Hot finance topics

When New Frontier Bank failed in April, regulators failed to find a buyer, forcing the FDIC to absorb the roughly $2 billion in assets that were once owned by the Colorado-based lender.

But what the FDIC may not have anticipated at the time was that the agency would be stuck with a grab-bag of other exotic assets including a white Bentley Arnage, three lawnmowers, a Fleetwood Motor home and more than two dozen works of art, most of which reflected the bank’s rural surroundings in northern Colorado.

The demise of New Frontier is just one example of the asset messes regulators are often stuck with once a bank is shuttered. At an auction held last month, regulators auctioned off a combined 300 copiers, printers and scanners that were once owned by the California mortgage lender IndyMac (IDMCQ), which collapsed last July in one of the biggest bank failures in history.

"It is just a potpourri of stuff," said Chip MacDonald, partner in the capital markets group at Jones Day, a law firm headquartered in Cleveland.

As of the end of March, the Federal Deposit Insurance Corp. had roughly $16 billion worth of failed bank assets just waiting to be liquidated, according to an agency report published earlier this month.

But that number is poised to climb higher as more banks fail. Last Friday, regulators seized five institutions across the country, the largest one-day instance of failures in years. Experts widely believe that that hundreds more banks could fail in the years ahead as a result of the current recession, which means plenty of work for the FDIC.

When a bank fails, the FDIC typically tries to find a buyer for the deposits and branches first before. If it’s unsuccessful, as was the case with New Frontier, the FDIC then looks to sell off the bank’s remaining assets.

Some of that work is handled by the agency itself, but much of it is farmed out to private-firms that specialize in managing and selling assets.

Regulators have largely looked to two firms - First Financial Network and DebtX - to market existing bank loans. Next month, Boston-based DebtX will oversee an auction for nearly $67 million in non-performing agriculture, consumer and business loans that were once owned by Illinois lender Corn Belt Bank and Trust Company, which failed in February.

The agency also recently struck agreements with a trio of auctioneer firms to handle the sale of everyday items used by the bank, such as computers, desks and other office furnishings, as well as cars, boats and industrial equipment a bank might have seized from borrowers that defaulted on their loans.

Helping to manage and sell both commercial and real estate properties for the FDIC is the Florida-based asset manager Prescient and commercial real estate giant CB Richard Ellis Group (CBG, Fortune 500) .

Time is money

While regulators can shut down and sell an ailing bank to a healthier institution over the course of a weekend, winding down an orphan bank can take a bit longer.

For example, regulators have had to cautiously dismantle the Atlanta-based Silverton Bank after creating a bridge bank to take over the company in early May.

Given the firm’s role as a so-called "bankers’ bank" providing everyday services to small-town lenders, it could take a total of five months to wind down the institution, MacDonald said, referring to the situation as "a mess."

Timing, however, can be everything when a bank fails, especially as regulators scramble to squeeze every dime out of a failed bank’s remaining assets paydayloans.

Consider the case of Downey Financial (DWNFQ). Last fall, just two months before regulators seized the California-based lender, the company was shopping its twin-towered, six-story headquarters in Newport Beach for a reported $115 million.

The nearly 43,000-square-foot piece of property is still up for grabs, albeit at a deep discount. Prescient is currently asking for $59 million for the property, according to its Web site.

Bliss Morris, president and CEO of First Financial Network, a 20-year-old Oklahoma-City-based firm, said the same holds true in trying to sell loans on behalf of the FDIC — the longer it takes to make a sale, the more likely it is that the loans will lose even more of their value.

Hoping to avoid some of those headaches, regulators have tried to forge loss-sharing arrangements with acquiring banks. Under such an arrangement, buyers agree to take on some of the bad assets in exchange for having the FDIC absorb some losses — typically over the next five to 10 years.

Regulators brokered such a deal with a consortium of private equity firms in May before authorities shuttered the Florida lender BankUnited FSB.

