January 2010

China Sustains Manufacturing Expansion Amid Signs Export Demand Improving

by on January 31, 2010

By Bloomberg News Feb. 1 (Bloomberg) — China, the world’s third-biggest economy, sustained its manufacturing expansion in January as export orders jumped and inflation pressures grew, two surveys showed today. A purchasing managers’ index released by HSBC Holdings Plc and Markit Economics rose to a record. A second survey, by the Federation of Logistics and Purchasing, recorded the second- fastest expansion since 2008. Stocks tumbled as the reports spurred concern that the government will have to escalate efforts to rein in the credit growth that has fueled the nation’s infrastructure spending surge. Policy makers may raise interest rates by the end of June, after already increasing banks’ reserve requirements and targeting reduced credit growth, according to the median estimate in a Bloomberg News survey of economists. “These numbers should reinforce the case for policy tightening in the months ahead, including a move towards a stronger yuan,” said Brian Jackson, a Hong Kong-based emerging markets strategist at Royal Bank of Canada. The benchmark Shanghai Composite Index of stocks fell 1.9 percent as of the 11:30 a.m. local time break in trading, extending this year’s slide to 10.5 percent. Twelve-month non- deliverable yuan forwards indicated that traders expect the Chinese currency to appreciate 2.8 percent in the next year against the dollar. The yuan has been pegged to the U.S. currency for the past 18 months. Export Gains The HSBC index rose to a seasonally adjusted 57.4 from 56.1 in December and the survey showed the biggest gains in input and output prices since July 2008. Export sales rose at a “near- record rate,” a statement on Markit’s Web site said, without giving numbers. The government-backed Purchasing Managers’ Index fell to a seasonally adjusted 55.8 from 56.6 in December, an e-mailed statement showed. Growth in output and orders slowed. Export demand quickened and an index of input prices rose to the highest since July 2008. The figures may partly reflect disruptions from cold weather and snowstorms, JPMorgan Chase & Co. and UBS AG. said. Credit Suisse AG cited “credit tightening” for smaller gains in orders. The credit boom has added to the risk of surging inflation and asset bubbles in the economy that Nomura Holdings Inc. says will contribute a third of global growth this year. Lending Surge Banks lent almost 1.6 trillion yuan ($234 billion) last month, the Economic Information Daily reported today on its Web site. That’s more than a fifth of the banking regulator’s target for lending this year. China’s growth accelerated to 10.7 percent, the fastest pace since 2007, in the fourth quarter of 2009 after a 4 trillion yuan ($586 billion) stimulus package and record lending . Today’s figure in the logistics federation’s survey was less than the median 56.5 estimate in a Bloomberg News survey of 16 economists. The decline was the first in eight months. The output index dropped for the first time since May last year, falling to 60.5 from 61.4 in December. The export-orders index rose to 53.2 from 52.6. “China’s economy is at a crucial stage of moving from rebounding to stabilizing” with exports set to make a bigger contribution to growth, said Zhang Liqun , a researcher at the State Council Development and Research Center. “In the meantime, companies may face a tougher environment with rising costs and intensified competition.” Railway Spending Companies benefiting from the nation’s rebound include Chongqing Changan Automobile Co. , which said Jan. 27 that 2009 profit may have climbed more than 4000 percent on higher sales and cost controls. China Railway Construction Co. said the same day that profit likely increased more than 50 percent from 3.6 billion yuan a year earlier because of the nation’s extra infrastructure spending. The economy may gain momentum this quarter as exports surge 30 percent, making an interest-rate increase more likely as inflation rises, according to China International Capital Corp. China’s 10.5 percent expansion this year will compare with the global economy’s 4.2 percent, Nomura forecasts. The nation’s growth may accelerate to 12 percent this quarter, triggering a rate increase as early as this month as inflation rises to 3 percent, according to Sun Mingchun , an economist at Nomura in Hong Kong. China is pursuing a “proactive fiscal policy” and moderately loose monetary policy,” Vice Premier Li Keqiang reaffirmed in a speech on Jan. 28 at the World Economic Forum in Davos, Switzerland. ‘Huge Opportunities” Such policies will lead to “huge markets for the world and huge opportunities” for foreign companies, he said. Li’s comments reflected a pledge in November by Premier Wen Jiabao to speed the shift from investment- and export-led growth to an economy “driven by consumption, investment and exports in a coordinated way.” “We expect GDP to grow by 9 percent in 2010 and our next revision is more likely to be upward,” said Wang Tao , an economist with UBS AG in Beijing. “We expect the government to err on the side of keeping policy accommodative.” The manufacturing index, released by the logistics federation and the Beijing-based National Bureau of Statistics, is based on replies to questionnaires sent to purchasing executives at more than 730 companies in 20 industries. It started in 2005. The official PMI surveys mainly large and state-owned companies, while HSBC’s sample of more than 400 is weighted more towards smaller businesses and export-related companies, said Xing Ziqiang , an economist at China International Capital Corp. It began in 2004. To contact the Bloomberg News staff on this story: Kevin Hamlin in Beijing on khamlin@bloomberg.net

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Ex-Millennium Management’s Sullivan Is in Talks to Join Hedge Fund, Bank

by on January 31, 2010

By Netty Ismail Feb. 1 (Bloomberg) — James Sullivan , a former managing director of Millennium Management LLC’s Asian business, said he has been in talks to join another hedge fund or bank since leaving the firm in December. Sullivan and Harvey Liu , who worked with him managing investments in Asian telecommunications, media, Internet and gaming stocks at Millennium in Singapore, are also considering starting a hedge fund in the city-state, Sullivan said. “Ultimately, the best case scenario is leveraging the resources and capabilities of a larger organization that may or may not be that familiar with operating that business in Asia, and helping them to build out a broader platform and business,” Sullivan, 36, said in an interview. Assets under management at New York-based Millennium, run by Israel Englander, have shrunk to $7.5 billion, according to the firm’s Web site , compared with about $13.5 billion more than a year ago. Singapore-based senior managers who left Millennium recently include Daniel Chuman and Albert Ee , who plans to set up a hedge fund in the city-state. Hedge-fund managers are seeking to set up or to return to Asia as the region leads the world’s emergence from the deepest recession since the 1930s. Bank of America Merrill Lynch is helping more than a dozen multibillion dollar international hedge funds set up or reestablish a presence in Hong Kong and Singapore, Dan McNicholas, head of Asia financing sales at Merrill Lynch said in January. Long-Short Strategy Sullivan and Liu, 36, are in discussions with “several parties,” Sullivan said, without naming the firms. “Our goal is to build a sustainable business focused on risk-adjusted returns,” Sullivan said. “We are looking for a firm that understands fundamental long-short equity investments in Asia and is capable and willing to give people the resources they need to build the business on a medium-term time frame.” Long-short managers buy stocks they expect to rise and hedge those bets with sales of borrowed shares they hope to buy back at a cheaper price. Prior to joining Millennium in January last year, Sullivan worked at Citadel Investment Group LLC in Hong Kong from November 2005 to December 2008, and Oaktree Capital Management LLC in Singapore from June 2003 to October 2005. “The strategies that I’ve run across the last couple of firms that I’ve worked for have all been negatively correlated to most of the major market indices and yet made money,” Sullivan said. “It provides significant diversification on a non-correlated basis.” Should they decide to start their own hedge fund, it would target returns “in the high teens,” he said. To contact the reporter on this story: Netty Ismail in Singapore nismail3@bloomberg.net

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Manufacturing Probably Grew for Sixth Month as Factories Spurred Economy

January 31, 2010

By Bob Willis Feb. 1 (Bloomberg) — Manufacturing probably expanded in January for a sixth consecutive month, spearheading the recovery from the worst recession since the 1930s, economists said before a report today. The Institute for Supply Management’s factory index rose to 55.5 from a December reading of 54.9, according to the median forecast of 62 economists surveyed by Bloomberg News. Readings greater than 50 signal expansion. Other reports may show personal spending rose and construction fell. Factories are stepping up production as stimulus-fueled gains in demand and record cutbacks in inventory boost orders. After the loss of 7.2 million jobs in the last two years, some companies such as Ford Motor Co . are beginning to hire again, laying the groundwork for sustained gains in spending. “With pent-up demand coming forward, factories have to quickly snap back into shape to meet that increased demand,” said Ellen Zentner , a senior economist at Bank of Tokyo- Mitsubishi UFJ Ltd. in New York. “We are on the cusp of creating jobs in manufacturing.” The Tempe, Arizona-based purchasing managers’ report is due at 10 a.m. New York time. Survey forecasts ranged from 53.5 to 58. The group issued its annual revisions last week that may not be reflected in this month’s median forecast. The factory index was previously reported at 55.9 for December. Income, Spending Figures from the Commerce Department may show personal spending rose 0.3 percent in December after a 0.5 percent gain the prior month, according to the median estimate of economists surveyed by Bloomberg. Incomes probably increased 0.3 percent, according to the survey median before the 8:30 a.m. release. Government stimulus helped spark rebounds in the housing and automobile industries, two of the most depressed areas during the recession. Factories also benefited from increased orders after companies pared inventories last year by a record $125 billion. Efforts to rebuild depleted stockpiles contributed 3.4 percentage points to a fourth-quarter growth rate of 5.7 percent, the strongest in six years. Employers in January may have added jobs for the second time in three months. Economists surveyed by Bloomberg forecast a 13,000 gain in payrolls last month after a loss of 85,000 in December. The Labor Department will report the figure on Feb. 5. Stock Prices With the economy expanding, the Standard & Poor’s Supercomposite for industrial machinery is up 77 percent since reaching a six-year low on March 9, exceeding the 59 percent gain for the broader S&P 500 Index. Housing, the industry that triggered the recession, is struggling with mounting foreclosures that may push down prices and discourage building. A report from the Commerce Department at 10 a.m. may show construction spending fell 0.5 percent in December, the 14th decline in the last 15 months, according to the median forecast of economists surveyed. Production gains are starting to encourage the hiring needed to ensure the recovery is sustained. Ford said Jan. 26 it will spend about $400 million and add 1,200 jobs at two Chicago plants to build a new, more fuel- efficient Explorer sport-utility vehicle. Caterpillar Inc. , the world’s largest maker of earthmoving equipment, has recalled more than 500 workers and said Jan. 27 that higher production will require “selective” increases in employment. Economies in North America, Europe and Japan are improving and more rapid rebounds are occurring in China and most developing countries, the Peoria, Illinois-based company said. GE Hiring General Electric Co. is hiring workers in energy, health care and rail transportation, in part because governments’ economic-stimulus plans have helped lift demand. GE, whose power-plant equipment generates one-third of the world’s electricity, is bidding to supply new passenger locomotives for Amtrak and in November announced a joint venture in China that would make high-speed rail locomotives that may add 200 U.S. jobs. “We will create jobs in the United States that could not have been created any other way,” John Rice , chief executive officer of GE Technology Infrastructure, said of the rail programs in a Jan. 28 Bloomberg Television interview. To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

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Honda Falls Most in Two Months After Worldwide Vehicle Recall Announcement

January 31, 2010

By Makiko Kitamura and Kiyori Ueno Feb. 1 (Bloomberg) — Honda Motor Co. , Japan’s second- largest automaker, fell the most in more than two months after announcing its biggest recall in seven years. Honda declined as much as 4 percent after recalling 646,000 City, Fit and Jazz cars, mostly in North America and the U.K., to fix faulty power window switches. The recall may further damage Japanese automakers’ reputation for safety and reliability after Toyota Motor Corp. last week suspended production and sales of eight models in the U.S., following a recall of 2.3 million vehicles over a pedal defect linked to sudden acceleration. Other recalls related to sudden acceleration have covered about 5.4 million vehicles. “Particularly after the Toyota recalls, this news is creating a bad impression,” said Kiyoshi Ishigane , a senior strategist at Tokyo-based Mitsubishi UFJ Asset Management Co. Two fires caused by short-circuited power window switches have been reported in the U.S., Honda spokeswoman Yasuko Matsuura said. Honda started an investigation after a fire- related death in September in South Africa, according to a company statement . Honda is recalling Fits in the U.S. for the 2007 and 2008 model years and 2002-2008 models of the European version, known as Jazz. Unlike Toyota, Honda won’t need to suspend sales and production of affected models, because the ones now being built and sold already have an improved power window switch design that prevents short-circuiting, spokesman Yoshiyuki Kuroda said. Honda dropped as much as 124 yen and traded at 2,958 yen as of 1:38 p.m. on the Tokyo Stock Exchange. It was the biggest intraday drop since Nov. 27. Toyota fell as much as 2.2 percent, headed for a seventh straight day of declines, the longest losing streak since September 2008. The company’s stock plunged 14 percent last week, the worst five-day performance since October 2008, wiping out 1.9 trillion yen ($21 billion) in market value. Toyota will also recall as many as 1.8 million vehicles in Europe, and PSA Peugeot Citroen will recall 90,000 autos made at a factory managed by the Japanese carmaker. In China, Toyota will recall 75,600 vehicles. To contact the reporter on this story: Kiyori Ueno in Tokyo at kueno2@bloomberg.net

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Asian Stocks Fall as China Manufacturing Reports Spur Tightening Concerns

January 31, 2010

By Sandy Hendry and Jonathan Burgos Feb. 1 (Bloomberg) — Asian stocks and currencies fell as manufacturing surveys added to speculation that Chinese policy makers will rein in record lending growth. Bond risk climbed on concern Greece will need a bailout to repay its debts. The MSCI Asia Pacific Index slumped 1 percent to 115.65 as of 1 p.m. in Tokyo after the two surveys showed rising export orders and inflation pressures in China. The Shanghai Composite Index slid 1.9 percent and Hong Kong’s Hang Seng Index sank 1.2 percent. South Korea’s won lost 1 percent, leading declines in developing-nation currencies. The MSCI Emerging Markets Index of shares has fallen more than 10 percent since Jan. 11, as China and India both raised reserve requirements for banks to curb lending growth and damp inflation. The dollar traded near a seven-month high against the euro as equity investors pull cash out of Europe at a record pace and central banks slow purchases of the European currency. “Markets may continue to move lower on concerns about further tightening,” said Manpreet Gill , Singapore-based strategist for Asia at Barclays Wealth, which has $223 billion in assets. “Investors should start to nibble, following recent declines, as central banks are tightening because fundamentals are improving.” A purchasing managers’ index released by HSBC Holdings Plc and Markit Economics rose to a record 57.4 from 56.1 in December and the survey showed the biggest gains in prices since July 2008. A similar index from the Federation of Logistics and Purchasing was a seasonally adjusted 55.8, the second fastest pace since 2008. Share Declines Hebei Iron & Steel Co. , the listed unit of China’s second- biggest steelmaker, declined 3.3 percent after central bank Deputy Governor Zhu Min said the government plans to curb industrial overcapacity. Jiangxi Copper Co. and Aluminum Corp. of China Ltd. slid more than 3 percent. China Shenhua Energy Co. led losses among coal producers after spot prices for the fuel dropped at Qinhuangdao port and earnings slumped. Bank of Communications Ltd. , the bank that’s part-owned by HSBC Holdings Plc, dropped 2.6 percent, while China Construction Bank Corp. , the country’s second-biggest lender, lost 2.1 percent. “The market is very worried about the outlook for economic recovery,” said Wu Kan , a Shanghai-based fund manager at Dazhong Insurance Co., which manages about $285 million. “More tightening measures are expected.” Japan, Korea Toshiba Corp., Japan’s biggest memory-chip maker, fell 6.6 percent after the company cut its annual sales forecast on Jan. 29 by 5.9 percent, citing the global recession. Honda Motor Co. sank 3.8 percent after saying it’s recalling 646,000 City, Fit and Jazz cars primarily in North America and U.K. because of faulty power windows. In South Korea, Hynix Semiconductor Inc. fell 4 percent after creditors failed a second time in less than three months to sell their controlling stake in the world’s second-largest maker of computer-memory chips. Copper in London declined 1.6 percent to $6,640 a metric ton, reaching a two-month low, on a strengthening dollar and China’s curbs in bank lending. Nickel slid 1.1 percent to $18,300 a ton. The dollar was at $1.3866 per euro, after earlier touching $1.3853, the strongest level since July 8. Traders have spurned European stocks in favor of shares elsewhere for a record 19 straight weeks, “clearly hurting” the currency by draining a net $13 billion from the market, said Geoffrey Yu , a UBS AG analyst. European Union Monetary Affairs Commissioner Joaquin Almunia said on Jan. 29 fiscal imbalances within euro-zone economies have been discussed “every month.” Debt Concerns “Sovereign debt worries in Greece, Portugal and Spain continue to hang over the euro,” said Mike Jones , a currency strategist at Bank of New Zealand Ltd. in Wellington. “As long as these worries continue, we are likely to see ongoing ‘safe- haven’ support for the dollar and the yen.” The greenback climbed 1 percent to 1,174 won and 0.7 percent to 9,415 Indonesian rupiah. The cost of protecting Asian corporate and sovereign bonds from non-payment climbed, according to traders of credit-default swaps. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan rose 3.5 basis points to 111.5 basis points, Citigroup Inc. prices show. The risk benchmark is on track to rise to its highest since Dec. 1. Treasuries Drop Treasuries fell for the first time in three days on speculation reports this week will show the U.S. economic recovery is gaining momentum. The yield on the benchmark 10-year Treasury note rose one basis point to 3.60 percent, according to BGCantor Market Data. U.S. S&P 500 stock index futures rose 0.1 percent. The Institute for Supply Management factory index will show a sixth-straight month of U.S. growth, a Bloomberg News survey showed before the data release today. Payrolls probably rose by 13,000 workers last month, according to a separate survey before the Labor Department’s Feb. 5 report. Crude oil for March delivery fell as much as 0.5 percent to $72.53 a barrel amid concern that fuel demand may be slow to recover in the U.S., the biggest energy-consuming nation. Oil may extend its slump as U.S. supplies climb and demand lags behind year-earlier levels, a Bloomberg News analyst survey showed Jan 29. To contact the reporters on this story: Sandy Hendry at shendry@bloomberg.net ; Jonathan Burgos in Singapore at jburgos4@bloomberg.net .

