Business Blog Posts

The IMF said risks to the financial sector could be reduced if legacy problem assets were cleaned up, if governments improved their fiscal positions and if more clarity were provided on global financial regulation.

"The global financial system is still in a period of significant uncertainty and remains the Achilles' heel of the economic recovery, the IMF said in its semi-annual Global Financial Stability Report.

"The recent turmoil in sovereign debt markets in Europe highlighted increased vulnerabilities of bank and sovereign balance sheets arising from the crisis," the fund added.

The IMF said it had trimmed its estimate of total global bank write-downs related to the financial crisis between 2007 and 2010 to $2.2 trillion from its April estimate of $2.3 trillion, largely due to a drop in securities losses. Banks have recognized more than three-quarters of these write-offs, leaving about $550 billion still to be taken.

However, the fund said banks had made less progress in dealing with near-term funding pressures -- nearly $4 trillion of bank debt needs to be refinanced in the next 24 months.

"Overall, bank balance sheets need to be further bolstered to ensure financial stability against funding shocks and to prevent adverse feedback loops with the real economy," the IMF said.

The forceful policy response to the European debt crisis in April and May of this year this year helped to offset market and liquidity risks to banks. But the sector's stability in the region remains vulnerable to potential market shocks, the IMF said.

In the United States, concerns about household balance sheets and real estate markets amid persistently high unemployment are clouding the outlook for loan quality and bank capital needs.

"Although manageable from a financial stability perspective, a double dip in real estate could have a long lasting impact on the economic recovery," the IMF said.

U.S. banks have had to raise modest amounts of capital, but this largely reflects the shifting of much of the mortgage risks and losses onto Fannie Mae and Freddie Mac, the IMF said. Capital challenges for these government-controlled entities could reactivate a negative global feedback loop between the financial system and the economy.

The fund said it conducted its own "stress test" on the top 40 U.S. banking companies and found that in an adverse scenario where real estate prices fell significantly, these banks would require $13 billion in additional capital to maintain a 4 percent Tier 1 common capital ratio.

"Mid-size banks are particularly vulnerable because it may be more difficult for them to raise capital," the IMF said.

(Reporting by David Lawder; Editing by Neil Stempleman)

Walgreen's shares rose 3.3 percent in early trading as Jefferies & Co raised its rating on the company to "buy" from "hold" before the results were announced and boosted its price target to $45 from $29.

Sales at Walgreen's drugstores open at least a year rose 0.4 percent compared with September 2009, the company said Tuesday -- better than the 1.1 percent decline analysts had expected, according to Thomson Reuters data.

Analysts have said Walgreen has benefited from stronger pricing and fewer markdowns for general merchandise.

Pharmacy same-store sales increased 0.3 percent, much better than the 1.7 percent decline analysts had expected. The pharmacy business accounted for about two-thirds of total sales for the month.

The pharmacy same-store results were down 2.8 percentage points due to generic drug introductions and they took a 0.8 percentage-point hit as fewer people came down with coughs, colds and flu, the company said. Fewer flu shots also meant the pharmacy's same-store sales slipped 0.7 percentage point.

Prescriptions filled rose 0.8 percent on a same-store basis, including 1.4 percentage points due to more patients filling 90-day prescriptions, Walgreen said. Lower incidence of flu hurt same-store prescriptions by 1.5 percentage points, while prescriptions filled was down 1.6 percentage points due to fewer flu shots.

Flu shots administered at pharmacies and clinics in September totaled about 2 million, with nearly 2.25 million flu shots having been administered so far this season.

Kermit Crawford, Walgreens president of pharmacy services, said in a statement that the company faced difficult comparisons versus last year, when demand for flu vaccine was so heavy due to H1N1 pandemic. However, he said the company has already administered nearly 40 percent of the about 5 million shots it provided in the first quarter of last fiscal year when it ran out of vaccine late in the quarter.

Total front-end sales rose 0.7 percent on a same-store basis, better than the 0.1 percent increase analysts had expected.

The company also said it opened 24 stores during September, including four relocations, three acquisitions and four closures. It had 8,065 locations at the end of the month.

Overall September sales rose 5.3 percent to $5.64 billion. Duane Reade stores, acquired in April, contributed 2.8 percentage points to the total increase, but were not included in any same-store results.

Walgreen shares rose 3.3 percent, or $1.12, to $34.23 in early New York Stock Exchange trading.

