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Argentina will be forced to default by 2011 unless the government reaches an accord with investors holding $20 billion of bonds kept out of the last restructuring offer, Stone Harbor Investment Partners says.

President Cristina Fernandez de Kirchner is negotiating terms of an agreement, which the government needs to regain access to international capital markets that it lost after stopping payments on $95 billion of debt in 2001. Since then, Argentina has relied on local markets and loans from Venezuela to meet financing needs, and seized about $24 billion of pension fund assets last year to compensate for falling tax revenue.

“They’ve got to get things straightened out — they need to do that now,” said Jim Craige, who manages $10 billion of emerging-market debt at Stone Harbor in New York and owns Argentine securities, including some of the defaulted bonds.

Argentine credit-default swaps also point to concern among investors. Traders demand 1.7 percentage points more to protect the country’s debt against default for two years than one, up from 1.35 points two months ago and the widest gap among major Latin American countries, according to data compiled by CMA Datavision. The one year-two year gap on Venezuelan debt — the country with the closest borrowing costs to Argentina in the region — is 0.26 percentage point.

A basis point equals 0.01 percentage point, which is equivalent to $1,000 a year on a contract protecting $10 million of debt. Credit-default swaps pay the buyer face value if a borrower defaults in exchange for the underlying securities or the cash equivalent.

‘Not Sustainable’

Argentina’s financing requirements jumped to $10.7 billion this year from $5.9 billion in 2008, prompting Fernandez, 56, to extend local debt maturities and turn to government agencies, state-run Banco de la Nacion and the central bank for funds, according to Credit Suisse AG. Borrowing needs will decline to $8.2 billion next year before rising to $10.2 billion in 2011, Credit Suisse estimates.

Banco de la Nacion, which lent the Treasury 1 billion pesos ($261 million) in July, is authorized to provide the government as much as 7.3 billion pesos. Argentina has issued 4.2 billion pesos of debt to state agencies this year, according to the Economy Ministry.

“You cannot live forever doing this,” said Sebastian Briozzo, an analyst in Buenos Aires with Standard & Poor’s, which rates Argentine foreign debt B-, or six levels below investment grade. “At some point you will run out of local sources of financing. It’s not sustainable.”

A spokesman for the Economy Ministry didn’t return telephone calls seeking comment low fee pay day loans.

‘Muddling Through’

Cathy Elmore, who manages $500 million in emerging-market assets at Blackfriars Asset Management, said the country has proven more resilient than she expected while it’s been cut off from international markets.

“They’ve done a good job muddling through,” Elmore, who holds Argentine securities, said in a telephone interview from London. “I’m surprised they’ve been able to carry on for so long. They’ve plundered much of the resources available to them locally.”

Lawsuits from investors such as billionaire Kenneth Dart who kept their bonds out of the 2005 agreement are blocking the South American country from selling debt overseas.

Nestor Kirchner, Fernandez’s husband and predecessor, paid investors 30 cents on the dollar in 2005, the harshest government debt restructuring since World War II, according to Arturo Porzecanski, an international finance professor at American University in Washington. About 25 percent of creditors rejected the offer.

Bonds Rally

Economy Minister Amado Boudou told reporters in Buenos Aires on Sept. 21 that the government was talking with investors in search of a “definitive strategy” for the defaulted debt. The bonds trade at 38.5 cents on the dollar, up from 15 cents in June, according to London-based Exotix Ltd., a brokerage that specializes in distressed securities.

The extra yield investors demand to own Argentina’s dollar bonds instead of U.S. Treasuries narrowed to 6.47 percentage points, the smallest gap in 14 months, from 9.62 points at the end of July, according to data compiled by JPMorgan Chase & Co.

A restructuring “would change things dramatically,” said Craige. “It will give them the ability to access capital markets. There will be a normalization of the credit curve.”

Moody’s Investors Service said Oct. 8 that a restructuring may “improve the outlook” on the country’s B3 foreign debt rating, which is also six levels below investment grade.

Without such an accord, the government “would have severe trouble,” Elmore said. “There’s only so much muddling through they can do.”

Markets

Argentina’s peso gained 0.3 percent last week to 3.8288 per U.S. dollar. The Merval stock index advanced 7.1 percent to 2,169.04.

