World financial news

U.S. stocks recovered quite a bit of lost ground but still finished in the red Monday, following the path of world markets, after China lowered its annual growth target.

The Dow Jones industrial average () lost 15 points, or 0.1%, the S&P 500 () slipped 5 points, or 0.4%, and the Nasdaq composite () decreased 26 points, or 0.9%.

World markets fell Monday, after Chinese Premier Wen Jiabao set a lower target for China’s economic growth, underscoring the need to make the country’s breakneck development more sustainable.

The government is aiming for economic growth of 7.5% in 2012, Wen said — lower than the 2011 goal of about 8%. The Chinese economy often exceeds the official objective; last year it grew 9.2%.

"Even though China only lowered its target by half a percentage point, it’s a telegraph to the rest of the world that the second largest economy is slowing," said Tom Schrader, managing director at Stifel Nicolaus.

American manufacturers importing workers

China’s lower forecast also suggests that the country’s recent steps to ease monetary policy — in an effort to maintain strong economic growth while getting inflation under control — may not be working, said Schrader.

Aluminum-maker Alcoa (, Fortune 500) and Caterpillar (, Fortune 500), which makes construction equipment, were the biggest laggards in the Dow amid worries that slower growth in China could pressure demand for their products.

Trading could be choppy this week, leading up to a big news day on Friday. On the domestic front, investors will get the latest snapshot of the U.S. labor market, with the release of the February jobs report.

In Europe, Friday marks the deadline for private creditors to sign off on Greece’s debt write-down. Greece needs the debt deal to secure its €130 billion rescue package from the eurozone and avoid default.

Lehman Brothers to boost the market?

Stocks closed modestly lower last Friday, with the Dow snapping a two-week winning streak.

World markets: European stocks closed lower. Britain’s FTSE 100 () lost 0.6%, while the DAX () in Germany dropped 0.9% and France’s CAC 40 () shed 0.3%.

Asian markets ended lower. The Shanghai Composite () closed down 0.6%, while the Hang Seng () in Hong Kong lost 1 payday advances.4% and Japan’s Nikkei () dropped 0.8%.

Economy: The February ISM services index rose to 57.3, up from 56.8, which beat expectations.

Washington’s $5 trillion interest bill

Last week, the ISM manufacturing index for February slipped to 52.4, from 54.1 in January, indicating a slowdown in the sector’s expansion.

Meanwhile, factory orders in January decreased 1% — less than the 1.9% decline analysts were expecting. Factory orders rose 1.4% in December.

Companies: IBM (, Fortune 500) shares hit all-time high above $200 share. Citigroup (, Fortune 500) announced that it is exploring possible uses for Watson, IBM’s supercomputer that was famous for beating two human contestants on the game show "Jeopardy" last year.

Online reviews site Yelp () retreated, falling more than 14% after spiking 64% to top $24 a share in their debut on the New York Stock Exchange Friday.

AOL () became the latest advertiser to pull advertising from Rush Limbaugh’s radio show in response to his comments about a Georgetown law student who advocated healthcare coverage for contraception. AOL shares were flat Monday.

BP () shares were higher Monday, after the British oil giant and plaintiffs involved in the legal battle over the Gulf of Mexico oil spill said Friday they reached an agreement. BP estimated it would have to pay about $7.8 billion in the Deepwater Horizon disaster settlement.

Apple (, Fortune 500) said in a post on its website that the tech company has "created or supported" some 514,000 jobs in the United States, either through direct employment, the "App economy" or other means. Shares were down more than 2%, however, ahead of the company’s highly-anticipated iPad announcement Wednesday.

Currencies and commodities: The dollar lost ground against the British pound, the euro and the Japanese yen.

Take advantage of rising gas prices

Oil for April delivery rose 6 cents to settle at $106.75 a barrel.

Gold futures for April delivery fell $5.90 to settle at $1,703.90 an ounce.

Bonds: The price on the benchmark 10-year U.S. Treasury fell, with the yield rising to 2% from 1.99% late Friday. 

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Aurora Bank is closing a loan office in Chesterfield in April that employs 146 people.

The Delaware-based bank operates its Corresponding Lending business unit at 390 South Woods Mill Road in Chesterfield. The unit is part of the bank’s residential mortgage servicing business.

It is unknown whether the Chesterfield employees have been offered other positions at Aurora. A bank official did not immediately return calls for comment.

On its website, Aurora Bank posted a message that says that it is closing its residential lending unit, which includes its Correspondent Lending business. The bank said it will continue to service its current customers no credit check payday loans. “We will continue to be staffed to support your needs and ensure a seamless experience for you and your customers,” the message said.

