January 2010

Gulf Gap in Davos Belies Booming Economies in Oil-Rich Saudi Arabia, Qatar

January 28, 2010

By Henry Meyer and Arif Sharif Jan. 28 (Bloomberg) — The program for this year’s World Economic Forum in Davos features no speakers from Qatar, Dubai or Abu Dhabi in any of the conference’s 230 events. Five spots are occupied by Saudis and four by Kuwaitis. “I think the absence of the Middle East is quite conspicuous,” said Ibrahim Dabdoub , chief executive officer of the National Bank of Kuwait, interviewed in the conference center in the Swiss village. “It’s a pity that Gulf involvement is so low.” Especially for anyone looking to make money. Six weeks after Dubai almost defaulted on $4.1 billion in debt, the region as a whole is set to prosper. Oil prices, which account for 75 percent of the revenue of the six monarchies in the Gulf Cooperation Council , have more than doubled from their February 2009 low of $34 a barrel. Saudi Arabia, Qatar and Abu Dhabi are spending $600 billion by the end of 2013 to build roads, railways and new cities while expanding energy and manufacturing. The GCC countries are forecast by HSBC Holdings Plc to post an average expansion of 4 percent or more in 2010, after no increase last year. That compares with projected growth of 2.7 percent in the U.S. and 1 percent in the 16-nation euro zone, according to the International Monetary Fund . Serious Opportunities “As a region I think we are on the cusp of some very very serious growth opportunities in the years ahead,” said Arif Naqvi , CEO of Dubai-based Abraaj Capital Ltd., the biggest private-equity company in the GCC, in an interview in Davos. “It is probably higher than in other parts of the world. There is liquidity and there is a desire.” The new spending may benefit Munich-based Siemens AG , Europe’s largest engineer, which said in November it is looking to win more contracts in Saudi Arabia to tap rising demand for power generation. Paris-based Total SA , Europe’s largest oil company, said Nov. 24 it is in talks with Qatar to build a petrochemical cracker, a fuel-processing plant. Emad Mostaque , a Middle East equity-fund manager in London for Pictet Asset Management Ltd., which oversees more than $100 billion, plans to add to Saudi shares that currently represent a third of his portfolio. Saudi Arabia’s benchmark Tadawul All Share Index jumped 28 percent in 2009, the best-performing of the Gulf markets , followed by Oman. “Saudi Arabia is where we see the most potential,” Mostaque said in a phone interview. He said he recently bought more shares in Riyadh Bank, Riyadh-based Saudi food producer Almarai Co. and Riyadh-based Saudi Basic Industries Corp. , the world’s largest petrochemical producer. Pipes and Building He plans to acquire stock in Jeddah-based Saudi Cement, Riyadh-based pipe manufacturer Saudi Arabian Amiantit Co. and Zamil Industrial Investment Co., a Dammam-based maker of building materials. The kingdom last year announced that it would spend $400 billion on projects including three new railway lines and six new industrial cities over five years. It is the largest stimulus package in the Group of 20 nations as a share of gross domestic product. This year, almost $70 billion will go to roads, railways, airports and other projects, a 16 percent increase over 2009. Crude prices, which have rebounded to about $75 a barrel, are likely to boost Saudi oil revenue in 2010 to $151.7 billion from $116.7 billion in 2009, according to EFG-Hermes. The Saudi 2010 budget was based on an average oil price assumption of $46 a barrel, according to Riyadh-based Banque Saudi Fransi. New Airport Qatar, which has the world’s third-largest gas reserves, is spending more than $100 billion over three years on projects including a new financial center and an airport. Abu Dhabi, the largest sheikhdom in the United Arab Emirates, is allocating $100 billion to such investments as a $40 billion project to build an island tourism and leisure destination. Abu Dhabi holds 8 percent of the world’s oil reserves. “Oil prices will be a very important driver of confidence in the region,” said Dubai-based Monica Malik , chief Middle East economist at EFG-Hermes, which forecasts an average price of $80 a barrel in 2010. The six Gulf Arab nations in the GCC supply about 20 percent of the world’s oil — two-thirds of that crude output in Saudi Arabia alone. Growth will be slower in the smaller Gulf nations of Oman and Bahrain, which have less oil wealth, and Kuwait, where political infighting is slowing spending programs, said Simon Williams , chief Middle East economist at HSBC. Less Risk In a sign of the economic disparity, investors see less than one-fifth the risk in Saudi Arabian bonds compared with Dubai’s, according to trading in credit-default swaps. The cost of protecting against Dubai government default stood at 473 basis points on Jan. 27, CMA Datavision prices show. Bond-default risk for Abu Dhabi was 138, for Qatar 97 and 83 for Saudi Arabia. The seven-member U.A.E. will grow by no more than 1 percent this year because of a continuing contraction in Dubai, the IMF forecast Jan. 26. Saudi Arabia will post growth of almost 4 percent, according to a Jan. 13 forecast by Banque Saudi Fransi. Qatar, which plans to raise its production of liquefied natural gas by 42 percent to 77 million tons by September, is expected to have GDP growth of 17 percent in 2010, according to a median forecast of analysts surveyed by Bloomberg in November to December 2009. The country is considering an investment in Petroleo Brasileiro SA , Brazil’s state-controlled oil company, Qatari Energy Minister Abdullah bin Hamad al-Attiyah said on Jan. 21. The next day, Brazilian Energy Minister Edison Lobao said Qatar may invest in a refinery joint venture with Rio de Janeiro-based Petrobras. Credit Squeeze The Gulf region as a whole suffered from a credit squeeze last year provoked by the global financial crisis. That, along with the sharp fall in oil prices from a peak of $147.27 a barrel in July 2008, led to the slump in 2009. Dubai, where real-estate prices have plunged 50 percent since their 2008 peak has fared the worst as it struggles under at least $80 billion in debt. Dubai World, one of three main state-owned holding companies, avoided default in December only with an infusion from neighboring Abu Dhabi that allowed it to repay a $4.1 billion Islamic bond. Bank lending elsewhere in the Gulf was also upset by the default of two Saudi family conglomerates. Eighty lenders, including BNP Paribas SA and Citigroup Inc. , are owed at least $15.7 billion by the two groups. Bank credit in Saudi Arabia declined 6.6 percent in the 11 months through November, 2009, central bank data shows. This year, government spending will remain the key driver of growth in Saudi Arabia as well as in most other Gulf economies as banks remain reluctant to lend, said John Sfakianakis , chief economist at Banque Saudi Fransi. In addition, Abu Dhabi has sovereign assets of about $426 billion, one of the world’s largest funds, according to RGE Monitor in New York. Saudi Arabia holds a fund of $358 billion, Qatar $75 billion and Kuwait has about $271 billion. To contact the reporters on this story: Henry Meyer in Dubai at hmeyer4@bloomberg.net ; Arif Sharif in Davos at asharif2@bloomberg.net

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Cheapest Route to Walmart from Asia May Skip Buffett’s $34 Billion Railway

