The Obama administration has a big goal going into this weekend’s Group of 20 finance ministers’ meeting in South Korea: Press China and other nations to allow currencies appreciate.
But don’t expect much, experts say. Individual nations just aren’t ready to give up currency manipulation as an economic tool, especially when so many are still struggling to emerge from the worst of the recession.
"Everybody knows (currency manipulation) is not good for the world economy, but everyone is looking after their short-term interests," said Eswar Prasad, a professor of trade policy at Cornell University who used to run the China division at the International Monetary Fund.
Treasury Secretary Timothy Geithner is attending the G-20 finance minister summit in Gyeongju, South Korea, which started Friday and serves as the precursor to the heads of state — including President Obama — meeting in Seoul on Nov. 11.
Geithner pushed for more market-oriented exchange rates to help reduce trade imbalances in a letter to the G-20 finance ministers, dated Oct. 20 and obtained by CNNMoney.com.
"G-20 countries should commit to refrain from exchange rate policies designed to achieve competitive advantage by either weakening their currency or preventing appreciation of an undervalued currency," Geithner wrote. "G-20 countries will work together to ensure against excessive volatility and disorderly movements in exchange rates."
Geithner’s goal matches his recent stepped-up rhetoric in the United States, pressing China to quit fiddling with its exchange rate policy.
Critics say China has kept the yuan too low. Although it has appreciated a little — 1% this month — it hasn’t grown in proportion to China’s economic growth, according to economists.
Race to the bottom
While China is seen as the biggest nation to keep its currency low, it’s not alone. To a lesser degree, countries such as Brazil, Thailand, South Korea and Japan have taken steps to slow their currencies’ appreciation.
Nations whose currencies are lower than others enjoy a trade boost in exports. Their own domestic manufacturers also benefit, because competing imported goods are pricier.
"The export sector is a good way to drive jobs; but the problem is everybody can’t export at the same level at the same time," Prasad said.
Lately, the United States has benefited from comparatively stronger exports due to a weaker dollar. But the U.S. view — expressed Monday in a speech by Geithner — is that the dollar has weakened due to depreciation, not devaluation.
The Chinese have a different view. They say U.S. monetary policy results in devaluation because the Federal Reserve keeps interest rates low and buys Treasuries, injecting new money into the financial system. Fed chief Ben Bernanke has signaled that the policy will expand at the central bank’s next policy meeting in early November.
In the meantime, other nations’ currencies have appreciated compared to the dollar, and in response those countries have been exerting downward pressure to slow their own appreciation and stoke their own economies.
"There’s a feeling that different countries are taking different approaches to the same end," Prasad said. "That’s not going to work for the world collectively. If we do this, we’ll end up on the road to collective ruin."
If Geithner had his way, he’d get the G-20 nations to agree on a set of "norms" on currency rate policy, he told the Wall Street Journal on Thursday.
But G-20 officials aren’t likely to go that far, at least not at this point, said Ted Truman, senior fellow at the Peterson Institute for International Economics. He expects a general agreement to work together, that employs vague terminology as opposed to hard targets on currencies.
"Some statement about cooperation on exchange rate management is in the collective interest of the group," said Truman, a former assistant Treasury secretary for international affairs.
The People’s Bank of China raised its benchmark interest rates by a quarter-percentage point early Tuesday, the first hike since December 2007.
Unlike rate change statements from the U.S. Federal Reserve, the Chinese central bank’s statement did not give any reason for the move, nor any commentary on its economic forecast.
China’s economy has been growing rapidly even as western economies remain mired in sluggish growth. China’s gross domestic product, the broadest measure of the economy, grew at an 10.3% annual rate in the second quarter, compared to the 1.7% rate in the United States.
The rapid growth in China has resulted in sharp rises in wages, food prices and real estate. Consumer prices rose 3.5% in August, led by a 7.5% rise in food prices. And the Chinese government reported this week that overall real estate prices were up 9.1% in September compared to a year ago in the nation’s 70 largest cities.
Higher interest rates are a typical step central banks take to slow those kinds of increases.
In the United States, the Fed has kept interest rates near 0% since December 2008 and is widely expected to announce new asset purchases next month in an effort to spur the U.S. economy.
China’s actions shook financial markets in Europe and the United States, as the growth in China has become an important component to keeping the global economic recovery on track. All major stock indexes in Europe turned lower on the news announced after the close of Asian markets, while U.S. stocks opened sharply lower.