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Alan Schram: Is Gold a Good Inflation Hedge?

January 31, 2010

In light of the large amount of fiscal stimulus, monetary easing, and credit creation in the form of new dollars that have all taken place recently in the United States, many are concerned about the dollar, its buying power and the inevitable higher interest rates that will be necessary to entice people to buy Treasury securities. Their concern is not unreasonable. Traditionally, indebted countries have debased their currency to ease the burden of debt. With current federal government total tax receipts adding up to $2.2 trillion vs. expenditures of $3.5 trillion, the expected deficit of $1.3 trillion is an alarming 9% of GDP (state, local and federal government spending in the U.S. now consume about 38% of GDP). We may have no other way out but inflation. Some investors are trying to hedge such risks by buying gold. Gold is supposed to be an insurance policy against economic chaos and a hedge against inflation. But gold bugs have not done well over time. In the last 30 years gold has not been a good investment, and substantially lagged both the S&P 500 and Bonds (as measured by the Merrill Lynch Bond index). While gold may reduce your anxieties, it is an unassailable fact that gold (and oil) are not actually effective hedges against loss of purchasing power, and could lag inflation for decades. And gold is not a good insurance policy either. When the world’s financial system was on the precipice in 2008, gold did not prove to be a particularly good hiding place. Incidentally, this also reinforces the folly of trying to time the stock market based on macroeconomic predictions, and not just when it comes to gold. For example, emerging markets such as China, India, Brazil and Russia are often touted as great investment opportunities due to expected rapid GDP growth. But the data shows that there is little correlation between GDP growth and stock market returns. So even if you somehow manage to make accurate macro predictions (by itself no small feat), your predictions would not be helpful in telling you what the stock market will actually do. Gold does not generate cash flow (indeed it has a carrying cost for storage, insurance etc.) and does not have any intrinsic value, and therefore it is of dubious value as a long term investment. I believe currency and interest rate risks are best hedged by owning high quality businesses that have a durable competitive advantage and pricing power. Such solid businesses grow, raise prices and outperform in the long run. Alan Schram is the Managing Partner of Wellcap Partners, a Los Angeles based investment firm. Email at aschram@wellcappartners.com.

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CoStar’s Retail News Roundup: Jan. 31 – Feb. 6, 2010

January 31, 2010

This week in the Retail Roundup, CoStar reports on expansions or new concepts at Starbucks, Meijer and 77kids; closings, cutbacks, bankruptcy, default, receivership or foreclosure news at Home Depot, Movie Gallery and Hollywood Video; acquisition, merger…

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Video: LGT Capital Management’s Groebli Discusses Asian Stocks: Video

January 31, 2010

Feb. 1 (Bloomberg) — Roger Groebli, head of financial market analysis at LGT Capital Management, talks with Bloomberg’s Haslinda Amin about his investment strategy for Asian stocks. Groebli also discusses the outlook for the global economy. (This is an excerpt of the full interview. Source: Bloomberg)

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Goldman Sachs May Give Record Bonuses — Up To $100 Million To CEO Lloyd Blankfein

January 31, 2010

Goldman Sachs, the world’s richest investment bank, could be about to pay its chief executive a bumper bonus of up to $100 million in defiance of moves by President Obama to take action against such payouts.

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Tom Doctoroff: China’s Senior Market: Gray Today, Golden Tomorrow

January 31, 2010

Within the next several years, China’s “gray” (50+) market will be the most potent spending demographic on the planet. By 2025, there will be more than 500 million “mature” Chinese consumers, up from 300 million today, or almost 36% of the Chinese population, up from 21% now. Their per capita spending power will exceed $4,100, up from $1,620 in 2006. But, to date, this potential bonanza has been ignored by most marketers. According the National Seniors Bureau, only 10% of products and services bought by senior citizens are actually targeted to them. Why? First, their current incomes pale in comparison to younger, middle class cohorts, who mostly reside in Eastern coastal cities. Second, mature consumers are assumed, often erroneously, to be ultra-conservative culturally, caring little about brands and the aspirations they embody. As Chen Yimu, a 62-year-old netizen, makes perfectly clear, such apathy will fade: “We want to look pretty. But there are no fashion brands for seniors. When will our turn come?” Mainland gray can be golden. Marketers, however, must realize that, as incomes rise, the Middle Kingdom will become more modern, more international, but not more Western. Goods must be positioned in accordance with cultural imperatives. Brands must resolve a fundamental and uniquely Chinese conflict – between fear of an ever-changing modern world and titillation by new-found freedoms and broadened horizons — at the heart of elderly existence. Those that do will be rewarded with deep loyalty and robust price premiums. Displacement vs. Optimism On one hand, the 50+ generation suffers from a sense of displacement. From civil war, World War II and Liberation to the Great Leap Forward and Cultural Revolution, they matured during a politically and economically insecure era in which “success” or “acknowledgement” was contingent on sacrifice, on both familial and national levels. They were conditioned to have faith that absolute loyalty to authority – by son to father, younger to older, ruled to ruler – was the gravitational force that would pull “New” China out of 150 years of imperial and Republican chaos. Their worldview is characterized by Confucian faith that age is tantamount to wisdom, that obedience by and respect from the younger generation are the fruit of their long, hard struggle through sixty years of nation building. As one senior citizen puts it, “We sacrificed. We deserve a return. We deserve dignity.” The forces unleashed by economic reform and “opening up” – mandatory retirement; mobility that increases the physical distance between parents and adult children; an epic inter-generational values gap in which traditional collectivism co-exists uncomfortably with new-fangled ego affirmation – threaten the honor due life-long warriors for the Motherland. The 50+ cohort, anxious and self-protective, questions its own relevance. That said, hope springs eternal. Driven by rising incomes, the power digital technology and a Middle Kingdom connected with the outside world, sunset days can blossom into rainbow years. The mature market is also beguiled by the promise of new friends, burgeoning fitness and travel options, on-line self-expression and a revolutionary concept that “fun” need not be guilty pleasure. Brands must mitigate an anxiety of displacement by becoming guiding lights into a new world of opportunity. They must pivot from fear-based messaging or, worse, neglect by either unleashing “possibilities of me” or forging new constructs of “we.” Beyond a self-evident need to enhance product accessibility – i.e., enlarged mobile phone key pads, anti-shake digital cameras, a Walmart senior “corner, a C-trip gray travel mini-portal – smart marketers can dive deeper by touching the heart of desire. Here’s how: Possibilities of Me Justify the Treat. We should provide permission to bite into forbidden fruits by positioning old-fashioned values as the source of future happiness or self-indulgence as a reward for enduring deprivation. Older Chinese are ruthless savers so AIA skillfully assets that, after years of hardship, freedom from worry is a worthy financial goal. Burberry’s “real quality never goes out of fashion” and Dove’s celebration of “real beauty” can be focused into mature-targeted campaign platforms. Make Olden Golden. Brands must explicitly acknowledge 50+ wisdom and generate admiration of “elder masters.” Shide wine elegantly links the clarity of white alcohol with the “acumen of ancient sages.” In a one droll HSBC ad, a silver-haired father wields a credit card to restore family harmony while paying for an expensive meal. Even Nike, during the lead up to the 2008 Olympics, aired a droll TVC featuring a guru to personify an ageless Just Do It spirit. In airing senior-relevant copy, these brands suggest an unusual, if sub-optimally harnessed, insight into the minds of mature Chinese individuals. Attain “Forever Young.” Brands promoting health benefits should move beyond worry-based protection (e.g., supplementing calcium deficiency to ward against weak bones) to embrace life-enhancing liberation. Furthermore, pounding clichés of lively grandmas and grandpas have passed their sell-by date, as assaulted viewers of relentless Nao Bai Jing commercials will attest. New Balance targets running shoes to elderly who crave “new roads and a new life.” New Zealand Tourism Board’s “100% Pure” campaign is begging for a senior spin that fuses Daoist celebration of qi with the promise of timeless rejuvenation. Vitality benefits can also be dramatized by beating the whipper-snappers – i.e., using the young generation as a playful foil. In Japan, Pocari Sweat, a sports drink, fueled the victory of spry old men over SMAP, a local boy band. Reinforcement of We Tighten Family Bonding. To strengthen the 50+ market’s sense of belonging, brands can bridge the gap between new and traditional ways of life by lubricating inter-generational communication. Historically, non-differentiated “gifting” has been the most prevalent means of encouraging offspring to fulfill Confucian obligation to parents. Recently, however, a few products have begun to address the widening generation gap with a bit more nuance. Ericsson reminds sons that real caring is conveyed through on-going dialog with fathers. China Mobile has gone beyond “connecting people” by opening “lines of love” between daughters and mothers. Relatedly, in China, a culture in which the extended clan supersedes the nuclear family, every Little Emperor has six parents, not two. Savvy brands acknowledge grandparents’ interest in – indeed, obligation to contribute to — their grandkids’ well being. Both joy and responsibilities should be shared. Nestle’s Taitaile, a flavor enhancer, explicitly endorses — and facilitates — a mother-in-law’s dominion over the kitchen and, hence, the entire family’s nutritional well-being. Build New Communities. In an era of sweeping change and social disorientation, brands should be platforms for social bonding. Which property tycoon will break ground by building a luxury village for seniors? When will DeBeers throw Diamond Anniverary Parties for couples whose love lasts forever? Digital technology – elderly chatrooms, blogs and social networking sites have begun to up everywhere – already facilitates the fortification of old and new acquaintances. Few marketers, however, have capitalized on this sociological paradigm shift. Who will be the first to sponsor on-line “silver dating?” “China pride” can also be a vehicle for drawing together like-minded soldiers, heroes who, collectively, molded a great nation. Brands should give legions of patriotic seniors a new age megaphone to help them, together, cheer for China. Anta or Lining, mass market sports brands, could support a “Revolutionary Pep Squad” during upcoming Olympic games. China Mobile, perhaps the most ubiquitous Chinese brand of all, should exploit the spirit of senior citizens in ensuring a successful Shanghai World Expo. In conclusion, China’s mature market will be gigantic but it is being ignored by most marketers. As spending power mushrooms, brands must tap into the tension between “fear of displacement” and “excitement for new beginnings.” Those that do will emerge as guiding lights on a vast new commercial horizon. We have listed five ways – justifying the treat, making olden golden, attaining “forever young,” .tightening family bonding and building new communities – to help manage the first steps on a beautiful journey towards everlasting relevance. This article first appeared in Advertising Age.

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Ari Herzog: McDonald’s and Coca-Cola Among Early Online Marketing Adopters

January 31, 2010

Note: The below is an amended version of this story from AriWriter . It was March 2006 when Fernando Sosa and Thomas Middleditch rapped a video in the streets of Chicago about their love of McDonald’s Chicken McNuggets. Maybe you know this story. The video was filmed by Matt Malinsky, with a McDonald’s franchise in the background. The company had nothing to do with the citizen-generated video; their only involvement was they made the food product which the two 20-something fans liked so much they created a rap. The video saw tens of thousands of views on YouTube in the first year. Arnold Worldwide, an advertising agency based in Boston, was tipped about the video and, after consulting with the burger-and-fries empire, it was decided to adapt Sosa’s and Middleditch’s rap into a TV commercial. The media gulped it down , TV viewers raced to the stores to buy McNuggets, and one of social media’s earliest case studies was born. Here’s the original video with over 2 million views today: Here’s a version of the TV adaptation, with over 579,000 views since July 2007: If you don’t know it by now, companies will fail online if they do not go where their customers go. Companies will fail online if they do not engage with their customers, from customer service to brand management . Unless your customers are not online to begin with — which you’ll never know if you don’t look for them or ask them directly — there’s no way around this tenet of online marketing. Companies will also fail if they don’t reward their biggest fans. What Sosa, Middleditch, and Malinsky are to McDonald’s, Dusty Sorg and Michael Jedrzejewski are to Coca-Cola. Maybe you also know this story. When Dusty wanted to click a button and be a “fan” of Coke on Facebook, he ran into a brick wall. There was no page. So, the out-of-work actor and his writer friend co-created a page , filled it with useful content, and — to the astonishment of both Facebook and Coca-Cola management when they learned of the page — observed 3 million people voluntarily opting to be fans in 7 months. The duo were not alone in wanting to fan the company, hindsight showed. Coke executives flew the guys to their Atlanta headquarters, treated them to a company tour, and met with them… leading to the pair continuing to administer the Facebook page (aided by a Coke representative), and undoubtedly to a monetary tune. You can befriend Coca-Cola on Facebook here . If you were in the beverage manufacturer’s shoes and saw what they saw, how would you react to an unofficial Facebook page with fan statistics you would want for yourself? What would you do? If you were Arnold or McDonald’s, would you have capitalized on the citizen-created video? Do you even look if anyone’s created a video about you?