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The United States is going out of its way to build a warmer economic relationship with China and the strategy seems to be paying early dividends.

In the past two weeks, China has endorsed a U.S.-backed commitment to rebalance the global economy, and impressed some European officials by backing up the pledge with specific steps it planned to take to reconfigure its own economy.

In addition, what looked like it could have been the start of a trade war when the United States imposed tariffs on Chinese tires fizzled out with minimal drama.

French Finance Minister Christine Lagarde said China had delivered a surprisingly forthright speech at an International Monetary Fund meeting in Istanbul this past week.

“What really hit me was the change of speech, and I suppose of economic policy of China,” she said, adding that China had spelled out policy goals on improving social security, pensions, infrastructure and other areas that “correspond to calls to rectify imbalances.”

Some officials and private analysts credit a change in tone out of Washington for helping build credibility in Beijing.

U.S. Treasury Secretary Timothy Geithner held a series of phone conversations with Chinese finance officials within weeks of taking office in late January, and visited Beijing in June.

He has fought for greater representation for China on the international economic stage, even though it put him in direct conflict with some European allies who saw it as a threat to their own global influence.

Last week, President Barack Obama broke with tradition when he declined to meet with the Dalai Lama who was visiting Washington, opting instead to delay the meeting until after his official trip to China in mid-November payday loan lenders.

And at bilateral talks in Washington in July, the United States downplayed the touchiest issues including human rights violations and whether China’s yuan currency is undervalued. Obama sought common ground over a non-controversial topic — basketball. He referenced Chinese star Yao Ming and presented the Chinese delegation with a signed basketball.

ECONOMIC REALITIES

The strategy is aimed at showing that the United States is not simply trying to impose its will on China. Both sides have something to gain — and lose — from the relationship.

For the United States, China remains a critically important buyer of U.S. government debt, holding some $800 billion as of July, according to Treasury Department data.

For China, which relies on exports to generate jobs for the millions of workers migrating to urban areas, the United States is still the most reliable customer, although the recession has clearly put a dent in demand.

The U.S. trade deficit with China stood at $143.7 billion for the year through August, government data shows. While that still makes China easily the largest single contributor to the trade gap, it is down 15 percent from the $169.2 billion recorded in the same period a year ago. 

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Conservative leader David Cameron’s suggestion that the Bank of England end its asset purchases soon was criticized by two former central bank officials, a setback to the opposition’s effort to build credibility on the economy.

David Blanchflower, who left the bank’s Monetary Policy Committee in May, said Cameron’s speech yesterday was “bizarre” and if put into practice may tip the U.K. into a “depression.” Shamik Dhar, a former Bank of England economist, said “at best this is wrong and at worst downright dangerous.”

Without mentioning the central bank, Cameron told his party’s conference in Manchester that he opposed creating money, saying “sometime soon that will have to stop, because in the end, printing money leads to inflation.”

Prime Minister Gordon Brown’s government has authorized the Bank of England to purchase 175 billion pounds ($278 billion) in securities to help pull the economy out of its deepest slump since World War II. While the program will be wound down as the economy recovers, most economists say it has been necessary.

“I’ve been quite a critic of the Bank of England’s tactics in printing money, but the principle is a very good one,” said Steven Bell, chief economist at London-based hedge fund GLC Ltd. and a former U.K. Treasury official. “It has lowered bond yields and improved prospects for economic recovery.”

The yield on the 10-year U.K. government bond was 3.35 percent yesterday, compared with 3.64 percent on March 4, the day before the effort started.

Suggesting Reversal

Bell said Cameron’s remarks suggested that the Conservatives may reverse the policy if they win the election, due by June 2010, and that the comments were “unhelpful and surprising.”

After 12 years in opposition, the Conservatives are attempting to gain credibility as an alternative to Brown’s Labour government, which has trailed in polls since January 2008. At the party gathering, Cameron and his aides set out what they called a “painful” austerity plan to curb record debt, built up to revive growth.

Aides to Cameron and George Osborne, the Conservative lawmaker who speaks on finance, said the leader didn’t shift the party’s policy. The Conservatives have previously supported the central bank asset purchases.

They also proposed increasing the retirement age, freezing the wages of 4 million government workers and cutting spending by 7 billion pounds to shrink “big government.” There is “a steep climb ahead, but I tell you this: the view from the summit will be worth it,” Cameron said.