January 28, 2010

By Kyunghee Park and Eric Sabo Jan. 28 (Bloomberg) — Chinese toys and sneakers headed to Wal-Mart Stores Inc. and Target Corp. on the U.S. East Coast may bypass Warren Buffett’s $33.8 billion railway as the expansion of the Panama Canal slashes the cost of shipping them by sea. The deeper, wider canal will allow A.P. Moeller-Maersk A/S, China Ocean Shipping Group Co. and other lines to ship more cargo directly to New York and Boston instead of unloading it on the West Coast for trains and trucks to finish the journey east. That could save exporters 30 percent, the canal operator said. The $5.25 billion Panama Canal project, scheduled for completion during its centennial in 2014, may take business from ports including Los Angeles and Seattle, and railroads including Berkshire Hathaway Inc.’s Burlington Northern Santa Fe Corp. It costs as much as $1,000 more per cargo container to use trains than ships, said Lee Sokje , a shipbuilding analyst at Mirae Asset Securities Co. in Seoul. “It is inevitable that railways, such as Burlington Northern, will lose some of their cargo once the Panama Canal is expanded,” said Jee Heon Seok , a shipping analyst for NH Investment & Securities Co. in Seoul. “Many more containers can be moved in a single voyage on a ship than going through the West Coast ports.” More Cargo China, poised to overtake Japan this year as the world’s second-biggest economy, may boost exports by 20 percent during the first quarter as the global economy recovers, according to Macquarie Securities Ltd. and Royal Bank of Scotland Group Plc. China Cosco Holdings Co. , Asia’s biggest shipping company by market value, and 14 other container lines said Jan. 14 they expect a “significant” increase in transpacific cargo this year on rising U.S. consumer sentiment. That prospective growth spurred Berkshire to pay $26 billion for the remaining 77.4 percent of Fort Worth, Texas- based Burlington Northern it didn’t already own. Buffett, the Berkshire chairman, said the largest U.S. railroad will benefit from “moving around more and more goods.” The acquisition is pending and expected to be completed by March 31. Burlington Northern customers in Gulf of Mexico ports — including Houston and Galveston, Texas — may benefit from more traffic going through a wider canal. Buffett didn’t respond to a request for comment. A Burlington Northern spokeswoman, Suann Lundsberg, said trains deliver cargo from the West Coast to the East Coast as many as nine days faster than ships using the canal. 30 Percent Savings Rail traffic is expected to continue growing, although probably at a slower rate than in the past, Lundsberg said. “We know he doesn’t make short-term investments,” Art Wong , spokesman for the port in Long Beach, California, said of Buffett. “He must be making it because he thinks it’s a great long-term investment.” About 43 percent of Asian cargo shipped to East Coast ports — including Savannah, Georgia, and Jacksonville, Florida –goes through the Panama Canal, said Rodolfo Sabonge, director of marketing for the Panama Canal Authority. That share may increase to 49 percent by 2025. “It will become less expensive overall to ship through the canal,” Sabonge said. “Savings could go up to 30 percent.” The expansion project , started in 2007, is building locks on both sides of the 50-mile canal, digging a new channel linking the locks and deepening the waterway connecting the Pacific Ocean with the Caribbean Sea. New York Harbor Currently, ships loading fewer than 5,000 20-foot boxes use the canal. The expansion will accommodate vessels carrying about 12,600 containers and may generate cargo growth of about 5 percent a year, Sabonge said. “It will, of course, help reduce costs for exporters to the U.S.,” said Victor Fung , chairman of outsourcer Li & Fung Ltd., the world’s biggest supplier of toys, clothes and furniture to retailers including Walmart, Target, Macy’s Inc. and Marks & Spencer Group Plc. The company reported HK$46.3 billion ($5.96 billion) in sales during the first half of last year, with 61 percent of that coming from the U.S. East Coast ports are readying for the changes. The Port Authority of New York and New Jersey is deepening more channels to 50 feet and considering options for a 78-year-old bridge between New Jersey and New York City that may be too low. “Increasing numbers of big ships are anticipated at our port facilities following an expansion of the Panama Canal,” the agency said in September. Ports, Railroads Collaborate Hanjin Shipping Co. , South Korea’s largest shipping company that operates two California terminals, is building its first East Coast terminal in Jacksonville to handle an increase in cargo through the canal. The facility opens in 2013. The ports around Charleston, South Carolina, are dredging to accommodate vessels carrying more than 8,000 20-foot containers. Six ports on the opposite coast — Los Angeles; Long Beach; Oakland, California; Seattle; Tacoma, Washington; and Portland, Oregon — handle about 70 percent of containerized trade between Asia and the U.S., according to an Oct. 12 statement. They are collaborating with Burlington Northern and Union Pacific Corp. to convince Asian exporters they are better options than the canal for reaching East Coast markets. They cite advantages including deep-water terminals, connections to inland transportation networks, and storage and distribution facilities. Trains also use less fuel, reducing costs and carbon emissions, they said. “We don’t think those alternative gateways will go away,” said Tay Yoshitani , chief executive officer for the Port of Seattle. “If we don’t improve our competitiveness, we could lose a lot of cargo.” To contact the reporters on this story: Kyunghee Park in Hong Kong at kpark3@bloomberg.net ; Eric Sabo in Panama City at esabo1@bloomberg.net .

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Davos Is Closest Most London Bankers Will Get to Swiss Move Post Bonus Tax

