Business Blog Posts

The two sectors of the $3.7 trillion U.S. municipal bond market were originally branded with negative outlooks by Moody's in 2009 as tax revenue tanked.

The rating agency noted that revenue collections have improved, but not enough for states to completely replace federal stimulus funding that ended in June. Another reduction is expected as Congress wrestles with ways to reduce the U.S. deficit.

"The determination of both political parties to reduce project federal budget deficits is certain to result in reduced funding for federal programs run by the states," Moody's said in a report.

States also face pressures from Medicaid, the healthcare program for the poor, and big unfunded employee pension liabilities. In addition, there is the prospect of potentially having to bail out fiscally troubled local governments, Moody's said, pointing to situations in states such as Alabama, Michigan, Pennsylvania and Rhode Island where bankruptcy has been eyed by cities or counties.

Still, states have the flexibility to deal with financial strain and support their ratings, Moody's said, adding the median state rating was Aa1.

For local governments, the real estate market remains a problem as property tax collections fell for two consecutive quarters, including a 1.6 percent dip in the first quarter of 2011. Moody's said that trend is likely to continue into fiscal 2012 "as assessed value declines outpace rate increases."

Meanwhile, the budgets of cities, counties and other local governments are bound to be hit with reductions in state aid as states in turn deal with lower federal funding, according to Moody's.

"Given the numerous challenges facing the local government sector, we believe that rating downgrades will continue to outpace upgrades until we begin to see meaningful economic growth and recovery of property values," the rating agency said.

It added, however, that bond defaults and Chapter 9 bankruptcy filings are expected to remain rare.

(Reporting by Karen Pierog; Editing by James Dalgleish)

Prime Minister George Papandreou canceled a visit to the United States to chair a cabinet meeting on Sunday, a day before European Union and International Monetary Fund inspectors hold a conference call with Finance Minister Evangelos Venizelos to hear how Greece will plug this year's budget shortfall.

Venizelos told reporters after the meeting Greece needed to fully meet 2011 and 2012 budget targets, stop generating debt and start producing surpluses next year, but did not outline how these would be achieved.

"If we want to avoid default, to stabilize the situation, to remain in the euro zone ... we must take big strategic decisions," he said.

The cabinet will meet again after talks with the EU and IMF inspectors to specify policy, he said. He hinted at steps to further shrink the public sector by saying Greece would focus on cutting state spending rather than generating revenues in 2012.

At stake is an 8 billion euro ($11 billion) loan tranche from a 110 billion euro bailout secured last year, which Greece needs by October before it runs out of money.

Papandreou canceled his U.S. visit to deal with the deepening crisis at home as euro zone partners made clear further funding for the debt-ridden country would hinge on adhering to agreed fiscal targets.

Last week, the government blamed the shortfall on a deeper-than-expected recession and decided to put a new tax on real estate in the hope of collecting about 2 billion euros annually.

But international inspectors, known as the troika, expressed doubts this one-off tax measure would work and demanded more details on how the government hoped to catch up this year and the next.

"The troika thinks the recently announced property levy will not suffice to plug the budget hole and is pressing for measures on the spending side -- cuts in public sector wages and employment," said a government official who asked not to be named.

Lenders have long warned Greece against one-off measures and more taxes as a way out of the crisis. They want urgent reforms and privatisations to make the economy more competitive and reduce the bloated public sector.

EU MINISTERS WAVER

EU finance ministers made clear to Greece over the weekend it must meet targets to get fresh funds but broke no new ground in dealing with the debt crisis shaking the euro.

German Chancellor Angela Merkel, under fire for her hesitant leadership in the euro zone crisis, suffered a heavy defeat in a regional Berlin election on Sunday, weakening her hand before a crucial euro zone vote in parliament at the end of the month.

Her junior federal coalition partner, the Free Democratic Party (FDP), whose leader had said "orderly bankruptcy" of Greece should not be taboo, failed to clear the threshold to win seats in the poll, dealing an additional setback to Merkel's coalition.

"The best part of the result tonight is that the voters showed the FDP they won't get anywhere with populist attacks against Europe," said SPD leader Sigmar Gabriel, celebrating his center-left party's sixth win in seven regional votes this year.

International lenders are also concerned with the lack of political consensus within Greece on the measures needed to emerge from the crisis. The conservative New Democracy opposition has criticised the government for overtaxing the economy and driving it into a tail spin.