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Video: Westpac’s Callow Discusses Australian, N.Z. Dollars: Video

January 31, 2010

Feb. 1 (Bloomberg) –Sean Callow, a currency strategist at Westpac Banking Corp., talks with Bloomberg’s Haslinda Amin about his forecasts for the Australian and New Zealand dollars. Callow, speaking from Sydney, also discusses Reserve Bank of Australia and Reserve Bank of New Zealand monetary policies. (This is an excerpt of the full interview. Source: Bloomberg)

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Roubini Sees `Very Dismal’ U.S. Growth as Summers Rues a `Human Recession’

January 31, 2010

By Simon Kennedy and Erik Schatzker Feb. 1 (Bloomberg) — Nouriel Roubini , the New York University professor who anticipated the financial crisis, said the U.S. growth outlook remains “very dismal” and White House economic adviser Lawrence Summers said the economy is still mired in a “human recession.” Speaking at the World Economic Forum’s annual meeting in Davos, Switzerland, after the U.S. reported the fastest growth in six years, their comments underscored concern that that emergency measures to rescue banks and fight the recession may be withdrawn too soon. “The headline number will look large and big, but actually when you dissect it, it’s very dismal and poor,” Roubini said in a Jan. 30 Bloomberg Television interview following a U.S. Commerce Department report that showed economic expansion of 5.7 percent in the fourth quarter. “I think we are in trouble.” Roubini said more than half of the growth was related to a replenishing of depleted inventories and that consumption was reliant on monetary and fiscal stimulus. As these forces ebb, the rate will slow to 1.5 percent in the second half of 2010. Roubini, who chairs New York-based Roubini Global Economics LLC, has become famous for his pessimistic projections. In 2007, he correctly predicted a “hard landing” for the world economy. He said last year that the global recession would shrink through 2009, only for growth to resume in the middle of the year. He says now that while the world’s largest economy won’t relapse into recession, U.S. unemployment will rise from the current 10 percent amid “mediocre” growth. ‘Feel Like Recession’ “It’s going to feel like a recession even if technically we’re not going to be in a recession,” he said in the interview. Also speaking in Davos, Summers, director of the White House National Economic Council, said that the statistical recovery won’t mask a “human recession.” The U.S. expansion in the October-December period resulted from manufacturers cranking up assembly lines and companies increasing investment in equipment and software. The rebuilding of stocks contributed 3.4 percentage points to gross domestic product, the most in two decades. The rebound followed the Federal Reserve’s decision to cut its benchmark interest rate to near zero in December 2008 and President Barack Obama’s $787 billion stimulus package. The jobless rate has the central bank promising to keep borrowing costs low and Obama making new proposals to create jobs. ‘Pretty Attractive’ Carlyle Group LP co-founder David Rubinstein countered Roubini’s concerns. He said that even after a rally in global stocks that drove the MSCI World Index up more than 60 percent from March 2009, it’s a “pretty attractive” time to invest. “There are a lot of great opportunities we see in the United States and abroad,” Rubenstein told a Jan. 27 panel. “Sometimes generals fight the last war, economists fight the last recession.” Policy makers may be undermining their effort to spur hiring by attacking banks, Blackstone Group LP Chief Executive Officer Steven Schwarzman said in a Jan. 28 interview in Davos. One in four of chief executive officers worldwide surveyed by PricewaterhouseCoopers LLP for the Davos conference already plans to cut jobs this year. “Financial institutions will feel under siege and they will retreat,” Schwarzman said. “Their entire world is being shaken and they’re being attacked personally,” he said. “We don’t need those financial institutions insecure.” ‘Moderate’ Growth Summers, a former U.S. Treasury secretary, predicted growth will continue “at least at a moderate rate.” The median forecast of economists surveyed by Bloomberg News is for the U.S. economy to grow 2.7 percent this quarter. “What is disturbing is the level of unemployment,” said Summers. “One in five men in the U.S. between the ages of 25 and 54 is not working right now,” he told a Jan. 30 panel discussion. Even after a “reasonable” recovery, it will be “one in seven or one in eight.” That compares to the mid-1960s, when 95 percent of men in that age range were working and “suggests quite profound issues that will ultimately impact on politics and decisions that businesses make,” he said. A report scheduled for release by the Labor Department on Feb. 5 may show the U.S. gained jobs in January for the second time in three months. Payrolls probably rose by 13,000 workers last month according to the median forecast of 62 economists surveyed by Bloomberg. The unemployment rate may have held at 10 percent for the third month. ‘Right Direction’ Nobel Prize-winning economist Joseph Stiglitz said Obama’s previous efforts to bolster the economy are only “a step in the right direction.” “I’m a bit worried that again it’s not enough,” Stiglitz said in a Jan. 28 Bloomberg Television interview in Davos. “He has to take a much more active” approach. “It has to be a second round in stimulus, focusing in particular on investment.” International Monetary Fund Managing Director Dominique Strauss-Kahn , who two years ago used the Davos stage to lobby governments to increase spending, said policy makers in the U.S. and elsewhere risk narrowing their options if they withdraw emergency measures too soon and the recovery falters. “If you exit too early then the risks are much bigger,” Strauss-Kahn told the Swiss gathering. If the economy relapses “I don’t know what we could do as most of the things we had in the toolkit have been used.” To contact the reporter on this story: Simon Kennedy in Davos at skennedy4@bloomberg.net Erik Schatzker in Davos at eschatzker@bloomberg.net

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Obama’s Budget Plan Said to Project Record $1.6 Trillion Deficit This Year

January 31, 2010

By Brian Faler and Roger Runningen Jan. 31 (Bloomberg) — President Barack Obama’s budget plan set for release tomorrow forecasts the deficit will hit a record $1.6 trillion this year before beginning to decline in 2011, a congressional aide said. Obama will send Congress tomorrow a $3.8 trillion budget plan that includes a mix of tax cuts and spending to boost the economy as well as aid to states. It also takes steps to rein in the deficit, which has widened as the recession cut tax revenue and the government took measures to stimulate the economy. The administration forecasts the shortfall will decline from $1.6 trillion in the fiscal year ending Sept. 30 to $1.3 trillion in fiscal 2011, said the aide, who spoke on condition of anonymity because the figures haven’t been officially released. Over the next 10 years, the deficit will on average amount to 4.5 percent of the U.S. economy, according to the aide. Obama is putting emphasis on boosting the U.S. economy, which hasn’t recovered the more than 7 million jobs lost since the recession began in December 2007. Following up the stimulus legislation enacted last year, the president is seeking more spending on infrastructure projects and $33 billion in tax breaks and incentives to encourage small businesses to hire more workers and raise wages. The measures to add jobs will be “probably somewhere in the $100 billion range,” spokesman Robert Gibbs said today on CNN’s “State of the Union” program. That would be less than the plan passed by the House in December. Last year’s stimulus amounted to $862 billion, the Congressional Budget Office says. Economy and Deficit The budget blueprint reflects the administration’s struggle to confront voter anxiety about a 10 percent jobless rate and the national debt surging toward $13 trillion. The result is a plan that tries to step up spending in some areas for an economic boost while slowing it over a longer period. “To many people, they think it’s double-talk but it’s perfectly logical and consistent with economic theory,” said James Horney , a former Senate Budget Committee analyst now at the Center on Budget Policy and Priorities, a research organization in Washington. The White House deficit projection exceeds other forecasts. The CBO has forecast this year’s shortfall at $1.35 trillion. The median of 39 analysts survey by Bloomberg News is for $1.37 trillion this year and $1.10 trillion next year. Obama has promised to cut the deficit in half from $1.3 trillion by the end of his first term and “the president is committed to keeping that goal,” Gibbs said. Increased Outlays Defense and education are set to get increased funding in Obama’s 2011 budget plan while spending on some domestic programs will be frozen over three years, according to congressional and administration officials and previous announcements from the White House. The budget is subject to approval — and modification — by Congress. On taxes, Obama said in his State of the Union address last week that some of the tax cuts passed under former President George W. Bush in 2001 and 2003 would be extended. “We will not continue tax cuts for oil companies, investment fund managers and for those making over $250,000 a year,” he said. The White House wants lawmakers to give small businesses tax credits of up to $5,000 for each new worker hired as part of a $33 billion package of incentives. This would be folded into a stimulus program that would “add infrastructure spending,” Gibbs said. In an extension of last year’s stimulus, the administration proposes making permanent the Build America Bonds program. The federal government would pick up the tab for 28 percent of the interest costs from taxable bonds issued by state and local governments, according to a Treasury Department official. Aid to States The budget also will call for spending $25 billion to provide states with an additional six months worth of funding to help pay for the government’s Medicaid health insurance program for the poor. On energy, the administration supports expanding nuclear power by tripling loan guarantees for new reactors to more than $54 billion, an administration official said. The 2011 budget will add $36 billion to the $18.5 billion already approved for nuclear-power plant loan guarantees. Obama will propose a defense budget of about $708 billion that includes $159 billion for the wars in Iraq and Afghanistan, four officials said on Jan. 22. The administration has said it plans to spend $161 billion on the wars this year. While spending would rise in many areas of the federal catalog, the administration has announced it would seek a three- year freeze on most spending for domestic programs that Congress enacts each year, for a savings of as much as $15 billion in the first year and an estimated $250 billion over 10 years. Non-defense discretionary spending, about 17 percent of the budget last year, is projected to grow this year by 7 percent, excluding the costs of last year’s stimulus package, according to the CBO. In 2009, those expenditures grew by 5 percent, according to the agency. The increases are much higher if the stimulus package is included, with this year’s hike totaling 17 percent and last year’s increase, 11 percent. To contact the reporters on this story: Roger Runningen in Washington at rrunningen@bloomberg.net or Brian Faler in Washington at bfaler@bloomberg.net .

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Australian Property Prices Rise Most Since 2003, Manufacturing Increases

January 31, 2010

By Jacob Greber Feb. 1 (Bloomberg) — Australian house prices rose last quarter by the most since 2003, manufacturing expanded and a gauge of inflation jumped the most in six months, increasing the central bank’s scope to raise borrowing costs tomorrow. An index measuring the weighted average of prices for houses in the eight capital cities climbed 5.2 percent from the previous three months, the Bureau of Statistics said today in Sydney. Manufacturing grew last month after shrinking in December and consumer prices rose 0.8 percent, separate reports said. Signs of an economic rebound are adding to pressure on Reserve Bank Governor Glenn Stevens to extend a record round of interest-rate increases that took the benchmark lending rate to 3.75 percent in December from a half-century low of 3 percent in October. After today’s reports, investors increased bets Stevens will increase the overnight cash rate target tomorrow to 4 percent. “The Reserve Bank referred to house-price gains on several occasions in late 2009 when it was raising interest rates,” said Spiros Papadopoulos , a senior economist at National Australia Bank Ltd. in Melbourne. “The strength in the December quarter keeps it on track for a further rate increase tomorrow.” The Australian dollar traded at 88.33 U.S. cents at noon in Sydney from 88.61 cents just before the release of the housing report and a survey showing job advertisements fell last month. The two-year government bond yield dropped 1 basis point, or 0.01 percentage point, to 4.19 percent. Rate Bets Traders are betting there is a 64 percent chance of a quarter-point increase in the overnight cash rate target tomorrow, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 12:25 p.m. Prior to today’s reports, the chance of an increase stood at 62 percent. All 20 economists surveyed by Bloomberg News late last week forecast an increase in borrowing costs amid signs the nation’s economy will strengthen this year. The Australian Industry Group’s performance of manufacturing index rose 2.5 percent in January on rising demand for coal industry products, transport equipment and materials for housing construction. A gauge of Australia’s inflation rate held at 2.6 percent last month, according to TD Securities Ltd. The central bank aims to keep borrowing costs between 2 percent and 3 percent on average. House Prices Still, there are signs rising interest rates may hamper house-price growth this year. While prices surged 13.6 percent in 2009, some economists, including Alex Joiner at Australia & New Zealand Banking Group Ltd. in Melbourne, predict price growth will slow to between 5 percent and 8 percent in 2010. “The boom in house prices in 2009 is unlikely to be repeated this year as rising interest rates weigh on affordability,” Joiner said. Australian borrowing for home-buying fell to a five-year low last month, according to a report published today by Australian Finance Group Ltd., which says it accounts for more than 10 percent of the nation’s mortgage market. The group arranged A$1.55 billion ($1.37 billion) of mortgages in January, 19 percent less than a year earlier and the lowest for any month since 2005. Demand for homes surged last year after Prime Minister Kevin Rudd ’s government tripled in late 2008 payments to first- time buyers of new dwellings to A$21,000, and doubled the grant to A$14,000 for existing homes. Those payments were reduced last month to their original A$7,000. Mortgage Costs Home buyers are also paying more to service debt. Interest rates in the economy have increased by about 1 percentage point relative to the cash rate over the past couple of years, meaning today’s levels are consistent with a pre-crisis cash rate of “at least” 4.75 percent, Deputy Governor Ric Battellino said in a speech on Dec. 17. ANZ Bank boosted its variable mortgage rate by 35 basis points after Governor Stevens raised the overnight cash rate target by 25 basis points on Dec. 1. Commonwealth Bank of Australia raised its home-loan rate by 37 basis points and Westpac Banking Corp. moved by the largest amount, driving up its mortgage rate by 45 basis points. Westpac’s move means households with a A$300,000 mortgage are being charged an additional $1,008 a year, instead of the $576 that would have been imposed had the bank merely passed on the Reserve Bank’s increases. A separate report published today by ANZ Bank showed job vacancies advertised in newspapers and on the Internet in January fell 8.1 percent from December, the biggest drop since April 2009. The drop in advertisements signals a jobs boom may cool in coming months. Employers added 135,700 jobs in the four months through December, the biggest four-month gain since 2006, pushing down the jobless rate to an eight-month low of 5.5 percent. “The Reserve Bank will need to tread a cautious path over the early months of 2010 until a clearer picture of the economy emerges,” said Craig James , a senior economist at Commonwealth Bank in Sydney. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Roubini Sees `Very Dismal’ U.S. Growth as Summers Rues `Human Recession’