"The agency works very hard to sell as many assets they can with the deposit franchise," said Robert Hartheimer, a Washington, D.C.-based consultant and adviser to Promontory Financial Group, who once served as director of the FDIC division charged with overseeing bank failures.

Competing with the vultures

Even as such moves may soften the blow to the FDIC’s deposit insurance fund, it is clear that the agency needs to get the maximum possible value it can from failed bank assets.

In the first quarter, the value of the deposit insurance fund fell by $4.3 billion, or nearly a quarter of its value, to just over $13 billion.

Luckily, the demand for failed bank assets have been robust by all accounts.

Auctions of the more mundane items like office furniture have attracted everyone from fellow bankers to a school administrator in Atlanta who was looking to add new desks for her growing student population.

"Everything we have attempted to sell has been sold," said Rick Levin, president of the Chicago-based firm Rick Levin & Associates, one of the auction firms assisting the FDIC with its asset sales. "We are finding strong demand."

And while the bidding for real estate and loans sales has been dominated by institutional investors so far, there are indications that average Joes are also starting to express interest in scooping up toxic assets.

Bill Bartmann, a former distressed bank debt investor who recently published a book entitled "Bailout Riches" aimed at teaching people how to profit from buying bad loans on the cheap, notes several of his students have invested as little as $5,000 in loans once owned by failed banks.

While such investments come with plenty of risk, it stands to reason that individual investors could generate similar returns to "vulture investors" who are gambling millions of dollars on the possibility that there is still some value in those loans.

"It doesn’t always take a Morgan Stanley or Goldman Sachs to come to the table," he said. "This really is an opportunity." 

Source

Japan ordered Citigroup to suspend sale promotions for a month at its retail bank for lax oversight against money laundering, in the struggling U.S. bank’s second brush with Japanese regulators in five years.

The Financial Services Agency said Citigroup (C, Fortune 500) had not developed adequate systems to detect suspicious transactions such as money laundering, citing the same violation that led the regulators to close its private banking business in 2004.

Citigroup, which has 35 branches and generates about $2 billion in revenue a year from its retail and corporate banking division, Citibank Japan, apologized for the breach, saying it stemmed from the way it reported suspicious transactions.

"If Citibank cannot get its house in order, its operations in Japan may come under threat," said Neil Katkov, head of Asia research for financial services consultancy Celent.

"We have seen banks in the U.S. shut down for alleged loose money laundering compliance, and this is a sign that Japanese regulators are getting tougher."

The suspension comes as Citigroup tries to sell assets in Japan, an integral part of its efforts to raise cash after suffering more than $85 billion in losses on toxic assets and receiving a U.S. government bailout.

The bank agreed last month to sell its Japanese brokerage and investment banking assets to Sumitomo Mitsui Financial Group, Japan’s third-largest bank, for about $5 fast cash loan utah.9 billion.

It is also looking to sell its Japanese asset management arm, Nikko Asset Management, and telemarketer Bellsystem24 Inc, sources have told Reuters. The deals are expected to raise more than $1 billion each.

The FSA said Citigroup had not made improvements since the last regulatory crackdown in 2004, which prompted then-chief executive Charles Prince to make a public bow of apology in Japan, a custom for Japanese executives showing remorse.

The FSA said the lack of compliance showed Citigroup executives "… lack an understanding of the rules applied in Japan, such as laws and regulations, and an awareness of improvement".

Citibank Japan, which handles retail and corporate banking operations, had 299 billion yen in net assets and 1,548 employees as of the end of March, according to its web site.

Citibank Japan promised to submit a plan to the Japanese regulator by the end of July to remedy the problems.

While Citibank Japan cannot promote its retail products for the next month, customers can still initiate transactions with the bank, the FSA and Citigroup said in statements. 

Source

Unionized workers at the Globe and Mail have rejected the latest contract offer from the company.

Editorial, advertising and circulation workers voted 89 per cent today against a revised proposal emailed to them Friday.

