BAGHDAD–Iraq gave final approval Sunday to a deal by a Shell-led consortium to develop one of its largest oilfields, marking a crucial step toward the nation’s postwar rebuilding by boosting the production of its most lucrative resource.
Royal Dutch Shell PLC and its partner, Malaysia’s state-run Petronas, won the right to develop the 12.5 billion barrel Majnoon field last month during Iraq’s second postwar bidding round. As part of the deal, Shell and Petronas will pay the Iraqi government a $150 million (U.S.) signing bonus.
At a Baghdad signing ceremony, Oil Minister Hussain al-Shahristani hailed the deal as a "major step that will transform the region from an area of misery and deprivation into a prosperous one."
Shell chief executive Peter Voser refused to say how much money will be spent on the project.
The oil deal for Majnoon, located in Basra province near the Iranian border, was one of seven the Iraqi government awarded last month.
The 20-year contract calls for the companies to be paid $1.39 per barrel produced above current output levels. The firms have said they hope to raise production from the current 45,900 barrels per day to 1.8 million barrels per day by 2020.
The Majnoon field was discovered in 1976 and was partially developed until the Iran-Iraq war halted work. Oil production resumed in 2002.
For Iraq, the oil deals mark a crucial step forward in the country’s so-far faltering bid to raise oil output. Although it sits atop the world’s third-largest proven reserves of conventional crude oil, Iraq produces a comparatively modest 2.5 million barrels per day, of which about 1.9 million barrels a day are exported.
Of the seven deals awarded in December, Iraq’s Cabinet has approved four, including Majnoon, and has asked for changes to proposals for the remaining three – awarded to consortiums led by Russia’s private oil giant Lukoil, China’s CNPC and Russia’s Gazprom – before signing off on them as expected by the end of January.
Four top bank chief executives told a panel probing the financial crisis Wednesday that they made mistakes but didn’t realize how bad they were at the time.
In a heated exchange in Washington with the head of the Financial Crisis Inquiry Commission, Lloyd Blankfein, Goldman Sachs’ CEO, agreed the banks had assumed too much exposure to risk at the height of the crisis, and he wished he could go back and change things.
"Anyone who says I wouldn’t change a thing, I think, is crazy," Blankfein said. "Knowing now what happened, whatever we did, whatever what the standards of the time were — It didn’t work out well."
"Of course, I’d go back and wish we had done whatever it took not to find ourselves in the position we found ourselves in," he added.
The remarks came during a hearing of the Financial Crisis Inquiry Commission, a 10-member panel appointed last summer by Congress. Testifying were chiefs of some of the best-known and largest banks: Goldman Sachs (GS, Fortune 500), Morgan Stanley (MS, Fortune 500), J.P. Morgan Chase (JPM, Fortune 500) and Bank of America (BAC, Fortune 500).
The panel’s chairman, Philip Angelides, said he wanted to hear about the banks’ role in creating the crisis and benefiting from the Troubled Asset Relief Program, which was set up to provide them with liquidity.
During the hearing, Angelides cast doubt on Blankfein’s defense of Goldman Sachs’ actions in the mortgage markets — such as buying parts of risky mortgages and then placing bets against such morgages — as part of their job as a "market maker."
"It sounds to me a little like selling a car with faulty brakes and then buying an insurance policy on the buyers of those cars," Angelides said. "It doesn’t seem to me that that’s a practice that inspires confidence."
Blankfein responded that Goldman was just selling what investors wanted.
"These are the professional investors who want this exposure," he said. "Even today, people are coming for exposure to these very products. .. That’s what a market is."
The chief executives — Blankfein, John Mack of Morgan Stanley, Jamie Dimon of JPMorgan Chase, and Brian Moynihan of Bank of America — testified under oath, standing up for a swearing-in during the public session.
The hearing lasted more than three hours and most of the testimony revolved around bad lending in the housing market.
Dimon said that one of the the banks’ "big misses" was failing to "stress test" the housing market.
"We didn’t stress test housing prices going down by 40%," Dimon said.