Blanchflower’s Concern

Blanchflower said it’s wrong to cut spending and shrink the size of the state before economic recovery is firmly rooted.

“Talk of repaying the debt, if you like, is fine in a boom, but not in the depths of the greatest recession we’ve seen in our lifetime,” Blanchflower said in a separate interview with Bloomberg Television yesterday. “It’s all about timing. Clearly you need to control the debt, but now? I don’t really think so.”

The British economy will contract 4.4 percent this year before expanding 0.9 percent in 2010, the International Monetary Fund predicts. The central bank forecast in August that inflation, which is now at the lowest level since 2005, will struggle to return to the 2 percent target in two years on line pay day loans.

Cameron’s remarks about the central bank are unlikely to register with voters, though attacks on his economic credibility might, said Andrew Hawkins from ComRes Ltd., a polling company.

‘Weakest Flank’

“I don’t think people have understood Cameron’s economics and it is his weakest flank,” Hawkins said.

Rick Nye, a pollster at Populus Ltd., said Cameron’s message about the economy is more likely to seep through.

“What Cameron wanted to do was reinforce the message that it’s time for a change and lay down a marker for the kind of government the Conservatives would be and the kind of prime minister he would be,” Nye said. “He did that pretty well.”

Brown’s Chancellor of the Exchequer Alistair Darling reiterated his critique of the Conservative economic plan, saying the economy remains fragile enough that his stimulus program is necessary.

“If we stopped supporting the economy now it would crash,” Darling said. “Every country in the world and just about every informed commentator is saying the same thing. The job is not finished. The Tories have been wrong at every turn.”

Blanchflower said Cameron’s program was “the most wildly dangerous thing I have seen in a hundred years of economic policy in Britain.”

‘No Understanding’

The economist from Dartmouth College in Hanover, New Hampshire, who was among the first to urge the central bank to stimulate the economy, said the Conservatives showed “no understanding of economics. It could drive the economy into depression.”

Dhar, now an economist at Fathom Financial Consulting in London, said that the central bank’s asset-purchase program, known as quantitative easing, should continue as long as institutions hoard cash and ration loans.

“Obviously, you have to stop QE at some stage, but this sounds like he’s ideologically opposed to it,” Dhar said. “It’s only ideologues that want to cut it off.”

Cameron didn’t mention the Bank of England’s program by name or make an explicit remark about what the Treasury’s policy toward asset purchases would be if he took office. Instead, he talked generally about the risks of the government running a deficit and “printing money” to bolster debt markets.

The central bank said yesterday it would spend to the limit of its program and evaluate whether to seek authority to make more purchases in November. While Governor Mervyn King has said the program will be wound down as the economy recovers policy makers will decide next month whether to extend it.

“Printing money will lead to inflation when you’ve got an economy running with no spare capacity, but that’s not the case now,” said Peter Dixon, an economist at Commerzbank AG in London. “We could print money without inflation for some time to come. Now is not the time to take back unconventional stimulus measures, that’s a long way down the road.”

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A new battle is brewing in Congress, riding the same populist wave that pitted banks against consumers on credit card fees earlier this year.

Momentum is gaining behind a proposed crack down on overdraft fees — the big penalties banks charge when customers spend more than they have in their accounts.

More than 75% of banks automatically sign customers up for overdraft programs, according to a study by the Federal Deposit Insurance Corp.

One of the big complaints is that many consumers only discover they have overdraft protection when they check their bank statement. Then it’s too late. Suddenly a $3 latte costs an extra $35.

"It’s extremely frustrating," said Phyllis Blanton, who lives near Wichita, Kan.

Blanton said she recently had to straighten out some $150 in overdraft fees at her local bank, accidentally incurred by her 20-year-old daughter, a college student. "I know the banks are getting stricter and more creative in the ways they’re making money, but they’re really just socking it to you," she said.

On Capitol Hill, lawmakers are working on bills that would force banks to curb and better disclose those fees. FDIC chief Sheila Bair has lately become a more vocal critic of overdraft fees, calling them "usurious" during a speech last month.

Separately, the Federal Reserve is working on new rules, which could be ready by year’s end, to prevent banks from automatically enrolling customers in overdraft protection programs without their knowledge.

