World financial news

A leading Democrat in the U.S. House of Representatives who has rebuffed Republican efforts to subpoena records of a mortgage program for favored borrowers at Countrywide Financial Corp. got home loans from that lender, the Wall Street Journal reported Friday.

Representative Edolphus Towns, chairman of the House Oversight and Government Reform Committee, obtained two loans from Countrywide, which was bought last year by Bank of America , the newspaper said, citing information from the lawmaker’s mortgage documents.

Towns has turned down calls from the committee’s ranking Republican, Darrell Issa, for the panel to subpoena mortgage records showing who received loans through Countrywide’s VIP program, the journal said.

The program offered loans to politically influential figures and other favored borrowers at more attractive terms than were available to the general public.

The mortgage documents on the loans to Towns contain a Countrywide address and branch number that correspond to the VIP program, the Journal reported.

Towns told the paper through a spokeswoman that his decision not to subpoena the VIP records "has nothing to do with his mortgages" and that if the mortgages came through the VIP program "it was without his knowledge instant cash advance."

Towns was not immediately available for comment outside regular U.S. office hours.

In June, Issa wrote to Bank of America (BAC, Fortune 500) asking it to disclose any special mortgage terms the bank’s Countrywide unit gave to politically influential customers over an eight-year period. Bank of America bought Countrywide last year after the mortgage lender collapsed under the weight of bad mortgages and defaults.

Countrywide’s VIP program of preferential mortgage rates was also known as the "Friends of Angelo" program, after Countrywide founder Angelo Mozilo.

In February, Senate Banking Committee Chairman Chris Dodd, a Democrat, said he would refinance two mortgages that he took out in 2003 under Countrywide’s VIP program. 

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As Wall Street rebounds and the U.S. economy shows signs of life, stock prices in the world’s four largest developing economies have climbed even faster.

In the BRIC nations — Brazil, Russia, India and China — they’ve soared by an average of 64 percent so far this year, according to investment blog Seeking Alpha. That’s led many observers to think the four are poised to power the global economy out of recession.

Don’t bet on it.

The global economy this year will still suffer its steepest contraction in trade and industrial production since the Great Depression. Despite their growth, the BRIC nations aren’t powerful enough to fuel a global rebound, and all four face their own economic problems.

The U.S. and the European Union each account for 23 percent of global economic activity and, "There’s no way that 15 percent is going to pull 46 percent," said Jay Bryson, a global economist for Wells Fargo Securities.

This year’s outlook remains grim for rich and poor nations alike. The World Trade Organization in July revised downward its global trade forecast, now projecting a contraction of 10 percent for 2009.

Around the globe, industrial production fell 28 percent from January to March. U.S. manufacturing plants in June were operating at about 64 percent of their capacity, the lowest since records have been kept. Excess capacity is reflected across the major industrialized economies.

CHINA

China, which grew by 7.1 percent in the first half of this year, remains the lone bright spot of global significance. For China and its 1.3 billion people, however, that’s subpar growth, and it’s sparking fear that a rapid expansion in lending may bring the world’s most populous country and the global economy new problems just over the horizon.

China seeks to boost domestic growth, partly by massively expanding bank lending. The nearly $1 trillion in loans granted by Chinese banks or guaranteed by the government in the first half of 2009 is more than 50 percent more than bank lending was for all of 2008.

"The fact that it took the government taking all the risk away from the banks means the quality of that lending is probably dubious," said Daniel Rosen, a partner in the Rhodium Group, a New York-based economic advisory group specializing in China.

However, although the lending boom may spark growth, it may not produce sustainable growth.

"Anybody could have high (economic growth) if they simply take the vault doors off the banks and let the money flow on out. It’s what we called subprime lending in the U.S.," he said.

BRAZIL

Putting the world’s idled factories back to work is no easy task. Take aircraft manufacturer Embraer, one of Brazil’s largest private-sector employers. Dependent on trade and exports, it shed 4,300 workers in February, a fifth of its labor force, posting a $23 million first-quarter loss.

Brazil, with a population of nearly 200 million, accounts for about 1 lowest fee payday loans.2 percent of global economic activity, and after a five-year boom, its job growth today is at a crawl. Tax collection fell 6.3 percent through June compared with the first six months of 2008.

"I really don’t see any sector doing well other than autos," said Pedro Ferriera, an economist at the Getulio Vargas Foundation, a Rio de Janeiro-based economic research organization.

Brazil’s auto sector saw record sales in June, thanks to a federal sales tax holiday, but exports of Brazilian-made cars declined 48 percent in the first half of 2009 from the year-earlier period, the National Association of Car Manufacturers in Sao Paulo reported.

