Business Blog Posts

Lagarde said all the right things during her recent campaign-trail tour of Asia. She acknowledged that countries like China and India deserve increased IMF voting power to reflect their growing economic clout, and a fair shot at the emergency lending institution's top decision-making posts.

"Lagarde is a friend of India," a senior Indian government source said on Wednesday.

"We can't get the IMF managing director's chair for now but at least India can get some high-level appointments in the IMF during her tenure and we will work toward that."

Lagarde begins her five-year term as managing director of the International Monetary Fund on July 5, and will find herself immediately immersed in efforts to head off a Greek debt default that could spark an international crisis.

High on her to-do list within the Fund will be appointing a top leadership which fairly reflects global economic influence, and shepherding through an already agreed process to reallocate IMF voting rights to give emerging markets greater say.

China's central bank said in a brief statement that it hoped Lagarde would push for reform, and wanted to see the IMF play a positive role in promoting global financial stability "and to increase the representation of emerging economies in the IMF governance structure."

Lagarde received support from many major Asian economies even though she perpetuates a pattern they despise of Europeans holding the top IMF job. No Asian candidate stepped forward to challenge Lagarde and Mexico's Agustin Carstens.

"Lagarde has been more successful in consensus building to bridge relationships between advanced countries and emerging markets," Indonesia's central bank deputy governor Hartadi A. Sarwono told Reuters.

Carstens, Mexico's central bank governor, hit out at international bodies on Wednesday, saying they failed to live up to the standards they set for others.

"The reality is that these institutions have always asked for transparency from us, they have asked us to adopt democratic principles that they do not enforce themselves," Carstens told Mexican radio.

Lagarde will need to be diplomatic for the tough personnel decisions. The United States is already considering putting forward a Treasury Department official for the No. 2 role, which has traditionally been filled by an American.

Breaking with that tradition might help convince Asian countries that Lagarde is serious about reforming the IMF, although there was no indication that she had made any promises to award the second-in-command role to someone from Asia.

Singapore Finance Minister Tharman Shanmugaratnam, who also chairs the IMF's steering committee, said he had spoken to Lagarde about the importance of IMF reforms that "reflect the evolving balance in the global economy and financial system."

Even countries that had backed Lagarde's challenger, Carstens, pledged their support.

Australian Treasurer Wayne Swan said he had worked with Lagarde through the Group of 20 club of rich and emerging countries, and welcomed her appointment.

"We're very happy to see the process concluded so this important institution can continue its work," Swan said through a spokesman.

(Reporting by Aditya Suharmoko in Jakarta, Abhijit Neogy in New Delhi, Kevin Lim in Singapore, Luis Rojas in Mexico City, James Grubel in Canberra and Zhou Xin and Kevin Yao in Beijing; Writing by Emily Kaiser; Editing by Jonathan Thatcher and Neil Fullick, Gary Hill)

The failed bid from the London Stock Exchange, opens the door to a hostile C$3.8 billion offer for TMX Group from Canada's Maple Group consortium, a made-in-Canada alternative to a takeover that would have put a big domestic asset in foreign hands.

It also turns the spotlight on the LSE as a target as exchanges consolidate to grow and broaden geographic reach, and to fight off rivals and new market entrants.

Nasdaq OMX Group, smarting from its own failure in the United States to buy the New York Stock Exchange parent NYSE Euronext, could be a contender for an alternative transatlantic combination with the LSE.

"While the failed deal probably puts an end to TMX's M&A ambitions, other exchange operators will likely continue to look for partners. This reinforces my belief that we should expect more mergers, not less," said Ed Ditmire, New York based analyst for Macquarie Securities.

The failure of the TMX bid, a high-profile deal that was months in the making, follows Singapore Exchange Ltd.'s scuttled bid for Australia's ASX Ltd in the latest sign that nationalism and pride are frustrating cross-border deals for highly symbolic capital markets.

And it's a black eye for LSE Chief Executive Xavier Rolet, who banked his reputation on sealing the deal.

Rolet was to have led a LSE-TMX exchange group, which would have been a heavyweight global player and No. 1 in listing energy and mining companies.

But the support he got from TMX management and board wasn't enough to overcome opposition from within Canada's tight-knit banking sector.

Four of Canada's biggest banks were the lead players in the bid from Maple, a consortium that also included pension funds and financial services firms. Canada's other two big banks were advisers to the LSE proposal.

NOT ENOUGH VOTES

In brief statements issued one day before a shareholder vote, the two exchanges said they realized from an early tally of proxy votes that TMX shareholders would not give them the two-thirds majority needed to approve their friendly deal.

TMX Group, operator of the Toronto Stock Exchange, said it would now review opportunities, including the Maple offer.

