Finance & Business World

The U.S. economy shows early signs of emerging from the recession as $787 billion in stimulus lays a foundation for a sustained recovery, said Lawrence Summers, director of the White House’s National Economic Council.

“While employment continues to contract, the available indicators suggest that GDP is on close to a level path with prospects for positive growth to commence during this year,” he said in a speech today in Washington. “Confidence and hope are returning as a program of rebuilding the economy moves forward.”

Summers joined a chorus of Obama administration officials who have tried in recent weeks to counter calls for another round of fiscal stimulus. The former Treasury secretary and Harvard University president said the government is committed to keeping stimulus in place no longer than necessary to revive the economy.

In his speech, Summers predicted unemployment in the U.S. would likely keep rising in coming months, and he didn’t explicitly address the prospect of a second federal effort to stimulate economic growth. He cited an administration study that projected only 10 percent of the job impact from the current stimulus would occur in 2009.

Summers also declined to comment on Federal Reserve policy and he downplayed the near-term threat of inflation. He said the Obama administration would support measures that enhance the “transparency” of the Fed and oppose any effort in Congress to restrict the central bank’s independence.

Job Losses

In his review of the economy, Summers said the spread of joblessness “is obviously a major area of concern.”

“But contrary to a significant amount of commentary, this does not provide a basis for concluding that the Recovery Act is falling short of its goals,” he said. Given lags in spending and hiring, “the peak impact of the stimulus on jobs was expected to be achieved at the end of 2010.”

Jared Bernstein, Vice President Joe Biden’s chief economic adviser, yesterday said, “It’s a good thing that this recovery act is a two-year plan,” adding that this “is not a recession that’s going to be solved in weeks or months no fax needed payday loans.”

Treasury Secretary Timothy Geithner made similar remarks yesterday and said it’s too early to judge whether additional fiscal priming is needed.

Options Open

When asked yesterday about the potential for a second stimulus, White House Press Secretary Robert Gibbs said Obama is leaving his options open.

“He hasn’t ruled anything in, he hasn’t ruled anything out,” Gibbs said.

Summers pointed to progress in the American economy in the past six months, saying business and consumer sentiment has improved. The Reuters/University of Michigan preliminary index of consumer confidence last week fell more than forecast after four months of gains.

“We were at the brink of catastrophe at the beginning of the year but we have walked some substantial distance back from the abyss,” he said. “Substantial progress has been made in rescuing the economy from the risk of economic collapse that looked all too real six months ago.”

The future of U.S. growth will depend on a “more export- oriented and less consumption-oriented” economy, Summers said. U.S. exports in May rose the most since July 2008, while retail sales that same month increased the most since January.

Growth will average 1.5 percent in the July-to-December period, helped by stabilization in consumer spending, which accounts for about 70 percent of the economy, a Bloomberg News survey this month showed.

Nouriel Roubini, the New York University economist who predicted the financial crisis, said yesterday that the U.S. economy may pull out of the recession by the end of the year and a second stimulus would help broaden the recovery. Roubini said in a speech in New York that a spending package may be needed by late 2009 or 2010 totaling as much as $250 billion.

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The International Monetary Fund’s board of directors approved the issuance of bonds to the lender’s 186 members for the first time as it seeks additional sources of money to lend during the global recession.

The board made the move in a vote today and did not place a limit on the note sales, Andrew Tweedie, the Washington-based IMF’s finance chief, said on a conference call with reporters. The bonds are part of a wider effort to seek $500 billion in new funding as the lender helps countries from Iceland to Pakistan combat the global financial crisis.

The securities, the culmination of months of talks between the fund and its members, will offer the largest emerging-market nations a new way of making IMF contributions while they seek greater say at the fund. China, Brazil and Russia have favored the bonds instead of regular contributions as they wrangle with other members over redistributing the IMF’s voting power.

“We expect other countries will follow suit, perhaps other emerging markets,” John Lipsky, first deputy managing director at the fund, said in a Bloomberg Television interview today. “Also, some developed and advanced economies may find this an attractive way to participate in international support for the IMF’s efforts.”

