Financial bonanza

Group of Seven finance ministers and central bankers meet on the edge of the map today, with their policies all over it.

As they gather 195 miles south of the Arctic Circle in Iqaluit, Canada, officials are seeking more unity on bank regulation after unilateral steps by the U.K. and U.S. The end of collaboration, forged during the financial crisis, may soon spread to monetary and fiscal policies as economies exit their recessions at different speeds.

The unpredictability of policy and politics has JPMorgan Chase & Co. and Standard Chartered Bank warning investor confidence may suffer, potentially curtailing demand for riskier assets such as stocks. The Chicago Board Options Exchange Volatility Index had its biggest weekly advance last month since October 2008 as speculation mounted China would act to curb inflation and U.S. President Barack Obama proposed limiting the size and proprietary risk-taking of large banks.

Countries are moving “from synchronous to divergent financial policies,” said Stephen Jen, a money manager at London-based hedge fund BlueGold Capital Management LLP, who predicts the dollar will outperform the euro as U.S. interest rates rise faster. “For the asset markets, policy risks will become increasingly more important than economic risks.”

Dog-Sledding

To bring policies of industrialized countries closer together, Canadian Finance Minister Jim Flaherty, who chairs the two-day meeting starting tonight, is isolating G-7 officials, including U.S. Treasury Secretary Timothy F. Geithner and European Central Bank President Jean-Claude Trichet, in a former whaling and fur-trading outpost that is now the capital of Canada’s northernmost territory, Nunavut.

Officials will be offered the chance to go dog-sledding as well as have a fireside chat about the future of the G-7. Other topics set to be discussed include currencies, fiscal policies, aiding Haiti and financial reform.

The town of just over 6,000 people, where pick-up trucks share the roads with snowmobiles, has an average temperature in February of 29 degrees Celsius below zero (minus 20 degrees Fahrenheit). Wind chills sometimes bring that down to as cold as minus 50 degrees Celsius, freezing exposed skin within minutes.

Political Pressure

“Different countries have taken different steps,” Flaherty said in a Jan. 29 interview in Davos. “It’s time we have a conversation about that and coordinate more. I understand the political pressures some are facing.”

Efforts by Canada to narrow differences come as its bank executives call for more certainty and uniformity in regulations. Canada’s five largest banks — Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal and Canadian Imperial Bank of Commerce — are all among North America’s 20 largest banks by assets and largely escaped the credit crisis. Unlike the U.S. and Europe, Canada didn’t require a bailout of its banking industry.

“We have concerns about what appears to be a lack of unanimity and consistency regarding financial sector reform and the unintended consequences of individual policies,” Royal Bank Chief Executive Officer Gordon Nixon, 53, said in an e-mail. “I would urge G-7 countries to address the root causes and work towards a regulatory model that finds the right balance between risk and reward while enabling the banking industry to not only grow but serve as a catalyst for economic growth.”

Divergences

Five months after the Group of 20 pledged to “raise standards together,” the U.K. is imposing a one-time 50 percent tax on bank bonuses that France wants to mimic. As well as trying to revamp the shape of financial companies in a push others aren’t following, Obama is also placing a new bank levy that Flaherty won’t match. Europe and North America are already at odds over whether to tax financial speculation.

Divergences could slow the push for international regulation and create loopholes for banks to take advantage of, said Barry Eichengreen, a University of California at Berkeley economist.

“On bank reform there is undesirable splintering when they need to work in synch and quickly,” said Eichengreen.

Politics may help explain the targeting of banks as elections near in the U.S. and U.K., said Alex Barrett, global head of client research at Standard Chartered in London. Obama announced his plan to rein-in banks the same week his Democratic party lost a Senate seat in Massachusetts.

‘Source of Volatility’

Where the fear of political intervention was once an “intangible uneasiness” in the markets of emerging nations, now it will be a “significant source of volatility” for investors in richer countries, Barrett said, identifying protectionism and currency depreciations as looming risks.

After reviving economies from recession, fiscal policies may also upset markets and economies, as governments either struggle to cut ballooning sovereign debt or try to pay for social programs by raising taxes on companies, which then can’t invest, said Bruce Kasman, chief economist at JPMorgan Chase in New York.

European stocks plunged the most in two months yesterday on concern Portugal, Spain and Greece will have difficulty paring their budget deficits. Meantime, Obama’s budget last week included plans to spend $100 billion in additional stimulus measures and take in an extra $400 billion from companies.

“There is a near-term risk that policy uncertainty weighs on sentiment and tempers the shift from retrenchment now underway,” said Kasman.

