zz Economic week ahead: Chinese data to dominate

A slew of data from China and central bank decisions in the UK, Australia and Kenya will likely dominate this week's economic news

North America
The US economic calendar is light this week, with consumer credit, weekly jobless claims and wholesale inventories figures the only noteworthy releases on tap.
Consensus is that Tuesday's consumer credit data will show that credit rose by $15-billion in March, down from an $18.1-billion surge in the previous month.
February's jump, driven largely by a significant gain in student loans, was the largest monthly increase in credit in almost 13 years.
Attention will turn to initial jobless claims and wholesale inventories data on Thursday. Jobless claims fell by 18 000 to 324 000 in the week ended April 27, a new recovery low. Economists expect this week's claims to climb to 335 000.
Markets expect Thursday's wholesale inventories figures to show that inventories rose 0.4% in March, following a 0.3% decline in February.
Economists monitor activity at the wholesale level as an indicator of consumer trends.
Beyond these economic data releases, investors will focus on a few of the remaining corporate earnings reports scheduled for the week ahead.
Disney and News Corp. are the big names of the week.
Analysts expect Disney to report earnings per share (EPS) of 76 cents on revenue of $10.5-billion for the second quarter of its 2013 fiscal year, up from 58 cents per share on revenue of $9.6-billion in the same period last year.
News Corp. is expected to report EPS of 36 cents on revenue of $9.1-billion for the third quarter of its 2013 fiscal year, compared with 37 cents per share on revenue of $8.4-billion last year.
Europe
On Monday, the Eurozone's composite and services sector purchasing managers' indices (PMIs) are likely to continue to point to continuing economic trouble for the continent.
Economists expect both measures to remain below the 50-mark separating expansion from contraction.
On Wednesday, Queen Elizabeth II will deliver her annual speech to parliament, setting out the coalition government's legislative programme, and German officials will release March's industrial output numbers.
Markets expect that, on a monthly basis, Europe's largest economy and manufacturing powerhouse posted zero growth in output in March, following a stronger than expected 0.5% growth in February.
On Thursday, attention will turn to the Bank of England's monetary policy committee.
Following last week's news that the UK's services sector grew at its strongest pace in eight months last month, officials are widely expected to leave the bank's base rate on hold at 0.5% and maintain the size of the bank's quantitative easing programme at £375-million.
On Friday, G7 finance ministers and central bank governors will gather in London for two-days of meetings that will focus on means of combatting tax evasion.
Asia
Chinese trade, inflation, money supply and lending data will take centre stage in Asia this week. Markets expect Wednesday's trade data to show that exports rose 14.8% and imports rose 15.5%, year on year, in April.
As a result, the country's trade balance is expected to have risen to a $23-billion surplus last month, following March's surprise $884-million deficit.
On Thursday, attention will shift to China's latest consumer and producer inflation figures.
Markets expect both sets of numbers to paint a tame inflation picture for the world's second largest economy.
Economists expect April's consumer price index (CPI) data to show that consumer prices rose 2.3% from a year earlier, only slightly higher than the 2.1% recorded in March and well below the government's 4.0% comfort level.
Last month, prices at the factory gate fell about 2.0% from a year earlier, slightly more than the 1.9% fall witnessed in the previous month.
On Friday, consensus is that year on year M2 money supply growth slowed slightly to 15.5% growth in April from 15.7% in March. New yuan lendIng likely fell from 1.1-trillion yuan to 768-billion yuan during the same period.
Elsewhere in the region, the Reserve Bank of Australia will announce its latest rates decision on Tuesday. Most economists believe that the Reserve Bank of Australia will leave the bank's benchmark rate on hold at 3.0%.
Money markets, however, have priced in a 55% chance that policymakers will cut the overnight rate by 25-basis points to a new record low.
Africa
Kenya's central bank will announce its latest rates decision on Monday.
In the face of upside inflation risks, largely attributable to higher food prices, markets expect policymakers to leave the central bank rate on hold at 9.5% for the second straight meeting.
On Tuesday, attention will turn to Egypt's release of official reserves figures.
Political and economic turmoil in the wake of a popular uprising that ousted former President Hosni Mubarak two years ago has scared foreign investors away from Egypt, raised the country's deficit and drained foreign currency reserves needed to pay for food and fuel imports.
Egypt's reserves have plunged by more than half since January 2011, when they stood at around $36-billion, to less than $14-billion in March 2013.
Officials have said that they are hoping to raise reserve levels to $16-billion by the end of the current fiscal year in June.
On Thursday, South Africa, the continent's largest economy, will release last month's mining and manufacturing production figures.
Consensus is that manufacturing output fell 0.2% in March from a year earlier following February's worse than expected 2.9% drop.
South Africa's latest PMI results indicate that weak domestic and external demand has reduced demand for new orders, pointing to reduced manufacturing output over the coming months.
Elsewhere on the continent, Uganda will release March's M3 money supply and foreign reserves data and Tanzania is expected to release gross domestic product figures.
Kenya will do the same this week or the next.

