. The state has about 2,000 dairy farmers with an economic impact of roughly $1.5 billion, the association said.

Jon Hagler, head of the state’s Department of Agriculture, said in a statement Friday: "Producers in Missouri have been faced with challenges and continue to struggle during these hard economic times.

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