World financial news

Nokia (NOK1V.HE: Quote, Profile, Research, Stock Buzz) blamed price-cutting by rivals for its loss of market share this quarter, but its warning may be a sign that profitable growth at the rates the industry has been enjoying is nearing its limit.

Coming at the end of a week in which the world’s top wireless chip maker said it was seeing signs that consumer demand for phones was slowing, the news from Nokia, the world’s biggest cellphone maker, sent out waves of alarm to investors primed to flee at the first sign of trouble.

Nokia has lost more than 18 percent of its value since August 29, including an 8 percent plunge for its U.S. shares on the New York Stock Exchange on Friday.

Although most analysts agreed the market reaction was overdone — Nokia shares fell to their lowest level in nearly three years — there was bad news for the wider industry in the company’s short statement and later conference call.

Nokia cited weaker consumer confidence in several markets after bearish comments from chip makers Qualcomm (QCOM.O: Quote, Profile, Research, Stock Buzz) and Texas Instruments (TXN.N: Quote, Profile, Research, Stock Buzz) earlier in the week payday loans. The phone maker said it was facing tougher competition in entry markets, its powerhouse in recent years.

“It took time for Nokia to feel the pain because they are in a better place. Motorola (MOT.N: Quote, Profile, Research, Stock Buzz), Sony Ericsson (6758.T: Quote, Profile, Research, Stock Buzz)(ERICb.ST: Quote, Profile, Research, Stock Buzz) and LG (066570.KS: Quote, Profile, Research, Stock Buzz) already started feeling it in Q1 and Q2,” said Gartner analyst Carolina Milanesi.

“I think the bottom line is that if even Nokia is feeling the pain, then the market is really in trouble,” added Milanesi, the research firm’s chief handsets analyst.

Nokia said it was protecting its profit at the price of losing market share if necessary, saying it had made a tactical decision not to be drawn into a price war. 

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The state’s 3,000 government employers will owe smaller contributions to state retirement funds in 2010, according to state Comptroller Thomas DiNapoli.

But he warned that years of rate declines could soon end.

DiNapoli announced Thursday that contribution rates to the state’s $153.9 billion employees’ pension fund will drop to an average of 7.4 percent, a 1.1 percent decline from 2009 levels. Meanwhile, average employer contributions into the police and fire retirement system will fall to 15.1 percent, down 0.6 percent from 2009 levels.

The changes will save taxpayers $300 million, since government employers will owe less money to the pensions, DiNapoli said. Pension costs are typically one of the largest portions of a municipality’s budget. On average, they equal 20 percent of a city’s property tax levy.

But the good times likely will not last beyond 2010, thanks to a statewide recession that began earlier this year, DiNapoli said.

“If the economy continues to drag, we will not be able to avoid rate increases in the future,” DiNapoli said. “When doing long-term planning … it would be appropriate to assume that contribution rates will be rising.”

The state retirement system posted a 2.56 percent return on its investments for the most recent fiscal year, which ended March 31. The fund’s current value of $153.9 billion is $600 million smaller than last year’s value.

About 70 percent of the fund’s money is invested in equities, with the remaining money put into fixed-income investments. A few big-name stocks that the fund is invested in include Exxon-Mobil">Exxon-Mobil, General Electric, AT&T and Microsoft">Microsoft payday advance lender.

The system paid out $6.8 billion in benefits during the last fiscal year, compared with the $2.7 billion in contributions from government employers.

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Boeing Co’s largest labor union said its members had rejected the plane maker’s contract offer and voted to strike, but the union agreed to postpone a walkout for 48 hours to allow more time for negotiations.

The International Association of Machinists leadership announced the extension, which means Boeing employees will stay on the job until Friday, after saying that 87 percent of its members voted to start a strike at midnight on Wednesday.

If a deal for a new three-year contract is not reached by Friday, nearly 27,000 Boeing workers will start a strike that would cost the company about $100 million in revenue per day as customers’ planes sit idle on production lines.

