World financial news

Bank of America is selling most of its remaining shares in China Construction Bank, expecting an after-tax gain of about $1.8 billion.

It said Monday that about 10.4 billion shares will be sold through private transactions with a group of investors. Bank of America will hold about 1 percent of the Chinese company’s common shares after the transactions close.

Bank of America Corp., based in Charlotte, N.C., had owned about 10 percent of China Construction before it announced plans in late August to begin cutting its stake.

It’s the latest initiative by Bank of America to increase its capital base to comply with new international regulations governing large banks. The bank has taken several steps recently to sell non-core assets and businesses.

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Nicaraguan president and one-time Sandinista revolutionary Daniel Ortega appears headed for victory Sunday in an election that his critics say could be the prelude to a presidency-for-life.

Since returning to power in 2007, the 65-year-old Ortega has boosted his popularity in Central America’s poorest country with a combination of pork-barrel populism and support for the free-market economy he once opposed.

Now, riding on a populist platform and World Bank praise for his economic strategies, he seeks a third term _ his second consecutive one _ after the Sandinista majority on the Supreme Court overruled the term limits set by the Nicaraguan constitution.

With nearly 50 percent of voter support and an 18-point lead over his nearest challenger in the most recent poll, Ortega could end up with a mandate that would not only legitimize his re-election but allow him to make constitutional changes guaranteeing perpetual re-election.

He leads his closest competitor, opposition radio station owner Fabio Gadea of the Liberal Independent Party, by 18 points. Conservative Arnoldo Aleman, a former president and perennial candidate, has 11 percent support in the poll taken between Oct. 10-17 with a margin of error of 2.8 percentage points.

Ortega led the Sandinista movement that overthrew dictator Anastasio Somoza in 1979, and withstood a concerted effort by the U.S. government, which viewed him as a Soviet-backed threat, to oust him through a rebel force called the Contras.

The fiery, mustachioed leftist ruled through a junta, then was elected in 1984 but was defeated after one term in 1990. After two more failed runs, he softened his rhetoric, took a free-market stance, and regained the presidency in the 2006 election.

To his supporters, he is just plain Daniel, while opponents say that in his new incarnation, he has espoused “Orteguismo,” a politics of personality based on Christianity, socialism and free enterprise.

In his most recent term, Ortega has built wide support among the youth and the poor in a country of 5.8 million people, more than 40 percent of whom live on less than $2 a day.

He also has maintained ties to the U.S. even as he has grown closer to Venezuelan socialist President Hugo Chavez, signed the Central American Free Trade Agreement and cultivated Nicaragua’s large business sector. Per capita income, one of the lowest in Latin America, has grown steadily since 2006, according to the World Bank, which has praised Ortega’s macroeconomic policies as “broadly favorable.”

Still, he has been helped immensely by Chavez, who according to estimates has provided at least $500 million a year in discounted oil and outright donations.

Many warn his success comes at democracy’s expense. Claims of widespread fraud in the 2008 municipal elections led Washington to cancel $62 million in development aid.

The 2006 election drew more than 18,000 election observers. This time election observation is much more difficult and local observers are being denied credentials.

The European Union and the Organization of America States have negotiated access to Sunday’s vote. The Carter Center, whose Nicaragua delegation was led by former President Jimmy Carter in 2006, has elected not to observe because of the restrictions.

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Ireland announced a deepening austerity drive Friday, committing itself to cut euro3.8 billion ($5.2 billion) from its 2012 deficit and to keep increasing taxes and slashing spending through 2015 to meet the terms of its international bailout.

Finance Minister Michael Noonan said the rising level of cuts and tax increases outlined in his 2012-15 fiscal plan are needed for Ireland to claw its 2015 deficit back within 3 percent of gross domestic product, the key target in last year’s bailout deal.

“The large gap that still exists between government spending and revenue must be closed,” Noonan told a Department of Finance press conference. “Continuing to run big deficits and engaging in the high levels of borrowing required to fund them is simply not viable. To do so would result in unsustainable debt and a long-term loss of sovereignty.”

Ireland in November 2010 was forced to negotiate a potential euro67.5 billion ($92 billion) credit line from the European Union and International Monetary Fund after the nation reached the brink of bankruptcy over its runaway bank-rescue program. Ireland already has drawn down nearly half of that funding. EU and IMF monitors have lauded Ireland’s commitment to fight its deficits as part of the deal.