It has been suggested that this lack of accountability could be remedied if all of the firms and individuals involved in the creation of financial instruments had to "eat their own cooking." That would, for example, require that the bulk of their fees not be taken in cash, but in the securities they created, which they would be required to hold unhedged until maturity.
One commissioner asked Morgan Stanley’s Mack if investment banks could have remediated the volume of illiquid toxic securities by eating "their own cooking," and taking fees for financial transactions via toxic securities, instead of cash. Mack said his firm did hold some of those securities.
"We did eat our own cooking and we choked on it," Mack said. " We kept positions and it did not work out."
‘Sound’ regulatory changes
Blankfein, Dimon and Mack all talked about the need for "sound" regulatory changes to help ward off future crises bad credit unsecured personal loans.
"I want to be clear that I do not blame the regulators … however, it is important to examine how the system could have functioned better," Dimon said. "The current regulatory system is poorly organized with overlapping responsibilities, and many regulators did not have the statuatory resolution authority needed to address the failure of large, global financial companies."
In written testimony, the bank chiefs laid out their banks’ mistakes that led to the crisis, detailing the housing bubble, with "new and poorly underwritten mortgage products," "excessive speculation," and mortgage securitization that allowed people to duck responsibility for poorly underwritten loans.
However, they added they didn’t expect the financial crisis and especially its magnitude.
"After the fact, it is easy to be convinced that the signs were visible and compelling," Blankfein said. "In hindsight, events not only look predictable, but look like they were obvious or known. But none of us know what is going to happen."
In the past several weeks, the commission has talked to Treasury Secretary Tim Geithner and Federal Reserve Board Chairman Ben Bernanke, but that testimony isn’t being made public yet.
Lawmakers say the commission was modeled after the Pecora Commission, a panel that was convened after the 1929 Wall Street crash and other events leading to the Great Depression.
The Pecora panel’s findings led to an overhaul of federal banking laws, including the creation of the Glass-Steagall Act of 1933. Glass-Steagall divided investment banking from government-insured commercial banking; ending that separation in the 1990s was seen by some critics as contributing to the current crisis.
Slow start
The Financial Crisis Inquiry Commission has taken a while to get up on its feet.
The panel was appointed last July and held its first meeting in September. It has only started getting staffed up over the past few months.
It has new offices in downtown Washington, a few blocks northwest of the White House. Funded to the tune of $8 million, it aims to employ between 40 and 50 investigators and other staffers.
The crisis panel’s one big goal is to complete a final report, sort of like the final 9/11 Commission report that found federal agencies missed signs of the impending terrorist attacks in 2001. The financial crisis report is due Dec. 15.
Critics have noted the panel’s impact may be blunted by timing, as the House has already passed a bill to overhaul regulations and the Senate is deep in negotiations on similar proposals.
But panel members have consistently pledged their work will serve as more than window dressing for politicians worried about the appearance that they allowed the financial crisis to happen.
The panel, which has subpoena power, plans to issue interim reports as it collects data, Angelides has said.
The panel’s second-in-command is Bill Thomas, a retired California Republican congressman described as strong-willed during his tenure running the powerful Ways and Means Committee.
Other key panel members include: Keith Hennessey, an economic adviser under President George W. Bush; former Sen. Bob Graham, a Florida Democrat; and Brooksley Born, a past chairwoman of the Commodities Futures Trading Commission, who called for stronger regulation of complex financial products such as derivatives in the 1990s.
Federal Reserve Bank of Richmond President Jeffrey Lacker said the U.S. economy will probably expand at “a reasonable pace” this year on growth in spending by households and businesses.
“Housing should continue to recover from a very depressed state, consumers should gradually expand spending, business investment should make something of a comeback,” Lacker said today in remarks to the Maryland Bankers Association in Linthicum, Maryland. Even with a resumption in growth, “the level of economic activity will disappoint many people for quite some time,” he added.
Fed Chairman Ben S. Bernanke and his fellow policy makers have left the benchmark lending rate in a range of zero to 0.25 percent since December 2008 to revive lending and end the worst recession since the Great Depression.
