My finance view

The European Central Bank may today announce plans to scale back its emergency lending while keeping interest rates at a record low to foster an economic recovery.

ECB policy makers meeting in Frankfurt will leave the benchmark interest rate at 1 percent, according to all 54 economists in a Bloomberg News survey. President Jean-Claude Trichet will say the ECB’s third offer of 12-month loans to banks on Dec. 15 will be the last and may also signal a reduction in other lending operations, economists said.

The ECB, which has been flooding banks with cheap cash to fight Europe’s worst recession since World War II, said last month it will gradually withdraw the extra liquidity to prevent inflation as the economy gathers strength. At the same time, officials don’t want to give the impression they’re moving closer to rate increases, people familiar with their discussions said. Any indication that the ECB could tighten policy sooner than the Federal Reserve may fuel further gains in the euro.

“This is going to be the big one,” said James Nixon, co- chief European economist at Societe Generale SA in London. “They need to very, very carefully set out a timetable for how liquidity will be drawn down, but they don’t want to plant expectations that the exit implies they’ll raise interest rates.”

The ECB announces its rate decision at 1:45 p.m. and Trichet holds a press conference 45 minutes later.

Global Stimulus

While Australia’s central bank has raised rates three times in as many months, the Fed and the Bank of England have signaled they’re in no rush to increase borrowing costs from record lows as their economies struggle to shake off the effects of the biggest global slump since the Great Depression. The Bank of Japan announced new measures this week, saying it will offer three-month loans to banks at 0.1 percent to combat deflation.

Trichet will today unveil the ECB’s new staff projections, including the first forecasts for 2011. Governing Council members such as Luxembourg’s Yves Mersch and Slovakia’s Ivan Sramko have said they expect the bank to revise up its outlook for the 16-nation economy, which emerged from recession in the third quarter.

In September, the central bank said it expected gross domestic product to grow 0.2 percent in 2010 after shrinking 4.1 this year. It projected inflation of 0.4 percent this year and 1.2 percent next year. The ECB aims to keep inflation just below 2 percent over the medium term.

‘Gradual Recovery’

The December projections will show “a gradual recovery and moderately positive inflation,” said Nick Matthews, an economist at Royal Bank of Scotland Group Plc in London. “They’ll be consistent with the view that the policy rate can remain low for a long time.”

The euro has gained 20 percent against the dollar since mid-February, rising above $1.51 yesterday, which is threatening to hurt European exports.

Some policy makers have nevertheless expressed concern that banks are becoming too reliant on ECB cash, and are pushing for the extraordinary lending measures to be withdrawn.

“Not all our liquidity measures will be needed to the same extent as in the past,” Trichet said on Nov. 20. “Eventually, the administration of painkillers must be stopped if patients are to get on their own two feet.”

Trichet signaled on Nov. 5 that the ECB is unlikely to renew its 12-month loans to banks after December’s offering and promised to give details today. He’ll also say whether the ECB has decided to alter the interest rate on the loans. People familiar with the deliberations said last week that policy makers were leaning toward keeping the rate fixed at 1 percent.

‘Balancing Act’

The ECB may announce plans to reduce the frequency of its three-month and six-month loans, which it currently offers every month. The “first steps of a gradual phasing-out of non- standard measures” may include “a lower frequency for three- month and six-month refinancing operations,” Belgian council member Guy Quaden said Nov. 16.

Trichet could also field questions about Dubai’s decision to seek to delay debt repayments, which roiled financial markets this week, and Greece’s ballooning budget deficit. ECB Vice President Lucas Papademos met with Greek Prime Minister George Papandreou last weekend to discuss the issue.

With markets still jittery about the sustainability of the economic recovery, the ECB will be wary of upsetting the apple cart, said Colin Ellis, an economist at Daiwa Securities SMBC Europe Ltd. in London.

“The message Trichet wants to convey is that the ECB is well placed to remove its monetary stimulus and has a strategy for doing so, but that it’s not going to do it too quickly,” he said. “It’s a bit of a balancing act.”

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India’s central bank took the first step toward withdrawing its record monetary stimulus as inflation pressures build, ordering lenders to keep more cash in government bonds.

“It may be appropriate to sequence the ‘exit’ in a calibrated way,” Governor Duvvuri Subbarao said today after increasing the statutory liquidity ratio to 25 percent from 24 percent and raising the inflation forecast. The central bank kept benchmark policy rates unchanged, while maintaining its economic growth forecast of 6 percent “with an upward bias.”