Aurora Bank submitted a WARN notice to the state of Missouri on Thursday that says the office is closing April 30. The federal Worker Adjustment and Retraining Notification Act requires employers to give advance notice of layoffs or closures.

Aurora Bank is based in Wilmington, Del.

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China, the biggest supplier of rare earths, may almost double exports this year and meet quotas set by the government as lower prices stimulate demand.

Chinese exports were 49 percent of the government-alloted quota in the first 11 months of last year because the slowing global economy sapped demand, the Ministry of Commerce said in a Dec. 27 statement. Overseas sales quotas may be virtually unchanged this year at 31,130 metric tons, based on Bloomberg calculations.

French bank Credit Agricole SA reported a euro3.07 billion ($4.06 billion) net loss in the fourth quarter on Thursday, as an intensifying European debt crisis drove down the value of its Greek bonds and shaved billions off the bank’s bottom line.

Credit Agricole _ hit by the Greek debt crisis largely through its ownership of Greek bank Emporiki _ said fourth-quarter net profit plunged nearly tenfold from a loss of euro328 million in the last quarter of 2010. It also posted a net loss for 2011 of euro1.47 billion.

Investors dumped the bank’s stock on the news, driving the share price down nearly 4 percent in early afternoon trading Thursday.

As part of an effort to drastically reduce Greece’s unsustainable debt burden and avoid a chaotic default on the country’s bonds in March, private bondholders are being asked to take substantial losses on their Greek bonds. They hope that if Greece’s finances can be righted, they can draw a line under Europe’s debt crisis, which has threatened to drag down bigger economies like Italy.

In anticipation of the losses on Greek debt, European banks have been writing down the value of those bonds. BNP Paribas and Societe Generale _ French banks that also have substantial Greek holdings _ saw their fourth-quarter profits plummet as they discounted their Greek bonds by 75 percent, roughly in line with what European leaders are asking of private institutions.

Credit Agricole has now taken similar measures. The bank said the overall net loss from Greece _ including losses at Emporiki and the writing down of Greek debt _ was euro2.38 billion for 2011.

Credit Agricole said it was also reducing the amount of money it lends to Emporiki.

However the bank’s problems go beyond Greece. Credit Agriocle said a wide-range of factors had dragged down its bottom line, including “the slowdown in the European economies, the downgrades in European sovereign debt ratings, a particularly difficult situation in Greece and tensions in the financial markets.”

Banks across Europe are also facing European Banking Authority requirements that they keep more funds in case of further market turmoil and are struggling to get the overnight loans they use to fund day-to-day operations on fears that one of them could collapse.

While the European Central Bank has stepped in to offer unlimited funding to banks, Credit Agricole said it was reducing its exposure to U.S. dollar denominated debt which is becoming increasingly expensive for some European banks as U.S. banks pull back on loans.

Despite the large losses, Jean-Paul Chifflet, chief executive of the bank, still called the results satisfactory, underscoring that the bank was now better positioned to operate in the tough economic times, noting in particular it had trimmed its investment banking division, where net income plunged 27 percent in 2011. Net income at its French retail banks, by contrast, was up more than 5 percent.

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Throughout the extraordinary surge in Apple Inc.’s share price, a persistent question has lingered:

Why is the stock still so cheap? One overlooked answer may be that Apple’s accounting isn’t as conservative as it used to be.

After topping $500 a share last week, the iPhone and iPad maker now has a $468 billion market capitalization. Yet Apple trades for only 14.3 times its earnings for the previous four quarters — about the same as the Standard & Poor’s 500 index’s price-earnings ratio — in spite of growth that’s far above average. Revenue last quarter rose 73 percent to $46.3 billion, while earnings more than doubled to $13.1 billion.

Many theories have been floated for why such a rapidly expanding company with such loyal customers would trade for so little. Perhaps investors believe Apple will cling to its $97.6 billion hoard of cash and marketable securities, rather than pay a fat dividend. Others have suggested a lack of confidence about the future. It’s a consumer electronics company, after all, and competition is brutal.

While each of those points has merit, here’s an explanation that hasn’t gotten enough attention: Thanks to an accounting rule change for which it lobbied, Apple gets to book revenue from sales of bundled products such as iPhones — which include hardware, software, services and upgrade rights — more quickly than it used to.

The easiest way to see the rule change’s impact is to look back at the two sets of numbers Apple reported for fiscal 2009.

Originally, the company said it had $5.7 billion of net income for the year on $36.5 billion of revenue. Then in January 2010 Apple retroactively adopted the new accounting principles and restated its previous numbers. The restatement boosted Apple’s fiscal 2009 net income 44 percent to $8.2 billion. Revenue was revised to $42.9 billion, 17 percent higher than originally reported.

