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Human Genome Sciences Inc. announced today it’s submitted its second application so far this year to federal regulators to sell a drug on the market, this most recent being for its hepatitis C treatment called Zalbin.

With these applications, including a third that the Rockville biotech plans to submit in the first half of next year for a lupus treatment, Human Genome Sciences hopes to sell its first drugs on the commercial market by the end of next year — a major milestone for the 17-year-old company.

In May, Human Genome Sciences applied to the Food and Drug Administration for approval to sell its anthrax treatment, though that submission hit a stumbling block earlier this month when regulators said they still needed further information before they could sign off on it. The company has already sold several lots of that drug to the federal government for its national stockpile.

For Zalbin, Human Genome Sciences (NASDAQ:HGSI) is relying on results from two late-stage human clinical studies that enrolled a total 2,255 patients. The data showed that Zalbin performed comparably to its competitor, F. Hoffmann-La Roche Ltd.’s Pegasys, with half the number of injections — every two weeks instead of every week.

But those results, while meeting federally set endpoints, failed to excite Wall Street, which drove down the company’s stock price by 55 percent in one day to new lows below $1. Analysts said at the time that the study data didn’t differentiate Zalbin enough from the pharmacy’s current offerings and expressed skepticism that the fewer dosages alone could attract enough physicians and patients to result in healthy market share fast cash advance loan.

Instead, investors are more anxiously awaiting Human Genome Sciences’ third offering to the commercial market: what could be the first federally approved lupus treatment in decades. The local company’s drug, called Benlysta, exceeded expectations in two late-stage studies announced in July and November, sending the company’s market cap and stock soaring to new 52-week highs.

Under a partnership agreement signed in 2006 with Novartis AG for Zalbin, Human Genome Sciences will sell the drug jointly and share equally in costs and profits for U.S. sales if it gets approved. Novartis will apply by year’s end for approval to sell the drug in other countries, starting with Europe, under the brand name Joulferon.

The partnership will yield Human Genome Sciences royalties, and as much as $300 million more in payments from Novartis for meeting certain regulatory and commercial milestones.

The Centers for Disease Control and Prevention estimate that about 3.2 million Americans have chronic hepatitis C, a viral infection that kills 8,000 to 10,000 people each year.

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The dollar slipped on Monday as traders took a lack of agreement on currencies among Asian and U.S. leaders as a cue to sell the greenback, even as speculation of a near-term yuan appreciation cooled.

The U.S. currency also came under selling pressure with European shares rising and gold hitting a fresh record high, suggesting an increase in risk appetite.

The United States and China failed to reach an agreement over currencies at a summit of the Asia Pacific Economic Cooperation (APEC) forum in Singapore over the weekend, resulting in the omission to a reference to "market-oriented exchange rates" from the communique.

Analysts said the APEC meeting offered little new direction on currencies, which traders took as a green light to keep the dollar’s ongoing downtrend intact on the view that U.S. interest rates will stay low as those in other countries eventually rise.

"There were no comments against the weak dollar (from APEC), and that’s giving the market free rein to sell the dollar," said Ante Praefcke, currency strategist at Commerzbank in London.

The disagreement between Washington and Beijing comes as U.S. President Barack Obama visits China this week. The yuan’s peg to the dollar keeps the Chinese currency weak against its U.S. counterpart, and any yuan appreciation is seen weakening the dollar.

The dollar was down roughly 0.5% to 74.990, near a 15-month trough hit last week.

The euro rose 0.4% to $1.4975, edging closer to the psychologically key $1.50 level. Market participants said the euro was supported by a 0 installment payday loans.7% rise in European shares in early trade.

The dollar slipped 0.3 % to ¥89.50.

Traders offered limited reaction to data showing Japan’s economy grew at the fastest pace in more than two years in the third quarter as stimulus lifted consumer spending and capital spending rose.

U.S. retail sales awaited

Trading ranges were small as the market watched comments from the International Monetary Fund on Monday saying a stronger yuan was part of the reforms Beijing needed to boost domestic consumption.

Also on Monday, a Chinese Commerce Ministry official said the country should keep the currency stable as it was beneficial to a global recovery.