Stocks fell the most in two months after the statement spurred speculation the Reserve Bank of India will boost borrowing costs by year-end, eroding corporate profits. Today’s shift also signals intensifying global concern about consumer and asset-price increases, with Norway tomorrow forecast to follow Australia in raising rates this month.

“We will start to see G-20 economies exiting now, starting with the emerging ones and then the advanced countries,” said Mridul Saggar, the Mumbai-based chief economist at Kotak Securities Ltd. “In India’s case, growth is coming back on track and inflation is becoming quite a concern.”

The Bombay Stock Exchange’s Sensitive index fell 2.3 percent to 16,351.58 at 2:50 p.m. local time. The rupee extended losses to 0.7 percent, trading at 46.98 against the dollar.

Bonds Rise

Bonds rose because some banks will need to boost their holdings as a result of today’s move, said Murthy Nagarajan, a fund manager at Mirae Asset Global Investment in Mumbai. The yield on the 6.90 percent note due July 2019 fell 9 basis points to 7.32 percent, the biggest drop since Sept. 15, according to the central bank’s trading system.

Subbarao, who has injected 5.85 trillion rupees ($130 billion) of cash since September 2008 to protect the Indian economy from the worst financial crisis since the 1930s, said draining that money has become a “central issue in our policy matrix.” The liquidity injection was the equivalent to almost 9 percent of India’s gross domestic product, Asia’s third-largest.

The central bank said “unconventional” steps taken during the global meltdown in the past year can now be reversed to damp price gains, adding that reversing the “conventional measures is not considered appropriate for now.”

Subbarao maintained the reverse repurchase rate at 3.25 percent, the repurchase rate at 4.75 percent and the cash reserve ratio at 5 percent, in line with the median forecast of 24 economists surveyed by Bloomberg News. He increased the inflation forecast for the year to March 31 to 6.5 percent from 5 percent.

Exporter Credit

The central bank cut the refinance limit to exporters to 15 percent of their eligible outstanding credit from 50 percent, and asked lenders to set aside more funds as provision for loans to property companies.

India becomes the second country, after Australia, among Group of 20 nations to take steps to boost borrowing costs, underscoring a rising threat of accelerating consumer and asset prices. At the same time, today’s decision risks damping a recovery from India’s weakest growth pace in six years.

Subbarao said today’s action wouldn’t affect the “liquidity position” of the banking system, since most commercial banks have government bond holdings amounting to 27.6 percent of their deposits.

Central banks globally have stepped up their vigil against inflation and asset-price increases.

Global Context

The Reserve Bank of Australia increased rates three weeks ago, citing costlier real estate. Norway’s Norges Bank is set to raise borrowing costs tomorrow, according to a Bloomberg survey. Bank of Korea Governor Lee Seong Tae said Oct. 23 that keeping rates at a record low may not be healthy for the economy.

At the U.S. Federal Reserve, officials under Chairman Ben S. Bernanke are reviewing whether recent gains in asset prices and narrowing credit spreads are justified as they try to ensure near- zero borrowing costs don’t create bubbles.

Subbarao said there are “definitive” indications that India’s economy is recovering. Accordingly, attention around the world has shifted from “managing the crisis to managing the recovery.” He said the prospects for Indian industry have become “more promising” and with the revival in the stock market and international financial markets, there will be a pick-up in investments.

Political Factor

The decision to signal tighter monetary conditions comes after Finance Minister Pranab Mukherjee told Bloomberg-UTV television channel on Oct. 8 that promoting economic growth and containing inflation are both important and the central bank shouldn’t “compromise” one for the other.

Subbarao is concerned about consumer-price inflation in India that’s running above 10 percent and may accelerate further after the weakest monsoon rains since 1972 create food shortages. India’s $1.2 trillion economy depends on the June to September rains to water crops.

India uses wholesale price data as its key inflation gauge; consumer price indexes are calculated on the basis of rural and urban workers and don’t capture the aggregate price picture.

Wholesale prices rose for a sixth week on Oct. 10, gaining 1.21 percent. Robert Prior-Wandesforde, an economist at HSBC Group Plc in Singapore, expects the rate to hit 8 percent by March 31. Asset prices are also rising, evidenced by the 75 percent climb in the Bombay Stock Exchange’s Sensitive index since January.

“The central bank faces a very delicate situation to manage growth and inflation,” said Ravi Sud, chief financial officer at Hero Honda Motors Ltd., India’s biggest motorcycle maker. “On balance, inflation is the risk as it will hurt consumption and eventually hurt growth as well.”