Even before seeking international aid, Ireland was the first of Europe’s debt-struck nations to impose emergency austerity budgets after its ill-regulated banks began to buckle in 2008 amid imploding property markets in Ireland, Britain and the United States. Irish banks were exceptional risk-takers in all three markets. The government ended up nationalizing five banks at a cost to taxpayers expected to top euro70 billion ($100 billion).

The planned 2012-15 cuts run deeper than previously expected, in part, because Ireland has trimmed its growth forecasts in line with continued depression in consumer demand and rising uncertainty in its key American and European export markets.

Ireland lowered its 2012 growth projection to just 1.6 percent versus previous expectations of 2.5 percent. Average growth for 2013-15 also was reduced from 3 percent to 2.8 percent, a figure that many economists said still looked too rosy.

Friday’s plan presumes that consumer demand will not recover soon in a country where households often are fearful of losing their jobs, mired in negative-equity mortgages, and struggling to pay rising bills on reduced incomes.

It expects consumer demand to keep declining a further 1 percent next year, versus a previous assumption of flat growth. And demand in 2013 now is expected to be flat, versus previous hopes of a 1 percent uptick.

Noonan said deficit reduction in 2012, to be detailed in his budget Dec. 6, would involve euro1.6 billion in tax increases and euro2.2 billion in spending cuts.

He said a further euro3.5 billion would be cut from the 2013 deficit, euro3.1 billion in 2014, and euro2 billion in 2015. In total, the planned euro12.4 billion in deficit cuts over the next four years would involve euro4.65 billion in tax increases _ or more than euro1,000 for every man, woman and child in Ireland.

Such cuts, he said, were forecast to reduce Ireland’s deficit for 2012 to 8.6 percent of GDP; for 2013 to 7.5 percent; 2014 to 5.1 percent; and 2015 to 2.9 percent.

Noonan conceded that the cutting and tax hikes were suppressing economic growth, but said Ireland had no choice but to bite the bullet hard. He said Ireland’s unemployment rate, currently near a 17-year high of 14.4 percent, would improve only once consumer spending grows from 2014 onward.

“The likelihood is that exports will remain the only significant source of positive momentum in the economy for the next couple of years,” he said, referring to Ireland’s 1,000-strong stable of foreign high-tech companies, which generate a growing proportion of tax revenues but relatively few jobs.

Business leaders welcomed the size of the planned deficit cuts as necessary, but warned that the government should press harder for spending cuts, rather than hiking taxes.

“International evidence shows that tax-based austerity is more harmful to economic growth and employment than current expenditure reductions,” said Danny McCoy, director of the Irish Business and Employers Confederation, the main lobbying group for Ireland’s more than 7,000 businesses.

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ST. LOUIS 

Even higher fares couldn’t pull American Airlines out of its financial nosedive.

American’s parent, AMR Corp., said Wednesday that it lost $162 million in the third quarter, as fuel spending jumped 40 percent, wiping out higher revenue from fare increases and passenger fees.

It was AMR’s fourth straight losing quarter and 14th in the last 16. In last year’s third quarter _ often the strongest of the year for airlines because of heavy summer travel _ AMR earned $143 million, or 39 cents per share.

AMR hasn’t turned a full-year profit since 2007, and it has lost more than $12 billion since 2001, adding to speculation that it could be headed toward bankruptcy protection.

American has high costs, a heavy debt load, too many gas-guzzling planes in its fleet, and years of labor problems.

AMR spent $2.3 billion on fuel, easily topping wages and benefits as the biggest third-quarter expense and swamping American’s average fares increase of 7 percent.

Revenue rose 9 percent to $6.38 billion. While that was $30 million better than analysts expected, the loss of 48 cents per share was wider than analysts’ forecast of 43 cents per share, according to FactSet.

Investors were disappointed. The company’s shares fell 11 cents, or 4.1 percent, to $2.71 in morning trading.

Chairman and CEO Gerard Arpey said the third quarter was “challenging for American Airlines,” but said the company was moving aggressively to improve. The top goal, he said, was to control costs.