Traders were also looking at flow direction, watching for yen outflows from Japanese investment trusts launching on Monday and Tuesday, as well as looking for signs of yen repatriation from U.S. Treasury coupon flows which fell due on Nov. 15.

A final reading of euro zone inflation for October is due to be released later Monday, but with little in the way of economic data or events in the European session, analysts said the market would be watching U.S. retail sales due later in the day.

A Reuters poll showed expectations for sales to rise in October, reversing a fall the previous month, and analysts said a strong reading boost risk appetite, which may push the dollar lower. 

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U.S. department store operator Macy’s Inc forecast earnings for the fourth quarter, which includes the crucial holiday shopping season, far below Wall Street expectations on Wednesday, sending shares down 8.1 percent.

“The falls in same-store sales were less dramatic than they could have been, and there are consumers shopping,” said Leah Hartman, an analyst with CRT Capital Group. “Expectations might have gotten a little ahead of themselves.”

Macy’s is the first major U.S. department store chain to report financial results this week. The others include: JC Penney Co, Nordstrom Inc and Kohl’s Corp.

On a call to analysts, Chief Financial Officer Karen Hoguet warned that the economy made forecasts more challenging.

“There is more uncertainty than usual in the environment,” she said.

Macy’s forecast same-store sales, or sales at stores open at least a year, to fall between 1 percent and 2 percent in the fourth quarter.

It also said it expects fourth-quarter earnings of $1 to $1.05 per share. Wall Street analysts had expected earnings of $1.17 per share, according Thomson Reuters I/B/E/S.

The company did improve its outlook for full-year same-store sales, forecasting a decline of 5.4 percent to 5.7 percent, compared to an earlier forecast for a decline of 6 percent to 8 percent payday cash advances.

Analysts said Macy’s efforts to keep inventories lean resulted in fewer markdowns, better sales and improved gross margins. Macy’s gross margin rose to 40.2 percent from 39.5 percent a year earlier.

3RD QUARTER BEAT

In the third quarter, Macy’s net loss narrowed to $35 million, or 8 cents a share, from $44 million, or 10 cents a share, a year earlier. Excluding one-time items such as $33 million in restructuring costs, its loss was 3 cents a share.

Last year, the retailer restructured itself under its “My Macy’s” program, designed to help the chain focus on local tastes and reduce head office expenses and duplications. So far in 2009, the company has spent $205 million on its restructuring.

Macy’s said sales fell 3.9 percent to $5.28 billion in the third quarter.

Analysts, on average, had been expecting a loss of 7 cents per share and sales of $5.25 billion, according to Thomson Reuters I/B/E/S.

The Cincinnati-based chain said losses had narrowed on the strength of its Bloomingdale’s stores and online sales, which rose 21.1 percent during the quarter. 

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China’s exports face a “hard and tortuous” path to recovery as uncertainties dog the global economy’s gradual return to health, with this year’s trade surplus set to shrink from last year’s record, the Commerce Ministry said.

Commerce Minister Chen Deming told a conference on Saturday that China’s trade surplus was expected to fall to $180 billion to $190 billion this year from last year’s record $295.5 billion.

The surplus was $136.4 billion in the first nine months of the year.

With China’s economic recovery relying heavily on government spending to boost domestic demand, imports have seen greater improvement than exports in recent months.

Exports in September were 15.2 percent below their level a year earlier, beating forecasts of a 21 percent fall, although the government expects a double-digit fall for all of 2009.

In a statement released late on Friday on the ministry’s website (www.mofcom.gov.cn), it said the full-year fall in exports compared with the previous year should be less than 20 percent.

“In 2010, the world economy will hopefully see a gradual recovery, and the environment for Chinese trade will gradually improve,” it said.

“But as there is not yet sufficient strength in the global economic recovery, many problems and contradictions have yet to be basically resolved. The recovery will be hard and tortuous, and it will be hard to see an obvious recovery in international demand in the short term default payday loan.”

Net exports shaved 3.6 percentage points off headline GDP growth of 8.9 percent in the third quarter as Chinese manufacturers continued to reel from a slump in global trade.