It will be a “big challenge” to sustain Hero Honda’s profit margins because of rising commodity prices, Sud said last week. Hero Honda, based in New Delhi, is the Indian affiliate of Japan’s Honda Motor Co.

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The number of high net-worth individuals in Asia Pacific slumped 14 percent in 2008 and they lost over a fifth of their wealth, leading to only cautious moves from cash back into stocks this year, Merrill Lynch and Capgemini said on Tuesday.

The financial crisis spurred a flight to safe assets, with cash holdings higher than in other regions at 29 percent and a surge in demand for gold, especially in China and Thailand, Merrill Lynch and Capgemini said in their Asia-Pacific Wealth Report 2009.

“We expect them to remain cautious,” said Eng Huat Kong, head of South Asia at Merrill Lynch wealth management.

“Allocation to cash has certainly reduced and they have begun to get back into the equity market,” he said at a briefing.

The annual report said despite last year’s setback, the region will be one of the fastest drivers of growth among such millionaires, predicting compound annual growth of 8.8 percent in the wealth of this group until 2018.

The report expected Asian economic growth to be more than double that of world growth next year at 3.5 percent. Many policymakers from South Korea to the United States say growth-supporting policies need to be maintained to avoid the risk of a double-dip recession.

“If there is another crisis, the impact will not be as dramatic as last year,” Kong said.

The report said the region’s wealthy are concentrated in Japan and China, which together made up 72 percent of the total, up slightly from the previous year as they saw milder losses than those in many other countries pay day loan lenders.

QUESTIONS FROM CLIENTS

By the end of last year India only made up 4.2 percent of the $7.4 trillion of wealth held up this group, defined as those with $1 million or more in investable assets.

The high net worth populations in India and Hong Kong saw the biggest pullback in 2008, on sharp falls in market capitalization, slumping housing prices and a drop in global demand for exports.

Overall exposure among the regions’ wealthy to equities shrank to 23 percent at the end of last year and real estate holdings edged up to 22 percent.

Asia’s wealthy are more often first-generation entrepreneurs willing to take on more risk and actively trade for high returns, compared to the older inherited wealth in Europe and North America, private bankers say, but the report said it expected cautious asset allocation in the short term and a more balanced approach in the long run.

The wealth management industry is in the midst of unprecedented change as volatile financial markets and the erosion of bank secrecy challenges traditional business models. “Clients are asking more questions, making sure they are dealing with the right institution and banker,” said Kong.

“International banks will still have the key market share.” 

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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 fast pay day loans. 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 Washington Post and Bloomberg will start a service in January to distribute a selection of their news to newspapers, Websites and other subscribers, a day after the Post ended a similar arrangement with Tribune Co’s Los Angeles Times.

The service, “The Washington Post News Service with Bloomberg News,” also will produce a business page on washingtonpost.com that includes news from the Post and Bloomberg’s website, the companies said on Thursday.

The decision to start the news service comes as Bloomberg may be trying to broaden its reach beyond its base of financial clients who read its news on Bloomberg terminals.

In a sign of this, the company is the likely front-runner to buy BusinessWeek magazine from McGraw-Hill, sources familiar with the situation have told Reuters.

Bloomberg makes a limited amount of its news available to the public on its website, but restricts much of it to its clients as well as newspapers and other news sources that pick up its stories.

The Post’s news also will be featured on Bloomberg’s professional service, the companies said.

The news service, which begins on January 1, 2010, will feature 120 stories a day, along with photos, graphics and other story elements.

Financial terms of the service were not disclosed. Thomson Reuters Corp competes with Bloomberg in providing news and financial data.

A day earlier, the Post said it would end a 49-year-old wire service that it started with the Los Angeles Times. Washington Post Co Vice Chairman told subscribers in a memo that it made sense to proceed separately.

(Reporting by Robert MacMillan; editing by Carol Bishopric)

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U.S. mortgage applications fell last week despite the lowest loan rates in four months, the Mortgage Bankers Association said on Wednesday, in another sign that housing will likely recover slowly from its three-year plunge.

Home loan applications fell a seasonally adjusted 2.8 percent in the September 25 week, driven down by a 6.2 percent drop in demand for purchase loans and a 0.8 percent decline in refinancing requests.

Borrowing costs inched closer to record lows, with average 30-year rates dipping 0.03 percentage point to 4.94 percent.

The 30-year rates were the lowest since the week ended May 22, at 4.81 percent, after hitting an all-time low of 4.61 percent in March, according to the industry group. A year ago, before intensive government interventions, 30-year rates averaged 6.33 percent.