Boeing shares fell 2.2 percent to $64.61 in early New York Stock Exchange trade.

Even though its workers voted overwhelmingly to strike, Boeing stopped short of promising anything specific or committing to improve on its last offer bad credit payday loan.

“We offered employees the best package of pay and benefits in the aerospace industry,” Doug Kight, Boeing vice president and lead negotiator, said in a statement.

“The Federal Mediation & Conciliation Service has asked both parties to meet at a neutral location this week to explore whether an agreement can be reached,” Kight added.

The union leadership surprised rank-and-file members, who were preparing picket signs for a strike as the vote was being counted, with news of the postponement, drawing angry shouts from the crowd gathered at a Seattle union hall. 

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Almost 27,000 Boeing Co (BA.N: Quote, Profile, Research, Stock Buzz) workers are set to vote on the plane maker’s latest three-year contract offer on Wednesday, urged by their union to reject it and walk off their jobs at midnight, raising the possibility of the fourth Boeing strike in 20 years.

If members of the International Association of Machinists and Aerospace Workers (IAM) — mostly based in Boeing’s commercial plane plants in the Seattle area — do shut down operations, it would cost the company $3 billion in revenue per month as customers’ planes sit on the production lines.

It would also put a dent in the U.S. economy, swelling jobless claims and increasing inventories at major Boeing suppliers like Spirit Aerosystems Holdings Inc (SPR.N: Quote, Profile, Research, Stock Buzz), Rockwell Collins Inc (COL.N: Quote, Profile, Research, Stock Buzz) and Goodrich Corp (GR.N: Quote, Profile, Research, Stock Buzz). If airlines are put off buying new planes, it would also cut durable goods orders.

Voting at union halls in the Seattle area opened at 5 a.m. local time (8:00 a.m. EDT), and will continue until 6 p.m. A result is expected from 8 p.m. (11:00 p.m payday loans. EDT), after local votes and those from Boeing’s smaller plants in Wichita, Kansas and Portland, Oregon are tallied.

BEST AND FINAL

Boeing’s best and final three-year contract offer includes a 5 percent wage increase for the first year, plus 3 percent hikes for each of the remaining two years. The company said those increases, along with new incentive plans, will add about $34,000 over the life of the contract to the average machinist, who makes about $55,000 a year before overtime or about $65,000 after overtime.

The company, which has offered to bus workers to union halls to vote, is also proposing a one-time 6 percent lump sum payment and an additional $2,500 bonus if the contract is approved on Wednesday.

The IAM has slammed the contract terms, saying it reduces benefits, shifts more health care costs onto workers, and doesn’t address job security or outsourcing issues. Union leaders are encouraging members to reject the terms of the contract and vote in favor of a strike, which would start just after midnight. 

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The fastest-growing part of the global bond market is faltering, and it has nothing to do with subprime mortgages or the credit crunch.

Sales of Shariah-compliant debt, which financed Dubai's Palm development, the world's largest man-made island where David Beckham and Donald Trump have homes, fell 50 percent in 2008 and prices dropped an average 1.51 percent, according to HSBC Holdings Plc index data.

The so-called sukuk market, which has doubled each year since 2004 and grown to $90 billion, is declining after a Bahrain-based group of Islamic scholars decreed in February that most bonds ran afoul of religious rules. Only one that complies with the edict has been issued, pushing up borrowing costs on projects including $200 billion of real-estate developments in the United Arab Emirates capital.

“In times of distress, the first thing investors sell are the credits they don't fully understand,'' said James Milligan, Dubai-based head of Middle East fixed-income trading at HSBC, the biggest underwriter of sukuk bonds in the Gulf last year. “This has hit spreads hard in the region,'' he said, referring to the relative level of the Islamic bonds' yields.