The high no vote – based on a 65 per cent turnout – comes just days ahead of a strike deadline of 12:01 a.m. July 1.

Union spokesman Brad Honywill says the message sent by the vote is that "membership is resolved to seek a fairer deal auto car insurance quote."

Globe publisher and CEO Phillip Crawley could not be immediately reached for comment, but said Friday the company has no plans to lock employees out.

Of 292 ballots cast by union members at a Toronto hotel and other bureau locations, 260 voted against the offer.

Source

The Federal Reserve Bank of St. Louis named Christopher J. Waller senior vice president and director of research and Robert H. Rasch executive vice president and senior policy adviser.

Sachs Electric promoted Joseph T. Barnard to vice president, Sachs Select.

The Vandiver Group added Mike Amelung as Web developer and Kanna Taylor as a team member.

Evans & Dixon hired Eric Kukowski as of counsel in the workers’ compensation practice group.

Consolidated Design & Construction added Jessica Williams as a designer.

John R. Shivers III joined Pulaski Bank as assistant vice president and business development officer in the Florissant office.

The Sisters of Mercy Health System named Judy Akins vice president of marketing and Barb Meyer vice president of corporate communications.

Jay Wolfe Toyota hired Gerry Hogan as new-car sales manager.

Fitness Showcase promoted Rick Vemmer to president, Tammy Hauk to secretary-treasurer and Shawn Hannagan to director of sales.

Glik’s added Ashley Smith as senior assistant buyer of junior tops and dresses.

Gorman & Gorman Home Loans appointed Michelle Kuehn as processor/closer paydayloans.com.

Marketicity added Stacey Rynders as communications strategist.

Heartland Bank hired Melissa R. Wilson as senior vice president, wealth management/retail services.

Briarcrest added Theresa Rein as regional sales leader for Holiday Retirement’s Midwest operations.

Husch Blackwell Sanders added Brett D. Siglin as an associate in the banking and finance department.

Spencer Fane Britt & Browne named Thomas E. Osterholt, Jr. managing partner in St. Louis.

Weekends Only promoted David Lay as assistant manager of its Affton store.

Mark Steiner was appointed as an account executive for Eastern Missouri for Tension Envelope.

Clean The Uniform Co. named Lisa Hawthorne as customer service representative.

Compiled by Matt Fernandes

To submit items:

St. Louis Post-Dispatch

900 North Tucker Boulevard

St. Louis, Mo. 63101

E-mail: bizfolks@post-dispatch.com

Phone: 314-340-8200

Fax: 314-340-3060

Source

Bailed out financial giant Citigroup said Wednesday it is going to the raise base salaries of its employees, although it is not planning to increase their total compensation.

"Retaining and attracting the best talent is very important to the success of Citi and all its stakeholders," said Citigroup, in a statement.

The company insisted that total compensation, however, will remain constant — indicating that year-end bonuses and other special payments will be cut when pay is raised.

"Any salary adjustments are not intended to increase total annual compensation, rather to adjust the balance between fixed and variable compensation," Citigroup (C, Fortune 500) said.

Citigroup has received $45 billion in funds from the government’s Troubled Asset Relief Program, or TARP. The compensation restrictions that come along with the assistance mean that much of the bank’s top talent has been leaving.

The Obama administration has made a point of cracking down on excessive compensation.

When the bailed out insurance giant American International Group (AIG, Fortune 500) paid out $165 million in annual bonuses to its employees, the public was outraged and legislators called for the executives to return the bonus cash.

Among the administration’s actions to moderate compensation is the naming of a "pay czar," Washington attorney Kenneth Feinberg, who is responsible for approving major expenses for banks, automakers and insurers that took TARP funds.

In the financial industry, compensation is a combination of base salary, stock and option portfolios, and year-end bonuses, which were controversially high in the years leading up to the recent financial crisis paydayloan.

Citigroup’s stock has plummeted in recent months, leaving stock and option packages shriveling.

The Treasury Department has said bonuses paid to senior executives and other highly paid employees at TARP-aided banks can not exceed one-third of their total compensation package.