January 31, 2010

By Simon Kennedy and Erik Schatzker Feb. 1 (Bloomberg) — Nouriel Roubini , the New York University professor who anticipated the financial crisis, said the U.S. growth outlook remains “very dismal” and White House economic adviser Lawrence Summers said the economy is still mired in a “human recession.” Speaking at the World Economic Forum’s annual meeting in Davos, Switzerland, after the U.S. reported the fastest growth in six years, their comments underscored concern that that emergency measures to rescue banks and fight the recession may be withdrawn too soon. “The headline number will look large and big, but actually when you dissect it, it’s very dismal and poor,” Roubini said in a Jan. 30 Bloomberg Television interview following a U.S. Commerce Department report that showed economic expansion of 5.7 percent in the fourth quarter. “I think we are in trouble.” Roubini said more than half of the growth was related to a replenishing of depleted inventories and that consumption was reliant on monetary and fiscal stimulus. As these forces ebb, the rate will slow to 1.5 percent in the second half of 2010. Roubini, who chairs New York-based Roubini Global Economics LLC, has become famous for his pessimistic projections. In 2007, he correctly predicted a “hard landing” for the world economy. He said last year that the global recession would shrink through 2009, only for growth to resume in the middle of the year. He says now that while the world’s largest economy won’t relapse into recession, U.S. unemployment will rise from the current 10 percent amid “mediocre” growth. ‘Feel Like Recession’ “It’s going to feel like a recession even if technically we’re not going to be in a recession,” he said in the interview. Also speaking in Davos, Summers, director of the White House National Economic Council, said that the statistical recovery won’t mask a “human recession.” The U.S. expansion in the October-December period resulted from manufacturers cranking up assembly lines and companies increasing investment in equipment and software. The rebuilding of stocks contributed 3.4 percentage points to gross domestic product, the most in two decades. The rebound followed the Federal Reserve’s decision to cut its benchmark interest rate to near zero in December 2008 and President Barack Obama’s $787 billion stimulus package. The jobless rate has the central bank promising to keep borrowing costs low and Obama making new proposals to create jobs. ‘Pretty Attractive’ Carlyle Group LP co-founder David Rubinstein countered Roubini’s concerns. He said that even after a rally in global stocks that drove the MSCI World Index up more than 60 percent from March 2009, it’s a “pretty attractive” time to invest. “There are a lot of great opportunities we see in the United States and abroad,” Rubenstein told a Jan. 27 panel. “Sometimes generals fight the last war, economists fight the last recession.” Policy makers may be undermining their effort to spur hiring by attacking banks, Blackstone Group LP Chief Executive Officer Steven Schwarzman said in a Jan. 28 interview in Davos. One in four of chief executive officers worldwide surveyed by PricewaterhouseCoopers LLP for the Davos conference already plans to cut jobs this year. “Financial institutions will feel under siege and they will retreat,” Schwarzman said. “Their entire world is being shaken and they’re being attacked personally,” he said. “We don’t need those financial institutions insecure.” ‘Moderate’ Growth Summers, a former U.S. Treasury secretary, predicted growth will continue “at least at a moderate rate.” The median forecast of economists surveyed by Bloomberg News is for the U.S. economy to grow 2.7 percent this quarter. “What is disturbing is the level of unemployment,” said Summers. “One in five men in the U.S. between the ages of 25 and 54 is not working right now,” he told a Jan. 30 panel discussion. Even after a “reasonable” recovery, it will be “one in seven or one in eight.” That compares to the mid-1960s, when 95 percent of men in that age range were working and “suggests quite profound issues that will ultimately impact on politics and decisions that businesses make,” he said. A report scheduled for release by the Labor Department on Feb. 5 may show the U.S. gained jobs in January for the second time in three months. Payrolls probably rose by 13,000 workers last month according to the median forecast of 62 economists surveyed by Bloomberg. The unemployment rate may have held at 10 percent for the third month. ‘Right Direction’ Nobel Prize-winning economist Joseph Stiglitz said Obama’s previous efforts to bolster the economy are only “a step in the right direction.” “I’m a bit worried that again it’s not enough,” Stiglitz said in a Jan. 28 Bloomberg Television interview in Davos. “He has to take a much more active” approach. “It has to be a second round in stimulus, focusing in particular on investment.” International Monetary Fund Managing Director Dominique Strauss-Kahn , who two years ago used the Davos stage to lobby governments to increase spending, said policy makers in the U.S. and elsewhere risk narrowing their options if they withdraw emergency measures too soon and the recovery falters. “If you exit too early then the risks are much bigger,” Strauss-Kahn told the Swiss gathering. If the economy relapses “I don’t know what we could do as most of the things we had in the toolkit have been used.” To contact the reporter on this story: Simon Kennedy in Davos at skennedy4@bloomberg.net Erik Schatzker in Davos at eschatzker@bloomberg.net

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The Perfect Storm: Deteriorating Rents and Occupancies, Deflating Sales Prices and Tight Credit

January 31, 2010

the battered economy, but where are the resources and solutions for property owners and investors in the heavily Distressed Commercial Real Estate Market? CLEARWATER, Fla., Jan. 31 /PRNewswire/ — While much has been made of the aid the U.S. government

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Company Bond Sales Fall 7% as Greece Drives Spreads Wider: Credit Markets

January 31, 2010

By Caroline Hyde, Sonja Cheung and Sapna Maheshwari Feb. 1 (Bloomberg) — Bond sales by nonfinancial companies fell 7 percent in January as the cost to borrow rose from a two- year low on growing concern that governments struggling to pay their debts will derail the economic recovery. Markets have become “pretty nervous again,” Deutsche Bank AG Chief Executive Officer Josef Ackermann said during a panel at the World Economic Forum in Davos, Switzerland, on Jan. 30. He cited sovereign risk and commercial real estate as areas of concern for investors. Sales dropped to $46 billion from about $49.5 billion in December and about $127 billion a year ago as offerings fizzled in the last two weeks of the month, according to data compiled by Bloomberg. Corporate bonds yield 165 basis points more than government debt, up from 160 basis points on Jan. 14, a Bank of America Merrill Lynch index showed. The gap between the cost to protect high-yield and investment-grade securities from default widened for the first time since August. Prices of so-called leveraged loans declined. After scooping up higher-risk assets early in the month, optimism over the strength of the economy faded as China clamped down on borrowing, the Obama administration proposed limiting the size of banks and Greece’s finances roiled European markets. Bond strategists at New York-based JPMorgan Chase & Co. said in a report dated Jan. 29 that they are now “tactically bearish” on investment-grade debt because of “ongoing regulatory uncertainty and developing risk aversion.” ‘Correction Due’ “We’re due for a correction or some sort of breather” after corporate bond returns surged to a record 16.3 percent last year and the MSCI World Index of stocks gained 27 percent, said Cliff Noreen , president of Springfield, Massachusetts-based Babson Capital Management LLC, which manages about $113 billion. “The unemployment rate is stubbornly high and it hasn’t begun to recede. The deficits that were created also are going to have at some point higher interest costs associated with them.” Elsewhere in credit markets, two-year interest-rate swap spreads are widening. Sales of junk bonds, rated below Baa3 by Moody’s Investors Service and below BBB- at Standard & Poor’s, set a record for the month at $16.3 billion. U.S. asset-backed securities linked to consumer and business loans rose to $9.6 billion in January, according to Wells Fargo Securities, from $5.6 billion. Issuers are rushing to sell the debt under a Federal Reserve program that ends this quarter. Greece, Spain, Portugal Greece, Spain, Portugal and Ireland have had their credit ratings lowered because of rising budget shortfalls. Portugal needs deeper deficit cuts than included in its 2010 budget to avoid a credit downgrade, Moody’s said Jan. 28. Claims of foreign banks on Spain are 3.8 times more than those against Greece, or $240 billion, according to BNP Paribas. While the U.S. Commerce Department said Jan. 29 that the economy expanded 5.7 percent in the fourth quarter, the fastest pace in six years, this week the Labor Department may say the unemployment rate held at 10 percent in January, according to the median forecast of 60 economists surveyed by Bloomberg News. The January decline in corporate bond sales may be temporary, with absolute yields near four-year lows. The yield on the Bank of America Merrill Lynch Global Broad Market Corporate Index ended the month at 4.04 percent, down from 4.37 percent on Dec. 31. “Obviously people have taken note of Greece, there’s no doubt of that, but I don’t think that was one of the factors that really had much of an immediate impact on U.S. corporate debt,” said Vincent Murray , head of U.S. fixed-income syndicate at Mizuho Securities USA in New York. “Investor demand, which is the most important technical as far as I’m concerned to drive this new issuance, is definitely still there.” Down 24 Percent Bond sales in the U.S. last month totaled $118.3 billion, down 24 percent from a year earlier. Now, Media General Inc. , the Richmond, Virginia-based newspaper publisher, and Dutch electricity-operator TenneT BV, are marketing bonds. Media General plans to offer $350 million of senior secured notes due in 2017, according to a statement distributed by PR Newswire. The company, which publishes the Tampa Tribune and Winston-Salem Journal newspapers and is rated B2 by Moody’s, will use the proceeds to repay debt, it said in the statement. TenneT, rated A3 by Moody’s, is offering subordinated and senior bonds denominated in euros that have characteristics of both debt and equity, according to a statement on the Arnhem, Netherlands-based company’s Web site . Enel SpA , Italy’s biggest utility, plans to raise as much as 3 billion euros ($4.2 billion) of notes due 2016. Hybrid Sale “The TenneT hybrid deal, the first corporate hybrid in some time, should be well received,” said Terence Shanahan , the global head of DCM syndicate at Societe Generale SA in London. “It has elements, such as government ownership, that appeal to investors. New-bond issuance is likely to be busier.” The S&P/LSTA US Leveraged Loan 100 Index fell to 89.53 cents on the dollar last week, the first drop since the period ended Nov. 6. Companies are borrowing in the loan market, in part to finance acquisitions. Banks in the U.S. arranged $5.71 billion of leveraged loans in January, more than quadruple the $1.22 billion a year earlier, Bloomberg data show. New loans fell to $171.3 billion in 2009 from $296.4 billion in 2008. “There’s more to come: valuations are down, financing is now available,” said Frederick Haddad , a partner at New York- based GoldenTree Asset Management LP. “These are all ingredients that make for a fairly strong private-equity market.” IMS Loans Goldman Sachs Group Inc. will start talks to price the six- year, $2 billion term loan IMS Health Inc. will use to finance its takeover by TPG Inc. and Canada Pension Plan Investment Board, according to people familiar with the matter who declined to be identified because negotiations are private. Norwalk, Connecticut-based IMS also plans to raise $1 billion in the bond market, Moody’s and S&P said in separate reports. While corporate bond sales are slowing, offerings of asset- backed debt is picking up before the Fed’s Term Asset-Backed Securities Loan Facility expires in March. The central bank began TALF in March to revive credit markets by allowing investors to borrow for purchases of securities tied to consumer, business and commercial-property loans. Detroit-based GMAC Inc.’s Ally Bank will sell $750 million of bonds backed by payments from auto dealers, according to a person familiar with the offering. Others selling debt through TALF include Cabela’s Inc. and Automotive Rentals Inc., people familiar with the sales said. Japan’s Toyota Motor Corp. sold $900 million in bonds eligible for the program last week. Derivatives Caution Of the $178 billion in consumer asset-backed securities sold in 2009, $105 billion was eligible for the program, according to Bank of America Corp. Issuance of asset-backed securities tied to household debt plummeted 42 percent in 2008 as the credit crisis sapped demand, Bloomberg data show. Derivatives indicate that investors are concerned the markets may not be healed enough to withstand the withdrawal of government and central bank stimulus programs, even though S&P said last week the U.S. speculative-grade default rate will decline to 5 percent by the end of 2010, from a previous forecast of 6.9 percent. The difference between what investors pay to insure debt tied to the Markit CDX North America High Yield Index and bonds linked to the benchmark Markit CDX investment grade index climbed 50 basis points last month. That gap, at 482 basis points, had plunged 289 basis points the previous four months to the lowest level since December 2007, according to CMA DataVision prices. Both credit-default swaps indexes are used by investors to hedge against losses or to speculate on corporate creditworthiness. Checking ‘Senses’ “People are grabbing on to their senses,” said Marilyn Cohen , president of Envision Capital Management in Los Angeles, who manages $250 million in fixed-income assets. “After the high-yield market was up 57 percent, what does anybody expect? If they expect a 20 percent return they are really on drugs.” Two-year interest-rate swap spreads, which measure the difference between the rate to convert floating-rate payments to fixed and similar-maturity Treasuries, increased to 25.5 basis points on Jan. 29 from the month’s low of 20 basis points on Jan. 5. Swap rates are typically higher than sovereign yields to reflect the extra risk of trading with a bank instead of the government. To contact the reporters on this story: Caroline Hyde in London chyde3@bloomberg.net Sonja Cheung in London at scheung58@bloomberg.net ; Sapna Maheshwari in New York at smaheshwar11@bloomberg.net

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China Sustains Manufacturing Rebound as Export Orders Climb, Surveys Show

January 31, 2010

By Bloomberg News Feb. 1 (Bloomberg) — China, the world’s third-biggest economy, sustained its manufacturing expansion in January as export orders jumped and inflation pressures grew, two surveys showed today. A purchasing managers’ index released by HSBC Holdings Plc and Markit Economics rose to a record. A second survey, by the Federation of Logistics and Purchasing, recorded the second- fastest expansion since 2008. Stocks tumbled as the reports spurred concern that the government will have to escalate efforts to rein in the credit growth that has fueled the nation’s infrastructure spending surge. After raising banks’ reserve requirements this month and targeting reduced credit growth in 2010, policy makers may raise interest rates by the end of June, according to the median estimate in a Bloomberg News survey of economists. “It’s a solidly expansionary reading, consistent with expectations of continued momentum in the economy,” said David Cohen , an economist with Action Economics in Singapore. The benchmark Shanghai Composite Index of stocks fell 1.5 percent as of 10:55 a.m., extending this year’s slide to 10 percent. The HSBC index rose to a seasonally adjusted 57.4 from 56.1 in December and the survey showed input and output price indexes rose to the highest levels since July 2008. Export sales rose at a “near-record rate,” a statement on Markit’s Web site said. Meanwhile, the government-backed Purchasing Managers’ Index fell to a seasonally adjusted 55.8 from 56.6 in December, an e- mailed statement showed. Growth in output and orders slowed, while export demand rose more quickly. Snowstorms The figures may partly reflect disruptions from cold weather and snowstorms, JPMorgan Chase & Co. and UBS AG. said. China is paring monetary stimulus to limit inflation and the risk of asset bubbles in the economy that Nomura Holdings Inc. says will contribute a third of global growth this year. China’s growth accelerated to 10.7 percent, the fastest pace since 2007, in the fourth quarter of 2009 after a 4 trillion yuan ($586 billion) stimulus package and record lending helped the nation lead the world out of recession. Today’s figure in the logistics federation’s survey was less than the median 56.5 estimate in a Bloomberg News survey of 16 economists. The decline was the first in eight months. The output index dropped for the first time since May last year, falling to 60.5 from 61.4 in December. The export-orders index rose to 53.2 from 52.6. ‘Crucial Stage’ “China’s economy is at a crucial stage of moving from rebounding to stabilizing” with exports set to make a bigger contribution to growth, said Zhang Liqun , a researcher at the State Council Development and Research Center. “In the meantime, companies may face a tougher environment with rising costs and intensified competition.” Companies benefiting from the nation’s rebound include Chongqing Changan Automobile Co. , which said Jan. 27 that 2009 profit may have climbed more than 4000 percent on higher sales and cost controls. China Railway Construction Co. said the same day that profit likely increased more than 50 percent from 3.6 billion yuan a year earlier because of the nation’s extra infrastructure spending. The world’s third-biggest economy may gain momentum this quarter as exports surge 30 percent, making an interest-rate increase more likely as inflation rises, according to China International Capital Corp. China’s 10.5 percent expansion this year will compare with the global economy’s 4.2 percent, Nomura forecasts. Faster Pace The nation’s growth may accelerate to 12 percent this quarter, triggering a rate increase as early as this month as inflation rises to 3 percent, according to Sun Mingchun, an economist at Nomura in Hong Kong. China is pursuing a “proactive fiscal policy” and moderately loose monetary policy,” Vice Premier Li Keqiang reaffirmed in a speech on Jan. 28 at the World Economic Forum in Davos, Switzerland. Such policies will lead to “huge markets for the world and huge opportunities” for foreign companies, he said. Li’s comments reflected a pledge in November by Premier Wen Jiabao to speed the shift from investment- and export-led growth to an economy “driven by consumption, investment and exports in a coordinated way.” “We expect GDP to grow by 9 percent in 2010 and our next revision is more likely to be upward,” said Wang Tao , an economist with UBS AG in Beijing. “We expect the government to err on the side of keeping policy accommodative.” The manufacturing index, released by the logistics federation and the Beijing-based National Bureau of Statistics, is based on replies to questionnaires sent to purchasing executives at more than 730 companies in 20 industries. It started in 2005. The official PMI surveys mainly large and state-owned companies, while HSBC’s sample of more than 400 is weighted more towards smaller businesses and export-related companies, said Xing Ziqiang , an economist at China International Capital Corp. It began in 2004. To contact the Bloomberg News staff on this story: Kevin Hamlin in Beijing on khamlin@bloomberg.net

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Citigroup Said to Plan Sale, Split-Off of $10 Billion Private-Equity Unit

