Banks

Barbarians at the vault

Modern finance is under attack. Yet the banking system has done much better than it is given credit for

BANKS have endured a brutal nine months since credit markets froze in August. Losses and write-downs already total $335 billion; many of their best businesses have disappeared. In developed economies, almost all banks are facing economic and regulatory headwinds that will cut revenues and jobs. Yet the biggest danger facing Western finance is not a fall in its earning power but a loss of faith in how it works.

Two criticisms assail the industry, one based on fairness and the other on efficiency. The first argues that finance is rigged to enrich bankers, rather than their customers, shareholders or the economy at large. Some worry about the way bonuses are calculated; others about moral hazard. Bankers will take wild bets because they know they will be bailed out by the taxpayer. Look at Bear Stearns or Northern Rock.

The second, deeper question is whether a market-based approach to finance is efficient. Some Chinese officials claim the Western system has been shown up by the crisis (see article). This week Germany's president demanded that the “monster” of financial markets “be put back in its place”: bankers had caused a “massive destruction of assets”. The critics do not lack ammunition. The lapses in credit-underwriting in the subprime-mortgage market hardly reflect a wise allocation of capital. The opacity of the shadow banking system and the mind-boggling complexity of those toxic asset-backed products have raised doubts about the discipline of the market.

Forever blowing bubbles

Be careful. It is not just that a rush to regulate is seldom wise: witness Sarbanes-Oxley, the governance act hurried through in the wake of the corporate scandals earlier this decade. The current assault is dangerous because it mixes a number of small truths with a big, alluring myth. The fiddly verities concern the ways in which finance can indeed be made a bit more efficient or fairer. But you can make those changes only if you dismiss the myth: that finance can somehow be stripped of its failures and perfected. Bubbles, excess and calamity are part of the package of Western finance. And still it is worth it.

Some change is desirable and inevitable. Most of it will be supplied, belatedly, by the market itself—especially if it is bathed in the cleansing sunlight of transparency. America's mortgage business is already transformed. Hundreds of unregulated lenders have disappeared, as has the fatally lazy assumption that house prices do not fall. Demand for complex securitised products has shrivelled and the most complex may never come back. The safest forecast in banking is that the next crisis will not be rooted in America's mortgage market.

Regulators also have lessons to learn. Most of them come in two categories. The first is to take a broader view of risk. That means looking at off-balance-sheet assets and at gross exposures (Jérôme Kerviel, accused of losing Société Générale $7.2 billion, went unnoticed because managers were watching only his net positions). For national supervisors, it requires a lead regulator with a remit to watch the system. Internationally, the global capital markets would ideally have global regulatory norms—or at least more co-operation between national authorities. Now that the investment banks know the central banks will stand behind them, they also need closer scrutiny and higher capital standards. For the moment supervisors need monitor only what banks lend hedge funds, but you could imagine some hedge funds becoming so central to the system that they too need direct attention.

The second change in philosophy is to bully banks to build buffers when times are good so they have stronger defences when times are bad. The system has come to amplify the extremes of the cycle. Fair-value accounting, which pegs assets to current market prices rather than their historic value, leads to downward (and upward) spirals in asset prices, and hence leverage. Banks' risk models have been backward-looking, so no time appeared safer than the moment before the bubble burst. Working out when an asset boom has become a bubble is not easy—just as it is hard to use monetary policy to lean against asset-price bubbles. But rapid growth, whether in asset prices or market share, should be a signal to worry, not relax. And if banks are to be subject to the firmer discipline of fair-value accounting, it makes sense to have extra padding.

These changes would certainly come at a cost—which is one reason to weigh them more carefully than the framers of Sarbanes-Oxley did. They would have the effect of increasing the amount of capital and liquidity that banks set aside when risks are building, and reducing the amount of leverage they can take on. That would reduce the size and capacity of the industry, although not the size of individual institutions: one result of the crisis is that universal banks are likely to become even more hulking as they seek the benefits of diversification.

On balance, these costs are worth paying to make finance a little safer. Other reforms don't pass that test. For instance, limiting pay or forcing bankers to take equity stakes in their business will not stop moral hazard: Bear Stearns had high levels of employee share-ownership and it did not know it would be able to call on the Federal Reserve. Indeed, whatever you do, finance will not be “fixed” in the way critics are demanding.