Policy makers will need to “choose carefully when and how rapidly” to remove monetary stimulus, Lacker said without indicating his own views on the timing.
The risk of a “pronounced” reduction in inflation has diminished, Lacker said.
“During the recovery period ahead we may face an increasing risk of inflation edging upward, which has sometimes occurred during past recoveries,” he said. “While that risk appears to be minimal at this point, we will have to be careful as the recovery unfolds to keep inflation and inflation expectations from drifting around.”
Not Strong Enough
Growth hasn’t been strong enough to reduce the unemployment rate. The U.S. lost 85,000 jobs in December after revisions showed payrolls increased the prior month for the first time in almost two years, a report today from the Labor Department showed. The jobless rate held at 10 percent.
The U.S. Congress has mandated that the Fed pursue low inflation and full employment. The 7.2 million drop in payrolls over the past two years has been the biggest decline as a percentage of total jobs since the end of World War II.
“The labor market could conceivably recover more slowly than many expect, which would restrain consumer spending and dampen growth,” Lacker said. “But household incomes and household confidence could conceivably rebound more vigorously than many expect, in which case consumer spending could expand more briskly.”
Services Expanded
Service industries expanded in December, with the Institute of Supply Management’s index of non-manufacturing businesses rising to 50.1 percent from 48.7 percent in November. Manufacturing last month expanded at the fastest pace in more than three years, the ISM said in a separate report.
The economy probably expanded at a 4 percent annual rate in the fourth quarter, according to a Bloomberg News survey.
Federal Open Market Committee members maintained an outlook for “moderate growth and subdued inflation” in 2010, minutes of their Dec easy online payday loans. 15-16 meeting showed. “A moderate pace of expansion would imply slow improvement in the labor market next year, with unemployment declining only gradually,” the minutes said.
The U.S. central bank’s efforts to restore liquidity and credit have resulted in the expansion of its balance sheet to $2.24 trillion in total assets, up from $858 billion at the start of 2007. As a result of the Fed’s direct purchases of $1.7 trillion in mortgage-backed, federal agency, and Treasury bonds, banks now hold more than $1 trillion in reserves in excess of what they are required to hold against deposits.
No ‘Huge’ Increase
Lacker said he doesn’t expect the conclusion of Fed purchases of mortgage-backed securities scheduled for the end of March to lead to a “huge” increase in mortgage rates.
Central bankers are now discussing how they will eventually exit their low-rate policy and drain excess cash in the banking system to head off inflation. The timing of such moves depends on economic performance, the minutes showed.
“A few members” suggested “it might become desirable” to expand the scale of asset purchases and continue them beyond the first quarter if the outlook for growth weakened or mortgage markets deteriorated, the minutes said. One member thought the purchases could be scaled back, and said it “might become appropriate” to begin selling assets if the recovery “gains strength over time,” the minutes said.
Banks haven’t started to circulate their reserves into expanding credit. Loans and leases of commercial banks in the U.S. declined to $6.8 trillion in November from $7.2 trillion a year earlier, according to Fed data.
Criticism of Policy
Proposed congressional audits of monetary policy would lead to criticism of decisions to increase the benchmark interest rate, Lacker said to reporters. The House voted last month to approve a proposal by Representative Ron Paul, a Republican from Texas, to end a ban on audits of monetary policy over Bernanke’s warnings the measure threatens to compromise Fed independence.
“The kind of audits of recent monetary policy decisions that the Paul amendment would allow are almost certainly going to result in criticism of interest rate increases,” Lacker said. “They are going to be biased in one way.”
The central bank hasn’t “settled on an approach” on how its various tools will be used with the federal funds rate, he said. “One option you might want to consider is that our policy rate is the interest rate on excess reserves and we let the fed funds rate trade with some spread to that.”
Virginia Power is committing $4 billion over the next three years to improve and expand its electric service.
Dominion Virginia Power CEO Paul Koonce, in a letter to be included with bills sent to Virginia customers in January, outlines plans for improving service reliability and adding more renewable sources of energy.
Koonce was named chief executive in June.