Its leader, Antonis Samaras, called for snap elections on Saturday saying the policy mix was wrong and was not yielding any results despite peoples' sacrifices.

"A renegotiation with our lenders to restart the economy is a condition to get out of this crisis," Samaras told a news conference on Sunday.

The conservatives have been buoyed by growing public discontent after two years of austerity measures and are proposing tax cuts and growth boosting measures instead.

Papandreou's socialists have a majority in parliament but political analysts say internal dissent and public unrest, such as strikes and violent protests, may force snap elections.

(Additional reporting by Renee Maltezou; Writing by Dina Kyriakidou; Editing by Sophie Hares)

Investors expect the Federal Reserve to take steps to pull down long-term interest rates when policymakers meet on Tuesday and Wednesday to help revive the persistently weak U.S. economy.

Fed Chairman Ben Bernanke, speaking in Jackson Hole, Wyoming, on August 26, said the Fed's Open Market Committee would meet for two days in September instead of the scheduled one day to discuss ways to boost the recovery.

But even with expectations of more intervention to boost the economy, investors will keep a close eye on developments in Europe.

The Standard & Poor's 500 index posted a 5.4 percent gain last week, its best since early July. The Nasdaq composite index gained 6.3 percent for the week while the Dow Jones industrial average rose 4.7 percent

Any lack of progress or backsliding on efforts to get the currency bloc's fiscal house in order will renew worries the crisis could seriously damage the world financial system and major economies.

"The Fed is really going to dominate next week," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.

"But the market has been trying to work its way higher here, trying to feel if maybe the European thing won't cascade out of control."

Treasury Secretary Timothy Geithner, at a meeting of euro zone finance ministers in Poland on Friday, urged them to leverage their bailout fund to better tackle the debt crisis, but there was no agreement on what steps to take.

While the Standard & Poor's 500 has been moving upward over the past week, the benchmark index has been stuck in roughly a 100-point range over the last six weeks.

It is likely to run into resistance near the 50-day moving average of about 1,228, with analysts also pointing to the 1,250 level as the next significant hurdle.

"This is really a consolidation phase, which is normal after the kind of early August swoon that we had. So far this trading range is developing in a very positive and healthy way," said Gail Dudack, chief investment strategist at Dudack Research Group in New York.

"Longer term, the market is looking better but we are getting very close to that resistance at 1,250, which would be pretty surprising if we can break above that at this early juncture. It could take a little more time, people shouldn't be disappointed."

This week's economic calendar includes reports on the beleaguered housing market along with weekly initial jobless benefits claims.

Housing "is dead and it will stay dead, and I don't expect anything out of unemployment either," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey. "The biggest event is Bernanke."

Companies due to post earnings this week include homebuilder Lennar Corp, Nike Inc, General Mills Inc as well as technology companies Adobe Systems, Red Hat Inc and Oracle Corp.

FedEx Corp, the No. 2 U.S. package delivery company, which is seen as a proxy for how the economy is performing, is also scheduled to report quarterly results.

Though earnings have managed to hold up in the face of a lackluster recovery, analysts worry this might not last if the financial system suffered the shock of a Greek debt default.

But while many feel Bernanke has telegraphed the plans for the Fed meeting, the euro zone debt crisis remains an uncertainty that could knock the market lower.

"It's absolutely the wild card because Europe's problems may be similar to what we saw in 2008, but they are much more difficult to deal with because country debt is far more difficult to deal with than mortgage debt," Dudack said.

She added that having so many countries that are part of a committee trying to solve the problem only added to the complications.

(Reporting by Chuck Mikolajczak; Editing by Kenneth Barry)

EU and IMF inspectors are holding a conference call with Finance Minister Evangelos Venizelos on Monday to hear what measures Greece will take to plug this year's shortfall in the budget before they release an 8 billion euro ($11 billion) loan tranche it needs by October before it runs out of money.

Papandreou canceled a planned visit to the United States on Saturday to deal with the deepening crisis at home as euro zone partners made clear further funding for the debt-ridden country would hinge on adhering to agreed fiscal targets.

"The meeting is set to examine measures from public sector layoffs to more pension cuts," said a government official on condition of anonymity.

Last week, the government blamed the shortfall on a deeper-than-expected recession and decided to put a new tax on real estate in the hope of collecting about 2 billion euros annually.

But international inspectors, known as the troika, expressed doubts this one-off tax measure would work and demanded more details on how the government hoped to catch up this year and the next.