For a related chart of mortgage rates, right click on the code: and select “Related Graph.”

Signs of life have emerged in both home sales and prices, helped by government stimulus programs including an $8,000 first-time home buyer tax credit.

The outlook for housing is split, however. Some in the industry predict another sales slide if the tax credit is not renewed and others say there will be a gradual recovery slowed by the usual winter sales malaise.

“We’re going to see another leg down, and if we lose the tax credit it will be a significant leg down,” said John Burns, president of John Burns Real Estate Consulting in Irvine, California.

The main concern is “shadow inventory,” or the stockpiles of homes held by banks or those about to go into foreclosure but yet to be put on the market, he said.

“The one really positive surprise recently has been falling mortgage rates,” and rates at 5 percent or less next year “could definitely help engineer a soft landing,” said Burns.

Another concern is that the first-time buyer credit siphoned demand from next year’s spring sales season, with buyers rushing purchases before the tax incentive disappears.

Existing-home sales in August fell for the first time in four months, but were at the second-highest pace in almost two years. Sales of new houses were below forecasts but up in August for the fifth straight month.

PRICES YET TO BOTTOM

Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh, does not expect another leg down in home sales but is not convinced that prices have hit bottom because of the large inventory of unsold homes.

Home prices rose in July for the third straight month, surpassing forecasts and bolstering the case for housing stability, based on the Standard & Poor’s/Case-Shiller indexes reported on Tuesday. 

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HERCULANEUM — Local officials have eyed more than 70 undeveloped acres along busy Interstate 55 for the past several years, dreaming about the possibilities.

They hope to learn soon if those possibilities will become reality.

Two brothers, Curtis and Clayton Francois of St. Louis County, are partners in Herculaneum Development Co., which owns that prime undeveloped acreage near the northeast quadrant of the interchange of I-55 and McNutt Street.

They plan to develop the wooded site, which is just north and northeast of the current Herculaneum Hilltop Plaza, a commercial development of small stores.

The Francois brothers have been working for two years in a rugged economy to find stores, restaurants, and hotels or motels wanting to build along the growing Herculaneum I-55 corridor, about 30 miles south of St. Louis.

"There is pent-up demand to build," Curtis Francois said this week.

"We have more than 70 acres ready to be developed," he added. "It’s an ambitious project, but everybody involved with it thinks it’s got great potential."

Even so, Francois said that although more and more businesses have been making inquiries lately, he wasn’t ready to announce any tenants or potential tenants for the site.

"There’s nothing imminent yet," he said. "There’s been real pressure in the real estate sector, but we feel things will turn around soon, and we have a great location at Herculaneum."

Herculaneum Development Co. was given the go-ahead by the Board of Aldermen in 2007 to develop the site.

Officials blame the lack of progress since then on the poor economy.

In July 2007, the Board of Aldermen reactivated Herculaneum’s Tax Increment Financing Commission to help the Francois brothers. The brothers had just completed buying all parcels in the development site for a total of about $700,000.

In TIF financing, the new tax revenue generated by a development is used to help pay for the infrastructure and other improvements within the project boundaries.

Herculaneum City Administrator Jim Kasten said he would like the development along I-55 to include a "big box" anchor store, several smaller shops, three or more restaurants and at least two hotels or motels.

"Hotels, in my mind, bring people in off the road," Kasten said.

And the more I-55 travelers who stop at Herculaneum, the more revenue the city will get through its sales tax, he said.

He said the Francois brothers made a commitment in their TIF agreement with the city to level the development site and build retaining walls there as needed.

The city, in turn, will make road improvements for access to the site, Kasten said.

The Francois brothers have completed a year of their three-year TIF agreement with the city to start developing the site, Kasten said. The developers will have five years to finish the project after it has started, he said.

Kasten described the Francois brothers as "cautiously optimistic" that tenants would be found and work on the project could begin within a year or so.

Kasten and Curtis Francois both said they didn’t view the development plans as competing with I-55 corridor development proposals at nearby Pevely — just one interstate exit to the north of Herculaneum.

In Pevely, officials hope to put new commercial businesses around the I-55 and Highway Z interchange. Ready for development at Pevely are 36 acres at the northeast quadrant of that busy interchange, 11 acres at the southwest quadrant and 9 acres at the southeast quadrant.

Pevely officials have said they want a mix of retail stores, a large grocery and restaurants at their I-55 interchange.

Francois said the plans for Herculaneum are on a much larger scale than those for Pevely, and that the two communities weren’t seeking the same tenants.