The bonds satisfy Islam's ban on interest by allowing investors to profit from the exchange of assets, rather than money. Sales of the debt fell to $11 billion from January to August, from $21 billion in the same period of 2007, according to data compiled by Bloomberg. They peaked at $38.6 billion last year, growing from virtually nothing six years earlier, the International Monetary Fund said. The decline in prices is worse than the 1.25 percent drop in U.S. corporate bonds, HSBC data show.

No Guns

Banks sell sukuk by using assets to generate income equivalent to interest they would pay on conventional debt. The money can't be used to finance gambling, guns or alcohol.

The Accounting & Auditing Organization for Islamic Financial Institutions ruled in February that bonds don't meet religious requirements if they haven't transferred ownership of collateral to holders. About 85 percent of sukuk failed this test, the board said.

The judgment meant the value of the underlying collateral may decline amid falling real-estate prices, rather than being paid at face value in a default as in a conventional asset-backed securitization.

As demand for Islamic-compliant bonds waned, yields rose to 2.94 percentage points more than the London interbank offered rate, or Libor, near a record and compared with 2.43 percentage points for an equivalent non-Islamic bond, Bloomberg data show. The spread was 1.08 percentage point a year ago and about double that in February.

`What's Compliant'

“I wouldn't add anything to'' our ruling, said Sheikh Muhammad Taqi Usmani, chairman of the accounting board and a retired justice of the Pakistan Supreme Court. “We're just pronouncing what's complaint to Shariah and what's not,'' said Usmani, who advises HSBC, Dow Jones & Co. Inc., the Bharain Monetary Agency and the Islamic Corporation for the Development of the Private Sector.

The ruling was intended to introduce “unified rules'' to the market, said Mohamad Alchaar, secretary general of the board, whose rulings are binding in six Arab countries.

Sorouh Real Estate Co., Abu Dhabi's third-biggest property company, sold 4 billion U.A.E. dirham ($1.1 billion) of bonds on Aug. 13, the first sukuk that's “fully compliant'' with the Shariah Board's ruling, according to Robin Ward, a director of structured finance at arranger Citigroup cash advance flexible payments.

Shariah Scholars

Citigroup's London-based panel of Shariah scholars is led by Sheikh Nizam Yaquby, former chairman of the accounting panel. Yaquby, who advises about 40 financial institutions on Islamic financing rules, declined to comment when contacted by Bloomberg News.

“This is a true Islamic sale,'' said Ward. “You need a tangible asset, and in this case, we had a freehold of land. There's no recourse back to the originator, which is the way previous sukuk have been done.''

The clincher for getting the board's approval, said Ward, was transferring ownership of the underlying asset when the bonds were sold. The bulk of the debt paid interest of 200 basis points more than the one-month Emirates interbank offered rate, according to Citigroup.

“In essence, the previous sukuk structure was replicating a western bond where you get your money back and that's it,'' said Majid Dawood, chief executive officer of Yasaar Ltd., a Dubai- based consultancy that advises Paris-based Societe Generale SA, Royal Bank of Scotland Group Plc in Edinburgh and Dublin-based Bank of Ireland Plc.

10 Percent Drop

More than half a trillion dollars in worldwide credit writedowns and losses squeezed lending in the Mideast as the Dubai Financial Market Real Estate Index of property-related stocks dropped 19 percent since January. Morgan Stanley analysts predict a 10 percent decline in property prices by 2010.

“The sukuk market has been very tough this year,'' said Kuala Lumpur-based Nor Hanifah Hashim, who manages about $1 billion in an Islamic fund at CIMB, the world's largest underwriter of the debt. “People are adjusting to the new rules and you need to have very good quality of assets to attract investors.''

Most issuers are still able to sell non-Islamic debt. Mideast companies raised $50 billion this year in loans, compared with $73 billion during the same period of 2007, Bloomberg data show.

“If you look at the big capital raisings, most have been done through the bank market,'' said Philipp Lotter, a senior credit officer at Moody's Investors Service in Dubai. The Islamic board ruling “added an additional layer of uncertainty. Certain investors will not invest in sukuk,'' he said.