Rome or the barbarians: your choice

As this week's special report on international banking makes clear, the main structural causes of trouble—the collective misjudgment of risk; a zealous search for yield; and the failure of oversight—are deep-seated. In financial history they crop up time after time. Financiers are rightly rewarded for taking risks, which by their nature cannot be entirely managed away or anticipated. The tendency for success to breed complacency and recklessness is as ingrained in financial markets as it is in any other walk of life. However bankers are paid, they cannot just sit out a credit boom; they have to keep dancing. Regulators lack the knowledge, the clout (and often the talent) to keep up with the banks' next brilliant scheme.

That reads like an indictment, until you consider the alternatives. Western finance, to paraphrase Churchill, is the worst way to allocate capital, except for all those other forms. It is obviously better than the waste and dysfunction in China, where centrally planned capital is dished out to the well-connected. But it is also better than the financial system the West used to have. Thanks to the astonishing innovation of the past few decades, derivatives can help firms and investors to hedge risks (there are plenty of Chinese manufacturers who would be grateful for an easy way to soften the impact of exchange-rate shifts). Securitisation widens access to capital for borrowers and to assets for investors: it can finance everything from water utilities to film studios. Leverage brings more lazy companies within reach of determined investors and more homes within reach of poorer consumers.

It is true that financiers have enjoyed vast profits—and the vast salaries that go along with them (pay at American investment banks has been nearly ten times the national average). But the collapse of the credit bubble will bring that down. And despite all the disasters, there are signs of finance's resilience. In the past few months the banks have commanded enough confidence to raise $200 billion in new capital from investors. Bear Stearns and Northern Rock were calamities, but rare ones, because the vast overall losses were spread far and wide. This time, there has been no industry-wide government recapitalisation. After 20 years of growth, the flaws of modern finance are painfully clear. Do not forget its strengths.

Japan's GDP Grows More-Than-Estimated 3.3% on Exports (Update4)

May 16 (Bloomberg) -- Japan's economy grew 3.3 percent last quarter, faster than economists estimated, as exports to Asia and emerging markets helped the nation weather the U.S. slowdown.

Gross domestic product in the three months ended March 31 was better than the 2.5 percent median estimate of 32 economists surveyed by Bloomberg. Fourth-quarter growth was revised to 2.6 percent from 3.5 percent, the Cabinet Office said today in Tokyo.

Today's figures came a day after Germany reported its economy expanded at the fastest pace in 12 years, resisting the U.S. slowdown. Japan's Nikkei 225 Stock Average has surged 21 percent in the past two months as companies including Matsushita Electric Industrial Co. forecast record profit.

``The big slowdown isn't happening,'' said Jesper Koll, director of Tantallon Research Japan, a hedge fund. ``The world is resilient. Global demand is strong.''

The yen traded at 104.38 per dollar at 4:11 p.m. in Tokyo from 104.87 before the report. The currency has fallen 7 percent against the dollar since climbing to a 12-year high of 95.76 on March 17, easing the burden on exporters' earnings. The yield on Japan's 10-year bond rose 2 basis points to 1.695 percent.

From the fourth quarter, Japan expanded 0.8 percent, the fastest pace in a year. Figures yesterday showed Europe grew a more-than-anticipated 0.7 percent, led by the 1.5 percent expansion in Germany. The U.S. economy grew only 0.1 percent in the same period, and 0.6 percent on an annualized basis.

Middle East, Russia

Matsushita President Fumio Ohtsubo last month said the Beijing Olympics and demand for Panasonic televisions in the Middle East and Russia will help profit climb 10 percent to a record in the year ending March 31.

Other companies are less optimistic. Toyota Motor Corp., the nation's biggest automaker, expects falling U.S. sales, higher commodity prices and the stronger yen to erode earnings. Sony Corp. this week said profit at its electronics division will fall this year because of the currency's gains.

Companies plan to pare orders of machinery, a key indicator of capital spending, by 10.3 percent this quarter, a report showed yesterday.

Finance Minister Fukushiro Nukaga and Economy Minister Hiroko Ota said today that they're concerned about the outlook for business investment, which fell 0.9 percent last quarter.

``The negative effect of the U.S. slowdown is going to hit after a time lag,'' said Seiji Shiraishi, chief economist at HSBC Securities in Tokyo. ``Both households and the corporate sector could be in pretty bad shape, at least through summer.''