January 28, 2010

By Dylan Griffiths and Warren Giles Jan. 28 (Bloomberg) — Toscafund Asset Management LLP decided to stay in London last year after looking at Geneva, Dubai and the Channel Islands as the U.K. increased taxes on high earners. Prime Minister Gordon Brown ’s one-time, 50 percent levy on bankers’ bonuses hasn’t changed that stance. “I’m a victim of high taxes, but I’m a realist and the grass isn’t greener,” said Savvas Savouri , who runs the Metriks hedge fund at Tosca , which has about $4.5 billion under management. “In terms of physical infrastructure, London is unparalleled.” While U.K. bankers may grumble about rising taxes when they join peers this week at the World Economic Forum in Davos, Switzerland, few are likely to return as permanent residents. The new taxes don’t undercut London’s importance as a global financial center or the lure of its theaters, museums and restaurants, Savouri said. Financial professionals who consider moving will find a shortage of housing and spaces in international schools, according to Swiss real estate agents. While some hedge funds and private equity firms will relocate because they are convinced tax increases show the U.K. is becoming less welcoming to the finance industry, the cost of moving is prohibitive for banks and other large firms, said Kevin Rex , who advises wealthy people on financial decisions, including where to base their companies. “If you’re looking to be in a hub as a financial professional to earn money, then you can’t get much better than London,” said Rex, a partner at Summit Financial Resources Inc. in Parsippany, New Jersey. “And the quality of life is good. Some clients say it’s a civilized version of New York.” Jobs Exodus Forecast Chancellor Alistair Darling ’s Dec. 9 announcement that the U.K. would impose a supertax on banks paying bonuses of more than 25,000 pounds ($41,000) triggered criticism from the financial industry and headlines about an exodus of jobs. London Mayor Boris Johnson , a member of the opposition Conservative Party, said Jan. 11 that as many as 9,000 bankers may leave London. There were 201,000 financial jobs in London in 2007, according to International Financial Services London, which promotes the U.K. finance industry. HSBC Holdings Plc Chief Executive Officer Michael Geoghegan told Sky News that higher taxes are hurting London as a financial center. The bonus levy comes as the U.K. raises its top income tax rate to 50 percent and rescinds tax breaks for foreigners who live in the U.K. “I know a large number of bankers are moving out of the U.K.,” Geoghegan said. “They can move because they have opportunities in Switzerland and other places to set up their business.” ‘Lot of Hype’ There is no sign of a big increase in financial professionals moving to Switzerland, said Judith Wuarin, who founded a relocation firm in Geneva eight years ago. “I’m reading that hundreds of people are coming, but like bird flu there’s a lot of hype,” she said. Threats of large-scale departures aren’t credible, and London’s financial industry will probably create at least 100,000 jobs in the next decade, said Savouri, 43. London’s appeal is underlined by the presence of the world’s largest markets for insurance, reinsurance, foreign exchange, international bond trading and non-ferrous metals, as well as being the center of half of Europe’s investment banking activity, he said in a Jan. 13 report. ‘Mono-Cultural Cities’ The lure of London extends to its theaters and the world’s richest soccer league, said Savouri, who supports Arsenal, currently second in the English Premier League. His team is set to attract more than 60,000 supporters to its north London stadium when Manchester United visits later this week. Geneva’s Servette FC, 13th in the Swiss second division, has attracted an average of 3,100 spectators this season. “From its top flight football clubs, wide range of restaurants and theaters, and large expatriate communities, London is attractive to individuals in a way that more mono- cultural cities such as Paris, Geneva and Hong Kong will never be able to match,” Savouri said. That hasn’t deterred everyone. Eight London hedge funds decided in December to relocate to Switzerland, with more showing interest this month, said David Butler , one of the founders of Kinetic Partners LLP, which advises hedge funds on relocation. He expects London to lose as many as 1,300 people, or 20 percent of its hedge fund industry, to Switzerland, with 800 of those opting for Geneva. “There are enough managers in Geneva to make it a worthwhile club,” Butler said. “Some people love it and some people hate it, but all the guys I’ve moved over are still here.” BlueCrest Eyes Geneva BlueCrest Capital Management Ltd., a London-based hedge fund firm that oversees about $15.4 billion, plans to open a Geneva office because of the U.K.’s new 50 percent tax rate. As many as 50 people may move to Switzerland, BlueCrest Chief Financial Officer Andrew Dodd said in an interview. Each Swiss canton sets its own income tax rates, with Geneva’s top rate at 44 percent and Zurich at 40.3 percent, according to Swiss law firm FBT. The absence of a capital gains tax makes Switzerland attractive to hedge fund managers who invest in their own products, said John Melsom , a partner at Tiresias Capital , which has about $540 million under management. That made Geneva both a financial and lifestyle choice when he left London in 2008. “I’m a very keen skier, and it’s a less punitive jurisdiction generally,” said Melsom, 30, who is renting a chalet in Morzine, across the border in France, this winter. “For big houses on the lake and apartments in the center of Geneva, it’s very expensive, but it was still worth it.” ‘A Bit Boring’ Zurich and Geneva placed in the top three for quality of living in a survey of 215 cities published by Mercer Consulting in April, with London ranked 38th. Those rankings, based on 39 measures such as political stability, crime, personal freedom, health and sanitation, don’t tell the whole story, Rex said. “Even though Switzerland has a reputation for being a serene, peaceful place, it also has a reputation for being a bit boring and that is a particular concern for spouses,” he said. “A lot of financial professionals work such long hours that the family member that really deals with the city and makes the dinner reservations is the spouse.” Rosetta Stone With a population 40 times larger than Geneva, scale is part of London’s draw. While the Art & History Museum is one of Geneva’s most popular attractions, it drew 206,820 visitors in 2008 compared with 5.93 million at the British Museum , home to the Rosetta Stone and Elgin Marbles, according to the museums. Schools are the “biggest headache” for families relocating to Geneva, said Wuarin, who founded the relocation company. At the International School of Geneva , where fees can total 28,000 francs ($26,740) a year, applications for next September are almost double the number of likely vacancies. Keir Ashton, chief legal officer for Europe and the Black Sea at Louis Dreyfus & Cie.’s commodities trading business in Geneva, said he has already put his two-year-old son on the waiting lists for all of the canton’s international schools after moving from New York 18 months ago. Geneva’s vacancy rate of 0.21 percent, less than a tenth of London’s, means that housing is also an issue for those settling in the canton . The median price of a four-bedroom house in Geneva was 1.62 million francs ($1.56 million) in the third quarter, 22 percent more than the average property price in Kensington and Chelsea, London’s most expensive borough. James Persse advises rich Britons who are considering relocating in his capacity as managing director for the U.K. and Ireland at Barclays Wealth in Switzerland. “We always ask, ‘When can we meet your wife?’ because nine-times out of 10 it’s a family decision,” Persse said. “You need to be prepared to speak a little French and get involved in the local culture. But we also tell people, if you prefer sun and fast living to snow and lakes there are plenty of other low-tax choices with better weather.” To contact the reporter on this story: Dylan Griffiths in Geneva at dgriffiths1@bloomberg.net Warren Giles in Geneva at wgiles@bloomberg.net

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Greeks Taking Bribes Thwart Papandreou’s Efforts to Resolve Debt Crisis