Dual-Currency Loan

Investment Corp. of Dubai, a state-owned holding company, said last week it was raising $5.6 billion in a dual-currency loan, while Abu Dhabi National Energy Co., the state-controlled energy company known as Taqa, borrowed $3.15 billion for three years last month to refinance debt.

“Investors are trying to get used to the new structure and studying new requirements,'' said Gaurav Agarwal, chief financial officer of Tamweel PJSC, the United Arab Emirates' biggest mortgage provider, which plans $500 million in asset-backed loans by year-end. “Borrowers are raising money through bilateral loans until the sukuk market becomes hot again.''

Tamweel's last pre-ruling sukuk was one-third backed by completed property and two-thirds backed by projects under construction. Those proportions would have to be reversed now, said Agarwal.

“The sukuk market is clouded by considerable uncertainty and nervousness,'' said Chavan Bhogaita, head of credit research at HSBC's Middle-East unit. “Spreads have been widening, sukuk have been underperforming conventional bonds and investors have been shying away.''

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Health care fraud may be one of the biggest factors driving up health care costs, to the tune of billions of dollars, new research indicates.

Resolved health care fraud cases alone in the previous decade involved $9.3 billion in damages paid to both federal and state government, according to researchers at Brigham and Women's Hospital. Results of the study are slated to be published in the Sept. 2 issue of the Annals of Internal Medicine.

But the researchers said the data suggest hat there is likely much more unrecognized fraud still going on within the health care system, adding countless inefficiencies that drive up costs.

"We are interested in exploring how … targeting health care fraud may be best utilized to play a role in controlling inefficient health care spending," said lead study author Dr. Aaron Kesselheim in a statement.

The researchers, along with their counterparts at the University of Melbourne in Australia, looked at all 379 federal health care cases resolved between 1996 and 2005 initiated by whistle-blowers who know about the fraud, such as executives, physicians or internal employees electronic check payday advance. They found that those cases led to $9.3 billion in financial recoveries, with $7.2 billion being returned to the federal government and $861 million going to state governments.

They also tracked who perpetrated the fraud.

According to the study, pharmaceutical manufacturers represented 4 percent of the defendants but nearly 40 percent of the money recovered. Billing organizations were frequent defendants as were laboratory service providers, hospitals, and medical equipment companies.

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Following is the text of a statement by Governor Glenn Stevens explaining the Reserve Bank of Australia's decision to cut its benchmark interest rate by a quarter percentage point in Sydney today:

At its meeting today the Board decided to lower the cash rate by 25 basis points to 7.0 percent, effective 3 September.

Inflation in Australia has been high over the past year in an environment of limited spare capacity and earlier strong growth in demand. In these circumstances, the Board has been seeking to restrain demand in order to reduce inflation over time.

As a result of increases in the cash rate last year and early this year, additional rises in market interest rates and tougher credit standards, financial conditions have been quite tight. Some further tightening has occurred over the past couple of months. Conditions in international financial markets remain difficult, with heightened concerns over credit persisting.

The evidence is that the tight financial conditions, in conjunction with other factors including higher fuel costs and lower asset values, have exerted the needed restraint on demand. Indicators of household spending have recorded subdued outcomes over recent months, and credit expansion to both households and businesses has slowed. Surveys suggest a softening in business activity and growth in production has slowed.

Indicators of capacity utilization, while still high, are declining and there have also been some signs of an easing in labor market conditions.

The rise in Australia's terms of trade that has occurred is working in the opposite direction, adding substantially to national income and ability to spend no fax payday loan. Fixed investment spending by businesses continues to be very strong. At the same time, high prices of oil and a range of other commodities have added to global inflationary risks. They are also dampening growth in a number of countries.