Buying Plans

An IMF official, speaking on condition they not be named, said the board initially considered limiting the bond sales to $150 billion, based on the level of interest from member states. Board members decided against such a cap because IMF needs will evolve over time, the official said.

China’s government has said it will buy $50 billion in notes. Russia and Brazil last month said they would each buy $10 billion of bonds from the IMF. India has also indicated it would contribute to an IMF bond program. The four nations make up the so-called BRICs.

“This is a victory for the BRICs, particularly China,” said Claudio Loser, the former director of the IMF’s Western Hemisphere department. “Because they will be investing in the fund they will have, directly or indirectly, some say in the governance of the fund that goes beyond their quota.”

The IMF’s “quota” system allocates voting rights to member states based on their financial contributions.

The note sales probably would not reach the $500 billion in new funding that the lender is seeking, Lipsky said.

Drawing Rights

The notes will be denominated in Special Drawing Rights, or SDRs, which represent a basket of currencies consisting of the U.S. dollar, the euro, the yen and the British pound. Note sales denominated in SDRs would be paid interest on a quarterly basis, the IMF said.

Chinese officials have sought a greater role over time for SDRs in an effort to reduce the U fast payday loan no faxing.S. dollar’s dominance in the global economy.

The current official rate for SDRs is 0.37 percent, set using a weighted average of three-month rates in the component currencies. That compares with the 0.195 percent rate for three- month U.S. Treasury bills. One dollar is currently equivalent to about 0.65 SDR.

The IMF makes money on its loans by charging countries more than the SDR interest rate. The fund’s board agreed June 22 to keep its lending rate unchanged at 1 percentage point above this year’s SDR interest rate.

Purchase Agreements

Interested member states will first need to enter a purchasing agreement with the IMF before becoming eligible to buy notes. Participants must have a “sufficiently strong balance of payments position,” Tweedie said.

The notes will have a maximum maturity of five years along with three-month interim maturities that could be extended by the fund, Tweedie said.

Leaders from the Group of 20 industrial and emerging nations agreed in April to boost IMF coffers by $750 billion to help the Washington-based agency shore up nations roiled by the credit crunch. The U.S. last month agreed to boost its contribution for the IMF by more than $100 billion.

Treasury yields climbed this year and the dollar fell in part on concern that foreign central banks would reduce holdings of U.S. financial assets just as the Obama administration sells a record amount of debt to finance a growing budget deficit and pull the economy from the deepest recession since the 1930s.

China’s central bank last month renewed its call for a new global currency and said the IMF should manage more of members’ foreign-exchange reserves, triggering a decline in the U.S. dollar. Lipsky said on June 6 it’s possible some day to take the “revolutionary” step of making SDRs a reserve currency.

World Bank

SDRs were created by the IMF in 1969 to support the Bretton Woods exchange-rate system that collapsed in 1971. They act as a unit of account rather than a currency. The cash is disbursed in proportion to the money each member nation pays into the fund.

Separately today, the World Bank, formed in the wake of World War II to help nations reduce poverty, said its lending commitments in the 2009 fiscal year reached a record $58.8 billion after $38.2 billion in the previous year.

The bank announced the lending totals in a statement from Washington, citing the global economic crisis as the reason for the increase.

“We expect this to continue well into 2010, as the pace of recovery is far from certain,” said World Bank President Robert Zoellick.

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Question: I’m a 56-year-old teacher and my husband recently passed away. I don’t own a home or have a pension or any investments, but I will receive a considerable sum from my husband’s life insurance policy. My question is how should I invest this money? A financial adviser at my credit union wants me to put it into a variable annuity, but I’ve heard that this type of annuity is good only for the person selling it. What should I do? –Val, California

Answer: You’re looking at your situation as if you’re dealing only with an investing issue. And, I suspect, that’s how the adviser at your credit union is viewing it too (and perhaps as a sales opportunity as well).

But as important as it is that you invest this money properly, that task is part of a larger goal. And you really need to take a step back and focus on your eventual aim here. Although you haven’t stated it explicitly, it would appear you ultimately want to assure that you’ll have adequate income to support you when you retire.