Increased criticism on overdraft fees has coincided with a move by banks to voluntarily cut back and change the way they charge overdraft fees.

Some banks are eliminating fees on customers who dip below their balance by a mere $5 or $10. Others plan to cap the number of overdrafts that can be racked up in a day.

Bank of America (BAC, Fortune 500), for example, will on Oct. 19 start charging customers no more than four overdraft fees daily. The current cap is 10.

JPMorgan Chase (JPM, Fortune 500) will start processing and clearing expenses in the order purchases were made, chronologically, instead of biggest to smallest, which can deplete bank accounts faster and lead to more fees.

Consumer advocates say the push in Washington to do something about overdraft fees prompted banks to make changes.

"They clearly know something is coming," said Melissa Koide of the New America Foundation, a left-leaning Washington policy group. "It’s a very big populist issue so these big banks and the regional ones are reacting in anticipation, and that isn’t a bad thing."

Banks say they’re just responding to customer demands and market forces. Other banks that recently announced changes include: BB&T (BBT, Fortune 500), City National (CYN), Fifth-Third Bancorp (FITB, Fortune 500), PNC (PNC, Fortune 500), Regions Financial (RF, Fortune 500), Toronto-Dominion (TD), U.S. Bancorp (USB, Fortune 500) and Wells Fargo (WFC, Fortune 500).

The American Bankers Association says the industry is taking action for a small pool of customers, since most don’t pay overdraft fees. A September ABA survey found that 17% of customers said they paid an overdraft fee in the previous 12 months and those that did said they were glad the transaction was covered.

"During tough economic times, when people have tapped all their other sources of credit, when they have to pay for gas or groceries, they really need that payment to go through," ABA spokeswoman Carol Kaplan said.

Big money

For banks, overdraft fees are a big revenue generator because so many people rely on debit cards. Some 75 out of 100 financial transactions are electronic, according to Moebs Services Inc., an economic research firm.

The financial services industry is on track to make $38.5 billion this year on overdraft and non-sufficient fund fees, up 38% from $27 cash advances pay day loan.9 billion five years ago, Moebs estimates.

A Center for Responsible Lending study released on Tuesday showed that overdraft fee income grew for banks and credit unions by 35% just between 2006 and 2008.

Mike Moebs, who owns Moebs Services, said the changes that banks have made so far will help consumers, but "we need a second step. … We need to reduce the price of overdraft fees."

That’s where the debate on Capitol Hill could get messy.

Rep. Carolyn Maloney, D-N.Y., has introduced a bill that would require all banks to allow customers to agree to participate in overdraft protection.

The bill would also force banks to tell customers when an account is on the verge of being overdrawn, so customers can make a decision whether a particular purchase is worth an overdraft fee. The legislation would also force banks to clear transactions chronologically, instead of biggest first.

Finally, Maloney’s bill would force banks to make sure customers’ account balances reflect what they actually have available. Some banks show an available balance reflecting both the customer’s actual balance plus what’s available through overdraft protection, giving a distorted view of what’s available for purchases without fees.

Senate Banking Committee Chairman Chris Dodd, D-Conn., is drafting a bill that consumer advocates and congressional staffers predict will be even more aggressive. It could cap fees and the number of times fees can be charged daily. It could require banks to alert customers to their available balances each day.

But financial industry lobbyists say congressional action isn’t needed. They argue that the industry’s moves have already started trickling through the entire banking system to regional banks.

"Competition and customer concerns about overdraft fees forced the industry to respond — that’s the way it should work," said Scott Talbott, chief lobbyist for the Financial Roundtable, a banking industry group.

Veteran Hill watchers say they expect Congress to address overdraft fees — and definitely before the 2010 elections next fall.

Current legislation is stuck behind bigger, more-pressing priorities.

Maloney’s bill has yet to be considered by the House Financial Services Committee, which is slammed with hearings on overall financial regulatory reform. In the Senate, bogged down by health care reform, Dodd’s bill is expected to be released in coming weeks.

That’s not soon enough for bank customers like Phyllis Blanton, the Kansan who said she recently got buried in fees.

A tanning salon accidentally charged her daughter Ashley $70 instead of $7. The transaction was immediately voided but Phyllis’ account, which is linked to Ashley’s, had become overdrawn.