zz Doug Kass fails to convince Buffett to sell Berkshire shares, for now

Doug Kass, founder and president of Seabreeze Partners Management, came out swinging at Berkshire Hathaway Inc.’s annual meeting on Saturday when he got the microphone.
A Berkshire bear, Kass pointed out that the company is now so big, it has to hunt “elephants” rather than “gazelles.” With the  company in danger of becoming an index fund because of its sheer size, Kass asked whether it was time for Berkshire BRKA +1.25%   BRKB +1.71%  to change, the Wall Street Journal reported.
As expected, Buffett parried the blow deftly, admitting that there is no question that Berkshire won’t grow as much as in the past. But, he added, it will still continue to generate tremendous value, according to the New York Times.
Charlie Munger then chimed in with, “I can make the short-sellers argument even better than he did.”
Buffett then signaled the end of the first round by declaring: “You haven’t convinced me to sell the stock yet, Doug, keep trying.”
In his second go at the microphone, Kass questioned whether Buffett’s successor will continue to have the advantages that  Buffett enjoyed, to which the 82-year-old chairman of Berkshire responded that  his successor will have access to the funds that will supplant his name and reputation, according to The Wall Street Journal.
Noting his investments in Goldman Sachs, General Electric and Bank of America were all made in times of crisis, Buffett said, “Berkshire is the 800 number when there is panic in the market.”
“I think when you come to a day when the Dow has fallen 1,000 points a day for a couple days and the tide has gone out and you find out who has been swimming naked, those naked swimmers will call Berkshire. When that happens and I’m not around, it will become an even more Berkshire brand,” he said.
Kass, who is short on Berkshire stock, was invited to the meeting by Buffett in March after answering the Oracle of Omaha’s call in Berkshire’s latest shareholder letter for a money manager with a negative view of the stock “to spice things up.”