"My thought is that whatever brings business in, off the interstate, is good for all of us," Kasten said.

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Oil companies are the elephant in the room.

The wide trading range and erratic movement of oil prices has been perplexing to pundits, investors and motorists alike. Prices go down, they go up, and they go nowhere.

You’re not hearing bold prognostications or definitive explanations about either oil prices or oil company stocks. Better to simply wait quietly for everything to play out, most rational people reason. When that will occur, however, no one knows for sure.

China’s oil consumption appears to be recovering, Americans are gassing up their cars more often, oil inventories are being reduced, and the release of economic data on any given day impacts the markets.

Yet everyone is couching their bets — if they bet at all — because they’ve been burned too many times before.

"I think the price of oil in a year is going to be higher than its recent range of around $70 a barrel," said Tim Parker, energy analyst with T. Rowe Price in Baltimore. "But it won’t be at $200 a barrel because demand would then drop to nothing, and it won’t be at $20 because no one would be able to make money at that price."

In this environment, investors have seen oil stocks decline even as most other energy stocks have risen significantly. Not that behemoth oil companies receive much sympathy from anyone other than their own investors.

Potential investors, on the belief that eventually oil prices always rise, are wondering whether the time is right to buy oil stocks at their current prices.

"As soon as oil bottoms, it starts to rise, and the best performers are always the exploration and production companies and the oil services companies," Parker said. "The major oil companies lag, but as the cycle continues they benefit and claw their way back."

While a weak economy won’t last forever, it continues to take a toll.

"The demand for fuels really dropped due to the downturn in the economy, with people not driving and also a lack of industrial demand," said Tina Vital, oil equity analyst with Standard & Poor’s in New York. "So it really shouldn’t be surprising that both the earnings and the share price of the refiners are down."

In this environment, "cash is king," noted Vital, so look for companies with strong balance sheets to ensure they can weather the storm and take advantage of market opportunities. They should have a mix of oil and gas operations with contracts 20 to 30 years long, providing greater earnings stability and a dividend as well.

The super-major oil companies best fill that bill, with Parker and Vital recommending the following:

— ExxonMobil Corp., the industry leader in sales and market capitalization, is a proven leader in efficiency, technology and development as well cheap credit report.

— ConocoPhillips, whose past acquisitions are expected to boost reserves and increase production, should benefit in the long run from a higher proportion of natural gas than its rivals.

— Chevron Corp., which was able to increase its production amid falling oil prices, has impressive exploration programs and also a significant number of Asian refineries.

"The stock prices of these companies have lagged, but as the economy recovers and demand heats up they will be good stocks again," Parker said.

Petroleo Brasileiro S.A., controlled by the Brazilian government, is a stock recommended by Parker. Its recent oil and gas discoveries could triple its resource base, and it is experienced in deep-water offshore operations.

Moving down a notch in size but with good growth in oil reserves and solid future expectations are companies such as Murphy Oil Corp. and Occidental Petroleum Corp., both recommended by Parker and Vital.

"Everyone should have exposure to energy, but the question is whether it should be more or less exposure than energy represents in the overall market, which is about 11 percent of the S&P 1500," said Derek Rollingson, portfolio manager of the ICON Energy Fund in Greenwood Village, Colo. "The fact is that, unlike deciding whether to shop in a department store or not, people will have to pay for heating their homes or running their vehicles."

His ICON Energy Fund, up 8 percent this year following last year’s 20 percent drop, has a five-year annualized return of 12 percent. Rollingson is banking on the inevitability of worldwide growth increasing consumption and driving oil prices and oil stocks upward.

"India has its new Nano car from manufacturer Tata, and whenever significant numbers of people move from a bicycle to a motorcycle or a car, they’re going to consume more energy," said Rollingson. "As developing markets become more developed, they use more energy."

He is adding to his fund’s shares of PetroChina Co. Ltd., that nation’s largest producer of oil and gas, which is controlled by the Chinese government. With China accounting for a large part of global energy demand going forward, that company will continue to grow.

Rollingson’s favorites among the oil and gas drillers are Atwood Oceanics Inc. and Diamond Offshore Drilling Inc. because of their stock price and positioning in the industry. Meanwhile, Parker’s favorites in oil services are Schlumberger Ltd., Halliburton Co. and Baker Hughes Inc.

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Food and household products makers are rethinking the way they work with suppliers to trim costs and get a first crack at new products, as they try to increase sales in mature industries.