The bank, Intrust Bank, didn’t clear the voided transaction for a few days, so her daughter’s account remained overdrawn. Her daughter went on to rack up fees on a $2.50 McDonald’s Happy Meal and a $3 purchase of school supplies at Wal-Mart.

Total fees: $150 from five different transactions over two hours.

"This is a way for them to trip people up and to be able to hold onto their money," said Phyllis Blanton, who was able to convince her bank of 30 years to drop three of the five overdraft charges.

An Intrust spokeswoman declined to comment on the specific case. She said the bank, before reimbursing customers, typically requires merchants to write a letter explaining voided purchases.

For Blanton, the headache was enough to make her consider shopping for a new bank. "They used to let these things slide, but they don’t anymore," she said. 

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Sri Lanka’s central bank has room to cut interest rates should inflation remain “persistently low” as it seeks to support the island’s economic recovery after a 26-year civil war, Governor Nivard Cabraal said.

The economy may grow as much as 6 percent next year after expanding about 3.5 percent in 2009, Cabraal said yesterday in an interview in Istanbul, where he is attending the annual meetings of the World Bank and the International Monetary Fund.

The South Asian nation’s benchmark stock index, Asia’s best performer this year, closed at a record high yesterday on optimism that lower interest rates will boost earnings as the economy grows. Borrowing costs are already at a three-year low.

“If we see persistently low inflation, then we’ll see some reason to make some adjustments in the months ahead,” Cabraal said. “We don’t need to do any changes right now because we are on the right track. We don’t need to have a knee- jerk reaction.”

The central bank on Sept. 11 lowered the reverse repurchase rate to 10.5 percent from 11 percent, and cut the repurchase rate to 8 percent from 8.5 percent. Commercial banks are increasing lending at a “reasonable” rate as borrowing costs fall, Cabraal said.

Consumer prices will probably climb between 3 percent and 5 percent this year, and inflation may accelerate to between 5 percent and 6 percent in 2010, Cabraal said.

“Naturally, we are worried about a possible resurgence in inflation but at the same time our demand management has been so good that to some extent, it offsets the possible increases that may arise in the supply side,” he said. “We are confident we will be able to manage that.”

Civil War

Sri Lanka’s growth is expected to be driven by domestic demand including infrastructure development and construction activity as the end of the civil war spurs rebuilding in areas formerly controlled by the separatist Liberation Tigers of Tamil Eelam. Output in the fisheries and agricultural industries will also show “strong growth,” Cabraal said.

Sri Lanka may resettle 100,000 ethnic Tamil civilians stranded in transit camps in the country’s north by the end of this year, Deputy Finance Minister Sarath Amunugama said in Istanbul yesterday.

There is little risk of asset bubbles forming in the economy even as funds pour into the country’s stock market and investment increases, the governor said. The Colombo All-Share Index rose as much as 1.9 percent to 3,156.37 yesterday, the highest-ever for the measure of 238 companies on the Colombo Stock Exchange.

“We are not too worried about asset bubbles because what is being taken up is the slack that has been around for a long time,” Cabraal said. “It hasn’t reached that stage as yet.”

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NBC Universal looks to be in play, with minority shareholder Vivendi considering shedding its stake and Comcast, and now undoubtedly others, kicking the tires.

As the news broke, I just happened to be getting through the new book — The Curse of the Mogul: What’s Wrong with the Worlds Leading Media Companies, written by a trio of industry experts who teach a class at Columbia Business School. Nothing like a real live case study.

Essentially, the authors argue lucidly that the cadre of media moguls who dominated headlines for much of the past two or three decades have been deal junkies chasing rivals out of misguided notions about how to achieve long-term success.

Among other things, the writers — one of whom, Jonathan Knee, is actually a media investment banker — argue that such attributes as deep pockets, strong brands, and talent are "sham sources of competitive advantage", and that four key "media myths" have colored the mogul world-view: growth at all costs, globalization, the idea that "content is king" and "the cult of convergence."

It’s hard to argue with these folks — another author, Bruce Greenwald, is a respected economist at Columbia — but I will quibble with the book’s numerical set up: that many of the biggest and best-known media stocks have seriously underperformed the market.