At banks that have been granted large amounts of bailout funds, the pay czar can review compensation for the top 100 salaried employees. Feinberg will have the authority to deem salaries excessive or inappropriate.

Firms receiving government funds also have to put in place a luxury expenditure policy that requires top executives to get board approval for the purchase of big-ticket items.

Companies fear that if they must abide by such government compensation limitations, they could lose executives.

In addition to Citigroup, Bank of America (BAC, Fortune 500) still holds $45 billion in funds in the TARP program. But 10 large financial firms, including JPMorgan Chase (JPM, Fortune 500) and Goldman Sachs (GS, Fortune 500), have been permitted to pay back TARP funds, freeing them of them of any restrictions to operate under compensation guidelines.

– CNN’s Karina Frayter contributed to this story.  

Source

The Pentagon ordered an end to an expensive Army modernization program led by Boeing’s St. Louis-based Integrated Defense Systems.

In a statement released on Tuesday, the Defense Department said it has ordered a "transition" from the $160 billion Future Combat Systems program to a series of acquisition programs that would ultimately extend some high-tech battlefield equipment to all combat brigades.

The Army will strip $87 billion worth of light-armored ground vehicles from the program and start over.

Defense Secretary Robert M. Gates proposed "significantly" restructuring the modernization program in April. He made it clear he wanted to cancel the ground vehicles, saying they were ill-suited for the kinds of wars the United States is fighting in Afghanistan and Iraq. He added that he also was "troubled by terms" of the single contract for the expensive modernization effort.
This year, the Government Accountability Office cautioned that the program was moving ahead even though some of the technology was unproven.

Boeing is the lead contractor for the modernization program along with Science Applications International Corp. of San Diego.

Future Combat Systems was the Army’s largest modernization program. It was designed to create a lethal, more agile combat force using a network of unmanned aircraft, sensors and other high-tech equipment affordable health insurance florida.

In a statement, Boeing said it was reviewing a Pentagon acquisition decision memorandum. While disappointed in the decision to cancel the manned ground vehicle portion of the program, the company said the Pentagon’s decision to expand network capabilities "reflects confidence" in the progress on the modernization program.

"We are committed to working closely with our Army customer to implement required changes to the program in a timely and efficient manner," the company said.

Pentagon officials told the Reuters news agency on Tuesday that Boeing would face competition to manage the replacement programs.

"Boeing will have an opportunity to participate in all those pieces," Ashton Carter, undersecretary of defense for acquisition, technology and logistics told the news service.

The Army will enter negotiations with Boeing on termination of the vehicle program, said spokesman Paul Mehney.

But Boeing will be retained to help develop the battlefield network that links high-tech gadgetry — unmanned aircraft and robots — to soldiers and their superiors, Mehney said.

Source

Apple is hopeful that the new iPhone 3G S, which was launched Friday, will help it fend off the increasing competition in the smartphone world.

It worked the last time. After Apple released the iPhone 3G in July 2008, its share leapt from 7.4% in the second quarter of last year to 30.1% in the third quarter, according to IDC data.

But this time, the iPhone isn’t the only new hot gadget around. The 3G S launch comes less than a week after rival Palm (PALM) unveiled its much ballyhooed Pre smartphone on the Sprint (S, Fortune 500) network, and RIM (RIMM) announced it will debut the new BlackBerry Tour on Sprint and Verizon (VZ, Fortune 500) in the coming months.

And indeed, stiff competition has eroded Apple’s smartphone share down to just 19.5% in the first quarter of 2009, compared to 55.3% for RIM.

Still, Piper Jaffray’s senior research analyst Gene Munster said he expects Apple to sell 500,000 iPhones over the weekend. That’s half of what Apple sold during the 3G launch, though that phone launched in 21 countries compared to eight for the 3G S. But that’s far more than the 50,000 Pres that analysts estimate Palm sold in the first two days of sales.