Protectionism in these straightened times was a particular worry, as was increasing competition, the ministry said.

“At present some nations are conducting probes into Chinese goods, which is causing yet further obstruction for a recovery in Chinese exports,” it said.

A U.S. trade panel on Friday approved the eighth government investigation this year into charges of unfair Chinese pricing practices in a case in which U.S. companies want a nearly 100 percent duty or more on $382 million of imported steel pipes.

Still, there were signs for optimism, the ministry added.

The government was continuing to provide help to exporters in the form of export tax rebates, and numerous new markets awaited Chinese firms.

“There is a bright future for developing trade with newly emerging markets,” it said.

(Reporting by Ben Blanchard in Beijing and Fang Yan in Shanghai; Editing by Nick Macfie)

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A year after the government applied a tourniquet to the banking industry, the bleeding has slowed — but it hasn’t stopped.

The six biggest U.S. banks will tell investors in coming weeks how they did in the third quarter. Analysts expect four of the six to post profits, and the best-run banks — Goldman Sachs (GS, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) — are likely to more than double last year’s bottom line.

But Wall Street expects profits at both Wells Fargo (WFC, Fortune 500) and Morgan Stanley (MS, Fortune 500) to fall from a year ago. And the biggest beneficiaries of Washington’s too-big-to-fail mindset, Citi (C, Fortune 500) and Bank of America (BAC, Fortune 500), may lose money.

Bank analysts say a severe economic downturn preceded by a long credit boom means stubbornly high losses on home loans, credit cards and commercial properties will be working their way through the system for a while — which translates to uneven profit reports at big banks and, in some cases, failures at smaller ones.

"We’re through the worst of the storm, but we’re not out of the other side of it," said William Schwartz, senior vice president for the U.S. financial institutions group at ratings agency DBRS.

The big banks have been sheltered over the past year by lavish government assistance, ranging from Treasury loans to expanded deposit insurance to federally backed loan guarantees. Some of those props are due to start falling. The Federal Deposit Insurance Corp.’s loan guarantee program, for instance, is due to expire Oct. 31.

In the meantime, bank stocks have rallied off their winter lows — driven in large part by gains that were concentrated in nonbanking businesses such as fixed-income trading and investment banking.

The major bank stocks all posted massive gains in the third quarter, led by a 57% jump at Citi, whose shares continue to fetch less than $5 each, and 30%-plus rises at BofA, Goldman Sachs and JPMorgan Chase.

"The big firms have more revenue streams, so they’re probably a little better off right now than the regionals," said Schwartz.

JPMorgan Chase, which has emerged as a rare beneficiary of the financial crisis via its low-cost, government-assisted acquisitions of Bear Stearns and Washington Mutual, is due to post third-quarter numbers Wednesday morning. Analysts polled by Thomson Financial expect its earnings to rise to 49 cents a share from 11 cents a year ago, as solid performances in fee-based businesses such as mortgage and investment banking offset rising costs in its big credit card book.

Thursday morning will bring reports from another big winner over the past year, Goldman Sachs, and from Citigroup, which continues to struggle under the weight of big loan losses. Analysts expect Goldman to make $4.24 a share for the third quarter, up from $1.81 a year ago. Citi, meanwhile, is expected to lose 21 cents a share, compared with a 60-cent loss last year.

"Citi’s earnings remain under significant pressure near term along with the industry," analysts at JPMorgan wrote in a note to clients last week.

Closing out the week will be Bank of America, which is due to post third-quarter numbers Friday morning. Analysts expect the bank to lose 6 cents a share for the quarter, reversing the year-ago profit of 15 cents.

The numbers will come less than a month after the bank’s longtime CEO, Ken Lewis, quit under pressure from shareholders, as well as legislators who question his handling of BofA’s takeover of Merrill Lynch.

Two other banks dealing with management changes — the investment firm Morgan Stanley, whose CEO John Mack announced plans last month to retire, and West Coast lender Wells Fargo, whose Chairman Dick Kovacevich will step aside Jan. 1 — are expected to post results next week. Both firms are expected to make less money than they did in last year’s third quarter.  

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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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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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