January 28, 2010

By Vernon Silver Jan. 28 (Bloomberg) — When Aris Kefalogiannis started his olive oil company in Athens more than a decade ago, he says, bureaucrats in crowded offices demanded bribes to approve long lists of permits. After a year of dodging shakedowns, Kefalogiannis moved the legal seat of his company, Gaea Products SA, to the small city of Agrinion. Government outposts there had fewer functionaries looking for payoffs, he says. “Bribery is a result of the bureaucracy,” says Kefalogiannis, 49, the company’s chief executive officer. “People get fed up and will pay anything not to waste more time. It leads to slower growth and less investment in Greece.” Greece’s attempt to dig itself out of its worst financial crisis in about 16 years and avoid a bailout is hampered by rampant bribery and tax evasion, says Costas Bakouris , chairman of the Greek chapter of Transparency International, Bloomberg Markets magazine reported in its March issue. Greece, along with Bulgaria and Romania, is among the most-corrupt countries in the 27-member European Union and comparable to cocaine-infested Colombia, says the research group. “Greece’s economic problems are exacerbated by corruption, which makes countries less competitive,” says Bakouris, 73, who was managing director of the organizing committee of the Athens 2004 Olympic Games and European chairman of the former Ralston Purina Co. Cracking Down on Crime Prime Minister George Papandreou , whose socialist government took power in October, pledged to crack down on financial crimes that have helped bury the nation in about 300 billion euros ($430 billion) of debt. In December, three rating firms cut the creditworthiness of the country’s debt to the lowest grade among the 16 euro-zone nations. As investors fled, the spread between Greek 10-year bonds and German bunds, Europe’s benchmark government securities, widened to as much as 356 basis points on Jan. 27, the most in more than 11 years. (A basis point is 0.01 percentage point.) On Jan. 25, Greece showed it had the ability to raise funds when it sold 8 billion euros of five-year notes in its first bond issue since being downgraded. Greece offered a yield that was 0.3 percentage point more than on its existing debt with similar maturities. Papandreou, 57, the leader of the Panhellenic Socialist Movement, or Pasok, has assured investors that the country won’t need a bailout. He has promised to slash the deficit by 2013 to less than 3 percent of GDP — the EU limit — from 12.7 percent in 2009. To back up that pledge, the government in January proposed boosting the tax on tobacco products to 70 percent and the levy on alcohol by 20 percent; it also plans to freeze hiring and cut state employee bonuses by 10 percent. ‘Great Opportunity’ Facing pressure from unions, which plan to strike on Feb. 10, Papandreou stopped short of eliminating government positions: They constitute about 14 percent of all jobs in an economy that had 9.8 percent unemployment in October. Bond investors encouraged by the government’s response to the crisis say Greek debt is now a bargain. “It’s a great opportunity,” says Claus Meyer-Cording , who helps manage about $15 billion in bonds as head of euro-zone debt at DWS Investment GmbH in Frankfurt. “European politicians wouldn’t let countries like Greece go down that really try to solve their own problems.” Papandreou belongs to one of Greece’s most prominent political families — and one that hasn’t escaped the taint of corruption. Papandreou’s grandfather George was premier three times in the 1940s and 1960s, and his father, Andreas, held the post twice in the 1980s and 1990s. Parliament indicted Andreas and other ministers on bribery and embezzlement charges in 1989. He was acquitted three years later. Doctorates in Cabinet The newly elected Papandreou isn’t the first Greek leader to pledge to fight corruption. His predecessor, Kostas Karamanlis , took office in 2004 and aimed to curtail abuses partly by reducing government employment. Karamanlis didn’t succeed in shrinking the bureaucracy. Last year, Papandreou ran against Karamanlis on a platform including more pay for civil servants and won a national election by the widest margin in almost 30 years. To clean up the pay-to-play economy, the new premier is relying on Finance Minister George Papaconstantinou , 48, who has a Ph.D. from the London School of Economics, and Louka Katseli, 57, the minister of economy, shipping and competitiveness. She is a former Yale University economics professor with a doctorate from Princeton University in New Jersey. Targeting Tax Cheats A month after the government took power, Papaconstantinou targeted doctors in Athens’ hillside Kolonaki neighborhood, where boutiques sell expensive Manolo Blahnik shoes and French cheese. So many Greek companies and employees cheat on their taxes that a third of all economic activity delivers no revenue to the government, the Finance Ministry says. The ministry examined the tax records of 150 doctors offices and found that more than half had declared income of less than 30,000 euros. That figure is a fraction of what a full-time physician in Kolonaki makes, Transparency International’s Bakouris says. Some Greeks say tax evasion is rooted in the Ottoman Empire’s control of the country for centuries until the 1820s. “We very much lack a tax conscience,” says Ilias Plaskovitis, the Finance Ministry’s general secretary. “Some trace it back to the Ottoman Empire, when tax evasion was resistance to foreign powers.” Papaconstantinou promised in November that his ministry would conduct full audits of the doctors in Kolonaki and other professionals across the country. Bribes The government will also expand a requirement that citizens who take tax deductions for expenses produce receipts. Today, Greeks routinely pay cash for a wide range of services, from plumbing to medical visits, without demanding a receipt, allowing the providers to forgo declaring the income to tax authorities. The government projected in January that its crackdown will generate 1.2 billion euros in additional income this year. In December at an EU summit, Papandreou outlined plans to fight bribery, which he said is so pervasive that Greeks consider the crime to be normal behavior. “Investments can’t come to Greece, our economy won’t stand on its own feet, if we don’t attack corruption mercilessly,” Papandreou said at the summit. Greek citizens made 900 million euros in payoffs nationwide in 2008, according to Transparency International. Its 2009 survey of 6,000 Greek citizens found that 300 euros was the going rate for a bribe to pass an automobile emission inspection. The cost to jump to the top of a waiting list for an operation in a state hospital was about 2,500 euros. Gifts for the Minister The prime minister, who attributes corruption partly to a secretive political system, vowed to make officials post their expenditures on the Internet. He said he also plans to start an economic police squad to nab crooked civil servants and tax evaders. The national police say they brought criminal charges in 15 bribery cases against public workers and cops in 2008. In Greece, Christmas is also an opportunity to give gifts to officials. On Dec. 23, two days before the holiday, an employee of the Chinese Embassy stopped by the Athens office of Culture and Tourism Minister Pavlos Yeroulanos to drop off three bags of presents. Moments later, a courier deposited a wicker basket filled with wine bottles. A ministry spokeswoman says Greece has no official rules about gifts for officials. “I send back all the gifts except the books and the alcohol,” says Yeroulanos, 43, who has an MBA from Massachusetts Institute of Technology. “Corruption and bureaucracy are strangling new efforts. Unless we deal with these phenomena, we will never manage to allow Greek talent to flourish.” Parthenon Marbles The government says graft in Greece goes back centuries and touches the nation’s most-enduring temple of antiquity: the Parthenon in Athens. In the early 1800s, a British ambassador, the Earl of Elgin, paid Ottoman officials in Athens to help him spirit away marble friezes that decorated the perimeter of the Parthenon, Greek officials say. The British Museum holds about half of the surviving marbles and has refused to return them, saying they were obtained lawfully. Lord Elgin’s payments were presents given according to the customs of the times, the museum says. The June opening in Athens of the Acropolis Museum, which the government built specifically to house the carvings, hasn’t convinced the British to send them back to Greece. Yeroulanos, standing among marble statues at the museum, points to the walls where the carved panels would be displayed. “It’s a cultural deficit,” he says. Developing Tourism Yeroulanos, with his hair combed back and sporting a stubbly beard, presides over the largest part of the Greek economy: Tourism comprises about 18 percent of GDP. He says the luring of travelers beyond the summer months, when most visitors to Greece flock to its islands such as Mykonos, known for all- night beach parties, is the country’s best hope for economic recovery. He wants to attract investors to build year-round theme parks and resorts infused with Greek culture. One proposal: an Olympics park near the site of the original games that took place at least as long ago as the eighth century B.C. “Developing tourism should be a priority for Greece,” bond manager Meyer-Cording says. Costa Navarino, Greece’s biggest tourist development, illustrates how a bureaucracy can slow down a project in the EU’s 12th-largest economy. Mycenaean Architecture In the early 1980s, shipping magnate Vassilis Constantakopoulos started buying land in an olive-growing region south of Athens to build the resort. He set up a company in 1997 to develop Costa Navarino and, at a cost of more than 500 million euros, is building golf courses, villas inspired by vaulted Mycenaean architecture and hotels with private swimming pools for guests in the most-expensive suites. Costa Navarino plans to open in May, 13 years after the project began. Greece’s debt debacle has given Papandreou an opening to battle a crooked bureaucracy. Investors are waiting to see whether the prime minister will have any more success than his forebears in cleaning up the corruption that has dogged the economy for centuries. To contact the reporter on this story: Vernon Silver in Rome at vtsilver@bloomberg.net

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Obama Vows to Make Jobs Top Priority, Slams Washington’s `Tired Battles’