Given the opposing forces at work, considerable uncertainty has surrounded the outlook for demand and inflation. On balance, however, it is looking more likely that household demand will remain subdued and overall economic growth slow over the period ahead. Inflation is likely to remain relatively high in the short term, with the CPI affected by the high global oil prices in mid year and other increases in raw materials prices.

But looking further ahead, the outlook for demand suggests that inflation in both CPI and underlying terms is likely to decline over time, provided wages growth remains contained. The Bank's forecast remains that inflation will fall below 3 percent during 2010.

Weighing up the available domestic and international information, the Board judged that there was now scope for monetary policy to become less restrictive. The Board will continue to assess prospects for demand and inflation over the period ahead, and set monetary policy as needed to bring inflation back to the 2-3 percent target over time.

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Lending between U.K. banks slumped in July as financial institutions hoarded cash, signaling Bank of England efforts to revive money markets amid a surge in subprime-mortgage losses aren't working.

The volume of interbank lending in the British currency fell to 205 billion pounds ($370 billion), from 635 billion pounds in July last year, according to central bank data published today. The reading is down from the 269 billion-pound average since the credit crunch started last August, and the 332 million-pound average for the five years ending December 2006.

Banks have racked up losses of more than $500 billion since the collapse of the U.S. subprime-mortgage market. Interbank borrowing rates are little lower now than they were in April, when the Bank of England offered to take on damaged mortgage- backed bonds in an effort to unfreeze lending. The strains in global money markets will probably persist “for some time,'' the Bank for International Settlements said today.

“We're in the same position we were in last year, with banks hoarding cash to refinance their own beleaguered balance sheets,'' said Christoph Rieger, a fixed-income strategist at Dresdner Kleinwort in Frankfurt. “The Special Liquidity Scheme has helped individual banks by preventing them from becoming illiquid, but it hasn't helped money markets return to normal.''

The July figure, which excludes central bank transactions, is down 68 percent from a year earlier. Part of the decline is due to changes in the number of institutions reporting to the central bank, according to the bank's Web site.

Brink of Recession

The central bank program allows commercial banks to swap mortgage-backed securities harmed by the credit squeeze for government bonds. The lending freeze led to the collapse of mortgage lender Northern Rock Plc in September, triggering the first run on a U.K. bank in more than 140 years.

The credit famine and the fastest inflation in at least a decade have brought the U.K. to the brink of a recession. Gross domestic product stagnated in the second quarter, ending the nation's longest stretch of economic growth in more than a century, according to government data pay day loans.

Bank of England Governor Mervyn King said in June he will unveil a new money-market system this year to cope with both “normal'' and “stressed'' conditions. He hasn't said when or whether banks will reveal their participation in the April plan.

“It's significant that lending volumes have stopped falling, but what's worrying is the level where they've stabilized,'' said Lena Komileva, an economist at Tullett Prebon Plc in London. “This new order reflects weak confidence in credit quality as a result of banks struggling to refinance their loan books. It's a striking illustration of a crisis at its height.''

Pressures `Continue'

Interest-rate derivatives imply that banks are becoming more hesitant to lend on speculation credit losses will increase as the global economic slowdown deepens.

The premiums banks charge each other for three-month cash relative to the overnight indexed swap rate widened to 78 basis points today from 12 basis points on July 31, 2007, before the credit crunch took hold in the U.K. It has averaged 69 basis points in the past 12 months, up from an average of 11 basis points in the preceding year.

“The term structure of Libor-OIS spreads suggests the interbank market pressures are expected to continue for some time,'' Ingo Fender and Jacob Gyntelberg, analysts at the BIS, wrote in the Basle-based bank's quarterly report.

The increase in short-term borrowing costs triggered questions over the accuracy of the London interbank offered rate, the benchmark interest rate administered by the British Bankers' Association and used to calculate rates on $360 trillion of financial products worldwide.

The BIS said in March some banks may have understated their borrowing costs to avoid being seen as having difficulty raising financing.

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