Too many companies use the old approach of cutting spending during a downturn rather than thinking more strategically about relationships with suppliers, said Carlos Niezen, head of Bain & Co’s purchasing practice. Smarter companies are “taking a risk management approach” to their supply base, he said.

Several manufacturers have trimmed the number of suppliers with which they do business, largely to cut down on costs but also to eliminate some risks. Executives said how they work with suppliers is evolving.

“It’s really not a price thing; it’s really a total value in the relationship we’re looking for,” said James Foster, Clorox Co’s chief product supply officer.

Hormel Foods Corp, meanwhile, has become more systematic in its purchasing after making acquisitions in the early and middle part of the decade.

Hormel used to have about 100 flavorings suppliers and now has less than 20, a consolidation that took about two years, Chairman and Chief Executive Jeffrey Ettinger said. Part of the reason for cutting back on suppliers is to save money, but it also stems from concerns about food safety, Ettinger said. Having fewer suppliers makes it easier for Hormel to keep track of their safety.

Kleenex tissue maker Kimberly-Clark Corp made a major push this year to reduce costs and manage spending with a greater global perspective, said Peter Heaver, director of North Atlantic sourcing and supply management quick payday loan.

“It’s not all about: ‘We’ve got to squeeze supplier margins so we can be profitable’,” Heaver said. “We need suppliers to be profitable and healthy long term, so we can be healthy long term; that’s the delicate balance.”

CONCERNS IN DOWNTURN

After the recession set in, some companies walked away from suppliers with financial risks. Overall, they said they have not had major concerns.

“There’s still time for the smaller suppliers to struggle, but for the most part most of our suppliers have weathered the storm fairly well,” Clorox’s Foster said.

Kimberly-Clark said it cut back to two suppliers from three on a particular commodity, since one supplier was in financial trouble. That supplier, which Heaver declined to name, then filed for Chapter 11 bankruptcy protection.

Still, Heaver said that in some areas his company is actually inviting new suppliers to bid for business, a move that creates “healthy competitive tension.”

The number of supplier bankruptcies has not been large, but “we do think that there’s still going to be a good amount of bankruptcies,” Bain’s Niezen said.

NEW APPROACH FOR CURRENT TIMES 

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One of the St. Louis region’s highest-profile roof leaks is about to be plugged.

Leaders at Lambert-St. Louis International Airport said the roof covering the three busiest Main Terminal concourses — A, B and C — will be replaced at a cost of about $2 million in the first half of 2010.

"We’ve reached a threshold where we can’t do any more Band-Aids," said Lambert spokesman Jeff Lea.

For years, heavy rainfall has forced the airport to deploy plastic buckets throughout the airport to catch the dripping water. Not only is it a potential safety issue, Lea said, but it "doesn’t present a good image." The roof repairs aren’t part of the multimillion-dollar makeover of the Main Terminal, known as the Airport Experience, which began in summer 2008. Lea said it was just time to fix the long-standing problem. The project will be funded through the sale of bonds, which, Lea said, also will fund the Airport Experience projects.

Under the Experience project, the airport has replaced baggage carousels and resurfaced the dingy-white dome ceiling above the ticketing area. Soon, Lambert visitors will be greeted with easier-to-follow signs to guide them to parking lots, terminals and other key locations.

However, the roof repair project involves replacing the roof over three passenger concourses with a new rubber membrane, Lea said. It was pushed to the top of the list of needed airport projects, he added, because the leaking roof "has become a critical problem." The last time the roof was replaced was 1990 cash advance.

On rainy days, travelers have grown accustomed to sidestepping buckets in the long Lambert corridors.

"I have traveled significantly in Third World countries. I have seen a lot worse than leaking roofs," said Claudius Docekal of Creve Coeur, a businessman who has flown out of Lambert numerous times. "But is that the right image for the United States? No."

Lea said the airport already has made repairs to the domed roof over the Main Terminal ticket counters.

Business community leaders have been especially vocal about the perception of Lambert — from the appearance of its concourses to the proliferation of smaller regional jets in recent years.

"The business community cares mightily about Lambert as an economic development asset, and we certainly support the work that is under way right now to upgrade the facilities," said Richard Fleming, president and CEO of the St. Louis Regional Chamber & Growth Association. "For many of the people who come here from out of town, (the airport) is their first introduction to St. Louis."

In 2003, Fleming’s group along with the Regional Business Council and Civic Progress assembled a task force of business leaders to preserve the airport’s role as a regional economic engine.

The task force was created in response to American Airlines’ first major round of flight reductions at Lambert.

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