Fragility

Having surged 80 percent in 2009, China’s benchmark Shanghai Composite Index has fallen 8.6 percent this year as the government starts to restrain credit growth after its economy grew the quickest since 2007 in the fourth quarter and inflation rose the most in 13 months in December.

“Global growth could easily be choked off if policy makers prematurely withdraw fiscal and monetary policy support,” said Andrew Cates, an economist at UBS AG in Singapore. “Investors have taken note of this fragility.”

Any disparities would be a marked change from the crisis period when the decision of policy makers to cut interest rates to record lows, spend more than $2 trillion in fiscal stimulus and bail out banks including Citigroup Inc. buoyed markets.

BlueGold’s Jen is now betting on a policy split emerging among the major economies. He says the U.S. Federal Reserve may offset budgetary stimulus by tightening monetary policy while the European Central Bank keeps its benchmark rate low as investors force governments to slash spending. In Asia, he expects Japan to maintain monetary and fiscal expansions and China to cut back on both fronts.

“Such a divergence in policy mixes will be a source of volatility and a propellant of new trends in asset markets,” Jen said.

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Bill and Melinda Gates on Friday made the largest donation ever to a single cause: $10 billion to develop vaccines for the world’s poorest nations.

The 10-year goal is to reduce child mortality by spurring vaccine investments by governments and the private sector, the Gates Foundation announced at the World Economic Forum in Davos, Switzerland.

"Vaccines already save and improve millions of lives in developing countries," Bill Gates, the founder and former chief executive of Microsoft (MSFT, Fortune 500), said in a statement. "Innovation will make it possible to save more children than ever before."

The $10 billion investment is the biggest pledge ever made by a charitable organization to a single cause, according to The Chronicle of Philanthropy, a newspaper covering nonprofits.

The commitment is larger than the entire assets of the Ford Foundation, the second wealthiest foundation in America with about $9.6 billion, the Chronicle said. The Gates Foundation, with $34 billion in assets, is the largest U.S. philanthropy.

But even an investment of this size is not enough to cover all the health needs of developing nations, Bill Gates told CNNMoney’s Poppy Harlow in Davos.

"We need the governments in both rich and poor countries to come along," he said.

While the funds will support many vaccine-related activities, the foundation said billions more are needed to achieve the foundation’s goal of immunizing 90% of children in the developing world.

"The Gates Foundation’s commitment to vaccines is unprecedented, but just a small part of what is needed," said Margaret Chan, director-general of the World Health Organization.

The investment aims to prevent the deaths of some 7.6 million children under age 5 through 2019 by increasing delivery of life-saving vaccines for ailments such as severe diarrhea and pneumonia to the developing world.

The foundation estimates that an additional 1.1 million children could be saved with the rapid introduction of a malaria vaccine beginning in 2014, bringing the total number of potential lives saved to 8.7 million. Even more could be saved if vaccines are developed for other illnesses, such as tuberculosis, that are common in developing countries, the charity said.

"Vaccines are a miracle," Melinda Gates, co-founder and co-chair of the foundation, said in a statement. "With just a few doses, they can prevent deadly diseases for a lifetime."

The foundation has already committed $4.5 billion to vaccine research, including $1.5 billion to the GAVI Alliance, which works to expand childhood immunization.

The Seattle-based foundation has a dual mandate. Globally, it seeks to enhance the quality of health care and reduce poverty. In the United States, it works to expand educational opportunities and widen access to information technology.

Over the last ten years, the foundation has given grants totaling $21.08 billion to organizations such as the World Food Program, the United Negro College Fund and others.

The investment announced Friday is unprecedented in size, philanthropy experts said. The $10 billion commitment dwarfs previous records, including the $1 billion pledge Ted Turner made to the United Nations in 1998.

Turner, the media mogul who founded CNN, created the United Nations Foundation to help the UN aid developing countries.

Bill Gates, the world’s richest man, has devoted most of his time to philanthropy since he left his day-to-day role as chairman of Microsoft in 2008. He remains part-time chairman of the software giant.

Gates, who recently donated $1.5 million for relief efforts in Haiti, said the impoverished Caribbean nation is going to need financial support for several years as it struggles to recover from a devastating earthquake.

"The goal in Haiti should not be to get Haiti back to where it was before," Gates said in an interview with CNNMoney.

"There’s going to be a need for investment not just in the next six months: It’s going to take several years, so I hope we can sustain the attention there," he added.

– CNN wires contributed to this report. 

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For years, Toyota Motor was the automaker that could do no wrong. Now it’s made a major mistake likely to have a lasting impact on the company.