Warren Buffett treated like rock star at annual meeting

OMAHA, Nebraska (AP) —Before facing questions from a crowd of more than 30,000, billionaire Warren Buffett started Saturday by being mobbed by fans at Berkshire Hathaway's annual meeting.
Shareholders again treated the 82-year-old investor like a rock star at Saturday's annual meeting.
Admirers held their cell phones and iPads in the air as they surrounded Buffett in the meeting's 200,000-square-foot exhibit hall. A pack of security guards created a buffer around Buffett as he visited displays selling Berkshire's See's Candy, explaining BN SF railroad's virtues and highlighting some of the company's other 80-plus subsidiaries.
Andy Paullin, drove to Omaha from Milwaukee, Wis., on Friday to attend the meeting and learn from Buffett and Berkshire Vice Chairman Charlie Munger, just as he has done nearly every year since 2007.
"It's exciting to be here and listen to these guys," he said. "I can't believe more people aren't interested."
OUTLOOK: Warren Buffett feeling good about economy
At the See's booth, Buffett got a lesson in making hand-dipped bonbons. Then See's manufacturing manager Steve Powell got Buffett to autograph his white uniform coat, demonstrating that employees are nearly as excited about meeting Buffett as shareholders.
"He was right there. Why not? It's Mr. Buffett," said Powell, explaining why he asked for the autograph. "He's wonderful."
Powell said he'll probably frame the coat and display it at work when he returns to California.
The Berkshire Hathaway annual meeting began humbly in 1982 with a crowd of 15 in an insurance company cafeteria. It has been growing steadily just as the company's stock price rose to become the most-expensive in the U.S., reaching $162,904 for a Class A share on Friday.
Buffett will sit on stage with his 89-year-old business partner, Munger, to answer questions from shareholders, journalists and financial analysts for six hours.
Buffett hopes to keep the meeting interesting by adding a critic of his company to the panel asking questions. Buffett said in his annual letter that he was looking for an investor with a negative outlook on his company to ask questions at Saturday's meeting. Hedge fund manager Doug Kass responded to Buffett's letter and quickly got the job.
Kass said on CNBC Friday that he has done extensive research to develop his questions, and he is looking forward to it. Kass is the founder of Seabreeze Partners Management, and he writes a column on investing.
Amaury Fernandez and his best friend Rick Cabrera traveled to the meeting from Miami because Fernandez is interested in investing and admires Buffett and Munger.
"They are two of the most remarkable men I've ever learned about," Fernandez said. "We don't know how much longer these gentlemen are going to be alive."
Jim Weber, CEO of Berkshire's Brooks Running company, said he has been reading Buffett's annual letters to shareholders since the 1980s — long before Brooks became part of Berkshire. Weber had even attended four Berkshire annual meetings before Brooks was acquired in 2006 along with Russell Athletic.
"If you're in the business world, it's a bucket list item. There's no other annual meeting like it," Weber said.
In addition to admirers, there are also some protesters. Dozens of Utah coal miners are picketing outside the doors of Berkshire Hathaway's annual meeting in downtown Omaha.
The protesters are member of United Mine Workers of America who work at Deer Creek mine near Huntington, Utah. The mine is run by Berkshire's MidAmerican Energy.
The union's contract expired in January. The company and union are negotiating, but disagree on health care coverage and safety checks. The protesters hope to influence Buffett.
Bernie Morris of Price, Utah, stood in the rain with others Saturday to hand out flyers. The 67-year-old Morris says he's worked for the coal mine for 28 years, but fears he and his wife won't be able to afford the monthly health insurance premium the company wants to charge miners and retirees.
Berkshire Hathaway reported Friday that its first-quarter profit jumped 51% as its insurance companies performed well and the value of its investments soared
The company said it earned $4.9 billion, or $2,977 per Class A share. That's up from last year's $3.3 billion net income, or $1,966 per Class A share.
The Omaha-based conglomerate says its revenue grew 15% to $43.9 billion from $38.2 billion last year.
5 students win contest to meet Warren Buffett
Five lucky students won the chance to consult Warren Buffett on their ideas for improving the health of their schools.
The students won a national contest and got to meet Buffett Friday on the eve of the annual meeting of his Berkshire Hathaway conglomerate.
The students are all Ambassadors for Fuel Up to Play 60, the wellness program backed by the NFL and the National Dairy Council. As part of winning the contest, the students will each receive $4,000 grants to implement their ideas.
Josh Miller, a fifth-grader from Maple Grove, Minn., says Buffett gave him several ideas about how to make his idea for a weekly half-hour exercise program successful.
Buffett says he was happy to play a part in the program because leaders need to be entrepreneurial.

zzBill Gross: You’re going to lose money investing

Bill Gross, Pimco’s chief investment officer, used his monthly investment outlook to take on the timely topic of haircuts.
For those unfamiliar with the jargon, a haircut is simplistically defined as an imposed trimming of the value of an investor’s holding. As the Total Return Fund /quotes/zigman/185339PTTAX0.00% manager points out, this can come in all shapes and sizes
His conclusion: every investor will take some sort of haircut. And it’s mostly because the central banks say so. Here’s his rundown of where the barbers are lurking:

• Negative real interest rates: The cost of borrowing is so low that investors earn negative money when they subtract the rate of inflation from the interest rates on government bonds. Those rates, Gross says, are being held down through quantitative easing. He adds: “Investors are being haircutted by at least 200 basis points judged by historical standards, which in the past offered no QE and priced Fed Funds close to the level of inflation.”
• Inflation and currency devaluation: Inflation is nothing new, but if it gets out of control, investors take a hit when their holdings lose relative value. Plus, it often goes hand in hand with currency devaluation, which can further impair purchasing power.
• Capital controls: federal policies aimed at controlling the flow of money, which cuts into return on capital. Such examples include currency pegging, and taxes on incoming capital, Gross says.
• Default: The most traditional form of haircut, where the borrower of money fails to repay it when due. But it speaks to the larger point that investments are only repaid when the assets backing them perform. If asset prices don’t go up, bonds may default.

Last month Gross said he wasn’t necessarily a great investor. This month is he saying no one is? Well, not exactly. You may lose money investing, but don’t necessarily invest it under your mattress instead. As he says:

“The easiest answer to the question of what to buy is to simply take your ball and go home. If the rules aren’t fair, don’t play. That endgame however, results in a Treasury bill rate of 10 basis points or a negative yield in Germany, France and Northern EU markets. So a bond and equity investor can choose to play with historically high risk to principal or quit the game and earn nothing. PIMCO’s advice is to continue to participate in an obviously central-bank-generated bubble but to gradually reduce risk positions in 2013 and perhaps beyond.”

