Money world

American International Group has agreed to sell it’s Taiwan life insurance unit for $2.15 billion, a key step in its effort to raise cash after a U.S. government bailout last year saved the company from collapse.

Primus Financial, a new firm founded by Citigroup’s former investment banking head in Asia and a Chinese partner, has agreed to purchase Nan Shan Life, AIG said on Tuesday, ending a roughly five-month auction that saw several corporate and private equity bidders pursue the division.

With the Nan Shan agreement sealed, AIG is now focused on raising cash from two other major assets in Asia. Hong Kong-based life insurer AIA is seeking a more-than $2 billion initial public offering while American Life Insurance Co, which generates half its revenue in Japan, is seeking a reported $5 billion in an IPO.

Both companies have also attracted acquisition interest, though nothing yet has materialized.

The sale of Nan Shan, in an auction run by Morgan Stanley, allows AIG to check one business off its list of units to sell, after the United States injected $80 billion in taxpayer money into the company after it nearly collapsed late last year.

Primus, run by former Citi executive Robert Morse, and Hong Kong investment group China Strategic Holdings will pay $2.15 billion for AIG’s 97.5 percent stake in Nan Shan, AIG said on Tuesday.

Some analysts and bankers involved in the deal said putting a valuation on the AIG’s Taiwan life insurance unit was difficult instant payday loan no telecheck.

“The pricing is tricky. If you just look at the book value of Nan Shan, then the acquisition price is at a 30 percent discount,” said Pandora Lee, analyst with UBS.

“But for an insurance company, book value is not the only consideration, there are other factors like the people, the products etc,” Lee said. “So its difficult to say at this point if they’ve got a good deal or not.”

Primus and China Strategic will seek loans from Taiwanese banks to finance the deal.

Primus co-chief executive Wing-fai Ng said in an interview with Reuters previously that Primus plans to use Nan Shan as a base to expand to Hong Kong, Malaysia and Japan.

Nan Shan, which has assets of $46.4 billion, has 36,000 sales agents in Taiwan and a market share of 10 percent with its 10 million customers.

The agreement marks the end of an auction that spanned several months and involved multiple bidders, including private equity firms, such as the Carlyle Group. Primus had been competing in the end with Chinatrust Financial.

(Additional reporting by Rachel Lee and Chyen Yee Lee in TAIPEI and Parvathy Ullatil in HONG KONG; Editing by Valerie Lee)

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South Africa is paying the price for failing to narrow the gap between rich and poor since the end of apartheid in 1994 as it struggles to pull the country out of recession.

Interest rate cuts that have boosted consumer spending worldwide have failed to have the same impact in South Africa, because only one in six has any form of debt in the formal market, according to Finmark Trust, a research company.

Poor South Africans are getting more pessimistic about the economic outlook as job losses mount, even as the rich benefit from lower borrowing costs and begin to loosen their purse strings. The dual economy is threatening to damp retail sales at companies such as Shoprite Holdings Ltd., the country’s biggest food retailer that targets low-income earners through its Usave and Shoprite stores.

“We continue to be the most unequal society in the developing world,” said Haroon Bhorat, director of the Development Policy Research Unit at the University of Cape Town. “A very unequal growth path is bad for growth.”

South Africa’s Gini coefficient, which measures inequality, was 0.666 in 2008, compared with 0.665 in 1994, according to government data. A reading of 1 reflects complete inequality and zero represents complete equality. Brazil’s Gini coefficient, which used to be level with South Africa, is 0.526.

“I’m worried about losing my job,” said Gladys Mashaba, 33, who lives with her husband and three children in Alexandra township in Johannesburg and works as a cleaner for 3,000 rand a month. “I have to cut my spending. I look for all the specials at the supermarket. That’s the only time I can go shopping.”

Sales Slump

Retail sales fell 3.9 percent in August from a year ago, the seventh consecutive month of contraction, according to the median estimate of four economists surveyed by Bloomberg. The statistics office will report the numbers on Oct. 14.

Six interest rate cuts since December helped push consumer confidence among people earning more than 5,000 rand ($675) a month to 5 in the third quarter from 1 in the previous three months, the Bureau for Economic Research said on Sept low interest payday loans. 30. For those earning less than 5,000 rand a month, sentiment fell to minus 4 from plus 7.