Toyota last week recalled 2.3 million vehicles spread across eight of its models because of problems with a sticking accelerator. Then on Tuesday night it said it would stop selling those vehicles for an indeterminate period as it scrambles to find a solution.

The models affected include the company’s three best sellers in the United States — the Camry, Corolla and Rav4 SUV. Between them, they accounted for more than half of the Toyota brand’s U.S. sales in 2009.

Five North American plants will halt production of these vehicles. The five plants have 14,000 employees, but they will be given training and other duties for the week of Feb. 1, according to Toyota spokesman Mike Goss. Asked about the potential for layoffs, Goss would not speculate what Toyota will do if the sales halt extends beyond that week.

All the affected Toyota vehicles are made in the company’s North American plants, which are the source of 60% of the vehicles it sells here.

A Toyota spokesman said the company has not yet assessed any lasting impact this would have on its sales or market share.

"It’s hard to tell long-term. Obviously, this isn’t a positive," said spokesman John Hanson. "These are measures that we’re taking to assure the safety of our customers and to help restore their confidence in Toyota."

Damage to brand to linger. But industry experts say that even when the plants start turning out these vehicles again, the damage to the Toyota brand and the company’s sales may already have been done.

"They’ll get through this, but I don’t think it’s anything they will recover from quickly," said Erich Merkle, president of Autoconomy.com, an industry analysis firm. He said that Toyota will be particularly hard hit because so much of its sales strength in the past was based on what had been an untarnished reputation.

"People don’t buy [Toyotas] for their good looks. They don’t buy it for the cash-back or financing offers," he said. "They buy them because they have a lot of confidence in the quality and safety of the vehicle."

Shares of Toyota Motor fell 4% in Tokyo Wednesday while Toyota (TM) shares that trade in the U.S. on the New York Stock Exchange were down 7% in late morning trading.

Other experts said Tuesday’s actions should help assure Toyota buyers that the company is still committed to quality and safety, even though the company had little choice but to halt sales according to the National Highway Transportation Safety Administration.

"Too many jobs and lost sales are involved for this to be a PR stunt," said Dan Edmunds, director of vehicle testing for auto sales site Edmunds.com. "They must really be concerned about this being something other than a rare condition. Hopefully this means the fix is very close to being ready, because suspension of production and sales is not tolerable for very long."

Toyota facing tougher competition. Experts agree that this is a bad time for Toyota to stop selling some of its most popular models, even briefly.

Merkle said that Korea’s Hyundai Motor Group, as well as American rivals General Motors and Ford Motor (F, Fortune 500), have similar vehicles to the ones recalled by Toyota which are far more competitive than they’ve been previously. Loyal Toyota customers who decide to look at other offerings are more likely to find something they like than they might have been in the past.

"The competition has picked up. Toyota fending off those rivals was going to be enough a challenge without this safety issue," he said.

The United States is the largest market for Toyota worldwide. But after years of strong, steady growth, its U.S. market share essentially plateaued in 2009, as Hyundai and Ford recorded bigger gains in a terrible year for sales overall.

Making matters worse for Toyota is that the issues with its vehicles keep growing. First the problem was believed to be just with floor mats, but now there are problems with the accelerator as well.

"I can’t help but think that the company’s credibility is being called into question," said Michelle Krebs, senior analyst with Edmunds.com. 

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SAN FRANCISCO-Apple Inc. reported much better-than-expected quarterly margins on record sales of iPhones and Mac computers, driving a big jump in quarterly revenue and earnings.

The stock fell in after-hours trading, erasing its gains of 2.7 per cent on Nasdaq before the close. Investors had also snapped up the stock days ahead of the hugely anticipated Wednesday launch of a tablet computer.

Apple said Monday it shipped 8.7 million iPhones in the holiday quarter, just short of the Wall Street target of roughly 9 million. Mac sales continued to show momentum, rising 33 per cent from a year ago to 3.36 million units. Analysts, on average, had expected sales of about 3 million Macs.

Gross margin came in at 40.9 per cent, up from 37.9 per cent a year ago and trouncing Wall Street’s estimate of 35.8 percent.

Although Wall Street is already looking ahead to Wednesday’s tablet announcement, Apple’s holiday quarter results provided the company with a strong start to the week payday loans.

Apple, which has surpassed Wall Street expectations for earnings per share by at least 15 percent in the past four quarters, adopted new accounting standards for its fiscal first quarter.

The company posted net income of $3.38 billion (U.S.), or $3.67 a share in the fiscal first quarter ended Dec. 26, up from $2.26 billion, or $2.50 cents a share, in the year-ago period, when the old accounting standard was used.