January 28, 2010

By Julianna Goldman and Nicholas Johnston Jan. 28 (Bloomberg) — President Barack Obama used his first State of the Union address to strike a defiant tone about his plans for jobs, health care and energy policy, and a scolding one for banks, lobbyists and Washington’s “tired battles” of partisanship. The president defended his decision to support taxpayer bailouts to save companies like Citigroup Inc. and General Motors Co. even as he vowed to fight for the middle class and not bank executives, in his address to a joint session of the U.S. Congress. While Obama pledged to push for the broad programs he offered in a speech to Congress a year ago, his new proposals were smaller in scale, a recognition of the more than $1 trillion he said his administration spent to staunch the financial crisis. “We have finished a difficult year, we have come through a difficult decade, but a new year has come,” Obama said. “We don’t quit. I don’t quit.” With an emphasis on the middle class — a term he used five times in the 69-minute address of more than 7,000 words –Obama proposed tax credits for small businesses and called on Congress to eliminate capital gains levies on small business investment. He also offered proposals to tackle the federal budget deficit , forecast to be $1.35 trillion this year. Republicans pounced on the president’s broad, if downscaled, agenda. “The American people were looking for President Obama to change course tonight, and they got more of the same job-killing policies instead,” said House Minority Leader John Boehner . Jobs Over Health With his approval ratings hovering around 50 percent, the president stood before Congress with the hopes of moving past a bruising political year where his top domestic priority — overhauling a health-care system that accounts for about 17 percent of the economy — absorbed his attention and dominated lawmakers’ time in the last six months. While he promised to press forward on the stalled debate, he set no deadlines for Congress and said job creation will be the “number one focus in 2010.” He called on Congress to deliver a new jobs bill to his desk. Polls conducted immediately after the president’s remarks ended show viewers largely approve of his proposals. According to the CBS News Web site, 70 percent think Obama shares the same priorities for the country, up from 57 percent who thought so before the speech. Almost 60 percent think he outlined a clear plan for creating jobs, up from 40 percent. ‘Don’t Ask, Don’t Tell’ Referring to policy positions he staked out last year, Obama said U.S. troops will begin to come home from Afghanistan in July 2011 as Afghan security forces take control of the country, and that all U.S. combat troops would be out of Iraq by the end of this August. He also reiterated his campaign pledge to work with Congress to repeal the military’s “Don’t Ask, Don’t Tell” policy that forbids openly gay men and women from serving in the armed forces. His largely recycled agenda reflected the realities of diminished legislative power, with the loss of the Democratic supermajority in the Senate, and what he called a “deficit of trust” among Americans. Obama framed his domestic priorities including health care and clean energy in terms of the jobs that could be produced. He spoke to a new political environment heading into midterm elections, with voters, especially independents, angry that the government has bailed out now profitable bankers while Americans grapple with 10 percent unemployment . ‘Some Are Angry’ “Some are frustrated; some are angry,” he said. “They don’t understand why it seems like bad behavior on Wall Street is rewarded but hard work on Main Street isn’t.” Obama said the government should use $30 billion of the money paid back by banks bailed out by the Troubled Asset Relief Program to assist community banks that lend to small businesses. He said he wasn’t interested in “punishing banks,” though he derided “big bonuses” and touted recent proposals, including a fee on banks to recoup TARP funds, that build on existing plans to overhaul financial regulations. He applauded the U.S. House passage of new financial rules, called on the Senate to act and threatened to veto a bill that didn’t include strong measures. “The lobbyists are trying to kill it, but we cannot let them win this fight,” Obama said. “And if the bill that ends up on my desk does not meet the test of real reform, I will send it back until we get it right.” Stoking Skepticism He conceded that the health-care fight in Congress had further soured the public mood. “The longer it was debated, the more skeptical people became,” Obama said. “I take my share of the blame for not explaining it more clearly to the American people. And I know that with all the lobbying and horse-trading, this process left most Americans wondering what’s in it for me?” Obama also sought to appeal to independents and Republicans, emphasizing tax cuts, the budget freeze and opening the door to offshore oil drilling. He struck chords of economic nationalism, reiterating the need for “a new foundation for long-term economic growth” and warning that without such steps, the country risks losing its competitive edge to China and India. He said the country can’t wait to address some of the more contentious policy issues. No ‘Second Place’ “Washington has been telling us to wait for decades, even as the problems have grown worse,” he said. “I do not accept second place for the United States of America.” The president said his administration’s economic-stimulus program has already created or saved roughly 2 million jobs and is on pace to meet its goal of 3.5 million by the end of this year. He touted what he said were 25 tax cuts his administration implemented, including those for 95 percent of working families and for first-time homebuyers. Obama joked when Republicans didn’t greet these policies with cheers: “I thought I’d get some applause on that one.” He called for an extension of tax breaks worth $38 billion over this year and next to encourage businesses to accelerate equipment purchases. For individuals and middle-income families, Obama proposed an increased tax credit for child care and an expansion of tax credits to match retirement savings. Doubling Exports He said jobs also depend on the country’s ability to boost overseas sales and set a goal for the U.S. to double exports over the next five years. He didn’t push Congress to move forward on free trade agreements with Panama, South Korea and Colombia. Instead, he said the U.S. “will strengthen” trade relations with those countries. To rein in the deficit, Obama outlined plans such as a freeze on discretionary spending in the federal budget over three years. Defense and other national security-related agencies won’t be affected and some programs, such as education, will get increases. To take further action, he said he would set up a commission to recommend steps to cut the deficit. Not all Democrats voiced support for the spending freeze. “A cap on discretionary spending is a relatively modest amount in the context of the federal budget,” said Representative Gerald Connolly , a Virginia Democrat. “It will always be difficult to achieve because there are always going to be pressing demands on the federal budget.” Obama said years of partisan battles over issues important to the public and the growing influence of lobbyists have sown “deep and corrosive doubts” about the federal government. “We have more than a deficit of dollars right now,” Obama said. “We face a deficit of trust.” —-With assistance from Edwin Chen , Roger Runningen , Kate Anderson Brower , Holly Rosenkrantz and Brian Faler in Washington. Editors: Mark McQuillan , Jim Kirk . To contact the reporters on this story: Julianna Goldman in Washington at jgoldman6@bloomberg.net ; Nicholas Johnston in Washington at njohnston3@bloomberg.net .

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Airbus Says Chinese Airplane Financing Will Sustain Near-Record Deliveries

January 28, 2010

By Andrea Rothman Jan. 28 (Bloomberg) — Airbus SAS said more carriers are relying on Chinese financial services firms to fund aircraft purchases, helping keep deliveries near a record this year. Deals backed by Chinese institutions in the last year include Bank of China BOC Aviation’s sale-lease-back of three Southwest Airlines Inc. planes, and Industrial and Commercial Bank of China Ltd.’s first international leasing transaction, with British Airways Plc. Nigel Taylor, who leads Airbus’s aircraft finance, said China will gain more clout this year. “The great advantage of China is that the country still has a fairly deep pocket of dollars, which is perhaps the major reason for their beginning to be more active than some of the historical lessors,” Taylor said in an interview from Toulouse, France, where Airbus is based. The ascent of Chinese institutions from local funding suppliers to a global stage reflects the country’s rise in the air-travel industry. Chinese airlines will account for 20 percent of all Airbus planes delivered in 2010, compared with 3.5 percent a decade ago, with the majority of those jets getting funding from their home country, Taylor predicted. The 979 planes delivered globally last year required some $70 billion in financing. Transactions include cash purchases, often refinanced with bank debt or sale-lease-backs; commercial bank debt; bank debt backed by government export credit agencies; rentals lessors such as General Electric Co.’s Gecas, as well as funding from capital markets, including loans that package multiple planes from different airlines to spread risk. Chinese Accord Chinese institutions over the last two years also arranged a syndicated bank facility for Qantas Airways Ltd.’s first two A380 superjumbos. Other non-Chinese airlines that have benefited from Chinese financing include Deutsche Lufthansa AG, Air France KLM Group and Virgin Blue Holdings Ltd. Airbus signed an accord earlier this week with CDB Leasing Co., one of China’s largest leasing companies, for financing of support sale and leaseback transactions of as much as $4 billion over the next five years for Airbus aircraft. The company last year set up a final assembly plant in China to serve the market. Planemakers have an interest to act as intermediary between airlines and the financing side whenever airlines struggle to get commercial banks or capital markets onboard for a purchase. A single-aisle plane, the most widely purchased planes in the industry, has a list price from $50 million to $90 million, while wide-body planes cost more than twice as much. Record Deliveries The record number of planes delivered by Airbus and Boeing last year defied concern that airlines would have trouble financing transactions in the wake of the steepest economic contraction in half a decade. This year, Airbus and Boeing aim to maintain deliveries at a similar level, they said. Commercial deliveries will fall to 460 to 465 aircraft this year, after 481 aircraft shipped to customers in 2009, Boeing predicts. Airbus had 498 shipments last year, retaining the title held since 2003 as the largest commercial-plane builder. Chinese institutions showed their resilience last year, provided financing for all aircraft shipments into the country without backing from either the U.S. Export Import Bank or European credit agencies. Airbus entered 2009 predicting it would need up to 50 percent of all deliveries backed by government guarantees, and the final tally came to just 34 percent. Boeing only needed state backing on 26 percent of jets. ‘Solid Job’ “ Chinese financial institutions have done a solid job of financing airlines in China; now they’re expanding rapidly beyond Chinese borders, and that should continue,” said John Leahy , the chief operating officer at Airbus. Boeing has also pursued greater links with Chinese banks. Chinese financial institutions financed about 10 percent of all 2009 deliveries, including both commercial bank debt financing and Chinese lessors, according to Kostya Zolotusky , the managing director of Boeing’s financial services unit. Boeing last November joined with CDB Leasing and China Construction Bank , bringing to six the number of Chinese organizations working with the planemaker, as the U.S. company seeks to expand its presence in the world’s fastest growing aviation market. “All the fundamentals are there: an economy running a significant surplus with a strong banking sector, so aircraft that are deployable globally and are very liquid assets become attractive to them,” Zolotusky said. “They’re becoming an important contributor to the global aircraft finance market and we anticipate that this will continue.” To contact the reporters on this story: Andrea Rothman in Toulouse, France at aerothman@bloomberg.net