Gross continued on that risk-averse theme when he tweeted his latest thoughts on the economy Thursday morning:

zz Fed holds steady in face of weak data

WASHINGTON (MarketWatch) — The Federal Reserve pressed ahead Wednesday with its $85 billion-a-month asset purchase program but made few changes to its economic outlook despite a recent spate of poor economic reports for March.

In its policy statement, the Fed stressed that it was flexible, saying it was prepared to either “increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes.”

Fed Chairman Ben Bernanke had previously said the Fed was flexible, but this is the first time it was included in the statement.

After starting the year brightly, the economy has started to look sluggish in recent weeks. At the same time, inflation has been softening and remains well below the Fed’s 2% target.Read more on recent economic data

Many analysts had thought the Fed would downgrade its view on the economy.

Instead, the Fed repeated that the economy is expanding at a “moderate pace.”Read text of FOMC statement.

Economists tend to blame tighter fiscal policy for the slowdown, and the one change the Fed made to the statement in its description of the economy was to say that fiscal policy is restraining growth.

Most analysts still think the economy will rebound in the second half of the year, allowing the Fed to begin to taper its asset purchases.

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Federal Reserve Board Chairman Ben Bernanke speaks during a news conference at the Federal Reserve headquarters March 20, 2013

But if the slowdown continues, these estimates may have to be pushed back.

The vote at the meeting was 11 to 1. Kansas City Fed President Esther George dissented for the second straight meeting.

The Fed will meet next on June 18-19 and Fed Chairman Ben Bernanke will hold a press conference.

The minutes of this two-day meeting will be released on May 22. Economists expect there to be an active discussion of the factors behind the weaker inflation.

zz QUALCOMM, Inc. (QCOM): Should You Worry?

Mobile chip maker recently took a dip despite reporting solid quarterly earnings and guidance. The San Diego-based company, which temporarily eclipsed Intel Corporation (NASDAQ:INTC) as the world’s most valuable chip manufacturer last November, has been a hot growth stock over the past decade, rising over 300% on robust demand for mobile processors and components.

Can this tech giant continue to rise, despite worries regarding the increasing saturation of the smartphone market?

A steady second quarter

For its second quarter, QUALCOMM, Inc. (NASDAQ:QCOM) earned $1.17 per share. Net income slid 16% to $1.87 billion from the prior year quarter, but was in line with Thomson Reuters estimates. Revenue rose 24% to $6.12 billion, and topped the consensus estimate of $6.08 billion.

Looking forward to the full year, QUALCOMM, Inc. (NASDAQ:QCOM) expects to earn $4.50 to $4.55 per share, in line with the consensus estimate of $4.54. It now expects full-year revenue of $24 billion to $25 billion, up from its prior estimate of $23.4 billion to $24.4 billion. The company expects higher top line growth from rising smartphone sales.

On the surface, QUALCOMM, Inc. (NASDAQ:QCOM)’s earnings report was lackluster but steady. Yet the stock plunged over 5% on April 25 after earnings, due to concerns that it hadn't set the bars high enough for its quarterly and full year earnings per share guidance.

Qualcomm’s main products are processors and radio chips for smartphones and tablets. The company’s most well-known product is its Snapdragon mobile processor, which is used by Samsung, HTC, Sony, Nokia Corporation (ADR) (NYSE:NOK) and Research In Motion Ltd (NASDAQ:BBRY) in their mobile devices. Qualcomm also produces radio chips for Apple Inc. (NASDAQ:AAPL), and there are rumors that Apple may use the Snapdragon processor in a lower-end iPhone.

Smartphone shipments are forecast to rise 20% annually to 1.7 billion by 2017, according to research firm Gartner. However, research firm IDC notes that even if the smartphone market grows 27% this year, it still represents a slowdown from the 46% year-on-year growth it reported in a year ago, which means that the market is becoming increasingly saturated.

To compensate for this imminent saturation of higher-end markets, Qualcomm is looking toward lower-end markets, especially across Asia, to continuing growing its top line. QUALCOMM, Inc. (NASDAQ:QCOM) noted that only a third of mobile handsets in China were capable of 3G speeds, which makes it a fertile market for its radio chips. Qualcomm also noted that sales of 3G devices have risen 34% over the past year to 1.1 billion in emerging markets.

However, there are major challenges in these markets.