As recently as 2008, American was the world’s largest airline, but has since been surpassed by Delta, which bought Northwest, and United, which bought Continental. American is trying to compensate for its smaller size by expanding partnerships with British Airways and Japan Airlines to win more lucrative international travel.

As other airlines merged and returned to profitability in the last two years, analysts and investors have grown impatient with AMR management, skewering executives for failing to show enough urgency in fixing American’s problems.

The last few days provided another example of AMR’s woes. The company raised expectations it would settle labor negotiations with American Airlines pilots and win money-saving schedule flexibility, but there was no weekend deal and AMR’s stock fell 6 percent on Monday.

American and the pilots’ union could still reach an agreement any day, allowing American to argue that it is doing something to control costs and boost productivity.

The airline is also taking steps to update its fleet. It announced in July that it will buy 460 new jets from Boeing Co. and Airbus over several years. That should reduce fuel and maintenance spending, but the improvement will be gradual.

American said advance bookings are about the same as last year, but with a weak economy, it has cut the late-fall and winter flights by 3 percent compared with last winter. That should ease pressure to slash fares and help the airline cope with a high number of pilot retirements.

But American said fourth-quarter costs per mile will rise more than 6 percent over the same period last year. That figure doesn’t include fuel costs.

AMR’s stock price has fallen 64 percent this year _ far more than any other major U.S. airline company _ reflecting speculation that the company could be forced into bankruptcy protection like so many other carriers over the past decade.

Most analysts think that won’t happen anytime soon because the company has about $4.3 billion in unrestricted cash and short-term investments that could be liquidated in a pinch.

Standard & Poor’s analyst Jim Corridore said he doesn’t see a need for bankruptcy in the next year but called AMR shares “high risk.” He said problems include pilot retirements, lack of movement on labor talks, and AMR’s need to borrow money.

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Al-Qaida’s branch remains a powerful threat in this deeply unstable nation, even after a U.S. drone strike that eliminated three of its key figures. Its military leadership remains intact and is only growing stronger amid months of political turmoil tearing Yemen apart.

As the president struggles to keep power, Islamic militants have taken advantage of the government’s crumbling control to take over several cities in the south, raising the danger they can establish a permanent stronghold. On Saturday, militants holding Zinjibar, a southern provincial capital, battled government forces in fighting that killed at least 28 soldiers and militants.

Yemen is considered a crucial battleground with the terror network. The impoverished nation on the southern tip of the Arabian Peninsula is on the doorstep of Saudi Arabia and the oil-producing nations of the Gulf and lies on strategic sea routes leading to the Suez Canal. But order has crumbled as President Ali Abdullah Saleh faces more than seven months of protests demanding an end to his 33-year authoritarian rule, and his loyalists have battled with military units and tribal fighters who sided with the opposition.

Ironically, the turmoil appears in one way to have been a boost to U.S. efforts to fight al-Qaida in Yemen, considered the terror network’s most active and dangerous branch.

Saleh seems to have sought to cling to power by making himself more valuable to Washington, which has pressed him to retire and allow a stable transition. In recent months, Saleh _long criticized as unreliable in his fight against al-Qaida _ has given U.S. counterterrorism units a far freer hand to act in his country, U.S. and Yemeni officials say.

Top U.S. counterterrorism adviser John Brennan has said the Yemenis have been more willing to share information about the location of al-Qaida targets. Yemeni security officials say the U.S. was conducting multiple airstrikes a day in the south since May and that U.S. officials were finally allowed to interrogate al-Qaida suspects, something Saleh had long resisted. The officials spokes on condition of anonymity to discuss intelligence issues.

The cooperation was key to hunting down Anwar al-Awlaki, the American-Yemeni cleric who was killed in Friday’s strike by U.S. drones in a desert stretch of central Yemen. Killed with him was Samir Khan, a Pakistani-American who was a propagandist for the group, producing its English-language Web magazine, Inspire.

Also believed to have died in the blast is the top bombmaker for al-Qaida in Yemen _ Ibrahim al-Asiri. The 29-year-old Saudi designed the explosives used in the group’s most notorious plots, including the Christmas 2009 failed attempt to blow up a jetliner headed to Detroit and an intercepted pair of explosives-laden printers that were mailed from Yemen to the United States in 2010.

Late Friday, two U.S. officials said intelligence indicated al-Asiri was among those killed in the strike. The officials spoke on condition of anonymity because al-Asiri’s death has not officially been confirmed.