So the question you need to answer isn’t just how to invest these life insurance proceeds. It’s what steps should you be taking now to increase your odds of having a secure and comfortable retirement?

That means you’ll have to start thinking about issues such as how much income you’ll need to maintain an adequate standard of living once you retire and whether you can expect the resources available to you (which appears to be Social Security and the proceeds from your husband’s life insurance) to generate the amount you need.

If the income your resources can generate falls below what you require, then you can look into ways to bridge the gap. The measures might include working a few more years, during which you can save for retirement, and postponing collecting Social Security, which can increase the size of your monthly check.

The point is, though, that you can’t look at investing options in a vacuum. How you decide to invest the proceeds of your husband’s life insurance policy will depend on factors such as how well prepared you are for retirement, how heavily you’ll be relying on those funds to generate current income and how large a stash you might want to set aside as a liquidity reserve you can tap for emergencies and to pay unexpected expenses payday loan lenders.

There are some tools that people can use on their own to help develop what amounts to their retirement income plan. To see what you can expect from Social Security at different retirement ages, for example, you can go to the Social Security Estimator tool. T. Rowe Price’s Retirement Income Calculator can help you gauge whether you’re on track to be able to retire at a given age. And Fidelity’s Retirement Income Planner has a nice interactive budgeting tool that can help you develop a retirement budget.

This process can be daunting, though, which is why many people turn to advisers for help. That’s fine. But if the adviser is going to truly advise, then it seems to me that he or she must first spend some time getting to know your financial situation and your needs. In short, the adviser should take you through the process I described above. Without doing that, it’s hard for me to see how an adviser would know what sort of investment is appropriate for you.

So if the adviser you’re now dealing with hasn’t gone through this sort of analysis with you, then you ought to consider one who will. You can search for financial planners in your area here and here.

I purposely didn’t want to turn this column into a yea or nay about variable annuities because they shouldn’t be the primary focus in your case. Before turning to investments, you should first sort out the other issues I outlined.

That said, I do have serious reservations about variable annuities that come with riders designed to pay income for life. When it comes to creating a reliable retirement income, I think a better way to go is to combine a diversified portfolio of mutual funds with another type of annuity (a fixed immediate annuity).

Which is why it’s all the more essential that you find an adviser who’s willing to consider a variety of investments to get you the income, security and cash reserves you’ll need in retirement, rather than one who sees a single investment as the answer to all your needs. 

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Indiana pension funds and consumer groups asked the U.S. Supreme Court Sunday to stop the sale of bankrupt automaker Chrysler LLC to a group led by Italian carmaker Fiat SpA while they challenge the deal.

The separate requests, which moved the legal battle to the nation’s highest court, were filed after a U.S. appeals court in New York approved Chrysler’s sale to a group led by Fiat, a union-aligned trust and the U.S. and Canadian governments.

The Chrysler case could set a precedent for General Motors Corp (GMGMQ), which is using a similar quick sale strategy in its bankruptcy in New York.

The appeals court late Friday stayed the closing of the sale until Monday afternoon, giving the pension funds and other opponents time over the weekend to ask the Supreme Court to block the sale while they appeal.

The three state pension funds, which hold about $42 million of Chrysler’s $6.9 billion in secured loans, argued the sale unlawfully rewarded unsecured creditors such as the union ahead of secured lenders.

"The need for the court to review the profound issues presented by Chrysler’s novel bankruptcy sale far outweighs the cost of delaying" a sale, lawyers for the pension funds and the Indiana attorney general said in seeking an immediate stay.

The pension and construction funds also argued the U.S. government, which kept Chrysler afloat with emergency loans before the automaker’s bankruptcy and financed its Chapter 11 filing, overstepped its legal authority by using bailout funds Congress intended for banks.

"The public is watching and needs to see that, particularly, when the system is under stress, the rule of law will be honored and an independent judiciary will properly scrutinize the actions of the massively powerful executive branch," the lawyers said online payday loan.