January 31, 2010

By Bradley Keoun and Jonathan Keehner Feb. 1 (Bloomberg) — Citigroup Inc. plans to sell or split off its $10 billion Citi Private Equity unit, expanding the list of money-management businesses the U.S. bank is disposing of to reduce debt, people familiar with the matter said. Citi Private Equity , which takes minority stakes in companies and invests in other buyout funds, oversees about $2 billion of Citigroup’s money, said the people, who declined to be identified because the sale talks are private. The rest is from outside investors. Managers of the decade-old unit, led by Todd Benson and Darren Friedman , have discussed buying it for themselves alongside new partners or with other financing, one person said. Citigroup, 27 percent owned by the government following a bailout in 2008, is selling almost a third of its $1.86 trillion of assets under regulatory pressure to shrink. Chief Executive Officer Vikram Pandit plans to keep a smaller buyout unit the bank bought in late 2007, a few months after he joined, the people said. “Citi has been going in and out of these different investing vehicles, both private equity and hedge funds,” said Steven Kaplan , a professor at the University of Chicago Booth School of Business who studies the private-equity industry. “It’s been a game of musical chairs.” Benson and Friedman stepped in as co-heads of Citi Private Equity after the January 2009 departure of John Barber , who had led the unit for nine years. Neither of the co-heads returned calls for comment, and Citigroup spokeswoman Shannon Bell declined to comment. Metalmark to Stay Other money-management units marked for sale or closure include the Citi Property Investors real-estate unit, which oversees $12.5 billion; and the Hedge Fund Management Group , which allocates money to hedge funds on behalf of its own investors, the people said. Citigroup plans to keep Metalmark Capital LLC , a buyout firm the bank agreed to buy for an undisclosed sum in December 2007. Headed by former Morgan Stanley executive Howard Hoffen , Metalmark oversees almost $3.8 billion in several funds, one person said. It invests in energy, health care, financial and industrial companies, according to Metalmark’s Web site. Pandit, 53, decided to keep Metalmark because he preferred its management and strategy to those of Citi Private Equity, three people said. Both Pandit and John Havens , who heads Citigroup’s trading- and investment-banking division, worked with Hoffen at Morgan Stanley from the late 1980s through the early 2000s. Dorfman, O’Brien The bank also is keeping another fund, Citi Venture Capital International , which focuses on China, India, Central and Eastern Europe and Latin America. Citigroup’s hedge-fund and buyout division, Citi Capital Advisors, is run by Jonathan Dorfman and James O’Brien , another pair of former Morgan Stanley executives who joined Citigroup when it bought their hedge fund in October 2007. Four of Citigroup’s most senior executives previously took turns leading the division, including Pandit, Havens and Vice Chairmen Lewis Kaden and Edward “Ned” Kelly. Citi Capital Advisors has about $14 billion under management, a figure that excludes the funds earmarked for disposal, people familiar with the matter said. At the end of 2007, the division oversaw $73 billion. More than a dozen funds were shuttered or frozen, including Pandit’s Old Lane Partners fund, which Citigroup bought in 2007 for $800 million. The bank stopped reporting the alternative-investing division’s results after the first quarter of 2008, when it had a net loss of $509 million. Decision in 2009 The decision to sell Citi Private Equity was made last year, before President Barack Obama on Jan. 21 proposed banks be forced to divest their private-equity firms and hedge funds, the people familiar with the matter said. Ownership of such businesses can expose taxpayers to the risk of further bank bailouts, according to the White House. A person close to Citigroup said its private-equity business doesn’t conflict with the proposal, since most investing is done on behalf of customers and little of the bank’s own capital is put at risk. Citigroup counts its remaining buyout and hedge funds among “core” operations that also include banking, trading, securities underwriting and credit cards. Depending on how the new laws or regulations are written, Citigroup may have to overhaul its private-equity business again, said Calyon Securities USA analyst Michael Mayo , who rates Citigroup shares “underperform.” Dollar General, GMAC “None of this is set in stone,” Mayo said in an interview. Citi Private Equity was formed in 2000. Early in the decade, the unit was used partly to consolidate investments inherited from the 1998 merger of Citicorp and Travelers Group Inc. , people familiar with the matter said. In February 2007, Citi Private Equity raised about $3.3 billion of new funding. Citigroup doesn’t publicly disclose the performance of Citi Private Equity. Managers of such funds typically charge fees for overseeing investors’ money and take a fixed cut of any capital gains. The unit was a secondary investor on New York-based buyout firm KKR & Co.’s $7.3 billion takeover of discount retailer Dollar General Corp. in July 2007. Goodlettsville, Tennessee- based Dollar General went public through an initial stock offering last November, and now has a market value of about $8 billion. Not as profitable was a supporting equity investment in New York-based Cerberus Capital Management LP’s takeover of auto- finance company GMAC LLC , people familiar with the matter say. Like Citigroup, GMAC had to get a series of infusions from the U.S. government as surging unemployment drove up consumer-loan defaults. In November, Michael Carpenter , who ran Citigroup’s hedge fund and buyout unit before he quit in 2006, was tapped as GMAC’s new CEO. To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net ; Jonathan Keehner in New York at jkeehner@bloomberg.net .

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Euro Proving No Reserve Alternative as Central Banks Lead Shift in Assets

January 31, 2010

By Paul Dobson and Lukanyo Mnyanda

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Video: Google Faces Challenge Swaying China on Censorship: Video

January 31, 2010

Feb. 1 (Bloomberg) — Bloomberg’s Stephen Engle reports on the outlook for Google Inc.’s business in China after the company said this month it would stop censoring results and might shut down the Google.cn site and offices on the mainland. Google Chief Executive Officer Eric Schmidt said his company opposes censorship in China and aims to apply pressure to improve the situation for the country’s people. Bloomberg’s Haslinda Amin also speaks. (Source: Bloomberg)

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Video: HSBC CEO Geoghegan Discusses China Growth Strategy: Video

January 31, 2010

Feb. 1 (Bloomberg) — HSBC Holdings Plc Chief Executive Officer Michael Geoghegan talks with Bloomberg’s Bernard Lo about the bank’s growth strategy in China. HSBC is said to want a 51 percent stake in one of China’s three biggest banks, which include Industrial and Commercial Bank of China Ltd., Bank of China Ltd. and China Construction Bank Corp., The Sunday Telegraph reported. (This is an excerpt of the full interview. Source: Bloomberg)

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Video: St. George’s Smirk Says Sugar Prices May Rise Further: Video

January 31, 2010

Feb. 1 (Bloomberg) — Justin Smirk, chief economist at St. George Bank Ltd., talks with Bloomberg’s Haslinda Amin from Sydney about the outlook for sugar. Sugar prices have more than doubled in the past year as adverse weather curbed output in Brazil and India, the world’s largest producers. (Source: Bloomberg)

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Video: Global Airline Industry Faces Long Haul to Recovery: Video

January 31, 2010

Feb. 1 (Bloomberg) — Bloomberg’s Haslinda Amin reports on the International Air Transport Association’s forecast for the global airline industry. IATA Chief Executive Giovanni Bisignani says the industry will take at least three years to recover from a travel slump caused by the worst recession in six decades. Chris Tarry, an independent analyst in London, Paul Griffiths, chief executive officer of Dubai Airports, James Tong, chief executive officer of Cathay Pacific Airways Ltd.’s Hong Kong Dragon Airlines Ltd. unit, and Naresh Goyal, chairman of Jet Airways (India) Ltd. also speak. (Source: Bloomberg)

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Video: Google’s Pressures on China May Prove Ineffective: Video

January 31, 2010

Feb. 1 (Bloomberg) — Bloomberg’s Stephen Engle reports on the outlook for Google Inc.’s business after the company said this month it would stop censoring results and might shut down the Google.cn site and offices in China. Google Chief Executive Officer Eric Schmidt said his company opposes censorship in China and aims to apply pressure to improve the situation for the country’s people. Bloomberg’s Haslinda Amin also speaks. (Source: Bloomberg)

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Video: Samsung Securities’ Marsden Likes Li & Fung, I.T Shares: Video

January 31, 2010

Feb. 1 (Bloomberg) — Matthew Marsden, director of consumer research at Samsung Securities Co., talks with Bloomberg’s Bernard Lo about the outlook for Li & Fung Ltd. and I.T Ltd. Li & Fung surged the most in eight months in Hong Kong trading after signing a deal with Wal-Mart Stores Inc. that strengthens its position as the world’s largest supplier of toys, clothes and furniture to retailers. (Source: Bloomberg)

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Video: St. George’s Smirk Says Sugar Hasn’t Seen End of Rally: Video

January 31, 2010

Feb. 1 (Bloomberg) — Justin Smirk, chief economist at St. George Bank Ltd., talks with Bloomberg’s Haslinda Amin about the outlook for sugar market. Sugar prices have more than doubled in the past year as adverse weather curbed output in Brazil and India, the world’s largest producers. (Source: Bloomberg)

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Video: Samsung’s Marsden Says Li & Fung Shares `Worth’ Its Cost: Video

January 31, 2010

Feb. 1 (Bloomberg) — Matthew Marsden, director of consumer research at Samsung Securities Co., talks with Bloomberg’s Bernard Lo about the outlook for Li & Fung Ltd. after the agreement to supply clothes, toys and other goods to Wal-Mart Stores Inc. Marsden also discusses the outlook for Hong Kong retail sales. (Source: Bloomberg)

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Video: H.K. Shoppers Remain Cautious Even as Unemployment Falls: Video

January 31, 2010

Feb. 1 (Bloomberg) — Bloomberg’s Zeb Eckert reports on Hong Kong retail sales. (Source: Bloomberg)

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Video: Toyota Plans Media Blitz After 2.3 Million Car Recall: Video

January 31, 2010

Feb. 1 (Bloomberg) — Bloomberg’s Mike Firn reports on the outlook for Toyota Motor Corp. after the automaker last month recalled 2.3 million vehicles in the U.S. over a gas pedal defect linked to sudden acceleration. The company this week suspended sales of eight models in the U.S. and Canada and is halting lines at five North American factories that make them until pedals from CTS Corp. are fixed. Bloomberg’s Haslinda Amin also speaks. (Source: Bloomberg)

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The Five Star Institute 2010 Spring Training & Short Sale Summit Heads to Vegas

January 31, 2010

The Five Star Institute (FSI), an education provider that offers professional guidance and a specialization in working with distressed real estate, is bringing its 2010 Spring Training & Short Sale Summit to Las Vegas–a market that's been one of the

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Australian Manufacturing Expands on Demand for Housing, Coal and Transport

January 31, 2010

By Jacob Greber Feb. 1 (Bloomberg) — Australian manufacturing expanded in January amid rising demand for coal industry products, transport equipment and materials for housing construction. The performance of manufacturing index rose 2.5 points from December to 51, according to an Australian Industry Group and PricewaterhouseCoopers survey released in Canberra today. A reading above 50 signals manufacturing is expanding and gives central bank Governor Glenn Stevens more scope to boost the benchmark lending rate tomorrow by a quarter percentage point to 4 percent, as forecast by all 20 analysts surveyed by Bloomberg News. The increase in new orders and exports was partially offset by a decline in employment among manufacturers, today’s report said. “While manufacturing made a relatively encouraging start to the year, the performance of key components remained patchy,” AIG Group Chief Executive Heather Ridout said. “A sustained upswing in manufacturing activity is needed to fill the large chunk taken out of the sector by the global economic downturn.” The Australian dollar traded at 88.23 U.S. cents at 9:34 a.m. in Sydney from 88.29 cents just before the report was released. The two-year government bond yield was unchanged at 4.17 percent. While today’s report shows employment among manufacturing companies in January contracted for the first time in three months, figures published on Jan. 14 showed Australian employers added 135,700 jobs in the four months through December, the biggest hiring boom in more than three years. Rate Bets Falling unemployment, now at an eight-month low of 5.5 percent, may be among reasons Governor Stevens and his board will boost borrowing costs tomorrow for a fourth straight meeting since early October. Traders are betting there is a 62 percent chance of a quarter-point increase in the overnight cash rate target tomorrow, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 9:30 a.m. The chance of an increase in March stands at 100 percent. The manufacturing survey, which is similar to the U.S. ISM index, asked more than 200 companies about production, new orders, deliveries, inventories and employment. Today’s survey shows companies that are closely linked to the nation’s housing and resources sectors, such as construction materials makers, led the expansion among manufacturers last month. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Voser’s Shell Restructuring May Signal Output Revival in Challenge to BP

January 31, 2010

By Fred Pals Feb. 1 (Bloomberg) — Peter Voser is using lessons from his two-year stint rescuing Swiss engineering company ABB Ltd. from near bankruptcy to turn around Royal Dutch Shell Plc by selling assets, cutting thousands of jobs and speeding up decisions. Not only has Shell suffered six years of falling output, it’s been overtaken as Europe’s biggest energy producer in terms of market value by BP Plc for the first time since 2006. Voser’s challenge at Shell is to take out layers of management while investing $28 billion this year to keep the company in the top league of oil majors. In recent years, Shell has struggled to maintain output levels because of lackluster exploration efforts and the company’s reluctance to do the major deals that helped rivals BP and Exxon Mobil Corp. bulk up. “Anybody can cut costs but it’s much harder to do so in a way to build a solid foundation for the future,” said Gary Steel , a senior executive at ABB who worked alongside Voser at the Zurich-based company in the early part of the decade. “For Shell he is doing absolutely the right thing, he’s taking out the bureaucracy.” Analysts say his efforts are paying off. In his first six months he merged units and cut about 5,000 jobs, including senior management posts. About 15 percent of Shell’s refining capacity was placed under review, while the company is also scaling back on expansion in Canadian tar sands. Of 40 analysts following the stock, 25 have “buy” recommendations and only five have a “sell,” according to Bloomberg data. The average target price calls for an 18 percent increase in the stock over the coming year. Operating Costs In an interview at the World Economic Forum in Davos last week, Voser, 51 and an avid mountain-hiker and skier, said he’s willing to cut more jobs to keep operating costs down and improve Shell’s performance. “Some of the consumption-driven demand is not coming back, so I’m rather more pessimistic for the first half of the year than I am maybe for the whole year or the second half,” he said. Voser, who succeeded Jeroen van der Veer , inherited the industry’s biggest spending program in 2009 in the middle of a global economic crisis that forced oil companies to delay some projects and cancel others. Voser’s efforts have yet to win over investors. Shell’s class-A shares are down 3.3 percent in the past year, compared with an 18 percent advance for London-based BP. Under Tony Hayward’s stewardship, BP has regained favor after projects came onstream and he tackled the refining problems that helped sour the last years of his predecessor, John Browne . On Track Hayward, who is more than two years into his own turnaround program, has already reversed a decline in output by ramping up the Thunder Horse platform in the Gulf of Mexico to more than 300,000 barrels of oil equivalent a day, and doubled a cost-savings target. Voser is confident that The Hague-based Shell will regain its title as the region’s foremost oil producer. “I have the clear objective to be the best,” he said in November. “It will take some time, but we’re on track to get there.” Voser’s priority is to revive production growth with new projects in Qatar and Malaysia after output fell below 3 million barrels of oil equivalent a day. Production has been falling for six straight years and is poised to decline for a seventh. Voser has already admitted that he’s no longer pinning his hopes on Nigeria, where Shell’s operations were plagued by militant attacks in recent years. Output Boost He expects natural gas to make up more than half of Shell’s production by 2012. Gas must get “much more on the agenda as its potential role is underestimated,” Voser said in Davos. So far, Shell has shied away from deals on the scale of Exxon Mobil’s $31 billion acquisition of XTO Energy Inc. “Production growth beyond 2012 will be his biggest challenge,” Gudmund Halle Isfeldt , an analyst at Oslo-based DnB Nor Markets, said in an interview. “He will be successful in simplifying Shell and the company has a higher cost-cutting potential than BP with a lot of overhead costs,” Isfeldt, who has a “buy” rating on the stock, said. Shell’s CEO has some way to go before matching his achievements at ABB, now the world’s largest builder of electricity networks. While chief financial officer of ABB from 2002 to 2004, he helped secure about $4 billion in asset disposals and trimmed debt after asbestos lawsuits and slowing demand threatened the company with collapse. The company returned to profit in the first quarter in 2004 after six consecutive quarterly losses. ‘Hard Restructuring’ “ABB had to go through a hard restructuring and that brought some success and Voser was part of that,” Thomas Lusetti, a senior fund manager at Verwaltungs- & Privat Bank in Zurich, said in a phone interview. Voser quit Shell in 2002 after two decades with the company when Judith Boynton became the first outsider to be appointed chief financial officer. Boynton was demoted in 2004 following a reserves scandal after the company was forced to slash its proven reserve estimates. Apart from two years at ABB, he’s worked at Shell in various positions since 1982. Voser has held finance and business roles for Shell in Switzerland, Argentina, Chile and the U.K. He graduated in business administration from the University of Applied Sciences in Zurich in 1982 and in April 2005 was appointed to the board of directors of UBS AG, a post he will leave this year. “New leaders should do new things,” Van der Veer wrote in “My A to B,” a collection of speeches, articles and letters published by Shell on his retirement. “We should make these changes work.” To contact the reporter on this story: Fred Pals in Amsterdam at fpals@bloomberg.net