Their deaths would strike a heavy blow to the international reach of al-Qaida in the Arabian Peninsula, as the group is called, since al-Awlaki was a valuable recruiter of Muslims abroad to carry out attacks and al-Asiri was an experienced constructor of explosives for such attacks.

But the strike “doesn’t change the dangerous dynamic. The big picture is that the country is falling apart,” says Christopher Boucek, a scholar who studies Yemen and al-Qaida. “Saleh is pushing it into civil war by refusing to step down … creating the chaos that al-Qaida will thrive in.”

Still at large are crucial figures in the group, including its leader Nasser al-Wahishi, a Yemeni who once served as Osama bin Laden’s personal aide in Afghanistan. He fled to Iran after the U.S.-led invasion of Afghanistan in 2001, and Tehran handed him over to Yemen, where he was jailed.

But in 2006, he broke out of a Sanaa prison along with nearly two dozen other al-Qaida militants in an escape U.S. officials have said had help from supporters within the regime.

He then founded al-Qaida in the Arabian Peninsula, incorporating remnants of the Saudi branch of the terror network that had been crushed by a crackdown in the kingdom in the mid-2000s, and launched a campaign to overthrow Saleh.

Alongside him is Qassim al-Raimi, the group’s military commander who Yemeni officials believe masterminded the Christmas airliner and the package bomb plots, and deputy leader Saeed al-Shihri, a Saudi who fought in Afghanistan and spent six years in the U.S. military prison at Guantanamo Bay, before being released and going through Saudi Arabia’s famous “rehabilitation” institutes.

Also still at large is Fahd al-Quso, a Yemeni who was also close to bin Laden and has been indicted in the United States for a role in organizing the 1998 suicide bombing of the USS Cole off the coast of Yemen’s southern port of Aden, which killed 17 sailors and injured 39 others. Al-Quso is also believed to have helped prepare the young Nigerian accused of carrying out the attempted 2009 airline bombing.

Al-Qaida in the Arabian Peninsula is estimated to have several hundred fighters hiding in mountainous provinces, sheltered by sympathetic tribes disillusioned with Saleh’s regime.

Its fighters are believed to be among hundreds of Islamic militants who earlier this year took control of Zinjibar, capital of southern Abyan province, the nearby town of Jaar and several surrounding villages. Since then, they have fended off military forces besieging them.

The military’s troops have been plagued by disarray in the fight. Two competing units are involved in the fight _ one under Saleh’s command and the other under the leadership of a defecting general, leading to internal conflicts.

At one point, the U.S. had to airlift food and other supplies to one military unit that was on the verge of surrendering for lack of material. Yemeni security officials say the U.S. has also carried out airstrikes in the Zinjibar area to help in the battle, though American officials have not confirmed any such strikes.

On Saturday, government troops tried to advance into the eastern part of Zinjibar in heavy clashes with militants. The Defense Ministry said in a statement that 20 militants and six soldiers were killed in the day’s fighting. Military officials, speaking on condition of anonymity because they were not authorized to talk to the press, said airstrikes also hit a hospital in Jaar that militants used as a hideout. It was not immediately clear if there were casualties.

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The influential Russia finance minister who was just ousted by President Dmitry Medvedev is warning that Russia’s budget is overextended.

Alexei Kudrin was forced out Monday after a public spat with Medvedev.

In a statement, Kudrin says over the past several months despite his numerous objections “decisions were taken on budget policies that without doubt have increased budget risks.”

He said those included “excessive commitments in the defense sector and social sector that will inevitably affect the entire national economy.”

Kudrin said wanted to resign in February but Prime Minister Vladimir Putin asked him to stay on. Putin on Tuesday appointed one of Kudrin’s deputies, Anton Siluanov, to serve as acting finance minister.

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QUOTE OF THE WEEK

“I love it from my standpoint, but looking at it from the government’s standpoint, can they afford to do that?”

Democrats on a special congressional debt-reduction supercommittee want it to include jobs creation as part of its work, a task that would complicate the newly created panel’s already formidable assignment.