“Interest rate cuts don’t have any effect on me,” said Thabo Matlala, who earns less than 5,000 rand a month as a security guard and has seen many of his colleagues lose their jobs. “I don’t have loans.”

In the lowest income group, who earn a monthly income of less than 2,000 rand, confidence slumped to minus 11 in the third quarter from plus 5, the bureau reported. About 39 percent of the population live on less than 388 rand a month.

Job Losses

“Interest rate cuts haven’t allayed fears on income growth and job security,” said Danelee van Dyk, an economist at Johannesburg-based Standard Bank Group Ltd., Africa’s biggest lender. Falling incomes and employment losses “highlight the risk of social unrest.”

That discontent has led to a series of disturbances in townships around Johannesburg since July to protest against a lack of housing, government services and jobs.

South Africa’s jobless rate rose to 23.6 percent in the second quarter, the highest of 62 countries tracked by Bloomberg. A government report published on Sept. 25 ranks South Africa as the most inequitable country in the world, with the richest 20 percent of the population accounting for 70 percent of total income last year.

“Income inequality in the long run is bad for growth,” and South Africa has had “the most consistently unequal society in the world,” Cape Town university’s Bhorat said at the release of the report. “It is a threat to social stability and to growth itself. The long-term trend is a worrying one.”

Hard Times

Consumers account for two-thirds of expenditure in the economy, and low-income earners make up the bulk of spending on food and other basic items, said van Dyk. Household consumption expenditure will probably contract 3.1 percent in 2009, compared with expansion of 2.3 percent last year, she added.

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JPMorgan Chase & Co is moving to boost its market share in credit cards for wealthy customers and small businesses, threatening American Express Co’s longtime dominance of those clients.

American Express — the largest U.S. credit card company by purchases — has long enjoyed a leading position among affluent and corporate customers.

It widened its lead as the credit card industry was busy targeting subprime borrowers, which at the time seemed like a profitable niche given the chance of charging fees or increasing interest rates when customers fell behind in their payments.

That strategy backfired when credit card losses spiked to record highs.

A law to limit the ability to increase fees and interest rates will make subprime borrowers even less attractive, forcing card issuers to seek other customers to make money.

American Express also grew in recent years thanks to subprime customers, but that always remained a smaller part of its business compared with those of its rivals.

JPMorgan, the third-largest U.S. credit card issuer by purchases, is likely to emerge as a winner from the overhaul of the card industry, given its conservative expansion strategy and low default rates.

That could be threaten American Express’s dominance among wealthy customers and companies faxless pay day loans.

Other rivals pose less of a threat to American Express, as they are either smaller — like Discover Financial Services — or struggling with losses and government bailouts — like Citigroup Inc or Bank of America Corp BAC.N>.

“Chase is trying to identify attractive customers including the more affluent and small businesses, where there is potentially less credit risk, but still potentially attractive economics,” said Brad Ball, an analyst at Ladenburg Thalmann. “The Chase franchise could pose a competitive threat to the leadership of American Express.”

American Express executives downplayed the risk.

“They are trying to fish where the fish are, and we have been fishing in those waters for 50 years,” said Ralph Andretta, general manager of Membership Rewards at American Express. “We’ve got a lot of hooks in those waters.

“We are not afraid of competition,” said Andretta, adding that the company has eliminated some fees and increased rewards promotions to court customers.

STRENGTH OR LOYALTY

Earlier this year, AmEx said its growth strategy would focus on wealthy and corporate customers. 

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Alcoa Inc shares rose more than 4 percent on Thursday after the aluminum producer reported its first profit in a year in what Wall Street viewed as a bellwether of how industrial companies are recovering from the recession.

Five investment banks — Citigroup, Desjardins, UBS, RBC and S&P Research — raised Alcoa’s target stock price, one day after the company surprised the financial community which had expected it to report a fourth consecutive loss.

The stock rose 65 cents to $14.85 in early trading on the New York Stock Exchange on Thursday.

Alcoa, the first member of the Dow Jones Industrials .DJI to report results for the latest quarter, attributed the profit to cost-cutting and higher aluminum prices.

The company, which has curtailed metal production by more than 20 percent and cut its workforce by about 30 percent since the economic downturn began a year ago, also said there were signs that key markets are stabilizing.