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China, Iran Threats Lead U.S. Military to Draw Up New Air-Sea Battle Plan

January 31, 2010

By Viola Gienger and Tony Capaccio Feb. 1 (Bloomberg) — The U.S. military is drawing up a new air-sea battle plan in response to threats such as China’s persistent military build-up and Iran’s possession of advanced weapons, according to the Pentagon’s latest strategy review. The Air Force and Navy are seeking more effective ways of ensuring continued access to the western Pacific and countering potential threats to American bases and personnel, according to the Quadrennial Defense Review to be released later today. The joint Air Force-Navy plan would combine the strengths of each service to conduct long-range strikes that could utilize a new generation of bombers, a new cruise missile and drones launched from aircraft carriers. The Navy also is increasing funding to develop an unmanned underwater vehicle, according to the report. The battle plan is among a range of new initiatives outlined in the review, which is conducted every four years to revise U.S. military strategy for the coming decade or more. The new report places top priority on the fights in Afghanistan and Iraq and against terrorist threats elsewhere, while also preparing for future threats. “This is truly a wartime QDR,” Defense Secretary Robert Gates wrote in a cover letter for the report. “For the first time, it places the current conflicts at the top of our budgeting, policy and program priorities.” Two-War Capability The review deemphasizes but does not abandon the Pentagon’s doctrine that calls for the military to be able to fight two major wars nearly simultaneously. It acknowledges this mission but says planning should focus more closely on other scenarios, such as irregular warfare including conflicts involving insurgents or drug traffickers and even humanitarian disasters. “In the mid- to long-term, U.S. military forces must plan and prepare to prevail in a broad range of operations that may occur in multiple theaters in overlapping time frames,” the Defense Department says in the review. “This includes maintaining the ability to prevail against two capable nation-state aggressors,” it states. Alluding to China in his cover letter, Gates cites longer- term threats such as “the military modernization programs of other countries.” He also hints at dangers such as al-Qaeda in referring to “non-state groups developing more cunning and destructive means to attack the United States and our allies and partners.” Tensions With China U.S. officials have often called on their Chinese counterparts to provide explanations and assurances that their moves are purely defensive. The two countries resumed military talks last June, then China halted visits again over the Defense Department’s Jan. 29 announcement of a new arms sale to Taiwan. China is developing and deploying “large numbers” of advanced missiles, new attack submarines, long-range air defense systems and capabilities to wage electronic warfare and target computer systems, according to the report, which echoes an assessment of China’s military power issued almost a year ago. China’s refusal to provide adequate assurances of its intentions raises “a number of legitimate questions regarding its long-term intentions,” the Pentagon says in the review. Citing “more complex” security conditions in the region, including North Korea and terrorist threats in Southeast Asia, the review calls for “a more widely distributed” and flexible U.S. presence in Asia that relies more on allies. Partners would include Australia, Thailand, the Philippines, Singapore, Indonesia, Malaysia and Vietnam. Threat From Iran In the Middle East, Iran is fielding small attack boats in the Persian Gulf, a development that U.S. officials have cited in the past. That compounds the threat to naval operations from the acquisition by Iran and other nations of weapons such as quiet submarines and advanced cruise missiles that can target ships, according to the report. Iran also has provided drones and shoulder-fired missiles to the Islamic militant group Hezbollah in Lebanon, and Russia and other nations have contributed to the spread of surface-to- air missiles, the department said. Among the solutions proposed are more ways to deploy U.S. forces abroad, such as naval assets, “in regions facing new challenges.” Existing bases also need to be either hardened to protect against potential attacks or reinforced with back-up locations or by dispersing them in multiple places, the department concluded. The Pentagon has about 400,000 U.S. military personnel stationed overseas, either in war zones or elsewhere. The review emphasizes “taking care of our people” serving in multiple long deployments that take a “significant toll” on them and their families. Other Concerns In addition to supporting existing wars, the Quadrennial review emphasizes the need for more unmanned aircraft, intelligence, special forces, helicopters and long-range strike capabilities as well as skills such as foreign languages and training of foreign military forces. The U.S. military, especially the Navy and Air Force, also should find better and faster ways to strengthen the defense systems of foreign allies and partners as needed, the Pentagon said. The Pentagon should continue to maintain a nuclear arsenal as a “core mission” until “such time as the administration’s goal of a world free of nuclear weapons is achieved,” according to the report. The potential threat of cyber attacks and the need to conduct “high-tempo operations” will require more expertise in that field and centralized command of cyber operations, the department said. To contact the reporters on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net ; Viola Gienger in New Delhi via vgienger@bloomberg.net .

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`Avatar’ Is Top Film for Seventh Straight Week, Exceeding $2 Billion Sales

January 31, 2010

By Esme E. Deprez Jan. 31 (Bloomberg) — “Avatar” was the top film in the U.S. and Canada for the seventh weekend in a row, becoming the first movie to surpass $2 billion in combined global and domestic ticket sales. James Cameron’s 3-D sci-fi adventure earned $30 million in U.S. and Canadian theaters this weekend, Hollywood.com Box- Office said today in a statement. The film has taken in $2.04 billion worldwide since its Dec. 18 release by News Corp. ’s 20th Century Fox, according to Hollywood.com. “Avatar” may eclipse the $600.8 million domestic record of “Titanic” on Feb. 2 or 3, Hollywood.com said. Cameron, maker of the two top-grossing movies of all time, has the chance to augment his filmmaking legacy with the Academy Award nominations on Feb. 2. “Avatar” won the Golden Globe for best dramatic feature and surpassed the $1.84 billion record set by his Oscar-winning 1997 production, “Titanic,” last week. “It’s an amazing achievement, any big movie like this can open well, but to hold on seven weeks later means people really like the film and are recommending it,” Gitesh Pandya , editor of Box Office Guru LLC, said in an interview. “To make this much when your movie is so old is unheard of.” “Edge of Darkness,” Mel Gibson’s first starring role since 2002’s “Signs,” opened at No. 2 with sales of $17.1 million for Time Warner Inc.’s Warner Bros. Gibson plays a homicide detective investigating the murder of his daughter. The romantic comedy “When in Rome” opened in third place, taking in $12.1 million in sales for Walt Disney Co. Kristen Bell, playing alongside Josh Duhamel, stars as a New Yorker who travels to Italy to find love. ‘Tooth Fairy’ and ‘The Rock’ The “Tooth Fairy,” starring Dwayne “The Rock” Johnson, held steady at fourth place, taking in $10 million. “The Book of Eli,” the post-apocalyptic thriller featuring Denzel Washington , slid to fifth place from third with $8.8 million in sales for Warner Bros. “Legion,” a horror thriller starring Paul Bettany and Tyrese Gibson, fell to sixth place from second in two weeks of release bringing in a total of $28.6 million for Sony Corp. News Corp. ranks first among the six major studios in U.S. ticket sales this year, with $387 million as of Jan. 28, according to researcher Box Office Mojo. Time Warner is second at $206.2 million. Weekend sales for the top 12 films rose 4.3 percent to $107.4 million from $103 million a year earlier, Hollywood.com said. Year-to-date receipts total $1.05 billion, up 5.1 percent from a year earlier. Attendance is also up 5.1 percent. The following table has figures provided by studios to Hollywood.com. The amounts are based on actual ticket sales from Jan. 29 and yesterday and estimates for today. To contact the reporters on this story: Esme E. Deprez in New York at edeprez@bloomberg.net ;

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Financial Rescue to Cost Taxpayers Less Than Expected, TARP Watchdog Says

January 31, 2010

By Brendan Murray Jan. 31 (Bloomberg) — The U.S. government’s Troubled Asset Relief Program to rescue the financial system probably will cost taxpayers much less than first predicted, according to a watchdog monitoring the $700 billion effort. “There are clear signs that aspects of the financial system are far more stable than they were at the height of the crisis in the fall of 2008,” a report from TARP Special Inspector General Neil Barofsky to Congress said yesterday. “It now appears that the ultimate cost of TARP to the American taxpayer, while still substantial, might be significantly less than initially estimated.” Barofsky’s quarterly audit is more upbeat about the program’s near-term prospects to recoup taxpayers’ money than an October report in which he said the final cost could be “substantial.” His latest report said TARP is entering a transition as financial aid for banks including Bank of America Corp. and Wells Fargo & Co. is recouped. While the audit is welcome news for the American taxpayer, it also says the program has its share of shortcomings. There’s been “little fundamental change” in executive compensation at companies that benefited from TARP, according to the report. Because of the subsidies, some of the biggest banks are “even larger,” and government help for the housing market risks “re-inflating that bubble” that was at the heart of the financial market collapse, the report said. “Even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car,” the report said. Longer term, the U.S. needs a better way to deal with financial crises, Barofsky’s report said. ‘Moral Hazard’ “The substantial costs of TARP — in money, moral hazard effects on the market, and government credibility — will have been for naught if we do nothing to correct the fundamental problems in our financial system and end up in a similar or even greater crisis in two, or five, or 10 years,” it said. Barofsky has also expanded investigations into misconduct related to the financial-industry bailout, including insider trading, accounting violations, mortgage fraud, public corruption and money laundering. The number of opened cases by Barofsky’s office increased by 41 percent in the fourth quarter. Some 25 criminal and civil probes were started in the quarter, and there were 77 total active cases. Through last year’s third quarter, the Washington- based office opened 61 cases with 54 active, Barofsky said at the time. Next Phase The next phase of TARP will focus on foreclosure mitigation, small-business lending and support for asset-backed securities markets, the report said. Banks are able to raise capital privately again and the Treasury Department is profiting from some TARP investments, it said. Even though money is returning to the Treasury through repayments, dividends and interest, moral hazard remains because investors and companies still see the government as a backstop against failure from excessive risk-taking, Barofsky’s report said. “The market is more convinced than ever that the government will step in as necessary to save systemically significant institutions,” the report said. That perception was reinforced when Treasury Secretary Timothy F. Geithner extended TARP until Oct. 3, “permitting Treasury to maintain a war chest of potential rescue funding at the same time that banks that have shown questionable ability to return to profitability are exiting TARP programs,” the report said. Bank Repayments The Treasury , which administers the TARP, had planned to spend about $500 billion of the total amount to support financial firms, auto companies, purchase mortgage-backed securities and help homeowners. Bank repayments have totaled $165 billion and exposure was further cut by another $5 billion, leaving almost $370 billion available in TARP at the end of 2009, the report said. One of the goals of TARP’s injection of capital into banks was to jumpstart lending. That’s not happening, the report said. “Lending continues to decrease, month after month,” it said. A separate TARP program announced in March designed specifically to boost loans to small businesses “has still not been implemented by Treasury,” the report said. To contact the reporter on this story: Brendan Murray in Washington at brmurray@bloomberg.net

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Financial Rescue to Cost Taxpayers Less Than Expected, TARP Watchdog Says

January 31, 2010

By Brendan Murray Jan. 31 (Bloomberg) — The U.S. government’s Troubled Asset Relief Program to rescue the financial system probably will cost taxpayers much less than first predicted, according to a watchdog monitoring the $700 billion effort. “There are clear signs that aspects of the financial system are far more stable than they were at the height of the crisis in the fall of 2008,” a report from TARP Special Inspector General Neil Barofsky to Congress said yesterday. “It now appears that the ultimate cost of TARP to the American taxpayer, while still substantial, might be significantly less than initially estimated.” Barofsky’s quarterly audit is more upbeat about the program’s near-term prospects to recoup taxpayers’ money than an October report in which he said the final cost could be “substantial.” His latest report said TARP is entering a transition as financial aid for banks including Bank of America Corp. and Wells Fargo & Co. is recouped. While the audit is welcome news for the American taxpayer, it also says the program has its share of shortcomings. There’s been “little fundamental change” in executive compensation at companies that benefited from TARP, according to the report. Because of the subsidies, some of the biggest banks are “even larger,” and government help for the housing market risks “re-inflating that bubble” that was at the heart of the financial market collapse, the report said. “Even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car,” the report said. Longer term, the U.S. needs a better way to deal with financial crises, Barofsky’s report said. ‘Moral Hazard’ “The substantial costs of TARP — in money, moral hazard effects on the market, and government credibility — will have been for naught if we do nothing to correct the fundamental problems in our financial system and end up in a similar or even greater crisis in two, or five, or 10 years,” it said. Barofsky has also expanded investigations into misconduct related to the financial-industry bailout, including insider trading, accounting violations, mortgage fraud, public corruption and money laundering. The number of opened cases by Barofsky’s office increased by 41 percent in the fourth quarter. Some 25 criminal and civil probes were started in the quarter, and there were 77 total active cases. Through last year’s third quarter, the Washington- based office opened 61 cases with 54 active, Barofsky said at the time. Next Phase The next phase of TARP will focus on foreclosure mitigation, small-business lending and support for asset-backed securities markets, the report said. Banks are able to raise capital privately again and the Treasury Department is profiting from some TARP investments, it said. Even though money is returning to the Treasury through repayments, dividends and interest, moral hazard remains because investors and companies still see the government as a backstop against failure from excessive risk-taking, Barofsky’s report said. “The market is more convinced than ever that the government will step in as necessary to save systemically significant institutions,” the report said. That perception was reinforced when Treasury Secretary Timothy F. Geithner extended TARP until Oct. 3, “permitting Treasury to maintain a war chest of potential rescue funding at the same time that banks that have shown questionable ability to return to profitability are exiting TARP programs,” the report said. Bank Repayments The Treasury , which administers the TARP, had planned to spend about $500 billion of the total amount to support financial firms, auto companies, purchase mortgage-backed securities and help homeowners. Bank repayments have totaled $165 billion and exposure was further cut by another $5 billion, leaving almost $370 billion available in TARP at the end of 2009, the report said. One of the goals of TARP’s injection of capital into banks was to jumpstart lending. That’s not happening, the report said. “Lending continues to decrease, month after month,” it said. A separate TARP program announced in March designed specifically to boost loans to small businesses “has still not been implemented by Treasury,” the report said. To contact the reporter on this story: Brendan Murray in Washington at brmurray@bloomberg.net

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Dubai’s Silence on Debt Standstill Evaporates Bailout Rally as Stocks Drop