The quibble is mainly existential in nature, rather than financial: if you measure only surviving companies in industries that have had enormous amounts of consolidation and deal-making, it stands to reason that they would under-perform.

As the authors point out, most mergers across all industries have been shown in academic studies to destroy value rather than create it — but they argue that this has taken place more egregiously in media mogul-land, as evidenced by some $200 billion in writedowns this decade.

My counter-point is simply that some investors have done quite well by investing in media companies, particularly if they were sellers into mergers, and took cash or sold their shares in the combined company around the time of its sale.

To wit, if you were a CBS (CBS, Fortune 500) shareholder when it was merged into Viacom (VIA) or an AOL shareholder around the time it combined with Time Warner (TWX, Fortune 500) (owner of Fortune and CNNMoney) or a Polygram shareholder when it sold to Seagram you could have done nicely. Ditto Pixar to Walt Disney (DIS, Fortune 500), and, if its deal with Disney proceeds as planned, Marvel Entertainment — and so forth.

Again, this is an existential (and maybe slightly cynical) point. Keeping in mind the book’s line that "only careful selection of dates can make any of the individual media conglomerates look good," yesterday I arbitrarily charted 10-year performance for Time Warner, News Corp. (NWS, Fortune 500), Comcast (CMCSA, Fortune 500), and Disney — the biggest of the survivors — against the S&P 500. With the index down 18% during that period, Disney was up 17% and News was down 3%. Comcast was off 28% and Time Warner sank 73%. One supposes "The Mixed Bag of the Mogul" is not such a compelling title.

Getting back to NBC and, its suitor Comcast: As it turns out, Comcast is one of the heroes of the book, with its CEO Brian Roberts praised for his well-conceived and deftly-executed acquisition of the former AT&T cable systems.

NBC, of course, is subsidiary of a giant conglomerate whose CEO, Jeff Immelt, has said he is committed to keeping the media business and shrinking GE’s (GE, Fortune 500) dependence on finance — though that was at a time before GE’s sinking market cap was in danger of being eclipsed by Apple’s.

Vivendi looks to be the catalyst. If the French telecom and music company wants to shed its 20% stake in NBC U, it has a put to do so which it can exercise in a few weeks’ time; this means GE either has to put up between $4 and $7 billion to buy the stake or consider an IPO of NBC U, which may not be an appealing option given some of the challenges at the company’s broadcast and movie divisions. People familiar with the talks say that Comcast would end up with 51% of the private joint venture being contemplated, by putting in some cash and content assets.

The authors of Curse of the Mogul do have one big caveat in their praise of Comcast’s acquisition of AT&T: that Comcast overpaid. Comcast shares have fallen amid the deal reports, just as they did when the company bid unsuccessfully for Disney a few years back.

Analyst Vijay Jiyant at Barclays Capital said in a report this morning that based on media reports valuing NBC at around $32 billion in the deal, Comcast would be overpaying again. And of course all this attention could smoke out other potential bidders, perhaps DirecTV but probably not (as I and others have speculated in the past) Time Warner.

As the latest dance gets underway, all involved might heed one of the book’s many cautions: "you can want a thing too much, and media moguls frequently do." 

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BAE Systems turned down the chance to pay 300 million pounds ($477 million) to settle a bribery investigation and is seeking to review evidence against it before trying to agree a deal, newspapers reported on Sunday.

The Serious Fraud Office said this week it was prepared to prosecute Europe’s biggest defense contractor over allegations the firm used bribery and corruption in arms deals in South Africa, Tanzania, Romania and the Czech Republic dating back to the 1990s.

The Sunday Times reported BAE had turned down the 300 million pound settlement after receiving advice the sum was too great for the evidence uncovered and the company could leave itself open to civil lawsuits from shareholders.

The Sunday Telegraph, which also cited the 300 million pound figure, said BAE wanted to restart talks with the SFO to get a clearer understanding of the evidence against it.

Legal experts estimated last week that BAE could face penalties of hundreds of millions of pounds if found guilty but that securing a conviction would be very difficult, and that both sides would probably seek to settle out of court cash advance.

A spokeswoman for BAE declined to comment on Sunday’s reports, and reiterated comments made on Thursday that the company was “seeking to resolve (the issues) at the earliest opportunity.”