RUSSIA

If the "B" in BRIC is struggling, the "R" is in deep trouble. Russia’s problems have some suggesting the bloc of developing nations should be renamed BIC.

Most forecasters think the Russian economy will contract at least 7 percent this year. The International Monetary Fund projected that Russia’s gross domestic product will increase by 1.5 percent next year, below Brazil’s projected 2.5 percent growth and well below China’s 8.5 percent.

The Russian economy lives and dies by global energy prices. The least populous of the BRIC countries at 140 million, Russia is the world’s second-largest oil exporter after Saudi Arabia, and its economy grew by 8.1 percent in 2007 before falling on hard times last year.

"An underdeveloped judicial system, corruption, lack of proper guarantees for the rights of investors and the overall dependence of everything on oil and gas prices" are holding Russia back, said Vladimir Tikhomirov, chief economist at UralSib bank in Moscow.

INDIA

The "I" in BRIC is also a question mark. India’s economic growth, which averaged 9 percent annually from 2005 to 2008, has been less driven by global trade than Russia’s, Brazil’s and China’s have been. Free-market reforms led to improvements in the standard of living in the nation of 1.1 billion, the world’s second most populous after China, fueling strong growth.

India’s per capita income growth rate is thought to be 5.6 percent in the 2008-2009 fiscal year, which ended on March 31, according to India’s Ministry of Statistics. That’s atop 7.6 percent growth in the 2007-2008 fiscal year.

India is expected to grow by at least 6 percent in calendar year 2009, but it has a new government and an old problem of too much government spending. Its 2008 government deficit was equal to 6.2 percent of its broad economy, a gap that will surely widen this year because India, like many nations, is trying to stimulate its economy with public works spending.

"We know from the U.S. experience that high budget deficits can produce concerns about crowding out future growth," said Philip Suttle, chief economist for the Institute of International Finance.

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Merchants suffered their second-worst monthly sales of the year in July — a trend that could signal that the back-to-school shopping season, the second-biggest selling period of the year, will be much weaker than expected.

Several of the nation’s leading retail chains — including mall-based specialty sellers, teen clothing chains, department store chains and even discounters — suffered declining same-store sales last month as consumers continue to shun non-essential discretionary purchases.

Same-store sales — an important gauge of a retailer’s performance — measure sales at stores open at least a year.

Sales tracker Thomson Reuters, which tracks monthly same-store sales for 30 chains such as Target (TGT, Fortune 500), Gap (GPS, Fortune 500) and J.C. Penney (JCP, Fortune 500) said overall July sales for the group fell 5.1%, compared to a gain of 1.1% last July.

July’s slump marked the 11th consecutive month of same-store sales declines. The firm said more than half of the retailers it tracks missed their sales estimates for the month.

Last month’s result was also the second worst monthly performance of the year following January’s monthly same-store sales decline of 5.7%.

Cooler-than-expected weather in July combined with more parents waiting to commence their school-related shopping in August when the tax-free shopping events take place hurt sales volumes last month, said Jharonne Martis, senior research analyst with Thomson Reuters credit reports free.

Among the misses, discounter Target (TGT, Fortune 500)’s sales fell 6.5% versus analysts’ expectations for a 5.8% decline. Macy’s (M, Fortune 500) sales slumped 10.7%, worse than analysts’ forecasts for a 9.1% decline, while sales at J.C. Penney fell 12.3%, slightly better than the company’s guidance for sales to decrease 13% to 16%.

Elsewhere, apparel seller Gap Inc. reported an 8% drop in its same-store sales last month while sales at teen clothier Abercrombie & Fitch tumbled 28%.

However, mid-priced department store chain Kohl’s barely escaped the downdraft, posting a slight 0.4% sales increase in July, while high-end chain Nordstrom reported a 6.9% dip in its same-store sales, better than analysts’ forecast for a 11.1% decline.

Martis said Wal-Mart (WMT, Fortune 500), the world’s biggest retailer, likely stole sales away from many of its peers because of its value prices that continue to attract more shoppers from all income levels into its stores.

Wal-Mart no longer reports monthly same-store sales. However, the retailer is expected to report a 1.1% gain in its quarterly same-store sales when it reports its quarterly results next week. 

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Creating an electronic health record for every American by 2014 is a big part of Obama’s agenda but it may be easier said than done.

For one, the cost can be prohibitive - easily running into the tens of millions of dollars. Getting physicians on board can be challenging. And the sheer magnitude of implementing the technology can be overwhelmingly cumbersome - translation: try creating a system for a hospital that serves 600,000 patients.

But that’s not stopping some hospitals and health care networks from answering the call, especially when the government is pouring about $20 billion into the effort.

Adoption. Large hospitals, small hospitals and giant health care networks face unique issues.