January 31, 2010

By Michael Patterson and Haris Anwar Feb. 1 (Bloomberg) — Dubai’s failure to reassure investors its restructuring plan will succeed is causing the emirate’s benchmark stock index to drop the most in the world and forcing companies to scrap bond sales. The Dubai Financial Market General Index lost 15 percent since Dec. 14, wiping out a rally sparked by Abu Dhabi’s bailout of Dubai World that day. Bonds of the state-owned company’s property developer Nakheel PJSC sank to 55.75 cents on the dollar from 67.5 cents, while credit default swaps on Dubai government debt trade at 493 basis points, the highest level since Abu Dhabi’s fund injection. Dubai World, in talks to reschedule $22 billion of debt, failed to present an offer in a meeting with lenders in December and declined to say when a deal may be struck. Dubai Electricity & Water Authority said Jan. 17 it delayed a $1.5 billion bond sale as borrowing costs were too high. Lack of clarity on Dubai World’s restructuring plan “is creating uncertainty that is weighing heavily on the market,” said Rami Sidani , the Dubai-based head of Middle East and North Africa investment at Schroder Investment Management Ltd., which oversees about $230 billion worldwide. “We’re not out of the woods yet and we know Dubai will continue to struggle with a debt burden.” Real-Estate Crash Dubai stocks and bonds tumbled in November after the government said Dubai World would seek to delay payments to creditors until at least May 30. Investors speculated that Nakheel, which is building palm tree-shaped islands off the emirate’s coast, would default after Dubai companies lost access to cheap financing because of the global credit crunch and a 50 percent slump in Dubai home prices. Abu Dhabi’s $10 billion bailout on Dec. 14 ensured that Nakheel would have the $4.1 billion it needed to repay an Islamic bond due that day. Dubai is the second-biggest of seven states that make up the United Arab Emirates, whose capital Abu Dhabi holds 8 percent of global oil reserves. Dubai and its state-owned companies borrowed at least $80 billion until 2008 to transform the emirate into a tourism and financial hub. The Dubai stock index jumped 10 percent and bond prices soared on the day Abu Dhabi provided the funds. Dubai credit default swaps, which measure the cost of protecting against the default of government debt, sank to 430 basis points from 540. Biggest Decline The Dubai stock index has since posted the biggest decline among benchmark equity gauges in the world’s 70 largest markets. While global stocks have retreated on concern China will take steps to curb economic growth, the Dubai measure’s 15 percent loss compares with a 4 percent decline in the MSCI AC World Index . Nakheel’s $750 million of 2.75 percent bonds due 2011 lost 17 percent during the period, according to Citigroup Inc. prices on Bloomberg, while credit default swaps jumped 63 basis points. A basis point on a credit-default swap contract to protect against the default of $10 million of debt for five years is equivalent to $1,000 a year. “The Dubai World restructuring is going to be a long and tedious process,” said Shehab Gargash , a managing director at Dubai-based Daman Investments who’s holding half of his $1.5 billion under management in cash. “That’s the main reason we decided to stay out” of Dubai’s “bear market rally,” he said. Worst Is Over Templeton Asset Management Ltd.’s Mark Mobius says the Abu Dhabi bailout ensured the worst of the emirate’s debt crisis is over. The manager of $34 billion in emerging market assets said in an interview there’s “value and opportunity” in Dubai markets and that Templeton bought shares during the selloff in November and early December. “There has to be more revelations about what is being done and how, but the panic is over,” Mobius, the chairman of Templeton Asset Management, said in the Jan. 28 interview in Melbourne. “We are trying to buy at a good price given the fact that transparency isn’t complete.” The Dubai stock index trades for 5.1 times analysts’ 2010 earnings estimates, the cheapest level worldwide after Nigeria’s All Share Index, according to data compiled by Bloomberg. While investors speculate on the recovery values of Dubai debt, the lifeline from Abu Dhabi is helping the state-owned companies meet their interest payments. Nakheel paid a $10.3 million coupon last month on its 2011 bond. Dubai Holding Commercial Operations Group LLC, the investment company owned by Dubai’s ruler, made about $100 million of scheduled payments last month on three bonds. Refinancing Needs Dubai-based firms have to refinance $7.3 billion in syndicated loans and $2.8 billion in maturing bonds this year, according to Deutsche Bank AG estimates. Some of the biggest debt maturities include a $1.25 billion loan due in June by Dubai International Capital LLC, an investment company owned by Dubai’s ruler, and $1.5 billion in two floating-rate dollar notes issued by Emirates NBD PJSC. Emirates Telecommunications Corp., the U.A.E.’s biggest phone company, has deferred plans to issue the equivalent of $490 million bonds as it has enough cash for expansion plans, Ahmed bin Ali , a spokesman for the company, said Jan. 28. The Dubai government’s $1.93 billion Islamic bond issued in October was the last sale of bonds from the emirate. Drake & Scull International PJSC , a Dubai-based construction-engineering contractor that raised about 1.2 billion dirhams ($327 million) from its initial public offering in 2008, was the last stock sale from a Dubai- based company, according to Bloomberg data. “It makes very little sense for a Dubai corporate issuer to go out now and just try to force the issue in the market,” said Abdul Kadir Hussain , chief executive officer of fund manager Mashreq Capital DIFC Ltd. “Right now the market is waiting for a strategy. How are we going to reduce the absolute debt level in Dubai and how quickly is this going to happen. Investors are taking a very conservative attitude toward the U.A.E.” To contact the reporter on this story: Haris Anwar in Dubai on Hanwar2@bloomberg.net Michael Patterson in London at mpatterson10@bloomberg.net . Vivian Salama in Abu Dhabi at vsalama@bloomberg.net

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Dubai’s Silence on Debt Standstill Evaporates Bailout Rally as Stocks Drop

January 31, 2010

By Michael Patterson and Haris Anwar Feb. 1 (Bloomberg) — Dubai’s failure to reassure investors its restructuring plan will succeed is causing the emirate’s benchmark stock index to drop the most in the world and forcing companies to scrap bond sales. The Dubai Financial Market General Index lost 15 percent since Dec. 14, wiping out a rally sparked by Abu Dhabi’s bailout of Dubai World that day. Bonds of the state-owned company’s property developer Nakheel PJSC sank to 55.75 cents on the dollar from 67.5 cents, while credit default swaps on Dubai government debt trade at 493 basis points, the highest level since Abu Dhabi’s fund injection. Dubai World, in talks to reschedule $22 billion of debt, failed to present an offer in a meeting with lenders in December and declined to say when a deal may be struck. Dubai Electricity & Water Authority said Jan. 17 it delayed a $1.5 billion bond sale as borrowing costs were too high. Lack of clarity on Dubai World’s restructuring plan “is creating uncertainty that is weighing heavily on the market,” said Rami Sidani , the Dubai-based head of Middle East and North Africa investment at Schroder Investment Management Ltd., which oversees about $230 billion worldwide. “We’re not out of the woods yet and we know Dubai will continue to struggle with a debt burden.” Real-Estate Crash Dubai stocks and bonds tumbled in November after the government said Dubai World would seek to delay payments to creditors until at least May 30. Investors speculated that Nakheel, which is building palm tree-shaped islands off the emirate’s coast, would default after Dubai companies lost access to cheap financing because of the global credit crunch and a 50 percent slump in Dubai home prices. Abu Dhabi’s $10 billion bailout on Dec. 14 ensured that Nakheel would have the $4.1 billion it needed to repay an Islamic bond due that day. Dubai is the second-biggest of seven states that make up the United Arab Emirates, whose capital Abu Dhabi holds 8 percent of global oil reserves. Dubai and its state-owned companies borrowed at least $80 billion until 2008 to transform the emirate into a tourism and financial hub. The Dubai stock index jumped 10 percent and bond prices soared on the day Abu Dhabi provided the funds. Dubai credit default swaps, which measure the cost of protecting against the default of government debt, sank to 430 basis points from 540. Biggest Decline The Dubai stock index has since posted the biggest decline among benchmark equity gauges in the world’s 70 largest markets. While global stocks have retreated on concern China will take steps to curb economic growth, the Dubai measure’s 15 percent loss compares with a 4 percent decline in the MSCI AC World Index . Nakheel’s $750 million of 2.75 percent bonds due 2011 lost 17 percent during the period, according to Citigroup Inc. prices on Bloomberg, while credit default swaps jumped 63 basis points. A basis point on a credit-default swap contract to protect against the default of $10 million of debt for five years is equivalent to $1,000 a year. “The Dubai World restructuring is going to be a long and tedious process,” said Shehab Gargash , a managing director at Dubai-based Daman Investments who’s holding half of his $1.5 billion under management in cash. “That’s the main reason we decided to stay out” of Dubai’s “bear market rally,” he said. Worst Is Over Templeton Asset Management Ltd.’s Mark Mobius says the Abu Dhabi bailout ensured the worst of the emirate’s debt crisis is over. The manager of $34 billion in emerging market assets said in an interview there’s “value and opportunity” in Dubai markets and that Templeton bought shares during the selloff in November and early December. “There has to be more revelations about what is being done and how, but the panic is over,” Mobius, the chairman of Templeton Asset Management, said in the Jan. 28 interview in Melbourne. “We are trying to buy at a good price given the fact that transparency isn’t complete.” The Dubai stock index trades for 5.1 times analysts’ 2010 earnings estimates, the cheapest level worldwide after Nigeria’s All Share Index, according to data compiled by Bloomberg. While investors speculate on the recovery values of Dubai debt, the lifeline from Abu Dhabi is helping the state-owned companies meet their interest payments. Nakheel paid a $10.3 million coupon last month on its 2011 bond. Dubai Holding Commercial Operations Group LLC, the investment company owned by Dubai’s ruler, made about $100 million of scheduled payments last month on three bonds. Refinancing Needs Dubai-based firms have to refinance $7.3 billion in syndicated loans and $2.8 billion in maturing bonds this year, according to Deutsche Bank AG estimates. Some of the biggest debt maturities include a $1.25 billion loan due in June by Dubai International Capital LLC, an investment company owned by Dubai’s ruler, and $1.5 billion in two floating-rate dollar notes issued by Emirates NBD PJSC. Emirates Telecommunications Corp., the U.A.E.’s biggest phone company, has deferred plans to issue the equivalent of $490 million bonds as it has enough cash for expansion plans, Ahmed bin Ali , a spokesman for the company, said Jan. 28. The Dubai government’s $1.93 billion Islamic bond issued in October was the last sale of bonds from the emirate. Drake & Scull International PJSC , a Dubai-based construction-engineering contractor that raised about 1.2 billion dirhams ($327 million) from its initial public offering in 2008, was the last stock sale from a Dubai- based company, according to Bloomberg data. “It makes very little sense for a Dubai corporate issuer to go out now and just try to force the issue in the market,” said Abdul Kadir Hussain , chief executive officer of fund manager Mashreq Capital DIFC Ltd. “Right now the market is waiting for a strategy. How are we going to reduce the absolute debt level in Dubai and how quickly is this going to happen. Investors are taking a very conservative attitude toward the U.A.E.” To contact the reporter on this story: Haris Anwar in Dubai on Hanwar2@bloomberg.net Michael Patterson in London at mpatterson10@bloomberg.net . Vivian Salama in Abu Dhabi at vsalama@bloomberg.net

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Bloomingdale’s Dubai Opens: First International Store

January 31, 2010

DUBAI, United Arab Emirates (AP) — The city with the world’s tallest building now has one more claim to fame: the only Bloomingdale’s outside the United States. Dubai’s crown prince inaugurated the first international branch of the Manhattan institution, famous for its “big brown bag” totes, in the Middle East’s biggest shopping mall Sunday. Bloomie’s Dubai outpost includes a 146,000 square foot (13,600 square meter) clothing and accessories store and a nearby 54,000 square foot (5,000 square meter) home furnishings store. Both stores are in the Dubai Mall, next to the world’s tallest tower, Burj Khalifa. The Dubai Bloomingdale’s is a 270 million dirham ($73.4 million) joint venture between the department store chain’s Cincinnati-based parent, Macy’s, and Dubai retailer al-Tayer Insignia.

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Democrats Have More Campaign Cash Than Republicans for Off-Year Election

January 31, 2010

By Jonathan D. Salant and John McCormick Jan. 31 (Bloomberg) — Democratic Party committees entered an off-year election with more money in the bank than their Republican counterparts for the first time in at least 18 years, giving the party a financial boost as it tries to stave off a surge by the opposition. The Democratic National Committee and the fundraising arms of House and Senate Democrats reported $37.9 million in the bank as of Dec. 31, almost double the $19.4 million the Republicans had, Federal Election Commission filings show. The Democrats have never had more money than Republicans to spend at the beginning of an off-year election, according to FEC records that date to 1991, the first year the parties had to report unregulated corporate, union and individual donations. Such “soft money” donations were banned after the 2002 elections. “It means we’ve put together the resources to protect members and stay on offense,” Representative Chris Van Hollen , chairman of the Democratic Congressional Campaign Committee, said in an interview. While this is the first time since the 1993-94 election cycle that the Democrats control both the White House and Congress, Republicans have been invigorated by Scott Brown’s Jan. 19 win in Massachusetts to claim the U.S. Senate seat formerly held by the late Democrat Edward Kennedy. Financial Parity The Democratic National Committee entered the off-year election with more money than the Republican National Committee, $8.7 million to $8.4 million. The Republicans were debt-free, while the Democrats owed $4.7 million. Four years ago, the Republican committee had $34 million to the Democrats’ $6 million. “Without the White House, without the U.S. Senate, and without the Congress, we start 2010 with parity,” Republican National Committee Chairman Michael Steele told reporters in Honolulu. “And I think that’s a good spot for the party to be in.” The Republican National Committee spent $98 million last year as it helped fund winning candidates in the New Jersey and Virginia governors’ races. Brown’s capture of the Massachusetts senate seat ended the Democrats’ 60-vote majority, needed in that chamber to override efforts to block legislation. “Those two races set the stage for Massachusetts,” RNC Treasurer Randy Pullen, a national committee member from Arizona, said in an interview. “It was a great investment.” Resistance to Steele Even so, Steele has run into some opposition from party members. Republican fundraiser Wayne Berman said there is “resistance” to the chairman among some large donors. Steele has been criticized for writing a book about how to defeat Democrats without telling his party’s leadership, for saying Republicans wouldn’t win back the House of Representatives and for criticizing the rhetoric of conservative talk radio host Rush Limbaugh. Steele, the first black to hold the post, said he would seek another term as chairman, while saying “my style is not something you get used to very easily, I know that.” The Republican National Committee outraised its Democratic counterpart, $91 million to $84 million, last year. Four years ago, when the Republicans controlled the White House and both houses of Congress, the party took in $105 million to the Democrats’ $56 million. The House Democrats’ fundraising committee took in $55.6 million, while House Republicans raised $36.2 million. The Democratic Senatorial Campaign Committee raised $43.6 million, to $41.2 million for the National Republican Senatorial Committee. “It’s not terribly surprising they have leads in the money sprint,” Republican consultant Alex Vogel said. “My guess is you will have enough parity that you’re not going to have money making the difference at the end of the day.” Democratic Difficulties Van Hollen, speaking on “Fox News Sunday” today, acknowledged that 2010 was “going to be a difficult election year, the first midterm for a new president.” The House Democrats’ fundraising was helped by $641,950 raised by former Texas Lieutenant Governor Ben Barnes, now a lobbyist, who hosted an event in Austin last fall. He brought in more than any other lobbyist fundraiser for House Democrats, FEC records show. Barnes’s lobbying issues included physician-owned hospitals. In August 2008, Medicare began requiring doctors who own a financial stake in hospitals to tell patients being referred there about any financial links. “This wasn’t about lobbying; this was about Democrats,” Barnes said in an interview. “I was a Democratic giver and fundraiser long before I registered to represent anybody.” To contact the reporters on this story: Jonathan D. Salant in Washington at jsalant@bloomberg.net ; John McCormick in Honolulu at jmccormick16@bloomberg.net .