Consumers Pessimistic

Household confidence slumped to a five-year low in April, a separate report showed today, as inflation quickened to the fastest pace in a decade. Consumer spending, which accounts for more than half of the economy, grew 0.8 percent last quarter.

Prices of everyday goods rose at more than twice the pace of wages in March. Japanese workers are likely to see summer bonuses increase by the smallest amount since 2002, the Nikkei newspaper reported this week.

``Real income is declining'' and households may tighten their purse strings, said HSBC's Shiraishi. ``Inflation in prices of necessities has a negative impact on psychology.''

The risk of weaker growth prompted the Bank of Japan last month to shelve its policy of gradually raising interest rates. Governor Masaaki Shirakawa and his board are expected to hold the key rate at 0.5 percent, the lowest in the industrialized world, at the end of their next meeting on May 20 and most economists say borrowing costs will stay unchanged this year.

Export Growth

Net exports -- the difference between exports and imports -- accounted for most of Japan's growth, contributing 0.5 percentage point to the quarterly increase. Domestic demand added 0.3 percentage point.

``Even if the U.S. goes into recession, demand from Europe and Asia should hold up reasonably well,'' said Julian Jessop, chief international economist at Capital Economics Ltd. in London.

Goldman Sachs Group Inc. and Morgan Stanley last month dropped predictions the world's second-largest economy would slip into a recession, ending the nation's longest postwar expansion.

Residential investment rose 4.6 percent from the previous three months. Housing starts are recovering after plunging since June because of a permit logjam caused by government regulations designed to stop building fraud.

The higher cost of imports probably means that the real GDP growth rate overstates the strength of the economy. In nominal terms, which don't take into account price changes, Japan expanded 0.4 percent on the quarter, half the pace of real growth.

``Imported inflation is squeezing domestic profit margins and wages,'' said Hiroshi Shiraishi, an economist at Lehman Brothers in Tokyo.

Goldman Sachs says annual earnings at Japanese companies will fall for the first time in seven years. That could stifle investment and hiring.

Today's numbers may have also exaggerated growth because some components don't adjust for the leap year. Yuji Shimanaka, chief economist at Mitsubishi UFJ Research and Consulting in Tokyo, said the extra day in February accounted for about half of the increase in consumer spending.

Special Report

The Facts Behind the Food Crisis

World Bank `Destroyed Basic Grains' in Honduras, Fueling Food Shortages Fidencio Alvarez abandoned his bean and corn farm in southern Honduras because of the rising cost of seeds, fuel and food. After months of one meal a day, he hiked with his wife and six children to find work in the city.

Chinese Pork Production May Decline After Quake Strikes Sichuan Province China, the world's biggest pork producer and consumer, may see its output of the staple decline in the next few months and prices gain after the May 12 earthquake struck the biggest lean-hog producing area.

Steakhouse Partners Files for Bankruptcy in U.S., Citing High Feed Costs Steakhouse Partners Inc., operator of 21 steakhouses in California and the Midwest, filed for bankruptcy, citing a rise in corn-fed beef costs stemming from grain-price increases tied to the production of alternate fuels.

EU Says Consumers Are Suffering as Food, Crude Oil Stoke Faster Inflation European consumers are ``suffering'' as surging food and energy prices erode the value of their wages, finance officials said, urging governments to boost spending to help the poorest deal with the fastest inflation in 16 years.

Australia Wheat Production May Rise 'Significantly,' Rebound From Drought Wheat production in Australia, the world's second-biggest exporter of the grain before drought curbed output, may rebound this year should the nation receive sufficient rain, Agriculture Minister Tony Burke said.

U.K.'s Darling Says He's `Worried' as Rising Inflation Hurts Middle Class Chancellor of the Exchequer Alistair Darling said he's concerned that climbing food and fuel costs in Britain will hurt middle-income families after the inflation rate rose in April by the most since 2002.

Thailand Rice Price Breaches $1,000 a Ton for First Time on Export Demand The benchmark price for rice exported from Thailand, the world's biggest supplier, breached $1,000 a metric ton for the first time today as importers rushed to secure supplies, heightening concern about a global food crisis.

China Quake's $20 Billion Damage Show Insurance Abyss (Update3)

May 16 (Bloomberg) -- The most powerful earthquake in China since 1950 shows the nation's insurance industry is decades behind those of the world's biggest economies.