The bipartisan, 12-member committee was scheduled to hold its opening meeting Thursday, a session that was supposed to be limited to opening statements and approval of its rules. The initial meeting was expected to be far less rancorous than this summer’s bitter partisan brawl over extending the federal debt ceiling, which ended with a deal between President Barack Obama and lawmakers that created the supercommittee.

The panel is charged with finding, by Thanksgiving, $1.5 trillion in savings over the next decade, no easy task given the capital’s sharp partisan divisions. Democrats want to produce a mix of spending cuts and revenue increases. Republicans have insisted they would oppose tax increases, though some have indicated they might accept the closing of some tax loopholes.

“Failure is not an option,” Senate Minority Leader Mitch McConnell, R-Ky., said Wednesday. He said congressional leaders have appointed serious lawmakers to the panel, “and we fully anticipate they will meet their goals. And we’ll see whether they can even go beyond that.”

Many in Washington, though, are pessimistic that the panel will take a serious bite out of the nation’s enormous $14 trillion in accumulated debt, especially with next year’s elections approaching. They note that Democrats are ardently against cuts in expensive benefits like Medicare while Republicans are adamantly against higher taxes _ the two most plentiful sources of potential budget savings.

“Politically, there’s not a lot of motivation on either side” to produce a major package, said Chris Krueger, a political analyst for the brokerage firm MF Global.

Some Democrats on the supercommittee, though, want it to go even further and address voters’ angst over the nation’s stubborn unemployment problem. With the government reporting that the economy essentially stopped generating jobs last month, next year’s presidential and congressional elections are pressuring lawmakers to do something about it.

“It’s part of recovery,” said Senate Finance Committee Chairman Max Baucus, D-Mont., a supercommittee member who said in a brief interview that he wanted the panel to tackle job creation. “Growth will create revenue,” which would help reduce the debt.

“I’m not saying it will be easy, but it should be addressed,” he said.

Another supercommittee member, Sen. John Kerry, D-Mass., asked whether he wanted the panel to tackle job creation, said he “may lay out that thought” at Thursday’s meeting.

“I don’t think you can reduce the deficit of the country to the scope that we need to without growth” of the economy, he said.

A third Democrat on the special committee, Rep. James Clyburn, D-S.C., wrote an opinion essay this week in The Washington Post saying deficit reduction must have three components: jobs, cuts and revenue.

None of the Democrats specified what job creation program they might favor.

Part of that answer might come Thursday evening when Obama delivers an address on jobs to a joint session of Congress. He is expected to propose extending a reduction in the payroll tax that will otherwise expire, giving tax incentives to companies that hire the jobless and boosting spending on public works.

Republicans would be likely to oppose adding spending to the committee’s debt-reduction effort.

House Ways and Means Committee Chairman Dave Camp, R-Mich., a supercommittee member, said debt reduction would create jobs because reducing the federal debt would help the economy grow.

“Overspending has really spooked the markets and made it more difficult for employers to have confidence to invest and hire people and create jobs,” Camp said in an interview.

Under the debt ceiling agreement, which narrowly averted a potential federal default, Congress must approve at least $1.2 trillion in savings by Christmas. If it doesn’t, the difference would be made up by automatic spending cuts, divided evenly among defense and many domestic programs.

Behind the scenes, the supercommittee’s work has already begun. Republicans and Democrats each held closed-door, daylong strategy sessions on Wednesday. Boehner, R-Ohio, attended part of the GOP meeting, highlighting the importance of the panel’s work.

Democratic aides to the House Ways and Means Committee have produced documents listing possible options for revenue increases and savings from health care programs, including many that were discussed in previous deficit-reduction talks.

The options, which a Ways and Means spokesman said have not been discussed by lawmakers, include various tax increases on the wealthy, oil companies and businesses that transfer some assets overseas, and savings from Medicare, including trimming reimbursements to health care providers and gradually raising the program’s eligibility age to 67 _ which the documents call “a radical departure from current policy.”

Though he has no formal role in the supercommittee’s work, Obama plans to soon give the lawmakers his own debt-reduction plans. White House spokesman Jay Carney said Wednesday that the president’s ideas will be “bigger, in fact, than has been mandated for the supercommittee.”

A second public meeting of the committee is set for next Tuesday, when the head of the nonpartisan Congressional Budget Office, Douglas Elmendorf, will explain how the government’s debt got so huge.

The panel has six members each from the House and Senate, evenly divided by party.

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