(Reporting by Ben Klayman, editing by Gerald E. McCormick and Maureen Bavdek)

The Bank of Japan will pump more funds into the struggling economy and keep rates close to zero, while Australia's central bank also kept rates low, in moves that surprised investors. The Nikkei jumped 1.5 percent on the fresh dose of stimulus, leading the way for U.S. market gains.

"We're in a slow and uneven recovery, and it's good to know that governments are going to use their bullets to help prevent a double-dip recession," said Cort Gwon, director of trading strategies and research at FBN Securities in New York.

In a sign of continued struggles for Europe, Moody's may cut Ireland's credit rating again, pointing to the huge bill for cleaning up its banks, a weak recovery and rising borrowing costs.

"I expect the Bank of England to do a similar move as the Bank of Japan, sooner rather than later, and that will have another positive impact on us in the near term," Gwon said.

U.S. Federal Reserve Chairman Ben Bernanke said the Fed's asset purchases lowered borrowing costs and helped the economy, and that more buying could further ease conditions. The Fed bought $1.7 trillion in mortgage-related and Treasury bonds after cutting benchmark rates to near zero to combat the financial crisis and help the economy pull out of a severe recession.

S&P 500 futures rose 2.7 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures added 18 points and Nasdaq 100 futures rose 6.5 points.

Investors looked ahead to September's Institute for Supply Management's non-manufacturing index, which is expected to be largely unchanged from the prior month but still in expansionary territory. The business activity expectation is 54.0, compared with 54.4 last month. The PMI figure is seen at 52.0, up from 51.5 last month. Anything above 50 represents expansion.

The services sector makes up the bulk of the economy, and traders hope for signs of strength a week after the ISM's manufacturing index showed the sector slowed in September.

Oil futures rose 0.5 percent and neared its highest price since August 6 after Japan lowered rates, which weakened the dollar. Gold hit a record high above $1,326 an ounce.

Fast food chain operator Yum Brands Inc (YUM.N) is on tap to report third-quarter results. The earnings season unofficially kicks off later this week with Alcoa Inc's (AA.N) results after the market close on Thursday.

Chevron Corp (CVX.N) plans to resume quarterly stock buybacks of up to $1 billion as the No. 2 U.S. oil group gains confidence about its finances. Shares of the Dow component rose 0.9 percent to $82.08 in light premarket trading.

U.S. stocks fell Monday as investors used mixed economic data and worries about euro zone debt as a catalyst to shed long positions.

(Editing by Jeffrey Benkoe)

Ireland's services sector shrank for the first time in six months in September, a survey showed separately, following data last week which showed its manufacturing sector was back in recession.

The beleaguered Irish government says it could cost up to 50 billion euros ($68.5 bln) to unravel banks' property losses, driving the cost of Dublin's borrowing to three times that of Germany and prompting renewed jitters about debt elsewhere in the euro zone.

The banks bill will quadruple national debt levels to 155 billion euros or over 100,000 euros per household.

"Ireland's ability to preserve government financial strength faces increased uncertainty," Dietmar Hornung, Moody's lead sovereign analyst for Ireland, said in a statement.

"Recently published data highlight Ireland's weak growth prospects. Fresh uncertainty arises from demand-side weaknesses, particularly the impact of new austerity measures on domestic demand."

Moody's said that a cut to Ireland's Aa2 rating would most likely be by one notch, bringing it into line with its peers Fitch and Standard & Poor's, who have already downgraded Ireland by more.

Moody's last one-notch cut was on July 19 although it also slashed its ratings on the lower-grade debt of nationalized Anglo Irish Bank last month.

On the upside, retail sales and exchequer returns data have indicated some stabilization in consumer demand and shaky public finances.

There is little sign, however, that an economic recovery is going to ease pressure on the government to impose further deep spending cuts in the short-term.

Tuesday's Purchasing Managers' Index showed a fall to 48.8 in September from 52.9 in August due to a sharp drop in new orders, particularly in the domestic market. Business sentiment, while still positive, was the least optimistic since April.

Ireland's central bank warned on Monday that the economy will grind to a virtual halt this year and Prime Minister Brian Cowen will unveil a 4-year plan for tackling the EU's worst budget deficit next month.

Moody's said the plan would be key to its review, adding that it was likely to be prove challenging given that growth forecasts used in the government's own debt projections now look overly optimistic.

(Editing by Patrick Graham)