"Keeping your lights on safely, efficiently and at a reasonable cost are my highest priorities,"Koonce said in the letter.
To keep up with growing demand, the company will add new, gas-fired generating units and a hybrid coal station. It is also making environmental improvements to older stations to reduce emissions.
Dominion says it is committed to meeting Virginia's goal of achieving 15 percent of its electricity sales from renewable sources by 20205, and to reducing the growth in customer demand for electricity by 10 percent over the next 12 years high quality business cards.
"Meeting these goals will be a challenge," Koonce says. "Despite the recession, customers are using more power, lending credence to the forecast that demand will rebound as the economy recovers."
Dominion Virginia Power plans to offer new energy efficiency programs this year for both residential and business customers, and digital meters are now being installed in some of its service areas.
Last summer, Dominion (NYSE: D) applied for $200 million in federal stimulus money to speed up the installation of 2.4 million smart meters.
Thirteen of Arizona’s 21 billion-dollar public companies saw their stock prices move up during the fourth quarter.
Seven of the companies posted double-digit gains, with Clear Channel Outdoor leading the pack at 58 percent, according to the Phoenix Business Journal’s analysis of prices from Sept. 30 through 30 through Dec. 18.
Penny stock Mesa Air Group mirrored that performance with a 58 percent decline to lead the group of eight companies with a drop in price per share over the quarter.
Over the same period the Dow Jones Industrial Average gained 6.4 percent and the Nasdaq Composite moved up 4.2 percent.
The Arizona group did better when price changed is measured over all of 2009, but all but four of the stocks still lag from the end of 2007. Click here for the 2009 wrapup and here for a two-year look at local stocks.
U.K. consumer confidence fell for a second month in December, complicating Prime Minister Gordon Brown’s efforts to revive his popularity before next year’s election, market researcher GfK NOP said.
An index of consumer sentiment dropped to minus 19 from minus 17 the previous month, GfK NOP said in an e-mailed statement today in London. A gauge of expectations for the economy over the next year fell nine points to minus six.
“This must be concerning for the government,” Nick Moon, an analyst at GfK, said in the statement. “What will be particularly worrying for Gordon Brown is that the index for the state of the economy, which had crept into positive territory, has fallen by a substantial nine points.”
Brown, who must call an election by June, is struggling to claw back the support lost to the opposition Conservatives during the financial crisis. Bank of England policy maker Kate Barker said Dec. 15 an economic recovery will be “bumpy,” and data released yesterday showed British retail sales unexpectedly fell in November for the first time in six months.
Retail sales growth will “fizzle out” next month, and trading conditions across the industry are likely to “remain challenging” in 2010, the Confederation of British Industry said yesterday instant personal loans guaranteed.
A gauge of the economy’s performance over the past year slipped two points to minus 61. A measure of consumers’ willingness to buy big items such as refrigerators and furniture rose three points to minus 16, GfK said.
Housing Recovery?
British consumers are still adapting to a recession that sparked the country’s worst housing slump since the early 1990s and has led to 600,000 job losses, pushing the unemployment rate to 7.8 percent. Barker said she would be “surprised” if the recent pick up in property prices were sustained next year as unemployment threatens household finances.
The market researcher surveyed 2,004 people between Dec. 4 and Dec. 12 on behalf of the European Commission. The margin of error is estimated at two percentage points, the report said.
The Raleigh-Cary metro area was one of the few regions in the country to show job growth in the third quarter, signaling the area may be among the better performers pulling out of recession, according to a report released Tuesday by the Brookings Institution.
Unemployment in Raleigh-Cary was 8.6 percent in the third quarter, a 0.1 percent improvement compared to the second quarter. The modest growth is better than most of the top 100 metros evaluated by the Washington, D.C., think tank. Just 13 of the top 100 metros experienced job growth in the third quarter. The U.S. average for the top 100 metros was 9.6 percent unemployment, a 0.5 percent increase in unemployment in the third quarter compared to the second quarter.