Lining up for the iPhone: Customers lined up at Apple Stores around the world to be among the first to own the new iPhone.

Apple (AAPL, Fortune 500) began its rolling release of the iPhone 3G S in the United States at 7 a.m. ET. It then debuted in successive time zones each hour. (For more on the iPhone 3G S launch, see the Apple 2.0 blog)

About 300 people stood outside the Apple Store on New York’s 5th Avenue — some of them since early Thursday — waiting for the doors to open. Inside the store, employees were seen being briefed about the new phone’s features before selling it to customers.

"I got on line at 2 a.m.," said Luis Palacios, 22, of New York, who was one of the first to emerge from the store with a new iPhone cashadvance. "It was really early, but it was worth it for the video."

Though lines were long, they were shorter than anticipated — the Apple Store put out many more yards of metal barriers than necessary. An Apple Store employee said it would likely take about three hours to sell iPhones to the customers who were lined up before the store opened. He said the line was longer during the last iPhone release in July.

Joining the would-be buyers were lots of reporters looking to see if the new device, unveiled at the Apple developers’ conference in San Francisco earlier this month, would attract the hubbub of previous iPhone versions.

The 3G S version comes equipped with a 3-megapixel camera with video capturing and editing capabilities, improved battery life with up to 12 hours of talk time and 30 hours of audio, voice-command control, and a built-in digital compass.

"The new iPhone is redefining what people can do on a phone," said Chad Evans, an app designer for mlb.com. "We’re now able to live stream complete games on a handheld device."

The 16-gigabyte iPhone 3G S can be had for $199 with a new contract with exclusive carrier AT&T. The 32-gigabyte version costs $299 with a new activation.

Apple will also continue to sell a second-generation iPhone 3G with 8 gigabytes of memory for $99.

The new OS 3.0 operating system, which was launched last week, comes installed on the iPhone 3G S, and is available for free download on all existing iPhones. OS 3.0 enables users to cut, copy and paste for all applications, which iPhone users have long demanded. The operating system also features an undo gesture, which will undo the last action by shaking the phone. 

Source

NEW YORK — They say one thing, but often mean another. It’s one reason credit card statements can slowly ensnare people into bigger debt loads. The mysterious stew of fine print on the back of bills doesn’t help clarify matters.

A law passed last month will bring some relief. Starting next year, credit card companies will need to make statements easier to read and spell out the price of carrying a balance.

For instance, companies will need to provide a table showing how much interest charges will cost if only minimum payments are made. Cardholders will also be shown how much they need to pay each month to deplete a balance within three years.

What the law won’t do is wipe statements clean of misleading or confusing terms. The details of just how banks will implement the changes by February aren’t yet clear either.

So until then, here’s a guide to decoding what your credit card statement really means.

AVAILABLE CREDIT

There are two reasons why the term "available credit" is misleading.

The first is that card companies don’t have to stop you from exceeding your credit limit. But they will slam you with a fee for doing so.

Nearly all cards have over-the-limit fees, with the average being about $29, according to Consumer Action, an advocacy group based in Washington. One provision of the new credit card law is that card holders will have to elect the option to make charges beyond their limits.

The second reason the term is misleading is that a transaction can be denied before your so-called available credit is used up. This might happen if your spending habits are deemed risky or out of character.

A common mistake is confusing your available credit with your cash advance credit line. The two should be listed separately, with the latter coming with a significantly higher interest rate.

AVERAGE DAILY BALANCE

It’s easy to dismiss this figure, because its purpose isn’t immediately clear. The bottom line: It’s an amount used to calculate finance charges business card.

To determine your interest charge, the card company starts with the average daily balance — which is your balance at the end of each day during a billing period, divided by the number of days in the period.

That number is then multiplied by a monthly period rate, which is the annual interest rate divided by 12. This determines your financing charges for a given billing period.

In some cases, banks use daily periodic rates, meaning they divide the annual interest rate by 365. The rates should be listed under a heading such as "Finance Charge Schedule."