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Goldman Sachs Seen as Favored by Regulators, New York Fed’s E-mail Shows

January 28, 2010

By Hugh Son Jan. 28 (Bloomberg) — Goldman Sachs Group Inc. , one of the biggest recipients of funds from the U.S. bailout of American International Group Inc., was seen by the public as favored by regulators, according to an internal Federal Reserve Bank of New York e-mail. The public perception was a reason to reject a December 2008 media request for the names of securities purchased from banks during AIG’s rescue, according to the e-mail released yesterday. If the names of the assets were released, the banks, including Goldman Sachs, would be identified as beneficiaries, New York Fed employee Danielle Vicente wrote in the Dec. 4, 2008, e-mail to Fed counsel James Hennessy. The New York Fed has said that releasing the names of banks that were paid to tear up $62.1 billion in AIG guarantees could hurt the insurer and its counterparties. The internal e-mail, obtained this month by a House oversight committee, indicates Vicente was also concerned that the AIG rescue would be viewed unfavorably by taxpayers and lawmakers if it was known that Goldman Sachs and non-U.S. banks received funds. “A major U.S. counterparty was Goldman, which has already been seen as favored by the Fed/Treasury in the public’s eye,” Vicente wrote. Regarding the non-U.S. banks, “it would be hard to sell the public on U.S. funds to buy foreign entities out of AIG risk.” AIG disclosed counterparty names last March after lawmakers criticized Fed Vice Chairman Donald Kohn , 67, who testified in a hearing that month that releasing bank names would harm the New York-based insurer’s ability to do business. Goldman Sachs, the most profitable securities firm in Wall Street history, and Societe Generale SA, the second-largest French bank, were the biggest beneficiaries of payments to retire credit-default swaps. ‘You Just Can’t Explain’ Another reason that Vicente said the New York Fed wanted details of the payments withheld: The banks got 100 cents on the dollar for real-estate linked assets, called collateralized debt obligations, that had declined in value. “Counterparties received par — which is politically sensitive — but necessary given the economics of the deals,” Vicente wrote. “That’s something you just can’t explain in a press release because it involves understanding of why the deals don’t have isolated risks (for example, I believe one counterparty had shorted AIG risk in order to balance their AIG exposure on the CDS deals, so tearing up the trades left them exposed with no hedge, etc.)” Deborah Kilroe , a spokeswoman for the New York Fed, and Lucas van Praag of Goldman Sachs declined to comment yesterday. Vicente didn’t return a call for comment. Request for Names The request for the names was initiated by Forbes magazine, according to a copy of the e-mails. Andrew Williams , then a New York Fed spokesman, asked colleagues why the agency couldn’t provide the data, writing that it was “useful if I can understand why, even if I can’t use it publicly.” Lawmakers questioned Treasury Secretary Timothy F. Geithner , 48, yesterday during a House Oversight and Government Reform Committee hearing about his decision to fully reimburse counterparties when he ran the New York Fed. Also testifying was Henry Paulson , Geithner’s predecessor as head of Treasury and former chief executive officer of Goldman Sachs. The hearing was called after e-mails released this month by Representative Darrell Issa , the ranking member of the House oversight panel, indicated the New York Fed asked AIG to limit what the public knew about the bank payments. The New York Fed handed 250,000 pages of documents to committee investigators. Friedman Also yesterday, Goldman Sachs board member Stephen Friedman was asked about his tenure as New York Fed chairman and his purchase of Goldman Sachs shares while in that role. Friedman, who spent a career at Goldman Sachs, said the bank didn’t gain any unfair advantage because of his involvement. Friedman, 72, was asked whether Goldman Sachs encourages employees to work for government agencies. “What there has been over the years is a certain tradition that you work here, you try to do well for yourself and your family and then you give back and you do public service,” Friedman said. “For many years this was regarded as a very constructive and positive thing. Recently it’s gone the other way and people are thinking, ‘Is there some ulterior motive?’” AIG’s chief executive officer when Vicente wrote the e-mail was Edward Liddy , who was installed by the government after the bailout and is a former board member at Goldman Sachs. Liddy, who turned 64 today, agreed to work for a salary of $1 a year. To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

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Fed Declares Recovery for First Time, Prepares Ground for End to Stimulus

January 28, 2010

By Craig Torres Jan. 28 (Bloomberg) — The Federal Reserve panel in charge of interest rates declared for the first time the U.S. economy is in “recovery” and took several steps to prepare investors for the removal of aggressive monetary stimulus. The Federal Open Market Committee yesterday upgraded its economic outlook, reaffirmed it will end liquidity backstops and a $1.25 trillion program to buy mortgage-backed securities and expressed less confidence inflation will remain “subdued.” “This is as close an admission that we are likely to see that the FOMC thinks the recession is over and the economy is on a self-sustaining recovery path,” said Christopher Rupkey , chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Policy makers need to think seriously on how they are going to reset the message on the low rates policy.” Central bankers repeated their pledge to keep the benchmark lending rate in a range of zero to 0.25 percent for “an extended period,” while noting the economy “continued to strengthen.” Kansas City Federal Reserve Bank President Thomas Hoenig dissented, favoring a quicker adjustment to the rate outlook message. Hoenig “believed that economic and financial conditions had changed sufficiently that the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted,” the FOMC said in yesterday’s statement. Inflation “is likely to be subdued for some time,” policy makers said. Last month, the panel said inflation “will remain subdued.” ‘More Comfortable’ “They are starting to get more comfortable with the sustainability of the recovery,” said Stephen Stanley , chief economist at RBS Securities Inc. in Stamford, Connecticut. “The downside risks that they were so worried about are probably still there but diminishing in importance.” Policy makers are winding down the record amounts of credit they have provided since the bankruptcy of Lehman Brothers Holdings Inc. in 2008. The Fed also repeated that it will close four programs supporting money markets and bond dealers in February, as well as dollar swap programs with central banks in Europe and Asia. The central bank is “prepared to modify these plans if necessary to support financial stability and economic growth,” the statement said. The Fed also said it is winding down the Term Auction Facility and will hold a final auction on March 8. Confirmation Vote Chairman Ben S. Bernanke , who faces a procedural vote in the Senate on his confirmation for a second term today, is looking for signs that the return to economic growth is accompanied by the prospect of stronger hiring and an increase in credit to people and businesses. The Senate plans to vote on limiting debate and preventing lawmakers from blocking a vote on Bernanke’s nomination. As of yesterday, 50 senators said they would vote for or were inclined to support Bernanke, while 22 were opposed, according to a tally by Bloomberg News. The U.S. unemployment rate held at 10 percent in December, while consumer credit dropped a record $17.5 billion in November. “Household spending is expanding at a moderate rate, but remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit,” the Fed said in its statement. Employers “remain reluctant to add to payrolls,” and bank lending “continues to contract,” the FOMC said. Verizon Communications Inc., coping with subscriber losses at its fixed-line phone business, said this week it will cut about 13,000 jobs at the division this year. Home Depot Inc. , the world’s largest home-improvement retailer, said it will pare 1,000 U.S. jobs. Consumer Wealth Stocks have provided no increase in consumer wealth this year. The Standard & Poor’s 500 Index has declined 1.6 percent, and the Nasdaq Composite Index has lost more than 2 percent. Last year, the indexes rose 23.5 percent and 44 percent, respectively. Officials kept have kept their benchmark overnight lending rate between banks in a range of zero to 0.25 percent for more than a year. Policy makers said that the “extended period” pledge is contingent on “low rates of resource utilization, subdued inflation trends, and stable inflation expectations.” Production in the U.S. rose for a sixth consecutive month in December, and housing markets are stabilizing. Industrial production rose 0.6 percent last month, pushing up factory capacity in use to 72 percent. That’s still below the average plant-use rate of 78.5 percent from 2000 through 2007. The economy expanded at a 4.6 percent annual rate in the final quarter of last year, according to the median estimate of economists surveyed by Bloomberg News. The government will release its advance report on gross domestic product tomorrow. “The Fed can tolerate 3 to 4 percent growth for a couple of quarters,” said John Silvia , chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “It would be a ticklish situation if the inflation numbers ticked up.” To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net