Low-cost handset manufacturers currently buy cheaper components from Qualcomm and pay lower royalties for its network technology. QUALCOMM, Inc. (NASDAQ:QCOM) must also face lower cost component makers - such as Taiwan-based Mediatek and China-based Spreadtrum Communications- which are willing to sacrifice their own margins in exchange for market share gains and revenue growth.

This shifting focus to lower-margin emerging markets worries analysts. They are concerned that Qualcomm’s higher-margin business is about to flatten, similar to the fate of smaller industry peers such as Broadcom Corporation (NASDAQ:BRCM).

Investors want to see Qualcomm continue growing its profit at a faster rate than in its revenue, which will be difficult if it focuses on China, India and other emerging markets.

“You're seeing revenue upside but not the earnings upside you'd want to come with it,” stated Bernstein analyst Stacy Rasgon. “Whether it's because of competition or they're investing to stop competition, either way - it can lead to margin decline.”

A major initiative in QUALCOMM, Inc. (NASDAQ:QCOM)'s push into emerging markets is the Qualcomm Reference Design program (QRD). The QRD program, which provides OEMs with Qualcomm hardware templates to base their designs on, allows vendors to create new handsets in as few as 60 days from start to launch. Before QRD, it took manufacturers between a year and a year and a half to launch a new product.

While the QRD program is mainly used by Chinese companies such as Lenovo, Yulong and Tianyu, Qualcomm noted that “Tier 1” device makers -- such as Samsung and HTC -- are currently evaluating the program for use with their lower-end handsets. As of January, Qualcomm reported that 40 manufacturers have commercialized over 170 QRD-based devices. While over 90% of those devices were for the Chinese market, OEMs in Brazil, India, Taiwan and Vietnam have also joined the program.

The rise of QRD means that smaller companies can create cheaper smartphones, fragmenting the market in emerging markets further. This means that if companies such as Apple Inc. (NASDAQ:AAPL), Research In Motion Ltd (NASDAQ:BBRY) or Nokia Corporation (ADR) (NYSE:NOK) want to capitalize on the growth of these markets, they may have to significantly slash their margins to remain competitive.

An uphill battle for the big boys

Although Apple Inc. (NASDAQ:AAPL) has already denied rumors of a $99 iPhone, analysts still believe that the company needs a lower-priced product to remain competitive in emerging markets. Most rumors indicate that Apple could offer a cheaper iPhone in the $300 to $400 range, in comparison to its average unsubsidized price of $613. Yet even at that price range, Apple will struggle to remain competitive, especially when Chinese companies such as Xiaomi are selling Android smartphones comparable to the Samsung Galaxy S4 and iPhone 5 for approximately $250 to $300.

Meanwhile, BlackBerry has had some success in emerging markets with its touch-based Z10, but with an unsubsidized price near $600, it is still considered too expensive to achieve widespread adoption. Therefore, CEO Thorsten Heins noted that the company needs to produce a lower-end device to remain competitive. However, BlackBerry faces the same problem as Apple -- it will have to aim much lower if it is serious about capturing the lower-end market share.

Meanwhile, Nokia is enjoying moderate success in emerging markets with its low-end Asha devices. The new QWERTY keyboard-equipped Nokia Asha 210 sells for an unsubsidized price of $70, and has been touted as an ideal lower-end competitor to Research In Motion Ltd (NASDAQ:BBRY)’s upcoming Q10, which features a traditional QWERTY keyboard. If the Asha 210 sells well, it may be a sobering example of how low Apple and BlackBerry need to set their prices.

Therefore, QRD could change the game substantially for these manufacturers, by leveling the playing field for the lower-end handset industry. Since the same lower-end manufacturers using QRD tend to install Android, it would be a boon for Google Inc (NASDAQ:GOOG) as well.

The Foolish Bottom Line

While QUALCOMM, Inc. (NASDAQ:QCOM)’s top line is growing at a healthy rate, its margins seem destined to decline as it aggressively expands into emerging markets. However, this might be its only viable path for future growth, and its proactive promotion of its QRD program insures that it will remain the backbone of mobile handsets worldwide. For now, demand for its higher-end Snapdragon 600 and 800 processors, which will power devices such as the Samsung Galaxy S4, Sony Xperia and HTC One, will keep its margins intact.

Considering that Qualcomm now trades at an attractive 12.7 times forward earnings after its post-earnings plunge, I think that it can easily bounce back despite slower growth forecasts and lower profits.

U.S. to eye high-speed traders, money funds

Stability council to release third report on risks to the economy

WASHINGTON (MarketWatch) — Federal regulators on Thursday will detail threats to financial stability, with expectations that concerns will focus on high-speed computerized trading, money-market funds and bank vulnerabilities in today’s low-interest rate environment.