Revenue rose to $15.68 billion from $11.9 billion.

Apple forecast earnings for the current quarter of $11 billion to $11.4 billion on earnings of $2.06 to $2.18 a share.

Apple shares have more than doubled over the past 12 months. The stock fell to around $200.55 after closing at $203.08 on Monday.

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PokerTek Inc. plans to start marketing and distributing its PokerPro automated poker tables to markets in other countries.

“Significant opportunities exist to increase market share for PokerPro, particularly in the European gaming markets,” says Mark Roberson, PokerTek’s acting chief executive.

The Matthews-based company recently installed its first PokerPro table in Mexico at the Emotion Bingo gaming property in Puerto Vallarta.

PokerTek (NASDAQ:PTEK) is a software-development company that markets electronic tables for up to 10 players of Texas Hold ’Em fast cash loans. The company’s PokerPro system deals cards, displays them on private screens to the players and provides general information on a large screen in the center of the table. It also enables customers to set up accounts for betting and keeps statistical information on the games.

The system is designed to boost casino revenue by increasing the number of hands per hour and reducing poker rooms’ labor costs.

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Chrysler will be the only U.S. automaker to advertise in this year’s Super Bowl, forking over millions of dollars to restore its image following its bankruptcy and the federal bailout that followed.

"What better way to illustrate to our customers that we are still here than to air on the Super Bowl, which is not only watched for the game, but also for the advertising spots," said Chrysler spokeswoman Dianna C. Gutierrez.

She said that Chrysler will advertise its Dodge Charger in a 60-second commercial that will showcase "the passion of Dodge."

A 60-second spot is the longest and the most expensive ad available during the Super Bowl. The 30-second spots are more common, and are selling for about $3 million each according to Dana McClintock a spokesman for CBS, which is airing this year’s Super Bowl. It isn’t clear exactly how much Chrysler is paying, but CBS said on Thursday that it was close to selling out.

Chrysler has been struggling for some time. The automaker was rescued by a $7 billion bailout from the U.S. government, and then sold a minority stake to Italian automaker Fiat.

"My guess is that Chrysler wants to take the opportunity to talk to the American people and say, ‘We’re here, we’re a long term player, and we have a good product,’" said Jim Cain, marketing executive with the Quell Group, a brand communications firm based in Troy, Mich.

Viewers won’t hear anything from the rest of the Big Three during the big game either; both Ford Motor (F, Fortune 500) and General Motors have said they’re skipping it this year.

GM, which received a $50 billion government bailout, won’t advertise during the game because the company doesn’t have any new cars launching, according to spokeswoman Ryndee Carney.

"We don’t have anything new to talk about," she said, noting that GM did not advertise in the 2009 game, either.

Quell’s Jim Cain speculated that Ford and GM bowed out of the year’s biggest Bowl game because the ads are so expensive.

"It’s a lot of resources to put towards one 30 or 60 second spot on one night when you have to advertise for the rest of the year," he said.

"The Super Bowl is a very crowded game," he said. "It’s a very competitive advertisement arena and you’re one fish in a very large ocean."

Still, Chrysler is probably hoping to tap into the massive audience that goes along with all of that. Last year’s ratings were a record high, with 98.7 million people tuning in to watch the Pittsburgh Steelers beat the Arizona Cardinals.

CBS identified several foreign automakers that will also be advertising in the 2010 Super Bowl, including Honda, Hyundai, Kia, Audi and Volkswagen.

The 43rd Super Bowl will be played Feb. 7 at Dolphin Stadium in Miami Gardens, Fla. 

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Households in the Seattle area spent an average of $63,565 per year in 2007 and 2008, about 26 percent more than the $50,063 spent by an average U.S. household during the same time.

According to data compiled by the U.S. Bureau of Labor Statistics, although Seattle households spent more money than a typical U.S. household, they allocate their expenditures in about the same percentages in various spending categories.

For example, the average U.S. household spent 34 percent of its total expenditures on housing costs during 2007 and 2008; the average Seattle household spent 33 low interest rate personal loans.8 percent on housing during the same time. The average U.S. household spent 17.3 percent of its total expenditure on transportation but the category represented only 15.2 percent of a Seattle household’s total expenditures.

Seattle households spent 12.2 percent of their total expenditures on personal insurance and pensions; that was more than the U.S. average of 10.9 percent.

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Confidence among Japanese merchants rose for the first time in three months in December, rebounding from the previous month’s record drop.