Just 5 percent of the more than $20 billion of damage from the quake in Sichuan province is covered by insurance, according to estimates from an official at the China Insurance Regulatory Commission. By contrast, about half of the $120 billion of estimated costs from Hurricane Katrina, the most expensive storm in U.S. history, was insured by companies or the federal government, data compiled by analysts at Jersey City, New Jersey- based Property Claim Services show.

``The earthquake underscores how much room insurers have to penetrate into rural China,'' said Zhang Ling, who oversees $1.1 billion for ICBC Credit Suisse Asset Management Co. from Beijing and holds Ping An Insurance (Group) Co. shares. ``There'll be much more momentum and government support to do that after this year's natural disasters.''

China Life Insurance Co. and Ping An, the nation's biggest insurers, have yet to extend their reach across China, where only 4 percent of the nation's 1.3 billion people have insurance, according to data compiled by KPMG International. By contrast, 77 percent of Americans own some type of life insurance policy.

The 7.9 magnitude quake has killed more than 22,000 people since May 12, damaged and destroyed homes and buildings in 44 counties and districts in Sichuan, and directly affected about half of the 20 million people who live in the region. At least 30,000 people remain buried under rubble.

Declining Profits

``If a disaster like this happened in Europe or the U.S., the claims situation would be very different,'' said Michael Spranger, a Hong Kong-based earthquake analyst at Munich Re, the world's No. 2 reinsurer, after Swiss Re. ``Natural disaster coverage rates are very low across Asia, in the single digits.''

The Niigata earthquake, which struck central Japan last July, recorded total damages of $3 billion, with insured losses equivalent to 10 percent of the total, according to Clarence Wong, chief economist for Swiss Re Asia in Hong Kong.

China's quake occurred four months after the country's worst snowstorms in 50 years forced the evacuation of more than 1 million people and damaged at least 1 million homes. Insurers probably will get more aggressive about pursuing policy sales in rural areas as this year's 26 percent decline in China's benchmark CSI 300 Index threatens earnings growth, Zhang said.

China Life's net income dropped 61 percent in the first quarter, while Ping An's rose at the slowest rate in the same period since the company's initial public offering in 2004. China Life fell 19 percent in Hong Kong trading this year and Ping An declined 16 percent.

Earnings Impact

``The earthquake is not expected to have a material impact on the balance sheets'' of Chinese insurers, wrote Hong Kong- based Fitch Ratings analysts Stanley Tsai and Jeffrey Liew in a May 15 report. ``That said, the losses arising from the tragic event, coupled with the poor performance of the A-share market in the first few months of 2008, will put pressure on the insurers' earnings for the year.''

Developing rural and natural disaster insurance is a top priority for the Chinese government, and there's even greater momentum now, according to the industry regulator official in Beijing. China may soon set up a natural disaster insurance system, which would be subsidized by the government and include private-sector involvement, said the official, without providing further details.

The official's estimate for quake damages is in line with a 140 billion yuan assessment by AIR Worldwide Corp., a Boston- based risk modeling and consulting firm. Of this, up to 7 billion yuan ($1 billion) may be insured losses, according to AIR.

Quake Insurance

China's insurance penetration, which measures premiums as a percentage of gross domestic product, was 2.9 percent last year, ranking 49th in the world, according to statistics compiled by Zurich-based Swiss Re. That compares with 9 percent in Western Europe and 7.6 percent in the U.S. in 2006, the latest available figures for those regions from Swiss Re.

Sichuan province, located in south-central China, accounted for 4.8 percent of the country's 2007 premiums. Earthquake insurance is provided at an additional premium at the policyholder's request, said Peter Zimmerli, a vice president in Swiss Re Asia's property and casualty group.

``Earthquake insurance penetration is generally very low, and for residential covers practically non-existent,'' he said.

Market Share

China Life commanded 60 percent to 70 percent market share in most of China's rural regions in 2006. The Beijing-based company may pay life insurance claims of 500 million yuan to 1 billion yuan from the quake, estimates Citigroup Inc. analyst Bob Leung in Hong Kong. This may drag down the company's earnings by 1 percent to 2 percent, he said.

The insurer has 110,000 clients under coverage in quake- stricken areas, and said claims received as of May 14 totaled 134 million yuan. Shenzhen-based Ping An has reported 516 claims.