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Stocks, U.S. Futures, Climb on Profit, Fed Outlook for Economy; Yen Falls

January 28, 2010

By Rocky Swift and Saeromi Shin Jan. 28 (Bloomberg) — Asian stocks snapped their longest losing streak since 2004, U.S. index futures climbed and the dollar strengthened after Federal Reserve policy makers said America’s economy is in a recovery, while Canon Inc. said its profits will rise the most in a decade. The MSCI Asia Pacific Index rose 0.7 percent to 118.89 at 5:05 p.m. in Tokyo, the first gain in nine days, and Standard & Poor’s 500 Index futures climbed 0.6 percent, with gains accelerating after U.S. President Barack Obama said in his State of the Union address that “the worst of the storm has passed.” The Dow Jones Stoxx 600 futures jumped 1.3 percent to 250.55. The dollar advanced to a six-month high against the euro. Copper fell as much as 2.6 percent, leading declines in industrial metals, on concerns that China will take steps to cool demand. “Uncertainties that overwhelmed markets in the past few days such as tightening concerns in China are subsiding,” said Chu Moon Sung , a fund manager at Shinhan BNP Paribas Asset Management Co., which manages $26 billion. “Investors are shifting their attention to the fact that the overall recovery trend of the economy remains intact and there may be upgrades in earnings estimates.” Asian stocks rallied as Canon rose 1.8 percent to 3,680 yen after saying late yesterday that net income will probably jump 52 percent this year. Honda added 3.3 percent to 3,140 yen after Nikkei English News reported that the car maker likely will post an operating profit of more than 300 billion yen ($3.3 billion) for the year to March, compared with its 190 billion yen forecast. Sony Climbs Sony jumped 4.9 percent to 3,085 yen on a Nikkei report that the company may show its first operating profit in five quarters. Japan’s Nikkei 225 Stock Average advanced 1.6 percent. Gains were limited by Toyota Motor Corp. , which fell 3.9 percent to 3,560 yen, its fifth-straight decline, after expanding auto recalls. The Hang Seng Index added 1.5 percent and Taiwan’s Taiex index climbed 1.8 percent. S&P futures rose, following the index’s 0.5 percent gain yesterday, after the Fed said that the U.S. economy is improving and reiterated its pledge to keep interest rates low “for an extended period.” Futures also climbed after Apple unveiled a $499 tablet computer, the Ipad, that costs half what some analysts estimated. Wintek Corp. , a Taiwanese maker of Apple’s flat-panel displays, rose 1.1 percent. The MSCI Asia Pacific Index sank 6.9 percent in the past eight days as Obama proposed measures to limit risk taking at banks and as concern grew China will rein in growth. The equity gauge is still 42 percent higher from a year ago. China Banks Banks in China, which has been powering the recovery in the world economy, were told by regulators to step up scrutiny of property loans to prevent asset bubbles. Bank of China Ltd. rose 3 percent and China Citic Bank Corp. jumped 3.8 percent in Hong Kong trading. The dollar strengthened to $1.4038 per euro from $1.4024 in New York yesterday, after climbing to $1.3938, the strongest since July 14. The greenback rose to 90.44 yen from 90 yen after the Fed upgraded its economic outlook. While policy makers said rates will remain low, after voting to leave the target rate for overnight loans between banks in a range of zero to 0.25 percent, Kansas City Fed President Thomas Hoenig said it’s time to change the promise. “With Hoenig sounding relatively hawkish, they are a bit more upbeat than people had expected,” said Danica Hampton , a senior strategist at Bank of New Zealand Ltd. in Wellington. “The U.S. dollar is going to find a bit more support. I think that will be further supported with the U.S. GDP data.” Economic Growth Obama used his first State of the Union address to call for an extension of tax incentives worth $38 billion over this year and next to spur growth. He said he wasn’t interested in “punishing banks,” though he derided Wall Street’s “big bonuses.” Economists in a Bloomberg survey forecast U.S. gross domestic product expanded 4.6 percent in the fourth quarter after gaining 2.2 percent in the third. The Commerce Department in Washington is set to release the data tomorrow. That would be the strongest since the first three months of 2006. Treasuries declined for a second day before U.S. reports that economists said will show durable goods orders rose in December and fewer Americans sought jobless benefits last week. Yields Rise “For the Fed to move, it depends on the labor market,” said Hideo Shimomura , who helps oversee the equivalent of $56 billion as chief fund investor in Tokyo at Mitsubishi UFJ Asset Management Co., a unit of the world’s biggest bank by assets. “With labor market improvement, people may start wondering about when the Fed will hike.” The yield on the benchmark 10-year note rose two basis points to 3.67 percent at 7:19 a.m. in London, according to BGCantor Market Data. The rate touched 3.69 percent, the highest since Jan. 20. The 3.375 percent security due November 2019 fell 5/32, or $1.56 per $1,000 face amount, to 97 18/32. Oil traded near a five-week low after falling yesterday as a government report showed inventories of gasoline rose to a 22- month high in the U.S., the world’s biggest energy consumer. Crude for March delivery was at $74 a barrel in electronic trading on the New York Mercantile Exchange. Yesterday, the contract fell $1.04 to $73.67, the lowest close since Dec. 21. Copper for three-month delivery dropped 1.7 percent to $7,110.50 a metric ton on the London Metal Exchange, near a one- month low, as China, the world’s biggest metals consumer, takes steps to rein in lending to cool the economy. The metal has lost 5 percent in three days. Aluminum declined 1.3 percent to $2,152 a ton as the dollar gained for a third day against six major currencies. Gold was little changed at $1,089.15 an ounce. To contact the reporters for this story: Rocky Swift at in Tokyo or rswift5@bloomberg.net ; Saeromi Shin in Seoul at sshin15@bloomberg.net .