"The issues presented by this case are of immediate and enduring national significance," they said.

Without a stay from the Supreme Court, the sale will close on Monday, the lawyers said.

The pension funds and the consumer groups seeks to delay the sale so the Supreme Court can hear and then decide their challenges to the deal. The consumer organizations said they planned to file their appeal with the high court by Tuesday.

A federal bankruptcy judge in New York and the three-judge panel of the appeals court rejected the challenges in approving the sale.

Attorneys for Chrysler, the U.S. government and Fiat all have argued the sale should be allowed to go forward. Fiat can walk away from the deal if it does not close by June 15.

The requests to stay the deal were filed with Supreme Court Justice Ruth Bader Ginsburg, who has responsibility for such emergency matters from the New York-based appeals court.

Ginsburg could act on her own or could refer the matter to the full court. A stay from the full court would require the votes of five of the nine Supreme Court members. 

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NEW York — Chrysler LLC will have to wait until June 1 for a court decision on whether it can sell most of its business to a group led by Italy’s Fiat SpA, a deal intended to fire up Chrysler’s idled manufacturing plants.

U.S. Bankruptcy Judge Arthur Gonzalez said late Friday that he will issue an opinion on the proposed sale "sometime Monday."

More than 300 objections were filed to the sale, though most were withdrawn or resolved. Objections from attorneys representing some of the 789 car dealers who had their contracts rejected by Chrysler and from a group of Indiana state pension and construction funds still stood.

The carmaker wants to sell itself to an entity owned by Fiat, a union benefit trust, the U paydayloans.S. Treasury and the Canadian government. If the sale is approved, Chrysler will work on disposing of the eight manufacturing plants, including two in Fenton, that Fiat isn’t taking.

The Auburn Hills, Mich.-based company will get $2 billion in cash to distribute to secured lenders holding $6.9 billion in loans. Turin, Italy-based Fiat can walk away from the sale if it doesn’t close by June 15, with a one month extensions for antitrust approvals.

Creditors, however, argued the sale was going too quickly.

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The European Central Bank, facing potential losses on asset-backed bonds held as collateral for loans, will require banks to provide more details about the debt, two people familiar with the matter said.

Banks have used asset-backed bonds — notes secured by mortgages and credit card bills — more than any other type of debt to obtain 676 billion euros ($883 billion) of loans from the ECB, according to central bank data. Bank officials are planning to tighten rules as Standard & Poor’s says credit- rating downgrades are “rising sharply” amid Europe’s deepest economic slump in 13 years.

“The ECB needs to know more about the asset-backed bonds it’s taking from banks as collateral because this debt is vulnerable to severe losses in the credit crunch,” said James Zanesi, a Munich-based analyst at UniCredit SpA, Italy’s biggest lender.

Financial companies will have to provide details of each underlying mortgage or loan they package into the debt, said the people, who declined to be identified before the plan is announced. Banks would provide the information to S&P, Moody’s Investors Service and Fitch Ratings, the people said.

Raphael Anspach, a spokesman for the ECB in Frankfurt, declined to comment. Bank officials may complete the rules by the end of the year, the people said.

Further than Fed

The Federal Reserve doesn’t require the same level of information for securities it accepts as collateral for loans to commercial banks, according to the Fed’s Web site. U.S. authorities committed $12.8 trillion to bail out the financial system and cut interest rates to zero to 0.25 percent. The ECB’s main rate is 1.25 percent.

Policy makers in Europe tightened rules twice this year. Since February, the central bank has charged financial institutions more to borrow by reducing the amount it lends against some assets to 88 percent of the collateral from 98 percent. Last month, the ECB started demanding asset-backed securities be rated AAA.

“The ECB needs to know more about the credit quality of the underlying collateral to help it avoid losses,” said Willem Buiter, a professor at the London School of Economics who was a member of the Bank of England’s Monetary Policy Committee from 1997 to 2000.