So what does that mean for you? Paying off bills early — even before the due date — would lower your average daily balance and subsequently your financing charges.

DUE DATE

Even if you mail your payment so it arrives by the due date, don’t be surprised if you’re slapped with a late fee.

One reason is that deadlines can be for a specific time, sometimes as early as 1 p.m. So if your payment isn’t processed until later in the afternoon — boom — late fee. The time that your payment is due is usually buried somewhere in the terms on the back of your bill.

The new law will push due date deadlines back to 5 p.m. and require that they don’t fall on a holiday or weekend.

RESIDUAL INTEREST

Let’s say you pay off a $1,000 balance. But the next month, you get a bill for interest charges on that $1,000. This is called residual interest.

What’s happening is that interest continues accruing on debt in that window of time between when your statement was issued and when you make your payment. By the time you get your statement and submit the payment, you’ve racked up more interest.

Source

The Bank of Japan should consider whether to stop pumping extra cash into the banking system by evaluating trends in corporate financing and the economy, some policy board members said last month.

They said whether to keep buying corporate debt from banks and providing them with unlimited loans after Sept. 30 “should be determined based on close examination of developments in financial markets and corporate financing,” according to minutes of their May 20-21 meeting published in Tokyo today.

Governor Masaaki Shirakawa said this week that the central bank will decide how to deal with the measures “by the end of September in a predictable manner to market participants.” The Bank of Japan said this week that the country’s worst postwar recession is easing as fiscal stimulus measures worldwide spur demand and companies increase production.

“The governor explicitly indicated the bank will let financial markets know in advance should it decide to make any changes to the policy measures,” said Junko Nishioka, chief Japan economist at RBS Securities Japan Ltd. in Tokyo. “The bank probably wants to allow investors to incorporate policy changes sufficiently beforehand.”

The yen traded at 96.68 per dollar at 9:55 a.m. in Tokyo from 96.66 before the minutes were published.

At the May meeting, the policy board raised its assessment of the economy for the first time since 2006. It lifted the evaluation again this week, saying the economy has “begun to stop worsening.” Still, Shirakawa said he is “cautious” about the rebound because renewed demand may only be temporary.

‘Lose Steam’

“Japan’s economy will probably return to growth this quarter and achieve a pretty solid expansion next quarter,” said Ryutaro Kono, chief economist at BNP Paribas SA in Tokyo. “However, the rebound will lose steam next year, when the stimulus effect evaporates. It may well become the shortest recovery since the end of World War II.”

One board member said the central bank needs to pay attention to the risk that bond yields will rise because the government plans to issue more debt. Higher bond yields drive up borrowing costs on mortgages and loans.

The yield on Japan’s 10-year bond rose to 1 online payday loans.47 percent at 9:55 a.m. today after touching 1.44 percent yesterday, the lowest since May 26.

Some members said there’s a risk that companies and households will expect prices to fall as demand slackens. A Cabinet Office official who attended the meeting also alluded to the risk that deflationary expectations may take hold.

Falling Prices

Consumer prices excluding fresh food declined in March and April, and the central bank expects them to keep falling next fiscal year.

At the same time, some members said the bank should watch the risk that commodity prices will increase, stifling the economy’s revival by increasing costs for companies and consumers. Crude oil has risen 20 percent in the past month.

Since lowering the overnight lending rate to 0.1 percent in December, the central bank began buying commercial paper and corporate bonds from lenders. It has also offered to lend to commercial banks limitlessly in exchange for sufficient collateral. The programs expire on Sept. 30.

A weak recovery will probably compel the bank to keep rates on hold until 2012 at the earliest, Nishioka added.

Finance ministers from the Group of Eight nations said over the weekend that they need to begin considering how to roll back policies to counter the financial crisis as their economies show signs of improvement.

Ending Policies

Atsushi Mizuno, a Bank of Japan board member, last month said central banks need to start discussing how to end their unconventional policies even though the global economy is still in a slump.