China’s benchmark rates are not an overnight lending rate as is the case in the United States and other major western economies. Instead, it has a one-year interest rate on saving deposits, which increased to 2.5% and a one-year interest rate on loans, which rose to 5.56%.
China is due to report third quarter GDP and September price readings on Thursday, and economists said this action suggests that those readings might be coming in higher than current forecasts.
Mark Williams, senior China economist for Capital Economics, said there had been signs of softening in China’s economy earlier this year but that "my guess is they wouldn’t have announced it today unless they were convinced" the softness was over. His forecast is for growth of 9.5% in the third quarter.
Jay Bryson, international economist at Wells Fargo Securities, said while the timing of the rate hike might have been a surprise, the move should have been expected because of rising inflation rates.
"It’s long been clear inflation is more of a concern than insufficient growth," he said.
Williams said he had expected the Chinese authorities to move to slow the economy more by allowing its currency, the yuan, to appreciate against the dollar and other freely-traded currencies, rather than by raising rates. U.S. officials and Congress have been pushing China to allow the yuan to rise.
But both Bryson and Williams said they didn’t think the rate hike would do much to slow growth in China.
"Rates are very low, and demand will remain very strong," Williams said. "If you can borrow under 6% in China, you probably will."
– CNN’s Nini Suet in Hong Kong contributed to this report.
Gibraltar Private Bank & Trust – the same institution were Ponzi scheme architect Scott Rothstein did millions of dollars in banking – was criticized by federal regulators for weak anti-money laundering compliance.
Regulators told the $1.6 billion-asset bank to stop the “unsafe and unsound” practices of operating with “ineffective Bank Secrecy Act (BSA) and anti-money laundering compliance programs, having an excessive level of problem assets, not addressing its liquidity risk management and not following regulatory guidelines on real estate lending.
The Coral Gables-based bank on Friday released the order to cease and desist to the Business Journal shortly before the Office of Thrift Supervision (OTS) was expected to make it public.
The OTS listed six laws or regulations that it said the bank violated based on its confidential report of examination issued in May.
The enforcement action does not address the bank’s capital levels, which were strong as of June 30. Yet, it was given a restriction on its asset growth.
Gibraltar Chairman and CEO Steven Hayworth said the bank has been working with regulators on these issues for many months and it has already addressed many of their concerns.
“I feel like we’ve made great progress in raising our game in BSA compliance,” Hayworth said.
Miami-based banking analyst and economist Kenneth H. Thomas said he’s very surprised that a bank like Gibraltar, which caters to wealthy professionals and manages large sums of investment money, was criticized so harshly by regulators.
“These things don’t happen to private banks,” Thomas said. “They deal with a small number of wealthy clients and are usually very careful with clients.”
Several victims of Rothstein’s massive Ponzi scheme are suing Gibraltar, along with TD Bank, in Broward County Circuit Court. The complaint alleges that the bank reaped $200,000 in overdraft fees by approving and helping to cover sizable overdrafts totaling in excess of $64 million. The plaintiffs produced e-mails from Rothstein to Gibraltar officials threatening to make large clients leave the bank if they questioned his sloppy banking habits.
The investors’ lawsuit claimed that Gibraltar’s BSA compliance officer wanted more information in 2009 about certain transactions in Rothstein Rosenfeldt Adler’s account, but Hayworth scuttled the inquiry.
Gibraltar said the information in the complaint is inaccurate and it is contesting the lawsuit.
Rothstein had a 5 percent ownership stake in Gibraltar, but those shares were turned over to the government.
Hayworth declined to comment on whether the Rothstein’s accounts had anything to do with the OTS’ enforcement action.
“Like so many other companies and individuals who were touched by that firm, we were a victim,” Hayworth said.
The OTS gave Gibraltar 60 days to review its BSA and anti-money laundering compliance and make corrections. That includes hiring a full-time person with daily responsibility in that area and annual training for all relevant bank personnel and the board.
Hayworth said the bank hired Danny Rodriguez as senior VP and BSA officer and Lee Duff as general counsel, with a specialization in BSA compliance. It already started the staff training in that area.
Regulators also told Gibraltar to implement a system for the proper filing of currency transaction reports and for adequately identifying customers, especially non-U.S. residents, commercial and business accounts and customers that use a lot of wire transfers. It must set up a system to monitor high-risk customers.