Currently, analysts expect Alcoa to report a 6-cent-per-share profit in the fourth quarter and a loss of 83 cents per share for the full year 2009, according to Thomson Reuters I/B/E/S no fax pay day loans.

One analyst, Anthony Rizzuto of Dahlman Rose, revised his earnings estimate for 2009 to a loss of 81 cents a share from a loss of $1.10 per share. But he lowered his earnings estimate for full year 2010 to a profit of 35 cents per share from 50 cents a share.

“Given the aluminum realization that the company experienced during the third quarter of 2009, we would have expected somewhat higher earnings, and free cash flow, but we believe that Alcoa continues to struggle with margins in its upstream and downstream businesses, given stubborn costs and weak end-market demand,” Rizzuto wrote in a research note.

(Reporting by Steve James, editing by Dave Zimmerman)

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Gold consumers across Asia greeted bullion’s run to a record high cautiously on Wednesday, with a few moving to cash in gains but the majority opting to wait for the rest of a rally they believe has only just begun.

In contrast to a second day of busy trade on global gold markets, the scene at shops and jewelry merchants from Sydney to Hong Kong to Mumbai was marked by a distinct lack of occasion, suggesting that the wave of retail scrap selling that greeted gold’s record run in March 2008 may not be quick to recur.

“Today’s been like any other day,” said David Carr, of KJC Coins Australia in Sydney, which deals in precious metal coins and bars. “No one’s coming in to sell gold because the price jumped overnight, it’s more wait and see, business as usual.”

The Australian outback gold mining town of Kalgoorlie, home to a nearly Times Square-sized electronic ticker tape broadcasting up-to-the-minute bullion prices, also was quiet.

“There’s nothing going on that’s out of the ordinary,” said John Horner, editor of the Kalgoorlie Miner newspaper.

Profit taking — read selling — replaced gold purchases that in New York and across Europe on Tuesday had swept spot bullion more than $10 above its previous March 2008 peak, and carried through on Wednesday to a record $1,048.20 an ounce.

The issue of scrap supply in the gold market — generated largely from the resale of jewelry to merchants — has taken on greater importance in recent years, as the advent of physically backed Exchange Traded Funds (ETFs) attracts new investors.

The biggest such fund now holds more than 1,000 tons of gold, equivalent to the world’s fifth-largest central bank, and analysts had said that only the flow of scrap material into the market had prevented gold from soaring much sooner, much higher.

While there was some evidence of retail sales, it wasn’t overwhelming.

“It is simple, buy low and sell high — I am making a 10 percent profit already so I am selling,” said Nguyen Duc Hung while waiting to sell five taels of gold at a shop on Hanoi’s Ha Trung street. Vietnam is Asia’s second-biggest gold buyer.

To date, there have been no reports of gold hoarders burying stashes in secret spots as was the case in 1980, when gold zoomed above $800 an ounce for the first time, or about double today’s level when adjusted for inflation.

“Both buyers and sellers are coming to the shop today, they are more or less evenly balanced,” said Osamu Ikeda, general manager at Tanaka Kikinzoku Kogyo, Japan’s top bullion retailer.

Rival Tokuriki Honten Co. Ltd. saw a similar scene.

“There are no queues outside our shops,” said general manager Fumio Yamamoto. “For the Japanese, the (yen-based) price is too high to buy, but too low to sell.”

DOLLAR EFFECT 

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Bankruptcy professionals have a grim view on the U.S. corporate recovery, despite a recent rise in stocks and an uptick in business deals.

“I think it’s going to be a sad holiday season,” said Lynn Tilton, chief executive officer of Patriarch Partners, a private equity firm that specializes in distressed companies.

Consumers will be stingy with their spending, keeping malls and resorts empty, bankruptcy professionals said at the Reuters Restructuring Summit in New York this week. Even the wealthy will steer clear of the wild, brand-conscious spending that marked the last few years.

“No one is conspicuously consuming they way they did in 2006,” said William Derrough, a managing director at investment bank Moelis & Co. “That excess spending creates little boutique hotels, it creates that restaurant that sells the $19 doughnut and the Kobe beef burger. Those things don’t need to exist.”

Higher unemployment and little bank lending will keep a lid on economic gains, likely forcing thousands more companies into default, bankruptcy or liquidation.