St. Elizabeth Healthcare in Northern Kentucky, for example, plans to integrate EHR across three hospitals and 43 ambulatory care offices that include 1,000 physicians and serve roughly 600,000 patients. With such tremendous size, implementation has been a slow process.

"There are still a lot of paper processes and protocols that are not on a digital platform, so the true trick is getting all of those standards of care into the computer," said Alex Rodriguez, chief information officer at St. Elizabeth. "We’ve been exchanging data with area hospitals for 10 years, but this takes it to the next level. This is a fundamental shift in how our hospital conducts business."

Large hospital networks also have to perform a lot of wheeling and dealing before EHR can go live.

The Western North Carolina Health Network comprises 16 community-based hospitals in western North Carolina. Getting all of them to agree on how EHR would be used wasn’t easy: Who gets access to the records? What kind of audits should be done to ensure that there’s no abuse of the system? How will the data be displayed?

After four years of drafting legal agreements, the hospitals agreed that the patient data would live in the patient’s home hospital, not in a central data warehouse, and would only be pulled on an as-needed basis.

If you think smaller hospitals have it easier, think again. Many of those smaller, independent facilities are located in rural areas. While they may be able to get an EHR system up and running quickly, getting local physicians to change old habits is a bigger challenge.

Memorial Hospital in Sweetwater County, Wyo., is a rural, county-owned hospital with just 99 beds. Because of its size, Memorial opted to go with a "big bang" approach, choosing to go live across the hospital in one fell swoop. Most larger hospitals roll out EHR in sections.

The vast majority of Memorial’s staff had never worked at another hospital or used EHR before. Many had difficulty understanding the new processes in the first few months of implementation, making them resistant to change. Eventually, that did change.

Cost. Hospitals that set up EHR systems that comply to some basic standards by October 2010 are eligible for Medicare and Medicaid incentives from the Recovery Act. But the up front costs are the hospital’s responsibility. That’s not a cheap proposition.

For example, it will take a total of three years and cost $80 million for St free business cards. Elizabeth to complete its EHR process.

About $40 million went to Epic for the software and $1.5 million went to IBM (IBM, Fortune 500) for the hardware (and about $225,000 per year to IBM to service the network). The rest went to replacing old machines with new ones that worked with Epic’s software.

Although St. Elizabeth started its EHR process before the stimulus plan’s incentives were announced, it is a typical example of what types of costs big hospitals will face going forward.

Foresight proved to be cost beneficial for Western North Carolina, which went live with EHR in February 2006.

Implementation cost WNC just $3.5 million up front for MedSeek’s software, with $400,000 per year for IBM’s software licenses, hosting services and maintenance fees.

"We were very fortunate that we got it in early," said Gary Bowers, former executive director of WNC and current chief operating officer of Care Partners, a network of outpatient facilities within the larger WNC network. "IBM and MedSeek were both anxious to implement EHR for demo sites."

But even a price like that just wasn’t a possibility at Memorial. The need was there, but money was tight. That’s why the hospital’s management opted for Medsphere’s OpenVista software, an open source, commercialized version of the Veteran’s Association EHR software. For roughly $2 million, and $150,000 in annual service fees, it took 1-1/2 years to implement, going live Feb. 1, 2008.

"Being small, a lot of systems were out of our reach," said Linda Simmons, vice president of operations and chief nursing officer at Memorial. "Open source became a very viable and attractive solution for us."

National plan. Despite the various challenges, all three hospitals said a national plan faces the same hurdles, but on a much grander scale.

"It’s still difficult to set this up regionally, so it gets even more difficult when it goes nationally," said Dr. Bob Flowers, a physician at St. Elizabeth. "We still have to solve a lot of issues."

EHR at Memorial is about 60% compliant with orders, and management continues to build quick order sets for routine physician requests. But money and time are still major obstacles.

"It will be difficult to go across the nation in five years and get an electronic record everywhere you need it to be," said Simmons. "Rural hospitals will need more infrastructure in IT."

WNC believes it has already met the goals for the stimulus bill’s October 2010 implementation deadline for Medicaid incentives, but they still need to connect their physician offices, which is where the most patient information lives.

"Technology is the easy part; the hard part is working with independent providers," said Bowers. "If we have issues between 16 hospitals that have a good working relationship, on a national level, my gosh, they’re going to have a lot of struggles." 

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Microsoft and Yahoo reached a long-awaited partnership Wednesday in a bid to challenge Google’s dominance in online search.

Under the 10-year deal, Yahoo.com and Bing.com will maintain their own branding but search results on Yahoo.com will say "powered by Bing." Yahoo, in turn, will be responsible for attracting premium advertisers.

Microsoft will pay Yahoo 88% of the revenue it gains from searches on Yahoo’s sites. Microsoft will also have the rights to integrate Yahoo’s search technology into its own existing Web search platforms.