Raleigh-Cary was also one of just 10 metro areas to show faster growth in jobs and gross metropolitan product in the third quarter compared to the second quarter, according to Brookings. Raleigh-Cary GMP increased by 1.1 percent in the third quarter compared to the second quarter instant payday loan.
Nationally, gross domestic product increased at a 2.8 percent annual rate in the third quarter. That was the first increase after four consecutive quarters of contraction. Brookings said the growth, along with other indicators such as increasing housing prices, are a sign that recovery is under way.
But Brookings cautioned that the recovery “seems fragile.”
“The output increase may have resulted largely from the replenishment of manufacturing inventories and from temporary federal policies: the ‘cash-for-clunkers’ program, the first-time home buyer tax credit, and the American Recovery and Reinvestment Act’s economic stimulus,” the report states. “As the effects of these policies recede, the recovery could slow or give way to yet another recession or a prolonged period of economic stagnation.”
Tampa-St. Petersburg hotel occupancy rates and revenue per available room were up for the week ending Nov. 5, while the U.S. hotel industry posted declines, according to national lodging research firm Smith Travel Research.
Tampa-St. Petersburg’s occupancy rate increased 11.8 percent to 52.2 percent, ranking the region among the top three out of 25 markets measured, a release from STR said.
The occupancy rate in Oahu Island, Hawaii, climbed 15.3 percent to 74.7 percent, and the rate in New Orleans, La. rose 13.1 percent to 67.6 percent, the release said.
The industry’s occupancy fell 4.9 percent to end the week at 47.6 percent in year-over-year measurements, the release said no faxing payday loan.
Along with Oahu Island and New Orleans, Tampa-St. Petersburg was one of only three markets to report an increase in revenue per available room for the week. The increase in Tampa-St. Petersburg was 1.8 percent increase to $44.70.
New Orleans posted a 42.4 percent increase to $101.72, and Oahu Island posted a 7.1 percent increase to $105.87.
The industry’s revenue per available room decreased 11.9 percent to $45.86, and the average daily rate dropped 7.3 percent to $96.25, the release said.
Irish government workers will stage the biggest strike in at least three decades today in protest at plans to cut pay to contain the budget deficit.
Nurses, teachers and tax officials are among around 250,000 workers taking part in the 24-hour nationwide stoppage over what unions have said are “vicious” cost-cutting plans by the government, which is grappling with a deficit amounting to about 12 percent of gross domestic product.
Ireland, once Europe’s most dynamic economy, has been hit by a property crash and the global recession, eroding tax income and pushing the shortfall to 26 billion euros ($38.9 billion) this year. Finance Minister Brian Lenihan wants to cut about 4 billion euros from spending in the Dec. 9 budget to rebuild investors’ confidence after borrowing costs soared.
“Strikes will send the wrong signals,” said Alan McQuaid, chief economist with Bloxham Stockbrokers in Dublin. “If the international market sees the government standing up, they will see it as a good thing. There is a steely determination on the part of the government to do the right thing.”
The stoppage has been partially scaled back due to flooding in the south and west of the country after heavy rainfall. Hospitals and emergency service workers will maintain services in those areas, unions said on Nov. 22. The strike today will still close shut social welfare offices, passport offices and the public offices of the state tax authorities.
“The private sector has had to discount and cut costs, the public sector must respond,” said John Forde of Dublin- based Chambers Ireland, which represents 13,000 companies. “Hard decisions must now be taken to resolve this issue.”
Lost Rating
The difference in yield, or spread, between 10-year Irish securities and 10-year German bunds was at 150 basis points yesterday. While it’s narrowed since reaching 284 basis points in March, the spread remains five times wider than its average over the last decade. Ireland has also lost its top credit rating at Standard & Poor’s, Moody’s Investors Service and Fitch ratings this year.
The government said this month that the deficit will hit 14 percent of gross domestic product next year, almost five times the European Union limit, unless it takes action. It sees the economy, which doubled in size in the decade through 2007, shrinking 1.5 percent in 2010 after a 7.5 percent contraction this year.
The U.S. economic recovery will extend into next year as manufacturing expands and the pace of firings abates, reports today indicated.