"LSE and TMX were both in positions where they weren't quite big enough or diverse and fast-growing enough to control their own destiny," said Justin Schack, managing director of market structure analysis at New York-based agency brokerage Rosenblatt Securities.

"They did the best deal that they probably could. Now that that's not going to happen TMX has Maple to deal with, while LSE is out on its own again, and there aren't many partners out there where they could be the acquirer rather than the target."

Maple has offered C$3.8 billion for TMX, mostly in cash.

LSE's mostly-stock offer was worth about C$49 a share.

It would have needed a green light from a government that last year vetoed a big international takeover as not being in Canada's best interests.

TMX shares touched a high of C$44.80 after the deal was scrapped before easing back to C$44.60 by mid afternoon. That's still below the Maple offer price of C$50 a share.

Maple also wants to wrap in Alpha, Canada's biggest alternative trading venue, and the CDS stock trading clearing system. That would give it a market share of more than 80 percent and leave it facing anti-trust concerns.

"Now we need to see what the Competition Bureau thinks of Maple. We also need to see if shareholders support Maple. I think they will, I don't see how they won't," said Alison Crosthwait, director of global trading strategy at Instinet.

"We're going back to more of a closely held, interested parties controlling the exchange."

Canada's independent Competition Bureau has bared its teeth lately on several fronts, getting a C$10 million payment from BCE Inc's Bell Canada unit for misleading advertising, and seeking to block a joint venture between Air Canada and United Continental.

(Additional reporting by Andrea Hopkins, Euan Rocha, Solarina Ho, Jonathan Spicer, Allison Martell and Trish Nixon; editing by Janet Guttsman)

The National Association of Realtors said on Wednesday its Pending Home Sales Index increased 8.2 percent to 88.8. Pending homes sales lead actual sales of homes by a month or two.

The rise in contracts was merely a correction after an 11.3 percent fall in April and the market will continue to bounce along the bottom, economists said.

That subdued outlook for a sector, which is helping to constrain economic growth, was illustrated by a Mortgage Bankers Association report showing applications for loans to buy homes dropped 3 percent last week to a four-month low.

"Although today's number could bring some cheer to investors who are on the prowl for good news, the fact of the matter is that the housing sector is still a long way from a meaningful recovery," said Peter Buchanan, a senior economist at CIBC World Markets in Toronto.

While the rise in contracts suggested a bounce back in home sales in June, economists cautioned against expecting a strong increase as many planned deals get canceled.

Demand for loans to buy a home has been modest so far this month. Existing home sales fell 3.8 percent in May.

WEAK HOUSING HURTING ECONOMY

Investors on Wall Street cheered the rise in pending home sales, which beat economists' expectations for a 3.8 percent gain, and bought stocks for a third straight day.

Sentiment was also buoyed by the Greek parliament's approval of austerity measures, an important step in the country's bid to gain access to international funding to avoid default. Prices for U.S. government debt fell and the dollar was down against a basket of currencies.

The housing market is grappling with an oversupply of homes, which is keeping prices subdued, and economists do not see a recovery any time soon.

According to the NAR, there were 3.72 million used homes on the market in May, excluding the so-called shadow inventory of homes which are at risk of being foreclosed upon or have been seized by lenders.

The housing market collapse helped to push the U.S. economy into its worst recession since the 1930s. The sluggish economic recovery has been marked by a 9.1 percent unemployment rate and on Wednesday, President Barack Obama called for new job creation measures.

"It makes perfect sense for us to take a look at, can we extend the payroll tax, for example, an additional year, and other tax breaks for business investment that could make a big difference in terms of creating more jobs right now," Obama told a White House news conference.

Economists are cautiously optimistic that home sales will gradually improve later this year and chip away at the huge inventory. Data on Tuesday showed a moderation in the pace of decline in single-family home prices in April.

"What is emerging is that we have hit some bottom level of activity and that's a good thing," said Steve Blitz, a senior economist at ITG Investment Research in New York.

"When you take that and marry it to the fact that you are not getting much new home construction, it means you are selling out of inventory of existing homes ... and you start to get new home construction. The industry is slowly moving in the right direction."

A slightly hopeful note was also sounded by KB Home, the fifth-biggest U.S. homebuilder, which said net orders for new homes fell 11 percent in the second quarter, compared with the same period of 2010 but jumped 53 percent from the first three months of the year.

"Although a broad-based housing recovery remains stalled, it appears that the worst of the crisis is behind the homebuilding industry as select markets for new homes are showing signs of stability," said chief executive officer Jeffrey Mezger.

(Editing by Andrea Ricci)

The sum, which includes an $8.5 billion settlement, removes a question mark that had been hovering over the bank since October, and Bank of America's shares rallied.

"Investors can now start attaching a number to these unknowns and what they will cost the bank. With the swipe of a pen, they've dealt with a large chunk of these issues," said Paul Miller, a banking analyst with FBR Capital Markets.