“I just don’t see a rapid recovery,” said Tilton.

EMPTY BERMUDA RESORT

U.S. unemployment has climbed to its highest rate since June 1983, to 9.8 percent, according to U.S. Labor Department data on Friday.

Bankruptcy pros who managed to eke out a small vacation between an avalanche of bankruptcies this year that included automaker General Motors GM.UL and American outdoor apparel chain Eddie Bauer Holdings Inc say resorts are deserted.

“I snuck away last week to Bermuda and the hotel was empty,” said one restructuring expert. “Absolutely empty.”

Miserly bank lending is exacerbating the problem. Until banks lend again to small-sized businesses or lend to companies with below-investment-grade ratings, unemployment will rise still more.

“At the risk of being cynical, which if you are in the restructuring business comes relatively easy, the banks are making money, but they aren’t lending money,” said Henry Miller, chairman and co-founder of investment bank Miller Buckfire.

In addition, there is some $117 billion in debt maturities due in 2011, according to a study by Bain Corporate Renewal Group. Think that figure is high? Debt maturities spike to $165 billion in 2014.

“It’s hard to see how all of that can be refinanced,” said Miller.

SECTORS 

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One steady bit of good economic news: Inflation remains near zero. So who would want to pay extra these days to add a dose of inflation protection in their portfolio?

Plenty of people. It turns out sales are hot for Treasury Inflation-Protected Securities, a common hedge against rising prices known by their acronym TIPS.

New money from investors and market gains have boosted total assets in mutual funds investing in TIPS nearly 36 percent so far this year, according to Morningstar Inc.

It’s part of a broader shift by many investors who have been scared away by stocks, despite the market’s hefty rebound from its March low. They’ve been piling into the greater safety of bonds, and TIPS — while not without risk — are about as safe as you can get.
The value of the underlying investment in TIPS rises with inflation, providing an additional layer of protection beyond what Treasury bonds offer.

Hardly anyone expects inflation to re-emerge as a big threat anytime soon, so TIPS aren’t necessarily the best short-term investment. But historically low interest rates and the federal government’s growing deficit are expected to drive prices higher, especially once the economy truly gets back on its feet and spending rebounds.

Here are some common questions and answers about TIPS:

How do TIPS work?

Introduced by the government in 1997, TIPS are a type of Treasury bond — investments that are super-safe, provided you believe the government will continue to make good on its credit obligations.

TIPS adjust their yield based on changes in the Consumer Price Index. The principal in TIPS adjusts every six months. The so-called "coupon" rises when inflation grows, and decreases in the less-likely instance of deflation. When the bond matures, you’re paid the adjusted principal or the original principal, whichever is greater. TIPS are sold in maturities of five, 10 and 20 years.

Investors in "nominal" Treasury bonds get a fixed rate of return if they hold the bonds until they mature. For example, 10-year Treasury notes are now yielding about 3.32 percent per year.

On the other hand, 10-year TIPS are yielding 1.55 percent, which doesn’t seem so good, until you consider what havoc inflation might wreak online cash advance. The difference — or "break-even rate" — between those two numbers is 1.77 percentage points. That suggests investors are expecting inflation will average 1.77 percent per year over the next 10 years. So if inflation exceeds that amount and erodes Treasuries’ current 3.32 percent yield, TIPS investors will be glad they paid for the protection.

Inflation had historically averaged 2 to 3 percent until falling to near zero when the market tanked last fall and deflation fears set in.

How have TIPS’ values held up lately?

Inflation and interest rate expectations are constantly changing, which is reflected in the prices traders are willing to pay for TIPS. Lately, TIPS have generally been seen as a good deal. Mutual funds investing in TIPS have returned an average of 8.63 percent so far this year, according to Morningstar. That puts TIPS in the middle of the performance pack among fixed-income fund categories.

How can I buy TIPS?

TIPS are available for purchase from the Treasury at http://www.treasurydirect.gov to avoid brokerage fees. If you’re not sure you can keep the bond until maturity and are nervous about managing your investment over time, you can buy into a mutual fund that focuses on TIPS, or an exchange-traded fund. Like TIPS mutual funds, TIPS ETFs hold baskets of TIPS with varying maturities but can be traded like a stock.

TIPS appear to carry little risk. Is that the case?