The Economy Watchers index, a survey of barbers, taxi drivers and others who deal with consumers, climbed to 35.4 from 33.9 in November, the Cabinet Office said today in Tokyo.

Government stimulus spending and renewed demand from abroad helped pull Japan from its deepest postwar recession last year. While exports to Asia will probably ensure the recovery is sustained, companies that depend on domestic consumers will struggle to contribute until wages climb, said Kyohei Morita, chief economist at Barclays Capital.

“Businesses still can’t afford to stop cutting costs,” Tokyo-based Morita said before today’s report was released. “It’s still too early for incomes to start rising.”

Aeon Co., the country’s largest supermarket operator, posted a net loss of 9.93 billion yen ($108 million) for the nine months ended November, the company said last week. Large service firms expect their profits to tumble 10.5 percent in the year ending March, following a 27.6 percent drop the year before, the Bank of Japan’s Tankan survey showed last month.

The yen traded at 92.23 per dollar at 2:09 p.m. in Tokyo from 92.20 shortly before the report was released.

The merchant index’s seven-point drop in November was the biggest since the survey began in 2000, according to Bloomberg data. A measure of the outlook for confidence climbed to 36.3 last month from 34.5.

Falling Wages

Shrinking profits have suppressed wages for 18 months and sapped winter bonuses, which are often equivalent to several months of pay. Large businesses cut the bonuses by 15 percent to 755,628 yen ($8,200), the steepest drop since the survey began in 1959, the Japan Business Federation said last month.

Employers are also reluctant to hire, leaving every 100 job seekers to compete for only 45 positions.

Other reports today added to evidence that the recovery is relying on demand from abroad as spending slumps at home. Exports fell the least in 14 months in November, helping the current-account surplus expand to 1.1 trillion yen, the Finance Ministry said. Meanwhile bank lending declined for the first time in four years in December as companies pared expenditure, Bank of Japan figures showed.

Prime Minister Yukio Hatoyama unveiled a 7.2 trillion yen emergency package on Dec. 8 to prevent the economy from slipping back into a recession, adding to more than 20 trillion yen in stimulus injected by the previous administration that was ousted by his Democratic Party of Japan in August. Hatoyama’s plan supplements measures already implemented, including incentives to purchase cars and household appliances.

“The stimulus is there to prop up the economy until corporate profits recover enough to lift the job market, said Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co. “So far, I think the measures have been successful in doing so.”

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A government report Thursday on claims for unemployment aid signaled that layoffs are easing and the economy could be on the verge of posting the first monthly gain in jobs in two years.

The number of people claiming first-time unemployment benefits barely rose last week, the Labor Department said, after falling to its lowest level since July 2008 the previous week. And the four-week average of claims fell for the 18th straight week — to its lowest point since September 2008, when the financial crisis intensified with the collapse of Lehman Brothers.

The four-week average of first-time claims is nearing the 425,000 that many economists say would be a sign the economy will start creating jobs.

The Labor Department will issue a more comprehensive snapshot of the job market on Friday, when it releases the monthly jobs report for December. Overall, economists forecast that the unemployment rate will rise to 10.1 percent from 10 percent and that employers will have shed a net 8,000 jobs instant payday loans.

The steady drop in first-time unemployment claims, and other signs of economic improvement, have led some analysts to predict slight job growth. Even a small net gain in jobs, though, wouldn’t be enough to lower the unemployment rate anytime soon. Nor would it go far toward restoring the estimated 8 million jobs lost during the recession.

Still, a gain in jobs could improve consumer confidence and spur greater spending, fueling the economic recovery.

Many analysts predict the economy grew by up to 4 percent at an annual rate in the October-December quarter. Fed officials and private economists worry that much of the recovery stems from temporary factors, such as government stimulus and businesses rebuilding inventories.

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French consumer confidence unexpectedly slipped in December for the first time in four months as concerns about purchasing power outweighed the impact of government incentives to spur the economy.

A gauge of household sentiment fell to minus 31 from an almost two-year high of minus 30 in November, Paris-based national statistics office Insee said today. Economists expected a reading of minus 30, according the median forecast of six economists in a Bloomberg News survey.

President Nicolas Sarkozy’s government this year will reduce the tax cuts and car-purchase incentives that helped end France’s worst recession in 60 years in the second quarter business card. The reduction in stimulus comes as France’s jobless rate, currently at a three-year high of 9.5 percent, is set to climb to 10.2 percent by the middle of this year, Insee said on Dec. 18.

Consumer spending, which accounts for about 15 percent of the economy, unexpectedly fell in November as households grappled with the impact of rising unemployment.

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