The recommendations will be released by the Financial Stability Oversight Council, which is a multi-agency panel charged with identifying risks to the economy to Congress.

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Regulatory observers agree that the report — the third of its kind — will focus some attention on systemic market structure issues, including the impact of computerized high-speed trading and the expansion of dark pools, which are trading systems that are not openly available to the public where buyers and sellers submit orders anonymously.

“It is a cause célèbre for a lot of regulators,” said Larry Tabb, founder of the capital markets research firm Tabb Group. “The biggest issue is not necessarily what happens during 99.9% of time, it is when market data issues arise and firms can’t adequately value risk, so they don’t want to risk their capital.”

More sophisticated rules seeking to prevent another so-called “flash crash” that shook the markets in 2010 took effect earlier this month. Tabb contends that they won’t be enough to convince the council that the risk to the economy from computerized high-speed trading is gone. Read about high-speed trading in the council’s 2012 report.

ECONOMY AND POLITICS | @MKTWEconomics

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• Durable-goods orders sink 5.7% in March
• Sales of new U.S. homes rise in March
• Existing-home sales decline in March

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In addition to market structure issues, risks associated with mortgage REITs, money-market funds and large financial institutions are also all expected to be spotlighted in the report.

Publicly traded mortgage REITs include Annaly Capital Management /quotes/zigman/189739/quotes/nls/nly NLY +0.38%  , American Capital Agency /quotes/zigman/110324/quotes/nls/agnc AGNC +0.21%  and Newcastle Investment Corp. /quotes/zigman/299237/quotes/nls/nct NCT +1.95%  , while top money-market fund providers include Federated Investors /quotes/zigman/217607/quotes/nls/fii FII +0.17%  , Charles Schwab /quotes/zigman/240465/quotes/nls/schw SCHW +0.30%  and Goldman Sachs .

Donald Lamson, a former Office of the Comptroller of the Currency assistant director who now a partner at Shearman & Sterling in Washington, said the council has taken a particular interest in reforms to the $2.7 trillion money-market fund industry and it will continue to do so in the report.

The council is considering a formal recommendation that the Securities and Exchange Commission take action to impose tougher rules on money-funds. The recommendation may be having its intended effect: Under pressure from the council, top SEC officials say reform of the industry -- considered by many to be systemically risky -- is at the top of their agenda.

Marcus Stanley, policy director at the left-leaning advocacy group Americans for Financial Reform, said the report is likely to focus this year on concerns that financial institutions are having a tough time managing risk in today’s low-interest rate environment.

Stanley said the low interest rate environment gives firms an incentive to reach further for yields and get into more exotic products. He expects the report to take a closer look at riskier products such as high-yield bonds, leveraged loans and mortgage REITs.

The report may look at the exit strategy for institutions when interest rates finally do rise.

“How will they sell off bonds in a way that you don’t see bond prices drop across the board, driving a disorderly rush for the exit in the bond market,” he asked.

Report provides guidance on post-Lehman rules

Lamson added that there is a possibility that the council will also designate some firms other than banks that are systemically risky, noting that the members of the group designated eight so-called financial market utilities as systemically risky last year on the same day it released its 2012 annual report to Congress.

Observers have been hotly awaiting the release of the names of these institutions, which will be subject to gradually increasing capital levels, lower leverage limits and more liquidity. Some possible designated firms include GE Financial, a unit of General Electric /quotes/zigman/227468/quotes/nls/ge GE +2.14%  , Prudential /quotes/zigman/294774/quotes/nls/pru PRU +0.69%  , American International Group /quotes/zigman/557836/quotes/nls/aig AIG +2.41%  and MetLife /quotes/zigman/252112/quotes/nls/met MET +1.54%  , as well as BlackRock /quotes/zigman/249424/quotes/nls/blk BLK -0.31%  and Pimco, a unit of Allianz /quotes/zigman/143088 DE:ALV +1.01%  .

He added that the report will also likely review the issue of whether U.S. banks also should hold a form of so-called “contingent capital,” a special kind of capital that would act like a bond in good times but convert automatically into loss-mitigating common equity in a crisis.

The form of capital is also known as “bail-in capital” because it would force the institution to give itself an injection of common equity in a crisis, thereby potentially avoiding the need for a taxpayer funded capital infusion. The council last year recommended that the Fed and other regulators continue to look at the issue and study the “advantages and disadvantages” of the bail-in instruments.