Any bond is subject to risk from rising interest rates, and TIPS are no exception. If the Fed boosts interest rates faster than inflation grows, or before inflation sets in, TIPS’ values will erode.

They also can be hit in a falling market, as happened last fall. Many institutional investors had to come up with cash to meet clients’ orders to pull out their money, forcing them to sell their most liquid investments. TIPS often fit the bill, and massive TIPs sales reduced prices. But as seen this year, they’ve bounced back.

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The jobless rate does not have to start falling before the Federal Reserve starts tightening monetary policy, a top Fed official said on Thursday.

Jeffrey Lacker, president of the Richmond Federal Reserve Bank, told Bloomberg Radio that he places more weight on the outlook for economic growth, and in particular, consumer spending.

“I don’t think it’s a show stopper if the unemployment rate hasn’t started falling,” Lacker said, reiterating similar comments he made in August.

But the Fed needs to look for growth to establish itself firmly before raising interest rates, he said.

The Federal Reserve aggressively slashed its benchmark federal funds rate to near zero last year and put in place a vast array of emergency support programs as it battled a deep recession.

Some Fed officials, including Governor Kevin Warsh, have argued that once the Fed decides to tighten policy, the pace of interest-rate hikes could also be swift.

“I think there is something to that, but we’ll have to judge as the data comes in,” Lacker said. “The question of timing and pace, that is a big open question.”

The Fed has the tools it needs to shrink its balance sheet, Lacker said. He also noted the Fed’s ability to tighten even with a large balance sheet by paying interest on reserves.

“We want to think about doing both … How we time those out, how we stage those, I think that’s for future work,” he said.

Inflation expectations are well-anchored, he said.

Lacker said he had been heartened by recent data on consumer spending, but added that it will take months before it is clear whether the consumer spending recovery is a trend.

That said, the risk of double-dip recession — in which the economy falls back into recession after a brief recovery — has “diminished quite substantially.”

(Additional reporting by John Parry; Editing by Jan Paschal)

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JPMorgan Chase & Co has reshuffled the leadership at its investment bank, naming a new chief executive who could eventually succeed Jamie Dimon as head at the No. 2 U.S. bank, in a shake-up that surprised many analysts and investors.

JPMorgan said Jes Staley, current head of the bank’s key asset management unit, will become the chief executive of the investment bank. Dimon, 53, is not expected to leave any time soon, but Staley’s promotion makes him a front- runner to succeed him, a person close to JPMorgan said.

“This sends the message that they have a deep bench and executives in place in the event Jamie Dimon were to depart,” said Bill Fitzpatrick, an analyst at Optique Capital Management.

Making way for Staley to take over at the investment bank, co-CEO Bill Winters will leave the firm and the other co-CEO, Steve Black, will stay on only for the transition as executive chairman of the unit.

“Jamie is a little young to be thinking about succession at this point,” said Nancy Bush, an analyst and founder of NAB Research.

Yet Dimon joins other Wall Street banks in firming up succession plans as the easing of the financial crisis gives him time to think about the future and as regulators step up scrutiny of bank governance.

“The timing was right to begin the succession process,” Dimon said in a statement.

Staley, 52, has held high-profile roles since he joined the bank 30 years ago as an economics graduate from Bowdoin College. He spent 20 years in the investment bank — including nine years in the Latin America division — and headed equity capital markets before becoming CEO of the private bank and then taking on the asset management operation.

Among other achievements, Staley persuaded Dimon in 2004 to take a stake in hedge fund Highbridge Capital, which has seen assets under management triple over the past five years, Duff McDonald wrote in his recent book about Jamie Dimon, “Last Man Standing.”

Mary Callahan Erdoes, 42, chief executive of JPMorgan’s private bank, succeeds Staley as head of asset management.

WINTERS OUT

Winters and Black were deeply involved in the acquisition and integration of Bear Stearns Cos. Like Dimon, they did not receive a cash bonus for last year.

At a meeting behind closed doors in London last week, Winters blamed “greedy bankers, investors and borrowers” for the financial crisis, according to a U.K. newspaper.

Winters and Black have been investment bank co-CEOs since 2004 — something of a record on Wall Street, where appointing co-heads often creates a power struggle, leaving just one head standing. Winters focused mainly on credit and trading from the London office, while Black, based in New York, focused on investment banking. 

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