The Independent on Sunday said the U.S. Department of Justice was looking to see if the deals under investigation by the SFO breached its own corruption rules and that there had been an informal exchange of information between the two agencies.

No-one at the SFO could immediately be reached for comment.

(Reporting by Victoria Bryan; editing by John Stonestreet)

($1=.6289 Pound)

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Ken Lewis doesn’t have a golden parachute, but he’s all set for a comfortable landing — unlike his long-suffering shareholders.

The Bank of America (BAC, Fortune 500) chief executive officer said Wednesday he’ll step aside at year-end after eight years at the helm. Based on the company’s most recent proxy statement, he will have $53 million in pension benefits waiting for him when he leaves.

That should give him about $3.5 million a year in pension payouts for the rest of his life — at a time when people who bought the stock when he took the reins in 2001 are underwater on their investments.

Although the bank swore off employment contracts and eliminated golden parachutes seven years ago, Lewis can thank a pension plan that dates back decades for his rich retirement rewards.

While this plan was open, certain top executives were eligible to accrue benefits they would receive following retirement in the form of annuity payments.

Lewis was the biggest winner in these plans, but other BofA execs benefited as well. Vice Chairman James Hance, for instance, retired in 2005 with an indicated annual benefit of $2.7 million.

Ironically, BofA decided to freeze this so-called supplemental executive retirement plan at the same time it got rid of golden parachutes, citing the need to better align executive compensation with investor returns. By any measure, those have been poor at BofA of late.

The company’s stock fetches less than half its year-ago price and remains below its level when Lewis took over in April 2001 — even after a 563% jump off lows from this March.

But before BofA made its compensation switch, Lewis had participated for more than a decade in the supplemental pension plan — racking up the more than $50 million supplemental plan account.

That’s not all. Lewis also has $10 million in deferred compensation owed to him and another $8 million in restricted stock and stock options as of Dec. 31 that will continue to vest over coming years, according to the most recent proxy filing. BofA referred questions about Lewis’ retirement plan to those filings.

Assessing a total value on Lewis’ walking-away pay is an inexact science, given changes in BofA’s stock price and other factors online payday loans.

But Paul Hodgson, senior research associate at the Corporate Library governance tracker, said his firm’s most recent survey of retirement plans puts Lewis’ take at $64 million.

That number is down by more than half from 2006, when BofA shares traded above $50, compared with a recent $16.21. But it still "puts him in the top 40" nationwide, Hodgson said.

Not that Lewis should need the money. Though his cash salary has been $1.5 million annually since he took the reins in 2001, he has managed to chalk up $63 million in pay and perks over the past three years, according to filings — including almost $10 million last year, which ended with Lewis bickering with federal officials over the terms of its purchase of brokerage Merrill Lynch.

In the end, the U.S. backed BofA’s purchase of Merrill — but at a steep cost to Lewis’ standing with shareholders, who stripped him in April of his chairmanship, prompting numerous critics to start the countdown to his departure.

"Ken Lewis’s resignation as CEO is the overdue but inevitable result of the overwhelming shareholder opposition registered at Bank of America’s 2009 annual meeting," the CtW Investment Group, long a vocal critic of Lewis’ leadership, said in a statement Wednesday evening. "The onus is now on the board of directors to engage with shareholders to name a successor who can quickly restore the bank’s credibility with investors, regulators and Congress."

Lewis’ decision to throw tens of billions of shareholder dollars at Merrill when it was on the brink of collapse even drew chortles from the likes of Warren Buffett, the billionaire investor who last month dubbed Lewis the "ironic hero" of the meltdown.

But with BofA shares down two-thirds from their 2006 highs, Lewis will depart as no hero to investors — ironic or otherwise.

Correction: An earlier version of this story misstated the name of the Corporate Library, a corporate governance watchdog, and the title of senior research associate Paul Hodgson.  

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Britain’s curb on banking bonuses may stunt the recovery in London’s luxury housing market by wiping out the windfalls that let buyers afford big mortgages, according to property brokers Knight Frank LLP and Savills Plc.

Bankers and financial-services executives are just starting to buy property again after a year of price declines ended in March. They already account for a smaller proportion of buyers than at the peak of the market, said Liam Bailey, head of residential research at London-based Knight Frank.