"The troika thinks the recently announced property levy will not suffice to plug the budget hole and is pressing for measures on the spending side -- cuts in public sector wages and employment," said a second government official who asked not to be named.

The conservative New Democracy opposition has criticized the government for overtaxing the economy and driving it into a tail spin.

Its leader, Antonis Samaras, called for snap elections on Saturday saying the policy mix was wrong and was not yielding any results despite peoples' sacrifices.

"A renegotiation with our lenders to restart the economy is a condition to get out of this crisis," Samaras told a news conference on Sunday.

International lenders are also concerned with the lack of political consensus in Greece on the measures needed to emerge from the crisis.

The conservatives have been buoyed by growing public discontent after two years of austerity measures and are proposing tax cuts and growth boosting measures instead.

Papandreou's socialists have a majority in parliament but political analysts say internal dissent and public unrest, such as strikes and violent protests, may force snap elections.

Lenders have long warned against one-off measures and more taxes as a way out of the crisis shaking the euro.

They have asked for urgent reforms and privatizations to make the economy more competitive and a reduction in the bloated public sector.

($1 = 0.725 Euros)

(Writing by George Georgiopoulos; editing by Elizabeth Piper)

Switzerland's NZZ am Sonntag said confidential documents showed a one-off payment would allow Swiss banks to get rid of claims, concerning past wrongdoing, in the United States.

But Switzerland's biggest party, the right-wing People's Party SVP, as well as the Free Democrats FDP, were likely to reject an addition to the double taxation agreement with the U.S. that would allow information requests based on behavioral patterns.

Parliament is due to vote on this over the next days.

Switzerland has in the past ruled out "fishing expeditions," considering they infringed its bank secrecy law.

Urs Schwaller of the Christian Democrats CVP told the newspaper that banks needed to acknowledge they had broken U.S. law and the government needed to demonstrate that a definite solution to all U.S. tax problems was within reach.

"If these conditions are met, the negotiated compromise is acceptable," Schwaller said.

Media reported on Saturday, Switzerland's top tax negotiator Michael Ambuehl had negotiated a compromise that would allow the 10 banks currently investigated by U.S. authorities to get off the hook by paying a fine and handing over client data.

The compromise could also prevent future legal problems in the U.S. for other banks.

Swiss newspaper Der Sonntag said on Sunday the compromise would include the transfer of data of thousands of clients to U.S. authorities, citing Zurich lawyer Milan Patel, who used to work for U.S. tax authorities.

Patel said an extension of the investigation to other banks was likely. "The U.S. are going to proceed step by step in the investigation against those who helped tax dodgers. There's a big risk that the list of 10 banks will be extended," he said.

(Reporting by Silke Koltrowitz; Editing by David Hulmes)

Asked about calls for his resignation that have mainly been expressed by members of Switzerland's Social Democrats, he said: "That is purely political. I am not thinking about stepping down."

He said it was up to the board to decide on this matter.

In the short interview, Gruebel assumed responsibility for all that happens at the bank. "But if you ask me whether I feel guilty, I say no," he said.

"If somebody proceeds with criminal energy, we cannot do anything. That will always exist in our job," he said.

Swiss newspaper NZZ am Sonntag said the UBS board was still supporting Gruebel, who took over as CEO in the middle of the financial crisis and has so far been seen as the man who managed its turnaround.

Important shareholders such as the Government of Singapore Investment Corp. were still placing their trust in Gruebel, an unnamed member of the UBS board was quoted as saying by the newspaper, adding an alternative person was not in sight.

SonntagsZeitung also quoted an unnamed UBS source saying Gruebel had enough support within the board and among shareholders to push ahead with a restructuring of the investment bank.

Immediate personnel changes at the top were the last thing UBS needed now as they would only destabilize the bank, the manager said, adding Gruebel would present plans for a smaller investment bank at its investor day in November.

Christoph Blocher, vice-president of Switzerland's biggest party, the right-wing People's Party SVP, renewed his calls for a splitting off of the investment bank.

"If the too-big-to-fail proposal passes parliament without this restriction ... one has to seriously examine a ban on investment banking for commercial banks," he said.

NZZ am Sonntag and SonntagsZeitung reported UBS would communicate on Sunday further details on the exact amount of the loss caused by trader Kweku Adoboli.

(Reporting by Silke Koltrowitz; Editing by Daniel Magnowski and David Hulmes)