Nothing changed economically, of course. Only the accounting did. On the surface, though, Apple’s valuation looked cheaper under the new reporting regime.

On Dec. 31, 2009, for instance, Apple had a market capitalization of about $191 billion low fee pay day loans. Using the fiscal 2009 earnings that Apple initially reported, its price-earnings ratio that day was about 33. Using its restated numbers, the ratio would have been about 23.

“It would appear that the market continues to consider a significant component of Apple’s revenues and gross profit to be presently unearned and not deserving of a normal market multiple,” said Charles Mulford, an accounting professor and director of the Financial Reporting and Analysis Lab at Georgia Institute of Technology in Atlanta.

Apple was one of a handful of companies that lobbied the Financial Accounting Standards Board for the new rules in 2009.

The impact for Apple seems to have been greater than for most others, probably because of the nature of its products. Dell Inc. said the rule switch had no material impact on its results.

Microsoft Corp. and Oracle Corp. said the same. Hewlett-Packard Co.’s earnings got a slight boost.

The FASB rule change had two main parts. One related to so-called multiple-deliverable arrangements, while another covered software sales. When Apple sells an iPhone, for example, the hardware and software are delivered at the time of sale. Other deliverables include the rights to future software upgrades and other features.

The old accounting rules required Apple to defer large chunks of its revenue and recognize the amounts gradually over each product’s economic life. While the details are complicated, the gist under the new rules is that Apple is allowed to record more revenue upfront.

Let me be clear: I’m not opining on whether Apple is overvalued or undervalued, and I’m certainly not making any predictions about its stock price. The point here is that it makes sense for Apple’s earnings multiple to have declined significantly once you consider how the company’s accounting has changed.

The bottom line: Not all iEarnings are created equal.

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President Barack Obama feels he has struck just the right budget balance between providing more short-term support for the economy while putting forth a long-term plan to get control of the government’s soaring budget deficits.

Republicans vehemently disagree, attacking his 2013 budget as a replay of the failed economic policies they say have resulted in an economy growing at subpar rates and government debt soaring to record highs.

Both parties would agree that Obama’s latest budget, released Monday, will feature heavily as a debating point in the November elections to determine who will win the White House and whether Democrats or Republicans win control of the House and Senate.

Republican Mitt Romney, who is campaigning for the GOP nomination to challenge Obama in the fall, called the budget Obama released Monday “an insult to the American taxpayer.” GOP candidates Rick Santorum, Newt Gingrich and Ron Paul are all advocating bigger spending cuts to control the deficits, and all the GOP candidates oppose Obama’s tax increases.

Treasury Secretary Timothy Geithner, the administration’s chief economic spokesman, was scheduled to testify before the Senate Finance Committee on Tuesday in what will be the first of four congressional appearances this week by Geithner to explain and defend Obama’s budget plan.

Judging from the GOP reaction Monday, Geithner could be in for some sharp questioning.

“The president’s budget is a gloomy reflection of his failed policies of the past, not a bold plan for America’s future,” House Speaker John Boehner, R-Ohio, said. “The president offered a collection of rehashes, gimmicks and tax increases that will make our economy worse.”

Democrats in Congress were for the most part supportive of the president’s proposals. Sen. Kent Conrad, D-N.D., chairman of the Senate Budget Committee, said Republicans forget that Obama inherited an economic mess when he took office, with the economy struggling to emerge from the worst economic downturn since the 1930s.

“The reality is that the president inherited a fiscal and economic disaster,” Conrad said Monday. “The only true way forward is through a comprehensive and balanced deficit-reduction agreement. We need to come together on a plan that modernizes our tax system, reforms our entitlement programs and attacks wasteful spending.”

Republicans are arguing for deeper spending cuts and a frontal assault on the biggest drivers of the deficit, the soaring costs of Medicare and Medicaid, whose already sizable costs are projected to double in future years as baby boomers retire.

Rep. Paul Ryan, R-Wis., chairman of the House Budget Committee, said Monday that he expected the Republican-controlled House would in coming weeks pass an alternative to the Obama budget that would gain control of the deficit, not by raising taxes but by curtailing Medicare and Medicaid.

“President Obama’s irresponsible budget is a recipe for a debt crisis and the decline of America,” Ryan said.

Obama’s cuts in Medicare and Medicaid avoid cuts in benefits and instead make modest trims in payments to health care providers. In contrast, the Republican House last year approved Ryan’s plan, which would essentially transform Medicare into a voucher system in which future seniors would get a fixed amount to buy medical insurance.

The Obama budget proposes spending $3.8 trillion in the 2013 budget year, which begins Oct. 1. It would achieve $4 trillion in deficit cuts in part through restraining the growth of many government programs, adhering to the agreement Congress approved in August for spending caps to achieve $900 billion in deficit reduction over a decade.