Boost Trading

The ECB also may require that banks disclose the additional details to investors to encourage trading in the bonds, said the people paperless payday loans. Sales of asset-backed securities shrank to 5.2 billion euros this year, from 45.4 billion euros in the same period of 2008 and 167 billion euros a year earlier, according to data compiled by Milan-based UniCredit.

To obtain credit from the ECB, banks will have to provide information about individual loans such as the value of the property backing a mortgage, how the property was assessed, details on cash flow and whether the borrower is in arrears, the people said.

Ian Linnell, head of European structured finance at Fitch in London, said the company has been working with the ECB on its collateral eligibility rules, while declining to give details.

Daniel Piels, a London-based spokesman for Moody’s, declined to comment on the talks, as did Mark Tierney, a spokesman for S&P.

The ECB’s requirements come after European Union lawmakers passed this week the region’s first direct regulation of credit rating companies, which were blamed for ignoring risks that led to the financial crisis.

ABS Holdings

The ECB held 442 billion euros of asset-backed bonds at the end of last year, or 28 percent of all collateral the bank has accepted since it expanded lending in August 2007 as the subprime mortgage crisis took hold, according to central bank data published April 22. European financial companies have reported $384 billion of credit-related losses and writedowns since the start of 2007.

The ECB asked euro-region central banks last month to set aside 5.7 billion euros to cover potential losses on asset- backed debt after five lenders, including a Lehman Brothers Holdings Inc. unit, defaulted.

Rating downgrades on asset-backed debt are increasing, according to S&P. Last year, the New York-based company cut 17.8 percent of its 9,320 ratings of the bonds, almost eight times the proportion in 2007, S&P said Jan. 27.

Credit quality is deteriorating because Europe’s economy shrank 1.6 percent in the fourth quarter, the most in at least 13 years and faster than economists estimated, the European Union said April 7.

“The market has been crying out for this data for ages,” said Harpreet Parhar, a credit analyst in London at Calyon, the securities unit of Paris-based Credit Agricole SA “It needs it if it’s to restore faith.”

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Prime Minister Gordon Brown will meet with Bank of England Governor Mervyn King today to discuss how the U.K. should implement new financial rules laid out by leaders of the Group of 20 nations last week.

Financial Services Authority Chairman Adair Turner, Chancellor of the Exchequer Alistair Darling and Trade Minister Mervyn Davies also will attend, a spokeswoman for Brown said. He also plans to meet with commercial bank executives.

“Our first priority” is “getting the economy onto a growth path, recognizing that it’s a global recession and that we have got to cooperate with other countries,” Brown said yesterday on Sky News television. “I am going to call the banks in, and the governor of the Bank of England is coming to see me on Monday.”

World leaders including President Barack Obama and China’s Hu Jintao agreed to impose tighter controls on banks and hedge funds and to require institutions to set money aside for bad times. Brown, who enjoyed a popularity boost in a poll conducted after he hosted the summit in London, wants to act on the G-20 promises to help curtail the recession in the U.K.

Support for Brown’s Labour Party gained three points to 31 percent in a YouGov Plc poll conducted in the two days following the G-20 summit. That narrowed the Conservative opposition’s lead over Labour to seven points, the least in three months.

Brown also wants to prod commercial banks into returning lending to 2007 levels. Banks are writing about a third of the mortgages they approved each month two years ago even after tapping the government for 40 billion pounds ($59 billion) of support, according to Bank of England data.

‘Still Very Weak’

“Credit availability remains poor, bank assets continue to shrink and housing activity is still very weak,” Michael Saunders, chief Western European economist for Citigroup Inc., wrote in a note to clients on April 3. “The conditions for recovery are not yet in place.”

Darling’s annual budget statement is due April 22 health insurance quote. Yesterday the chancellor said the recession had been worse than he expected in November, suggesting the deficit will be wider than the 118 billion pounds expected by the Treasury. That would limit Brown’s ability to use government spending to bolster economic growth before the next election, due by mid-2010.

While Brown’s actions on the global stage may have impressed some voters, Britain this weekend resisted ceding regulatory powers to the European Union.