Gibraltar must make sure that it reports suspicious transactions to the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN).
Gibraltar is required to hire a third-party consultant to review all customer relationships established after Jan. 1, 2009 and identify the ones that were not in compliance with BSA and anti-money laundering regulations. The bank will have 30 days to correct those problems.
The Niagara Falls City School District is expected to appeal a court decision against the district's residency policy for employees.
Russell Petrozzi, the president of the city's school board, told the Niagara Gazette that he believes the board will vote Thursday to file an appeal.
State Supreme Court Justice Ralph Boniello III ruled that the policy was "vague" and "unenforceable."
If the district does appeal, it will be the fifth residency case that it has appealed this year.
The district's residency policy, which dates back to 1994, requires employees to live in the city.
Details are available at the Gazette's Web site.
Retailers on Thursday reported strong sales results for September, as shoppers loaded up on discounted items amid the still-struggling economy.
Thomson Reuters, which tracks same-store sales for a group of 28 national chains, said total sales for the group rose 2.8% in September — better than its initial forecast of a 2.1% gain in the month. Sales were up 3.2% in August.
Same-store sales rose 0.6% in September 2009, which marked the first increase after a prolonged period of declines.
An important gauge of a retailer’s health, same-store sales measure sales at stores that have been open for at least a year. They have been on the rise for 13 months in a row, according to Thomson Reuters.
Overall, nearly three quarters of the retailers in the survey reported sales that beat analysts’ expectations.
Jharonne Martis, a Thomson Reuters analyst, said back-to-school shopping helped support sales in the first part of September. But heavy rains in the Northeast hurt sales in the second half of the month, she added.
Looking ahead, Martis said sales could soften in October, as consumers take a breather between the back-to-school shopping period and the holiday spending frenzy.
Holiday forecast: The strong sales growth last month raised expectations for the all-important holiday shopping season, when retailers make the bulk of their profits. But analysts warned that discounts and incentives were behind the improvement in sales, suggesting that consumers remain reluctant to splurge.
"It’s not like consumers are going out and spending freely," said Scott Hoyt, retail economist at Moody’s Economy.com. "Sales are still weak compared to pre-recession levels."
Economists pay close attention to retail sales data, because consumer spending is the main driver of economic activity in the United States. But with unemployment hovering just below 10% nationwide — many consumers remain focused on paying off debt and saving money, rather than spending on discretionary items.
Still, the National Retail Federation said Wednesday that it expects holiday retail sales to increase 2.3% this year to $447.1 billion. That would be an improvement from last year’s 0.4% rise, but is still below the 10-year average holiday sales increase of 2.5%.
The NRF said it expects retailers to offer "significant promotions" throughout the holidays, to entice recession-weary consumers who are eager for bargains.
"Discounts are necessary to lure consumers," said Martis. "The recession taught consumers to look for bargains."
Retailers are hoping discounts will boost traffic, and that consumers will pick up some full-priced merchandise along with the discounted items. But the strategy could weigh on profit margins for some stores, she added.
A study by management consulting firm Accenture released Wednesday showed how hungry consumers are for bargains this holiday season.
According to the group’s holiday shopping survey, more than three quarters of consumers will not make a purchase this holiday season without a discount of at least 20%. One quarter said that they will be expecting a discount of 50% or more in order to buy.
Discounters lag
Back-to-school spending boosted sales at teen-oriented retailers last month, while some high-end stores also benefited.
Sales at Zumiez (ZUMZ), a teen-oriented sports apparel company, surged 17% in September over the month before. Abercrombie & Fitch (ANF) reported a 13% jump in September sales.
Limited Brands (LTD, Fortune 500), the parent company of Victoria’s Secret and other intimate apparel stores, reported a robust 12% increase.
But The Gap (GPS, Fortune 500) bucked the trend, as sales fell a combined 2% last month at the brands under the company’s management.
Meanwhile, luxury retailers Saks and Nordstrom also reported sales that were stronger than expected.
Saks (SKS) posted a 6.5% jump in sales, topping the 3.8% forecast. Sales at Nordstrom (JWN, Fortune 500) were up 7.5%, compared with an expected 4.3% gain.
Discount retailers reported sales that largely missed analysts’ expectations.
Target (TGT, Fortune 500) reported a 1.3% sales gain for September, versus a predicted 1.9% rise. Sales increased 1.5% at BJ’s Wholesale (BJ, Fortune 500), weaker than the expected 2.1% rise.