Yahoo said the agreement will modestly decrease its overall revenue but increase its operating income by about $500 million annually.

Shares of Yahoo (YHOO, Fortune 500) tanked 12% on the news, as investors expected Microsoft to pay the company up to $1 billion in cash up front for the deal, albeit with a more modest revenue-sharing figure. Microsoft’s (MSFT, Fortune 500) shares rose about 1%, and search leader Google’s (GOOG, Fortune 500) stock price fell 1%.

The deal is expected to close in early 2010. U.S. users will start to see the change three months later and users around the world will see the full effect within two years.

"This deal is really about scale," said Yahoo Chief Executive Carol Bartz on a conference call. "By combining the … technology of both companies, we can create a real, viable alternative for advertisers."

Microsoft said the transition will cost the company "several hundreds of millions of dollars," but it will benefit in the long run from the ability to charge advertisers more for its service, because the deal will improve the relevance of search results. Microsoft said it also expects to benefit from Yahoo’s expertise, acknowledging that its new partner has more ad sales experience.

"This really is a win-win agreement both for Microsoft and for Yahoo," said Microsoft chief Steve Ballmer. "Consumers will get better products, and it will help the industry as a whole to prosper through our shared vision and shared values."

Bartz said that some Yahoo employees will eventually move over to Microsoft and that some search personnel would be laid off. But she added that the transition will occur over time, so virtually nothing will change at least until the deal is inked next year.

Google. Both Microsoft and Yahoo — but especially Microsoft’s Ballmer — used their joint statement and conference call to offer several digs at search market leader Google.

In a joint statement, the companies said that "advertisers no longer have to rely on one company that dominates more than 70% of all search."

Ballmer argued that the search advertising market, as it is currently constructed, unfairly favors Google because of its dominance fast cash advance. He said many advertisers choose to enter into exclusive deals with leader Google to avoid the laborious process of entering into negotiations with three different companies.

But the new partnership will simplify that process, and "advertisers will know now that is is clearly the second place to work," said Ballmer.

He said he fully anticipates Google will launch an antitrust complaint against the partnership. "We’ll likely face issues from ‘the’ competitor who may not like the competition," said Ballmer. "But our argument is we’ll provide more competition, not less."

Google disagreed, saying in an emailed statement that, "There has traditionally been a lot of competition online, and our experience is that competition brings about great things for users. We’re interested to learn more about the deal."

Microsoft and Yahoo will head to Capitol Hill and Brussels next week to begin the American and European regulatory processes for the deal.

An 18-month odyssey. It was a partnership that was a long time in the making. Microsoft’s search market share has been slipping for more than two years, and the company has struggled to make its online advertising unit profitable. Meanwhile, Yahoo, once the search market leader, dropped to a distant second place behind leader Google by 2007.

The dealings between the two companies began Feb. 1, 2008, when Microsoft made an unsolicited $44.6 billion cash and stock bid for Yahoo. A week later, Yahoo rejected the bid, saying the offer "massively undervalues" the company.

In June of last year, Microsoft said it was no longer interested in acquiring Yahoo outright, but would like to enter a deal for Yahoo’s search advertisement business.

Bartz and Ballmer said those preliminary discussions involved more cash up front for Yahoo but a less revenue sharing. Bartz said Yahoo insisted on a higher revenue number so it could invest in its long-term projects like its core online media businesses.

Though many analysts speculated that Microsoft’s immediate success with its Bing search engine, unveiled last month, was the final nail in the coffin, Bartz said there was no one thing that pushed the deal through.

"It was the understanding and trust that we could have a partnership, and that takes time," said Bartz. "Finally the comfort level was there, and the proverbial snowball went down the hill. Once we reached a point in which it was clear that a deal was advantageous to both companies, we moved forward."

Ballmer said, for Microsoft, the deal wasn’t better than the original revenue-sharing proposal, "just different." 

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New orders for long-lasting U.S. manufactured goods fell more sharply than expected in June, notching their biggest decline in five months as demand for communications and transportation equipment slumped, a government report showed on Wednesday.

The Commerce Department said durable goods orders fell 2.5%, the largest drop since January, after rising by a revised 1.3% in May, previously reported as a 1.8% surge. This was worse than market expectations for a 0.6% decline. Orders had advanced for two straight months.

New orders excluding transportation unexpectedly rose 1.1% in June, after climbing by 0.8% in May cash loans. Excluding defense, orders slipped 0.7% in June, after two months of straight gains.

Analysts polled by Reuters had expected orders excluding transportation to be flat.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, rose 1.4% in June and above market expectations for a 0.2% gain.

The prior month was revised to a 4.3% rise, previously reported as a 4.7% jump. 

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