The Conference Board’s index of leading indicators, a gauge of the outlook for the next three to six months, rose 0.3 percent in October, preserving a string of gains that began in April. Other reports showed claims for jobless benefits held at a 10-month low and Philadelphia-area manufacturing accelerated.
The rally in stock prices, low short-term interest rates and slowing job losses that propelled the leading index signal consumer confidence and spending are likely to stabilize, limiting the risk the economy will retrench. The data supported Treasury Secretary Timothy Geithner’s forecast today that the emerging expansion will be sustained into 2010.
“It’s very clear that the economy is now expanding, but I don’t see it being a vigorous expansion,” said Michael Moran, chief economist at Daiwa Securities America Inc. in New York, who correctly forecast the leading index. “We are seeing a gradual improvement, but the key word is ‘gradual.’”
Stocks extended a global drop as concern grew that the rally outpaced the prospects for economic growth and Bank of America Corp. downgraded chipmakers. The Standard & Poor’s 500 Index fell 1.3 percent to close at 1,094.9, with Intel Corp. and Texas Instruments Inc. losing ground.
Economists forecast the leading indicators index would increase 0.4 percent, according to the median of 58 estimates in a Bloomberg News survey.
Geithner Forecast
“We expect continued growth in the fourth quarter and ahead in 2010,” Geithner said today in testimony before the Joint Economic Committee of Congress.
He urged Congress to pass a financial regulation overhaul intended to strengthen the banking system and guard against “market-driven excess,” to avoid a repeat of the worst crisis since the Great Depression. Congress is considering a plan that includes changes to oversight of large banks, consumer protection and derivatives.
Federal Reserve Chairman Ben S. Bernanke last week said “significant economic challenges remain” due to a weak labor market and reduced bank lending.
The number of Americans filing claims for unemployment benefits held at 505,000 in the week ended Nov. 14, matching the prior week’s reading as the lowest since January. The number of people collecting unemployment insurance dropped in the prior week, while those getting extended payments jumped.
‘Glacial Pace’
“The labor market is improving, but at a glacial pace,” said Tom Porcelli, a senior economist at RBC Capital Markets in New York, who had forecast claims at 503,000 . “People are having a hard time finding a job as companies remain wary of the economic recovery.”
President Barack Obama on Nov. 6 signed into law a plan to extend jobless benefits, expand a tax credit for first-time homebuyers, and provide tax refunds to money-losing companies. The measure gives jobless people as many as 20 additional weeks of unemployment assistance.
The president has also announced plans to convene a jobs summit at the White House next month.
Manufacturing in the Philadelphia region expanded in November at the fastest pace in more than two years, reflecting gains in orders and sales, figures from the Fed Bank of Philadelphia also showed today.
Factory Rebound
The bank’s general economic index rose to 16.7 this month, exceeding the median forecast of economists surveyed and the highest level since June 2007, from 11.5 in October. Readings greater than zero signal growth.
Six of the 10 components in the leading index contributed to last month’s increase, led by the difference between short- and long-term borrowing costs, fewer jobless claims and higher equity prices. A longer factory workweek, a rise in money supply and an increase in factory orders for consumer goods also helped. Weaker consumer expectations, fewer building permits, shorter delivery times and a drop in orders for business equipment limited the advance.
Manufacturers that export to China and other emerging economies are among companies profiting from growth abroad. Caterpillar Inc., the world’s largest maker of bulldozers and excavators, posted third-quarter earnings that beat analysts’ estimates and issued a full-year forecast that exceeded the highest prediction.
“We are seeing encouraging signs that indicate a recovery may be under way,” Chief Executive Officer Jim Owens said in a statement Oct. 20. “When it comes, it can come quickly, and we, our dealers and our suppliers will be prepared.”
The world’s largest economy probably expanded at a 3 percent annual pace from October through December after growing at a 3.5 percent rate in the prior quarter, according to the median estimate of economists surveyed earlier this month. That followed a 3.8 percent contraction in the 12 months to June, the economy’s worst performance since the 1930s.
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