“If you take bonuses out of the equation, prices can’t rise as quickly and they will take much longer to return to peak levels,” Bailey said in an interview yesterday. Knight Frank and Savills are the biggest brokers for London houses and apartments costing more than 1 million pounds ($1.6 million).

The U.K.’s five largest banks agreed two days ago to impose limits on bonuses, following guidelines set by the Group of 20 nations at their summit in Pittsburgh last week. Financial companies have cut thousands of jobs in London in the global recession, contributing to a slump in luxury-home prices in districts such as Mayfair and Chelsea.

Since March, property values in the most expensive areas have fallen at a slower annual pace, Knight Frank estimates. They started to increase on a monthly basis in April and gained 1.3 percent last month. Prices are still 18 percent below their peak.

Shrinking Market

The market’s improvement is being driven by a scarcity of properties, rather than more purchasers, according to Savills, which is also based in London. The number of homes for sale is about 25 percent less than the average for the past five years, the broker estimates.

Finance-industry workers accounted for 32 percent of luxury-home buyers during the past six months, up from less than 30 percent at the start of the year, Bailey said. That compared with about 40 percent at the market’s peak in 2007.

“Going forward, the bonus equation will be pretty important,” Savills Research Director Lucian Cook said in an interview. “It might take some of the heat out of the top of the market.”

Alistair Darling, the Chancellor of the Exchequer, met executives from HSBC Holdings Plc, Barclays Plc, Lloyds Banking Group Plc, Royal Bank of Scotland Group Plc and Standard Chartered Plc to sign up to the G-20 principles, the Treasury said. The rules restrict the amount the lenders can devote to their bonus pools and how much they can set aside for deferred payments to executives and traders.

Close Correlation

The level of annual bonus payments is closely correlated with movements in the prices of the best properties in central London, Cook said. Even so, the effect of the new rules may be damped by salary increases awarded to bankers to avoid a drop in compensation, he said. That could let them afford larger mortgages.

“The curb on bonuses will result in there being less competition,” said Camilla Dell, managing partner of Black Brick Property Solutions LLC, which helps wealthy individuals find homes in the U.K. capital. “Price rises are bound to be lower if you cut off a large chunk of the buyers.”

Not all bank employees face the prospect of lower bonuses. Goldman Sachs Group Inc. set aside a record $11.4 billion to pay compensation in the first six months of this year. The securities firm has already limited guaranteed bonuses to one year and is paying a larger share in stock as amounts increase.

The pound’s weakness is making London properties more affordable for overseas buyers. Sterling has fallen 28 percent against the dollar since the height of the boom and dropped 25 percent against the euro.

In dollar terms, prices for prime London properties were about 50 percent cheaper in March than two years earlier, Bailey said.

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Spanish home prices fell for a seventh quarter in the three months through June as mortgage lending contracted and the worst recession in 60 years pushed up unemployment.

The average price of new and used houses and apartments declined 0.4 percent from the previous quarter, when they fell 2.7 percent, the National Statistics Institute said today in an e-mailed statement. From a year earlier, prices dropped 7.7 percent, with the price of new homes falling 3.9 percent and existing houses declining 11.2 percent.

House prices more than doubled in the decade through 2007 amid falling interest rates and economic growth averaging almost 4 percent a year. The market had already started slowing when the global credit crisis hit, slashing lending, pushing real- estate companies into bankruptcy and leaving more than a million new homes unsold.

Spain, home to 11 percent of the European Union’s population, built more than 29 percent of all new homes in the EU from 2001 though 2007. That increased the number of unsold homes to as much as 1.6 million and outstripped annual demand of 218,482 units, according to R.R. de Acuna & Asociados, a property-research company. The excess supply will take six or seven years to be absorbed, the company’s president Fernando Rodriguez de Acuna said on Sept. 15.

The economy has been contracting since the second quarter of 2008, pushing the unemployment rate to 18.5 percent in July, and the Organization for Economic Cooperation and Development expects Spain to take longer than other European countries to recover from the recession. The number of mortgages issued for houses fell 19 percent in July from a year earlier and housing sales declined 20 percent, according to separate data from INE.

Standard & Poor’s forecasts Spanish house prices may fall 20 percent this year, followed by declines of 10 percent and 5 percent in the next two years, it said June 24.

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