China Life's ``coverage in Sichuan is small,'' said Conita Hung, head of equity markets at Delta Asia Securities Ltd. in Hong Kong, who recommends buying the shares. ``Since the snowstorm disasters and the earthquake, Chinese people are becoming more aware of insurance. It's favorable for'' China Life's long-term development, she said.

Chinese insurance firms have paid 1.7 million yuan in earthquake-related claims as of May 14, according to a statement from the industry regulator late yesterday.

`Nobody Knows'

PICC Property & Casualty Co., China's biggest property insurer, may pay between 1 billion yuan to 2 billion yuan in earthquake damage claims, or 1 percent to 2 percent of 2008 premiums, estimated Ben Lin, a Hong Kong-based analyst at Nomura Securities Co., in a report today. Lin has a ``reduce'' rating on PICC, part-owned by American International Group Inc.

Citigroup's Leung said estimates for insured property damages are probably too low.

``Nobody knows what the total damages will be,'' he said. ``Maybe you can even add a zero to that estimate.''

Oil Rises to Record Above $127 on Goldman Report, China Demand

May 16 (Bloomberg) -- Crude oil rose above $127 a barrel for the first time, leading commodities higher, after Goldman Sachs Group Inc. raised its forecast and on speculation Chinese diesel purchases will strain supplies.

Goldman boosted its price estimate for the second half of this year to $141 a barrel, from $107, citing supply constraints. China may increase fuel imports to generate power after the most powerful earthquake in 58 years killed more than 22,000 and damaged hydroelectric plants. Oil and commodities, including gold and platinum, also advanced on the falling dollar.

``We can blame Goldman again,'' said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. ``In March 2005 they predicted that prices would rise dramatically, and they did. Prices jumped to the $125 level after another Goldman report less than two weeks ago. At this point nobody wants to bet against Goldman.''

Crude oil for June delivery rose $2.80, or 2.3 percent, to $126.92 a barrel at 10:11 a.m. on the New York Mercantile Exchange. The contract climbed to $127.82 today, the highest since trading began in 1983. Prices have doubled in the past year.

Brent crude oil for July settlement rose $2.69, or 2.2 percent, to $125.32 a barrel on London's ICE Futures Europe exchange. The contract touched a record $126.34 today.

$148 Oil

West Texas Intermediate, the benchmark crude-oil grade traded in New York, will rise to $135.30 in the third quarter and $145.60 in the fourth quarter, Goldman said in the report. Prices will increase further in 2009, averaging $148 a barrel, according to the report written by analysts including Peter Oppenheimer and Jeffrey Currie.

Goldman analyst Arjun N. Murti wrote in a report on May 6 that ``the possibility of $150-$200 per barrel seems increasingly likely over the next six-24 months.'' Murti first wrote of a ``super spike'' in March 2005, predicting crude may trade between $50 and $105 a barrel through 2009.

``The Goldman report gives fund managers an excuse to push prices higher,'' said Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. in New York.

Confidence among U.S. consumers fell in May to the lowest level in almost 28 years as record-high fuel prices, lower home values and fewer jobs rattled Americans. The Reuters/University of Michigan preliminary index of consumer sentiment decreased to 59.5, the weakest since June 1980, from 62.6 in April.

The dollar fell against the euro amid speculation the U.S. economy will remain weaker than in the 15 nations that use the European currency. The dollar decreased 0.3 percent to $1.5495 per euro at 9:59 a.m. in New York, from $1.5448 yesterday.

Commodity Records

The falling dollar and higher world demand for raw materials led to records in commodities including gold, corn, soybeans and rice this year. The UBS Bloomberg Constant Maturity Commodity Index, which tracks 26 raw materials, rose 1.6 percent to 1567.44 today. The index is up 39 percent from a year ago.

PetroChina International Co., the trading unit of PetroChina Co., the country's biggest oil producer, has already purchased 400,000 tons, or 2.9 million barrels, of diesel for June. That's in addition to the 200,000 tons that China International United Petroleum & Chemicals Corp., the nation's largest trader, bought for the month.

``People are really focused on China right now,'' said Christopher Edmonds, the managing principal of FIG Partners Energy Research & Capital Group in Atlanta. ``When a market moves on such minute data points, it is usually near some sort of inflection point. I think once we move from the June to July contact and we get evidence of weak Memorial Day demand, the market will become more rational.''

The June contract on the Nymex expires May 20.