Léo Apotheker was the only person offered the CEO job at Hewlett-Packard, company leaders said Friday in a press conference to discuss their surprising choice.
HP ended two months of speculation on Thursday when it announced that Apotheker, the former CEO of business software firm SAP (SAP), will take the helm beginning November 1.
"Our board of directors cast the net very far and very wide both internally and externally," Bob Ryan, the lead independent director of HP’s board, said on the call. "We ended up with six people who could have done the job."
In the end, the board unanimously chose to offer the job to Apotheker, Ryan said.
Apotheker will receive an annual salary of $1.2 million, plus a $4 million signing bonus and an additional $4.6 million for relocation assistance and to offset payments from SAP that Apotheker forfeits by taking the new job, HP said. He’s also eligible for a cash bonus of $6 million next year.
Apotheker will also collect a boatload of HP stock. He’ll receive 156,000 shares of HP, vesting over the next two years, as long as he remains employed with the company over that time period. He’ll also have the opportunity to earn up to 728,000 shares of stock, vesting over the next three years, as a bonus for hitting performance targets.
All totaled, Apotheker’s hiring agreement with HP gives him the opportunity to collect cash and stock compensation over the next three years worth up to $53 million, based on HP’s closing stock price on Thursday.
Former CEO Mark Hurd received a $1.4 million annual salary and a $2 million signing bonus when he was hired in 2005, plus a $2.8 million relocation package. Including perks and stock, HP valued Hurd’s total compensation package last yest at $30.3 million.
Todd Bradley, executive vice president of HP’s personal systems group, and Ann Livermore, the head of the company’s enterprise business, were widely considered to be among the leading contenders for the open CEO spot payday advance.
Hurd resigned from his position as HP’s CEO and chairman of the board on Aug. 6 after the company said that he submitted false expense reports to hide a relationship with a marketing contractor.
Cathie Lesjak, HP’s chief financial officer, had been acting as interim CEO. She took herself out of the running for the permanent CEO position.
"My heart is in being a CFO, and my family and I are pleased I’m going back to that," Lesjak said. "I have never felt more confident about our business."
Apotheker said HP is "undervalued" and can compete in several areas. It already has a "lock" on the hardware market, and should pay more attention to software, he said.
"Software is the glue," Apotheker said. "It’s how we can make sure that the various parts of our technology work together."
The search took almost two months — about as long as HP took to replace former CEO Carly Fiorina, who was forced out by HP’s board in 2005 after a rocky tenure.
Apotheker, 57, comes with his own checkered past. He served for a short time as CEO and for many years in other top roles at SAP, which is struggling to hold its market share against onslaughts from Oracle (ORCL, Fortune 500) and IBM (IBM, Fortune 500). After more than two decades at SAP, Apotheker was ousted in 2009.
In early trading on Friday, shares were HP (HPQ, Fortune 500) were down 2.6%, at $40.96.
A longtime hot spot that helped set the stage for the development of the Seventh Avenue retail corridor has closed its doors.
My Florist Cafe, at 530 W. McDowell Road, was closed as of Friday. Its phone number was disconnected.
The Ventura, Calif., location remains open. An employee there said each location operated independently, and he didn't know what had happened to the Phoenix restaurant.
The Phoenix restaurant, which sits on the corner of Seventh Avenue and McDowell, was one of the first independent shops to locate along the Seventh Avenue curve. Pei Wei, Starbucks, Zoe’s, a number of antique shops, Flo’s on Seventh, the Wag N’ Wash and Copper Star coffee are among the retailers that conduct business there.
According to the National Restaurant Association, the industry has been hit especially hard by the recession as consumers cut back on discretionary spending. Consumers also are opting for cheaper alternatives when they go out to eat, an industry practice known as “trading down.”
Independents aren’t the only ones being hit. Other restaurants that have recently announced closures include two national chains, Lone Star Steakhouse and Jack in the Box.
NRA figures show 44 percent of restaurant operators reported negative same-store sales for the fourth consecutive month in July, and 46 percent reported a decline in traffic — up from 43 percent in June.
An index used by NRA, compiled through a confidential monthly survey of its members, reflected a decline in the outlook of restaurateurs, who expect the economy to remain challenging.
Restaurant sales are expected to hit $580 billion nationwide and $8.6 billion in Arizona this year. There are almost 9,000 eating establishments in this state, employing more than 250,000 people.
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