Excluding items such as the settlement, the bank forecast second-quarter earnings that could top analysts' average estimate.

The deal, combined with other settlement-related charges, was within the range that Bank of America disclosed in a filing in May.

The settlement, which still requires court approval, could pressure other big banks, including JPMorgan Chase & Co (JPM.N) and Wells Fargo & Co (WFC.N), to resolve similar allegations, and could result in new lawsuits as well.

"This settlement is likely to embolden the other plaintiff's lawyers to go after other banks and look for similarities in their securitizations," said Nancy Bush, a veteran bank analyst.

Bank of America settled with a group of investors, including BlackRock Financial Management (BLK.N), who alleged that bonds they bought from Countrywide Financial were packed with mortgages that should never have been sold. Bank of America bought Countrywide, once the largest U.S. mortgage lender, in 2008.

The investors also said Bank of America, which is collecting payments on the mortgages, was not doing enough to maximize the collections. Part of the settlement includes improvements in gathering payments, known as servicing.

Bank of America said it expected to post a loss of 88 cents to 93 cents per share for the second quarter.

Excluding special items, it expects earnings of 28 cents to 33 cents a share. Analysts' average forecast was 28 cents, according to Thomson Reuters I/B/E/S.

The bank said charges would include the $8.5 billion settlement with bond investors, $5.5 billion to cover expected payments to other mortgage bond investors, and $6.4 billion in other charges linked to mortgages.

The $8.5 billion settlement covers a lawsuit filed by 22 institutional investors, including BlackRock, Pacific Investment Management Co and Western Asset Management.

All investors in the securities will share in the settlement, and the 22 institutional investors will not receive any special benefits, according to a statement from law firm Gibbs & Bruns, which represented the institutional investors.

Shares of Bank of America were up 3 percent to $11.16 in early trading.

(Reporting by David Henry, additional reporting by Brenton Cordeiro in Bangalore and Lauren Tara LaCapra and Dan Wilchins in New York; Editing by Lisa Von Ahn and John Wallace)

Buyers snapped up shares after the S&P 500's 7 percent swoon since April, mostly in commodities and technology shares, as investors raised their exposure heading into quarter-end and before earnings season in July.

Volatility has remained elevated. The CBOE VIX Index .VIX, Wall Street's "fear gauge, has only fallen modestly in recent days even as stocks have risen, suggesting investors are cautious. That has kept volume low as well, with 5.91 billion shares traded on the NYSE, AMEX and Nasdaq exchanges, below average.

"It shows a level of skittishness. The conviction level is not at screaming highs buying these rallies," said Ciaran O'Kelly, head of equities at Nomura in New York. "That would absolutely be a cause for concern."

The Dow Jones industrial average .DJI gained 145.13 points, or 1.21 percent, to 12,188.69. The Standard & Poor's 500 Index .SPX rose 16.57 points, or 1.29 percent, to 1,296.67. The Nasdaq Composite Index .IXIC added 41.03 points, or 1.53 percent, to 2,729.31.

The S&P 500 has now rallied more than 2 percent in the last two days.

The first of two key votes to approve budget-cutting measures in Greece, crucial for receiving international aid, is set for Wednesday.

"All eyes will continue to be on the situation in Europe as we go into the second half of the week," said O'Kelly. "The world is watching events in Greece unfold over the next 48 hours."

Cyclical areas of the market such as energy, retail and materials, which are more sensitive to shifts in the economy and have underperformed this year, strengthened.

The S&P energy index .GSPE surged nearly 2.7 percent, the biggest gainer among S&P sectors. Halliburton Co (HAL.N) gained 5.3 percent to $48.69, while Chevron Corp (CVX.N) was up 1.5 percent at $100.35.

In an advance indication of earnings season, Nike Inc (NKE.N) surged 10.1 percent to $89.90 a day after reporting fourth-quarter earnings that beat expectations, while orders suggested robust strength for the future.

"The greater risk to the market is that the news is not negative and we rally on good earnings," said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co in San Francisco.

"The more the market pushes higher, the more it makes the people who are under-exposed nervous," he said.

Greek lawmakers will vote Wednesday and Thursday on measures which must be passed to receive the next payment. If Greece doesn't get the funds, investors fear a Europe-wide crisis and credit market freeze could follow.

Also helping sentiment, progress was reported in talks to persuade European banks and insurers to voluntarily roll over maturing Greek debt.

Although investors were generally optimistic about Greece, the CBOE's Volatility Index suggested some caution. The index stood at 19.23, a number considered relatively high.

"While the equity markets have rallied this week, the VIX has held in, losing only about one point so far this week, reflecting the nervousness that persists in the market with the upcoming vote," said derivatives strategists in Nomura in New York.

(Reporting by Edward Krudy; Editing by Kenneth Barry)