The U.K. rejected a plan suggested by the bloc’s finance ministers over the weekend to give the two new agencies the authority to overrule national banking and insurance regulators. Britain also resisted a push for the European Central Bank to run a panel monitoring risks to the economy of the 27-nation group.

Constraints for ECB

“The ECB clearly has an important role to play in strengthening and enhancing macro-prudential supervision, but the precise role has yet to be determined,” U.K. Financial Services Secretary Paul Myners said on April 4 at a meeting of ministers in Prague.

Darling last month said he won’t accept giving the new agencies power that would bind the actions of the U.K. Financial Services Authority.

“The British have a somewhat different view,” Dutch State Secretary of Finance Jan Kees de Jager said in an interview in Prague. “We hope that in the next couple of weeks these hesitations will be overcome.”

Brown sees the G-20 regulatory overhaul as necessary to restoring people’s confidence in the banking system and a step toward reassuring businesses about the availability of credit, the prime minister’s spokeswoman said.

The prime minister also will write to the U.K.’s overseas territories and crown dependencies, urging them to open now- secret tax arrangements to scrutiny in step with G-20 demands, the spokeswoman said.

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Ukraine and Kazakhstan, home to two of this year’s worst emerging stock markets, are driving away investors by attempting to prevent capital flight.

Ukraine ordered banks this month to buy and sell the hryvnia at a rate no weaker than a floor policy makers set each day. Kazakhstan’s parliament is preparing to give the president power to force exporters to sell the government their foreign- currency earnings for tenge.

“If you’ve got money in a country that introduces some sort of controls, that’s an issue and so we’re steering pretty clear of that area right now,” said Andrew Bosomworth, a fund manager in Munich at Pacific Investment Management Co. who helps oversee more than $50 billion in emerging-market debt for the world’s largest bond-fund manager. “The best way to attract private money that’s going to stay there is to provide a coherent environment to invest in.”

The two nations devalued their currencies and took over struggling banks in the past six months as the first global recession since World War II slashed demand for exports at the same time that frozen credit markets drove away foreign investment.

Ukraine’s PFTS stock index fell 26 percent this year and the Kazakhstan Stock Exchange Shares Index lost 28 percent, ranking among the worst emerging-market performers with Costa Rica, Nigeria, Serbia, Qatar and Bosnia, according to data compiled by Bloomberg.

Slumping Currency

Ukraine’s foreign-currency reserves were reduced by a third in the six months to February, with most of that $12 billion drop due to the central bank’s purchases of hryvnia, said Ivan Tchakarov, an economist in London at Nomura Holdings Inc. The currency has slumped 37 percent versus the dollar since September as sales of steel, the nation’s biggest export, fell 50 percent in the year to February and the governing coalition collapsed over the handling of the economic crisis.

President Viktor Yushchenko, a former central bank governor who led the peaceful overthrow of a pro-Russian government in 2004, opposes Prime Minister Yulia Timoshenko’s moves to fire current bank chief Volodymyr Stelmakh and to negotiate with Russia for a $5 billion loan.

Ukraine has received the first $4.5 billion installment of a $16.4 billion bailout from the International Monetary Fund. The IMF has delayed the second loan installment of $1.9 billion until the former Soviet state cuts a 2009 budget deficit equal to 5 percent of gross domestic product. The IMF will accept a budget gap of 3.1 percent of GDP, Yushchenko said March 23.

Minimum Rate

The central bank’s mandatory minimum hryvnia rate was 7.9489 per dollar when it was last updated on March 27. That’s 4 percent stronger than the 8.28 per dollar spot rate currency traders at Galt & Taggart Holdings Inc. saw quoted yesterday, said Nick Piazza, head of sales at the Kiev-based brokerage.

Countries like Ukraine and Kazakhstan need capital controls so they can stop hemorrhaging money, said Douglas Polunin, who manages about $200 million in emerging-market assets, including Ukrainian and Kazakh equities, at Polunin Capital Partners in London.

“They help the economy because you don’t have this sudden flow of money rushing out of the country that has such a destabilizing effect on company balance sheets,” Polunin said. “Overall capital controls are a good thing, though foreign investors do get frightened because of concerns they won’t be able to withdraw their money.”