Obama’s plan also proposes additional deficit reduction in order to avoid $1.2 trillion in across-the-board cuts scheduled to take effect next January.

But the president relies on $1.5 trillion in tax increases, mainly by allowing the Bush-era tax cuts to expire on families making more than $250,000 per year, imposing additional taxes on those making more than $1 million per year and eliminating various corporate tax breaks.

The tax increases all have been rejected by Republicans.

With both parties holding entrenched positions, it is very likely that no solution will be found before the November elections, with both sides preferring to use the debate to score political points.

If that occurs, Congress will probably be back in Washington after the November elections for a lame-duck session to resolve the battle over taxes and spending cuts.

Lawmakers are facing end-of-the-year deadlines when the Bush-era tax cuts on all taxpayers expire and across-the-board spending cuts will go into effect if lawmakers can’t agree on $1.2 trillion in further deficit reduction over the next decade.

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The Bank of Korea held off raising borrowing costs for an eighth straight month as the economy slowed and exports declined due to the European debt crisis.

Governor Kim Choong Soo and his board kept the benchmark seven-day repurchase rate unchanged at 3.25 percent, the central bank said in a statement in Seoul today. The unanimous decision was predicted by 18 of 19 economists surveyed by Bloomberg News.

Policy makers in export-driven Asian countries have relied on monetary or fiscal stimulus to weather the European debt crisis. Australia unexpectedly held off cutting interest rates this week on signs of improvements in the U.S. and Europe. Kim has signaled that rates will have to rise at some point and said today that inflation expectations are high and the central bank is

India

The era of falling food prices has come to an end with the world population set to add another 2 billion people, according to Cargill Inc., the U.S. farm commodities trader.

The United Nations

A U.N. nuclear team arrived in Tehran early Sunday for a mission expected to focus on Iran’s alleged attempt to develop nuclear weapons.

The U.N. nuclear agency delegation includes two senior weapons experts _ Jacques Baute of France and Neville Whiting of South Africa _ suggesting that Iran may be prepared to address some issues related to the allegations.

The delegation from the International Atomic Energy Agency is led by Deputy Director General Herman Nackaerts, who is in charge of the Iran nuclear file. Also on the team is Rafael Grossi, IAEA chief Yukiya Amano’s right-hand man.

In unusually blunt comments ahead of his arrival in Tehran, Nackaerts urged Iran to work with his mission on probing the allegations about Iran’s alleged attempts to develop nuclear weapons, reflecting the importance the IAEA is attaching to the issue.

Tehran has refused to discuss the alleged weapons experiments for three years, saying they are based on “fabricated documents” provided by a “few arrogant countries” _ a phrase authorities in Iran often use to refer to the United States and its allies.

Ahead of his departure, Nackaerts told reporters at Vienna airport he hopes Iran “will engage with us on all concerns.”

“So we’re looking forward to the start of a dialogue,” he said: “A dialogue that is overdue since very long.”

In a sign of the difficulties the team faces and the tensions that surround Iran’s disputed nuclear program, a dozen Iranian hard-liners carrying photos of slain nuclear expert Mostafa Ahmadi Roshan were waiting at Tehran’s Imam Khomeini airport early Sunday to challenge the team upon arrival.

That prompted security officials to whisk the IAEA team away from the tarmac to avoid any confrontation with the hard-liners.

Iran’s official IRNA news agency confirmed the team’s arrival and said the IAEA experts are likely to visit the underground Fordo uranium enrichment site near the holy city of Qom, 80 miles (130 kilometers) south of the capital, Tehran.

During their three-day visit, the IAEA team will be looking for permission to talk to key Iranian scientists suspected of working on a weapons program, inspect documents related to such suspected work and secure commitments from Iranian authorities to allow future visits to sites linked to such allegations. But even a decision to enter a discussion over the allegations would be a major departure from Iran’s frequent simple refusal to talk about them.

The United States and its allies want Iran to halt its enrichment of uranium, which they worry could eventually lead to weapons-grade material and the production of nuclear weapons. Iran says its program is for peaceful purposes, such as generating electricity and producing medical radioisotopes to treat cancer patients.

Iran has accused the IAEA in the past of security leaks that expose its scientists and their families to the threat of assassination by the U.S. and Israel.

Iranian state media say Roshan, a chemistry expert and director of the Natanz uranium enrichment facility in central Iran, was interviewed by IAEA inspectors before being killed in a brazen bomb attack in Tehran earlier this month.

Iranian media have urged the government to be vigil, saying some IAEA inspectors are “spies,” reflecting the deep suspicion many in Iran have for the U.N. experts sent to inspect Iran’s nuclear sites.

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