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War Reporter Behind Nazi Invasion Scoop Fights for Her Savings at Age 98

January 31, 2010

By Le-Min Lim Feb. 1 (Bloomberg) — In a 65-square-meter rented apartment in Hong Kong, Clare Hollingworth, 98 and almost blind, leans forward from the couch where she now spends many of her waking hours, to explain the thrills of being a war correspondent. “It’s adventurous, going out and jumping off low-flying aircraft,” says Hollingworth, who, as a novice reporter with the Daily Telegraph of London spotted German tanks massing at the border facing Poland in late August 1939, and filed a story warning of an imminent invasion. The twice-married widow evokes helping Jewish and anti- German refugees obtain papers to flee Poland, her privileged days growing up as the daughter of a boot manufacturer in Knighton, Leicester, and “foolish mistakes” with her money. She still can speak some French (“C’est mauvais!” It’s bad!) and Russian (“Khleb, vino, piva.” Bread, wine, beer.) Her eyes lit up at the mention of Katowice, the Polish border town from where she broke the news on World War II. “How much does it cost to get into Poland? Roughly,” she asks, clutching the hand of her great nephew, Patrick Garrett, who runs an airline’s Russia business and flies in regularly from Moscow to visit. Her scoop began a six-decade career as a war correspondent, covering conflicts in Algeria, Vietnam, Aden and the Middle East. She chronicled the fall of the Balkan states to Communism, Cold War espionage, including the case of the British journalist and Soviet double-agent Kim Philby, and China’s Cultural Revolution. In 1981, she came to Hong Kong to cover Asia for the Sunday Telegraph. Witnessing History “Clare is an icon. Hers was the time before the electronic media, when journalists were more important for being the eyewitnesses to historic events,” says Ernst Herb, an ex- president of Hong Kong’s Foreign Correspondents Club . Today, Hollingworth has about 50 percent of hearing in her right ear; a possible stroke in March has damaged her short-term memory and dulled her lucidity. Yet, with help from family, she’s fighting for the return of almost half her savings from Ted Thomas, an erstwhile friend and public-relations man. Thomas, who’s also a retired Hong Kong government spokesman, was told by the city’s court on Oct. 27, 2009, to pay the rest of the HK$2.23 million ($286,806) he removed from Hollingworth’s bank account in August 2003 after she fell and broke her hip. On Nov. 18, Thomas applied to the court to avoid paying the sum, alleging that most of it was legal fees incurred by Hollingworth’s side. The court rejected his request in December; Thomas says he’s deciding what to do. ‘Not Paying’ “I’m not paying,” says Thomas, 80, who looks two decades younger, in an interview at the FCC. The Poynton, Cheshire, native says he would rather file for bankruptcy than pay the full sum because the money is “paid to greedy lawyers who keep churning this case.” Garrett, with power of attorney over Hollingworth’s affairs, has been suing for her, and says he had to take Thomas to court in 2006 because he wouldn’t give a satisfactory account of what he did with her money despite repeated requests. A July 2006 court ruling backed Garrett, ordering Thomas to pay Hollingworth the cost of the lawsuit. Thomas is still holding out. Hollingworth isn’t destitute, says Garrett, 42, and uses her savings and a Telegraph pension to pay for her HK$13,500-a- month rent and two live-in Filipina helpers. Her Hong Kong savings are less than the money Thomas owes and she might have to sell her apartment in Paris in an emergency. Shoes, Passport These days, Hollingworth doesn’t mention Thomas, though she’s prone to fears of not having money that leave her sleepless. She watches the British Broadcasting Corp. news channel daily and insists on sleeping with her shoes by the bedside and having her passport within reach, as if she were in a war zone, says Garrett. “She still considers herself a journalist, not someone retired,” he says. Thomas says he took on a bigger role in handling Hollingworth’s finances around 2001 and 2002 when he saw her cry out offers of free drinks to FCC members and thought she might be “losing” her mind. In January 2003, seven months before the fall that broke her hip, Thomas says she gave him signing rights to her bank account so he could pay her bills. On Aug. 18, 2003, Thomas got a call for help from Hollingworth’s live-in maid, went to the apartment to find the aged reporter on the floor in agony and sent her to a hospital. For the next 10 days, he withdrew a total of HK$1.47 million from her Standard Chartered Plc account by means of six checks. Thomas has denied stealing the money and says it was used to help Hollingworth invest, pay hospital bills and the salary of her live-in maid while she recovered. Film Role “It’s remarkable she survived,” he says. Thomas says that he can’t repay Hollingworth even if he wanted to because he has no money. Thomas says he gets a monthly pension of HK$17,000, HK$12,000 of which is spent on renting his flat near the central business district and another part on the international-school fees of his 16-year-old son by his third wife, ex-reporter Nicola Parkinson; they separated 12 years ago. He retains membership at some of the city’s most prestigious establishments such as the Hong Kong Club , which he visits every other day to exercise and play poker. Thomas says that he had a speaking part in the 2008 film “Largo Winch,” starring Kristin Scott Thomas , that paid HK$100,000. Calling the lawsuit “an act of malice,” Thomas says he won’t bow to pressure to pay the full sum. Meanwhile, on her daily visit to the FCC, Hollingworth occupies the same corner table in the ground-floor dining room where she sat scribbling notes and reading the papers over white wine and smoked salmon in healthier years. These days, she receives the greetings of well-wishers and passers-by with dignified silence. “She’s a tough old bird,” says Garrett. “She’ll be around for a while.” To contact the writer on the story: Le-Min Lim in Hong Kong at lmlim@bloomberg.net .

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Malawi’s Mutharika Named African Union Chairman, Pledges Focus on Hunger

January 31, 2010

By Jason McLure Jan. 31 (Bloomberg) — Malawi President Bingu wa Mutharika , who has pledged to champion greater investment in agriculture to end chronic hunger in Africa, was named chairman of the African Union today. “My brother, the president of the Republic of Malawi, will replace me and take over,” Libyan leader Muammar Qaddafi , the incumbent chairman of the AU, said at the annual heads-of-state summit in the Ethiopian capital, Addis Ababa. Under Mutharika, 75, Malawi has been transformed from a country in which intermittent famines left 40 percent of the population dependent on international aid into a food exporter. A government program of subsidizing fertilizers helped corn production rise 36 percent to 3.7 million metric tons last year, leaving the nation with a 1.3 million-ton surplus. “Five years from now, no African child should die of hunger,” Mutharika said in his speech, accepting the one-year term. “Africa must feed Africa.” In sub-Saharan Africa, an estimated 265 million people are undernourished, according to the World Food Program . In August, Kenya set aside 9 billion shillings ($120 million) to pay for food imports as up to 10 million faced the risk of hunger following a drought. In Somalia , where civil war has raged for the past 19 years, 1.8 million people rely on the United Nations food agency for aid. Mutharika was the candidate of the Southern African Development Community . Under AU rules, top positions rotate between the continent’s five geographic regions. United States of Africa Qaddafi had sought to extend his tenure by another year to advance his plan to create a so-called United States of Africa. The proposal, which would incorporate the continent’s nations into a political federation, was rejected last year by other leaders who feared losing their sovereignty. Established in 2002 as a successor to the Organization of African Unity, the AU’s stated aims include achieving greater unity among member states, promoting peace, stability and development and raising living standards. Mutharika will have to address several other ongoing crises, including restoring democracy in Madagascar , persuading Zimbabwean President Robert Mugabe to uphold a power sharing accord and ending a protracted conflict in Sudan’s western region of Darfur. “The realm of security remains a key challenge for the African Union,” said George Katito, a researcher at the Johannesburg-based South African Institute for International Affairs. “We have seen the African Union challenge unconstitutional changes in government” when it suspended Mauritania and Madagascar from its ranks. Those actions are a “vast difference from its ‘hear nothing, see nothing’ policy that we had before.” To contact the reporter on this story: Jason McLure in Addis Ababa via Johannesburg at pmrichardson@bloomberg.net .

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Obama to Propose $3.8 Trillion Budget Boosting Education, Energy, NYT Says

January 31, 2010

By Roger Runningen Jan. 31 (Bloomberg) — President Barack Obama will propose a $3.8 trillion spending plan to Congress tomorrow that increases funding for education, civilian research and provides $25 billion in aid to states, The New York Times reported. The spending blueprint for fiscal 2011, which begins Oct. 1, will single out winners and losers in Obama’s already- announced three-year freeze in many domestic programs. The National Institutes of Health, the National Science Foundation and the Energy Department will see their budget increase, the newspaper said. Losers would include unspecified public works projects of the Army Corps of Engineers, two historic preservation programs and the NASA mission to return to the Moon, the Times said. The three-year freeze on domestic programs would reduce the deficit by $10 billion to $15 billion in the coming fiscal year and by an estimated $250 billion over 10 years, the administration said Jan. 25. The budget will also propose to end 120 programs worth about $20 billion, White House communications director Dan Pfeiffer said yesterday. “In the 2011 budget we will release on Monday, we terminated or reduced programs that weren’t working well or duplicated efforts, some in areas that are important to the president and to the administration,” Pfeiffer wrote in a White House blog. To contact the reporter on this story: Roger Runningen in Washington at rrunningen@bloomberg.net

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Amazon.com Pulls Macmillan Books From Site in Dispute Over Kindle Pricing

January 31, 2010

By Greg Bensinger Jan. 31 (Bloomberg) — Amazon.com Inc. has removed print and electronic versions of books from Macmillan after a dispute over pricing of titles for the Kindle digital reader, the publisher said. Macmillan proposed new terms for prices of electronic books last week, Macmillan Chief Executive Officer John Sargent said in an e-mailed statement. In response, Amazon.com said it was removing Macmillan’s print and electronic books from the site, he said. “Amazon and Macmillan both want a healthy and vibrant future for books,” Sargent said. “We clearly do not agree on how to get there.” Under the new terms, Macmillan wants to be able to set the prices of electronic books individually, with most new titles costing $12.99 to $14.99. Amazon.com charges $9.99 for most best-sellers and new releases. Retailers would get a 30 percent commission under the proposal, Macmillan said. Titles such as “Sarah’s Key ” by Tatiana de Rosnay and “Wolf Hall” by Hilary Mantel , listed as best sellers on Macmillan’s Web site, weren’t available for purchase from Amazon.com today. Macmillan books are still available on the site from third-party sellers, Sargent said. Drew Herdener , a spokesman for Seattle-based Amazon, didn’t immediately return a voicemail message seeking comment outside normal business hours. Amazon, based in Seattle, lost 62 cents to $125.41 on Jan. 29 in Nasdaq Stock Market trading. The shares have lost 6.8 percent this year. Macmillan, which has offices in New York and London, is privately held. To contact the reporter on this story: Greg Bensinger in New York at gbensinger1@bloomberg.net

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Toyota Sales Executive Plans Feb. 1 U.S. Television Appearances on Recall

January 31, 2010

By Alan Ohnsman Jan. 31 (Bloomberg) — Toyota Motor Corp. ’s head of U.S. sales plans to make U.S. television appearances on Feb. 1, starting with NBC Universal’s “Today Show,” as the world’s largest automaker races to resolve its biggest recall crisis. Jim Lentz , president of Torrance, California-based Toyota Motor Sales USA, is to speak on the NBC program before holding a conference call with other news organizations, said a company official who declined to be identified because the plan isn’t public. Lentz may also appear on Bloomberg Television on Feb. 1. The automaker this month recalled 2.3 million vehicles in the U.S. over a pedal defect linked to sudden acceleration. That action, coinciding with other sudden acceleration-related recalls of about 5.4 million vehicles, led to the halting of U.S. sales and North American production of eight models and prompted Congress to schedule hearings on the matter. “We believe we are close to announcing an effective remedy,” the company said in an advertisement in more than 20 U.S. newspapers today. Akio Toyoda , president of the Toyota City, Japan-based company, has apologized for the widening defects crisis. “I am deeply sorry that we’re giving cause for concern to customers,” Toyoda said in an unscheduled interview on Jan. 29 with Japan’s NHK television network in Davos, Switzerland, posted to U.S. broadcaster ABC News’ Web site . “We’re preparing to explain the facts to our customers as soon as we can so that we can remove that anxiety.” The U.S. government didn’t balk at Toyota’s approach during a meeting last week, according to a Transportation Department official, who declined to be identified discussing the session with company representatives. The department’s National Highway Traffic Safety Administration , which oversees recalls, doesn’t formally approve specific remedies, the official said. To contact the reporters on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net

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Bank of America, Goldman, Morgan Stanley Reduced Political Giving in 2009

January 31, 2010

By Jonathan D. Salant Jan. 31 (Bloomberg) — Nine of the 10 biggest U.S. banks by assets, including Bank of America Corp., Citigroup Inc. and Morgan Stanley, reduced their political giving last year, Federal Election Commission reports show. The banks, which received U.S. taxpayer help under the Troubled Asset Relief Program, cut political action committee contributions to $2 million in 2009, a 41 percent decline from the $3.4 million they gave in 2007. No nationwide elections were held in either year. “Banks very likely realized that PAC contributions would create perception problems,” said David Primo , a political science professor at the University of Rochester in New York. Only U.S. Bancorp increased its PAC donations, giving $193,500, a 40 percent boost over the $138,500 doled out two years ago. Steve Dale, a spokesman for the Minneapolis-based bank, did not return a phone call and e-mail seeking comment. Bank of America, the largest U.S. bank by assets, contributed $291,500 through its PAC to federal candidates in 2009, down 36 percent from $453,122 in 2007. “We were very sensitive to the fact that we were receiving taxpayer money,” said Shirley Norton , a spokeswoman for the Charlotte, North Carolina-based bank. New York-based Morgan Stanley, which didn’t give any contributions until it paid back its TARP funds, contributed $236,000, 47 percent less than in 2007, when the PAC donated $449,300. A spokeswoman, Carissa Ramirez, declined to comment. Goldman Sachs Group, also based in New York, saw a 63 percent decline in PAC giving, to $173,400 from $465,500. Melissa Daly, a spokeswoman for Goldman Sachs, declined to comment. Two other New York-based banks, Citigroup and JPMorgan Chase & Co., also reported declines in PAC contributions. Molly Millerwise Meiners of Citigroup and Jennifer Zuccarelli of JPMorgan both declined to comment. Securities Industry Securities industry employees have been the biggest funders of U.S. political campaigns, according to the Center for Responsive Politics, a Washington-based research group. The industry gave $157 million in 2008, 57 percent to Democrats, and in 2009 gave more than $26 million, two-thirds of it to the Democrats, who control the White House and Congress. Democrats have attacked Republicans for opposing legislation that would impose new regulations on financial institutions and set up a new consumer financial protection agency. The Democratic Congressional Campaign Committee last month began running radio advertisements against some lawmakers. Size, Trading Curbs In addition, President Barack Obama has proposed limiting the size and trading activities of financial institutions, and called for a fee on large banks that received TARP money. “How soon Democrats have forgotten that the Wall Street banks they now exploit as their ‘political winner’ are the very same ones that financed their rise to power in 2006,” said Paul Lindsay, a spokesman for the National Republican Congressional Committee . “Unfortunately for them, these hypocritical attacks on Republicans are as ineffective as the unpopular agenda that is driving them out of power.” Democratic consultant Glenn Totten, who works on congressional campaigns, said Obama’s attacks on Wall Street could hurt fundraising, though he credited the president with taking on the banks. “Whether Obama’s challenge to them will ignite some sort of grassroots protest within the banking community is quite possible,” Totten said. “At some point, leaders are supposed to lead and not necessarily take the path of less resistance. Obama deserves credit for challenging a constituency that has been a source of revenue for the Democratic Party.” To contact the reporter on this story: Jonathan D. Salant in Washington at jsalant@bloomberg.net .

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