BOJ policy makers forecast the world’s second-largest economy will return to growth in the year starting next April after contracting for two years.

Gross domestic product will shrink 3.1 percent in the year ending March and expand 1.2 percent in the following 12 months, the central bank said in its twice-yearly outlook on April 30. Policy makers will review the forecasts next month.

One board member said the central bank’s decision in May to start accepting sovereign bonds from the U.S., the U.K., France and Germany should become a permanent measure.

Source

The Bank of Japan should consider whether to stop pumping extra cash into the banking system by evaluating trends in corporate financing and the economy, some policy board members said last month.

They said whether to keep buying corporate debt from banks and providing them with unlimited loans after Sept. 30 “should be determined based on close examination of developments in financial markets and corporate financing,” according to minutes of their May 20-21 meeting published in Tokyo today.

Governor Masaaki Shirakawa said this week that the central bank will decide how to deal with the measures “by the end of September in a predictable manner to market participants.” The Bank of Japan said this week that the country’s worst postwar recession is easing as fiscal stimulus measures worldwide spur demand and companies increase production.

“The governor explicitly indicated the bank will let financial markets know in advance should it decide to make any changes to the policy measures,” said Junko Nishioka, chief Japan economist at RBS Securities Japan Ltd. in Tokyo. “The bank probably wants to allow investors to incorporate policy changes sufficiently beforehand.”

The yen traded at 96.68 per dollar at 9:55 a.m. in Tokyo from 96.66 before the minutes were published.

At the May meeting, the policy board raised its assessment of the economy for the first time since 2006. It lifted the evaluation again this week, saying the economy has “begun to stop worsening.” Still, Shirakawa said he is “cautious” about the rebound because renewed demand may only be temporary.

‘Lose Steam’

“Japan’s economy will probably return to growth this quarter and achieve a pretty solid expansion next quarter,” said Ryutaro Kono, chief economist at BNP Paribas SA in Tokyo. “However, the rebound will lose steam next year, when the stimulus effect evaporates. It may well become the shortest recovery since the end of World War II.”

One board member said the central bank needs to pay attention to the risk that bond yields will rise because the government plans to issue more debt. Higher bond yields drive up borrowing costs on mortgages and loans.

The yield on Japan’s 10-year bond rose to 1 cash loans.47 percent at 9:55 a.m. today after touching 1.44 percent yesterday, the lowest since May 26.

Some members said there’s a risk that companies and households will expect prices to fall as demand slackens. A Cabinet Office official who attended the meeting also alluded to the risk that deflationary expectations may take hold.

Falling Prices

Consumer prices excluding fresh food declined in March and April, and the central bank expects them to keep falling next fiscal year.

At the same time, some members said the bank should watch the risk that commodity prices will increase, stifling the economy’s revival by increasing costs for companies and consumers. Crude oil has risen 20 percent in the past month.

Since lowering the overnight lending rate to 0.1 percent in December, the central bank began buying commercial paper and corporate bonds from lenders. It has also offered to lend to commercial banks limitlessly in exchange for sufficient collateral. The programs expire on Sept. 30.

A weak recovery will probably compel the bank to keep rates on hold until 2012 at the earliest, Nishioka added.

Finance ministers from the Group of Eight nations said over the weekend that they need to begin considering how to roll back policies to counter the financial crisis as their economies show signs of improvement.

Ending Policies

Atsushi Mizuno, a Bank of Japan board member, last month said central banks need to start discussing how to end their unconventional policies even though the global economy is still in a slump.

BOJ policy makers forecast the world’s second-largest economy will return to growth in the year starting next April after contracting for two years.

Gross domestic product will shrink 3.1 percent in the year ending March and expand 1.2 percent in the following 12 months, the central bank said in its twice-yearly outlook on April 30. Policy makers will review the forecasts next month.

One board member said the central bank’s decision in May to start accepting sovereign bonds from the U.S., the U.K., France and Germany should become a permanent measure.

Source