Driving Season

U.S. gasoline demand increases during the summer, when Americans take to the highways for vacations. The peak- consumption period lasts from the Memorial Day weekend in late May to Labor Day in early September.

Gasoline futures for June delivery rose 5.82 cents, or 1.8 percent, to $3.224 a gallon in New York. Prices touched a record $3.2438 a gallon today.

U.S. pump prices are following futures higher. Regular gasoline, averaged nationwide, rose 1.1 cents to a record $3.787 a gallon, AAA, the nation's largest motorist organization, said today on its Web site.

President George W. Bush will ask Saudi Arabia to increase oil production to help lower prices during a visit to Riyadh this weekend, White House spokeswoman Dana Perino told reporters traveling on Air Force One. Saudi Arabia is the world's largest oil exporter and the most influential member of the Organization of Petroleum Exporting Countries.

U.S. Stocks Retreat, Led by Retailers, Banks; Gap, KeyCorp Fall

May 16 (Bloomberg) -- U.S. stocks fell, led by retailers and banks, as consumer confidence slumped to a 28-year low and Merrill Lynch & Co. advised selling regional banks.

Gap Inc. and Dillard's Inc. declined after the Reuters/University of Michigan preliminary index of consumer sentiment dropped more than forecast. KeyCorp, Ohio's third- biggest bank, and Regions Financial Corp., Alabama's largest bank, led financial shares lower after Merrill Lynch said ``credit weakness'' may hurt earnings.

The Standard & Poor's 500 Index lost 2.69 points, or 0.2 percent, to 1,420.88 at 10:31 a.m. in New York, paring its weekly gain to less than 2.4 percent. The Dow Jones Industrial Average retreated 18.73, or 0.1 percent, to 12,973.93. The Nasdaq Composite Index decreased 14.71, or 0.6 percent, to 2,519.02. Two stocks fell for each that rose on the New York Stock Exchange.

``We have a consumer that is pretty tapped out in terms of savings and their ability to borrow because of a credit crunch,'' Rod Smyth, the chief investment strategist at Riverfront Investment Group in Richmond, Virginia, said in an interview with Bloomberg Television. ``As goes the consumer, so goes the economy.''

First-quarter earnings at companies that depend on consumers' disposable income have slumped 8 percent on average, according to data compiled by Bloomberg, as record energy prices and slumping home values curtail spending on nonessential items.

Retailers in the S&P 500 lost 1.6 percent, the second- steepest decline among 24 industries. Dillard's dropped the most, falling $1.13, or 5.7 percent, to $18.57. Gap retreated 76 cents to $18.42.

Record Oil

Crude oil reached a record $127.82 a barrel in New York after Goldman Sachs Group Inc. raised its forecast on speculation Chinese diesel purchases will strain supplies.

J.C. Penney Co. and other retail stocks were downgraded by Goldman on concern that earnings will be hurt by high energy costs. J.C. Penney fell $1.65 to $44.67.

``It's possible, with rising oil prices and weak consumer spending in the United States, that the market could pull back from here,'' Scott Black, founder and president of Delphi Management Inc. in Boston, which manages $1.6 billion, said in an interview with Bloomberg Television. ``In the short term it's doubtful the market could have a strong leg up. It's possible to have a 5 or 10 percent pullback.''

Banks slumped 2.3 percent as a group. KeyCorp and Regions Financial were downgraded to ``sell'' from ``neutral'' by Merrill Lynch, which also reduced its profit forecasts. KeyCorp lost 93 cents to $24.16. Regions declined 88 cents to $20.44.

Buffett's Buy

Kraft Foods Inc. gained 15 cents to $32.08. Billionaire Warren Buffett's Berkshire Hathaway Inc. took advantage of falling share prices in the first quarter to boost his stake in the world's second-largest foodmaker.

Genentech Inc. climbed $1.02 to $69.85. The top maker of cancer drugs had promising results in studies of two experimental treatments for hard-to-treat breast tumors, new data show.

Nordstrom Inc. advanced 23 cents to $37.52. The U.S. department-store chain with more than 100 locations of the same name reported first-quarter profit that fell less than analysts estimated as the retailer limited costs amid slowing sales.

Price swings and trading volume may be larger than average today because options on indexes and stocks expire at the close of trading.

The VIX, an index which measures the cost of insuring against declines in the S&P 500, climbed 0.9 percent to 17.18 after falling to the lowest level since October yesterday.