Held Responsible

The central banks’ currency regulation department told lenders on March 17 that chairmen would be held responsible for the hryvnia exchange rates quoted on their bank Web sites and on information systems such as Bloomberg and Reuters, according to Natsionalnyi Bank Ukrainy’s head of external relations, Serhiy Kruhlik.

The hryvnia’s drop is rooted in “psychological and speculative factors” and authorities will leave “no stone unturned” in investigating possible currency speculation Yushchenko said in a statement on his Web site.

Yushchenko promised Ukraine would emerge from the crisis with a revived economy, saying March 25 the government has formed a “clear response.”

“Clearly the level of foreign currency depletion is politically highly sensitive, and there’s an idea that speculators have ripped them off,” said Tim Ash, head of emerging-market economics in London at Royal Bank of Scotland Group Plc cashadvance.

‘Bloodbath’

Moscow-based Prosperity Capital Management, which oversees $1.9 billion in former Soviet assets, has been selling Ukrainian equities. Its fund managers have been unable to get money out of the country because banks are unwilling to lose dollars from their stockpiles by converting hryvnia-denominated proceeds, said Ivan Mazalov, a Prosperity director.

“It’s a bloodbath,” he said.

Ukraine’s central bank has taken control of 11 local lenders since requesting the IMF loan. The Washington-based fund estimates the country will need to spend about 4.5 percent of its GDP to recapitalize the banking sector.

The yield on 4.95 percent euro-denominated Ukraine government bonds due 2015 doubled to 24 percent in the past six months. Russian dollar-bonds due 2018 yield just 6.61 percent.

Credit-default swaps insuring Ukrainian government debt are the most expensive in emerging Europe, according to prices from CMA Datavision in London. They cost 60.5 percent of the amount covered upfront and 5 percent a year. That means investors must pay $6.1 million in advance and $500,000 a year to protect $10 million in bonds for five years. Six months ago, that same protection cost $567,000 a year and nothing upfront.

‘Outright Taxation’

Yaroslav Lissovolik, chief economist in Moscow at Deutsche Bank AG, said Ukraine may impose “outright taxation on withdrawals leaving the country” or require exporters to sell some or all of their foreign-currency earnings to the central bank at rates it dictates.

In Kazakhstan, the government is preparing to block foreign currency from leaving. The Majilis, the lower house of parliament, has twice given preliminary approval to a measure that would let President Nursultan Nazarbayev compel exporters to sell foreign-exchange earnings to the government for tenge.

Kazakhstan’s exporters include Irving, Texas-based Exxon Mobil Corp, the world’s biggest oil company; Courbevoie, France- based Total SA, Europe’s third-largest oil group; and San Ramon, California-based Chevron Corp, the second-biggest U.S. oil producer.

‘Painful’ Possibility

Those companies wouldn’t be able to pay dividends to international shareholders or repatriate profits under this type of capital control, said Tatiana Orlova, an economist in Moscow at ING Groep NV. “It would be painful,” she said.

The Kazakh bill, which needs Senate approval before the president considers it, would also ban companies and citizens from making foreign-currency transfers overseas.

National Bank of Kazakhstan allowed the tenge to weaken 21 percent versus the dollar on Feb. 4 after Russia let the ruble depreciate 36 percent in the previous six months as oil prices fell 67 percent. Oil is the largest export earner for both Russia and Kazakhstan.

The tenge will be held at 150 per dollar for the rest of the year, central bank Governor Grigori Marchenko said on Feb. 18 and again a month later.

The Almaty-based central bank didn’t respond yesterday to questions e-mailed to spokeswoman Aigul Amankulova.

Economic Contraction

Kazakhstan, which holds 3.2 percent of the world’s oil reserves according to BP Plc, is facing its first contraction in economic growth in a decade as the government vows to spend as much as $4 billion bailing out banks. The state is the majority shareholder in BTA Bank, the country’s biggest lender, and may take a 76 percent share of Alliance Bank, the fourth-largest, said Margulan Seisembayev, its chairman, on March 2.

Credit-default swaps for Kazakhstan government debt have more than tripled to 1,114 basis points, or 11.14 percent of the amount covered, in the past six months, making them the second most expensive in the ex-Soviet and eastern European region. It costs $1.1 million a year to protect $10 million in debt from default each year for five years.

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American Express Co may have to set aside a significant amount of money to cover more losses in the next few quarters as U.S. credit card defaults are expected to remain high, analysts at J.P. Morgan Securities said, as they reinitiated the stock with an “underweight” rating.

Analysts Andrew Wessel and Daniel Kim projected a 45 percent increase in loss-reserve expense for the company in 2009 versus a year ago, and a nearly 6 percent decline in billed business due mainly to a fall in consumer discretionary spending.

JP Morgan analysts expect U.S. consumers to cut down on discretionary spending and build savings until unemployment levels stabilize and the housing market collapse begins to abate.

“Given this macro view and our 10 percent unemployment outlook, we believe AmEx will face ongoing declines in billed business and significant increases in charge-offs well into 2010,” the analysts wrote in a note to clients.

They have a price target of $10.50 on the stock. AmEx, the largest U.S. charge card operator by sales volume, said last week that its net charge-off rate — debts the company believes will never be repaid — rose to 8 payday loans in one hour.70 percent in February from 8.30 percent in January.

“Our model forecasts peak charge-offs of 11 percent on a managed basis in second quarter of 2010,” the analysts said, adding that they saw further downside risk to their current charge-off estimates.

The analysts, however, believe AmEx is well-capitalized when compared with peers, and said the company may not need additional equity.

JP Morgan analysts also expect AmEx to remain profitable through the cycle, but said a prolonged recession will restrict material earnings growth until 2011. Shares of the company, which caters to wealthier consumers that are viewed as more credit worthy, closed at $13.90 Tuesday on the New York Stock Exchange.

(Reporting by Tenzin Pema in Bangalore; Editing by Anil D’Silva)

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With Pfizer Inc. about to acquire rival drug maker Wyeth and its expertise in making pricey and complex biologic drugs, Pfizer Chief Executive Jeffrey Kindler strongly supports allowing generic versions of them.

"Done right, with regard to the safety of the products, biological follow-ons are a very appropriate thing to do," he said in an interview with The Associated Press.

Top drug makers are piling into this area because biologic drugs, made in living cells, can cost $1,000 and more per month and so far haven’t faced lower-price generic competitors. But legislation was introduced last week to create a pathway for regulators to approve what have been called "biosimilar" drugs, and President Barack Obama has been touting the idea as one way to control health care costs.

Kindler said Pfizer’s increasing expertise in the area "could provide us with an opportunity to make biologic follow-ons" of its own, Wyeth’s and possibly rivals’ biotech drugs.

He also backs government-sponsored research comparing drug effectiveness, unlike many in his industry concerned that could cut into sales.

Kindler called it "an area with a lot of promise, if it’s done right," openly, and not "driven entirely by cost considerations but rather by considerations of value."

His somewhat contrarian views come as the drug industry is in upheaval, forced to slash jobs and other costs as a tidal wave of generic competition to 1990s’ blockbuster pills cuts revenue while research operations aren’t producing nearly enough replacements cash advance. Those two trends are behind the recent flurry of mergers, including Pfizer’s.

Meanwhile, the Obama administration is promising to revamp the nation’s health care system to help the 48 million Americans without health insurance. Such an overhaul could boost drug sales if millions more people get insured but could hurt drug makers if they lose pricing power.

Kindler was the only chief executive from the drug industry at the White House summit on health care reform two weeks ago.

"We have an obligation as an industry to participate (in reform) and try to contribute to the solution of these problems," said Kindler.

Among other changes, he supports more emphasis on preventive care, expanding government insurance and having an independent federal board oversee standards, coverage and pricing. And Kindler says it makes more sense to support beneficial changes than just to block ones the industry doesn’t like.
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