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U.K. Government’s `Huge’ Bank Sales Will Surpass Thatcher’s Privatizations

January 28, 2010

By Jon Menon Jan. 28 (Bloomberg) — The British government is seeking to raise more cash by selling its 71.5 billion-pound ($116 billion) stake in three crippled banks than Margaret Thatcher generated by disposing of state-owned businesses during her entire 11 years in office. From 1979 to 1990, then-Prime Minister Thatcher’s three administrations privatized more than 20 companies, including British Gas and British Airways. The total raised would now be worth about 68.5 billion pounds, adjusted for inflation, according to accounting firm Ernst & Young. Prime Minister Gordon Brown hasn’t disclosed a timetable for the sale of the U.K.’s stakes in Royal Bank of Scotland Group Plc , Lloyds Banking Group Plc and Northern Rock Plc, making their remuneration and lending practices a political question. “It’s such a huge stake, it will clearly dominate the political agenda,” said Tom Kirchmaier , a fellow at the London School of Economics . “Any government will probably have a substantial stake for a long time.” The U.K. may take as long as seven years to sell the holdings, said Jon Sibson , PricewaterhouseCoopers LLP’s U.K. government and public sector leader. In the meantime, political pressure may distract executives at the lenders, according to Robert Talbut of Royal London Asset Management. RBS Chief Executive Officer Stephen Hester last month attacked the “politicization” of the lender’s bonus payments. Questioned by lawmakers this month, Hester said he should have “kept quiet.” ‘Looking Over Their Shoulder’ “They will be forever looking over their shoulder to see what the government view is,” said Talbut, who helps manage about 32 billion pounds. “It’s going to inhibit the growth prospects of those banks.” The state is likely to sell its stake in a number of stages and over years, Talbut said. The scale of the bank sale leaves David Cameron , one of Thatcher’s successors as Conservative Party leader, with the task of convincing investors to part with more money for nationalized assets than his predecessor if he wins this year’s British election. Britain must hold a vote by June and opinion polls show Cameron as the likeliest victor. The U.K. bought an 84 percent interest in Edinburgh-based RBS for 45.5 billion pounds and 43 percent of Lloyds for about 20.5 billion pounds as part of the taxpayer-funded bailouts in 2007 and 2008. The state has pledged to inject as much as 5.5 billion pounds into Northern Rock , which it nationalized in 2008, according to the Newcastle, England-based lender. TARP Repayments By contrast, about two thirds of the U.S. government’s $700 billion bank rescue plan, the Troubled Asset Relief Program, has already been repaid, according to a report by the U.S. Treasury this month. JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co., Bank of America Corp., Goldman Sachs Group Inc. and Morgan Stanley were among the recipients. The Swiss government handed 6 billion francs ($5.7 billion) to UBS AG to help it spin off assets and sold the investment last year at a 1.2 billion-franc profit. Germany’s Commerzbank AG received 18.2 billion euros ($25.6 billion) from the government, which still holds a 25 percent stake. In Britain the government’s stake in banks “is definitely much higher” than in the rest of Europe, said Jaap Meijer , an analyst at Evolution Securities Ltd. in London. “Government influence is much bigger than in other markets.” A sale of the British bank stakes at today’s prices would leave taxpayers with a 21.9 billion-pound loss. The Treasury bought RBS shares at an average price of about 50 pence against a closing price yesterday of 33 pence. It bought Lloyds shares at 74 pence each, which traded yesterday at 50.8 pence. ‘Make a Profit’ Brown still expects to recoup the money the government ploughed into the three lenders. “We will recoup the money,” he told reporters Jan. 25. “We will in fact make a profit.” “It will be politically unacceptable for the government to contemplate selling down at a loss any time soon,” said Ian Gordon , an analyst at Exane BNP Paribas SA in London who has “outperform” ratings on RBS and Lloyds. Unlike the privatizations of the last century, this time the arguments will revolve around price rather than political principle. Thatcher’s asset sales were attacked by the opposition Labour Party and by some members of her own Conservatives, including former Prime Minister Harold Macmillan , who in November 1985 likened her program to selling off a family’s “Georgian silver.” “This is not political, it’s a question of value,” said Peter Hahn , a senior lecturer at City University’s Cass Business School in London. RBS , which posted the biggest loss in U.K. history in 2008, may take five years to turn around, Hester said. ‘Massive Job’ Changing risk management at the bank is an “absolutely massive job” and may take years, John Kingman , CEO of United Kingdom Financial Investments Ltd. , said in November. UKFI, which manages the government’s bank stakes, has “no projections, no assumptions and no targets to hit” when it comes to selling the holdings. They will most likely be capital markets sales, John Crompton , head of investments, said in September. RBS and Lloyds aren’t expected to make an annual profit before 2011 at the earliest, according to analysts’ estimates compiled by Bloomberg. In the asset sales of the 1980s, Thatcher faced criticism for selling-off monopoly assets without breaking them up to increase competition, said James Foreman-Peck , a professor at Cardiff Business School and former economic adviser to the Treasury. “One of the challenges and trade-offs in the original privatizations was the need to encourage competition while getting a good price for the asset,” Foreman-Peck said. “There will be a similar issue for the banks. It’s taxpayer versus consumer: that’s the conflict.” To contact the reporter on this story: Jon Menon in London at jmenon1@bloomberg.net

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U.K. Government’s `Huge’ Bank Sales Will Surpass Thatcher’s Privatizations

January 28, 2010

By Jon Menon Jan. 28 (Bloomberg) — The British government is seeking to raise more cash by selling its 71.5 billion-pound ($116 billion) stake in three crippled banks than Margaret Thatcher generated by disposing of state-owned businesses during her entire 11 years in office. From 1979 to 1990, then-Prime Minister Thatcher’s three administrations privatized more than 20 companies, including British Gas and British Airways. The total raised would now be worth about 68.5 billion pounds, adjusted for inflation, according to accounting firm Ernst & Young. Prime Minister Gordon Brown hasn’t disclosed a timetable for the sale of the U.K.’s stakes in Royal Bank of Scotland Group Plc , Lloyds Banking Group Plc and Northern Rock Plc, making their remuneration and lending practices a political question. “It’s such a huge stake, it will clearly dominate the political agenda,” said Tom Kirchmaier , a fellow at the London School of Economics . “Any government will probably have a substantial stake for a long time.” The U.K. may take as long as seven years to sell the holdings, said Jon Sibson , PricewaterhouseCoopers LLP’s U.K. government and public sector leader. In the meantime, political pressure may distract executives at the lenders, according to Robert Talbut of Royal London Asset Management. RBS Chief Executive Officer Stephen Hester last month attacked the “politicization” of the lender’s bonus payments. Questioned by lawmakers this month, Hester said he should have “kept quiet.” ‘Looking Over Their Shoulder’ “They will be forever looking over their shoulder to see what the government view is,” said Talbut, who helps manage about 32 billion pounds. “It’s going to inhibit the growth prospects of those banks.” The state is likely to sell its stake in a number of stages and over years, Talbut said. The scale of the bank sale leaves David Cameron , one of Thatcher’s successors as Conservative Party leader, with the task of convincing investors to part with more money for nationalized assets than his predecessor if he wins this year’s British election. Britain must hold a vote by June and opinion polls show Cameron as the likeliest victor. The U.K. bought an 84 percent interest in Edinburgh-based RBS for 45.5 billion pounds and 43 percent of Lloyds for about 20.5 billion pounds as part of the taxpayer-funded bailouts in 2007 and 2008. The state has pledged to inject as much as 5.5 billion pounds into Northern Rock , which it nationalized in 2008, according to the Newcastle, England-based lender. TARP Repayments By contrast, about two thirds of the U.S. government’s $700 billion bank rescue plan, the Troubled Asset Relief Program, has already been repaid, according to a report by the U.S. Treasury this month. JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co., Bank of America Corp., Goldman Sachs Group Inc. and Morgan Stanley were among the recipients. The Swiss government handed 6 billion francs ($5.7 billion) to UBS AG to help it spin off assets and sold the investment last year at a 1.2 billion-franc profit. Germany’s Commerzbank AG received 18.2 billion euros ($25.6 billion) from the government, which still holds a 25 percent stake. In Britain the government’s stake in banks “is definitely much higher” than in the rest of Europe, said Jaap Meijer , an analyst at Evolution Securities Ltd. in London. “Government influence is much bigger than in other markets.” A sale of the British bank stakes at today’s prices would leave taxpayers with a 21.9 billion-pound loss. The Treasury bought RBS shares at an average price of about 50 pence against a closing price yesterday of 33 pence. It bought Lloyds shares at 74 pence each, which traded yesterday at 50.8 pence. ‘Make a Profit’ Brown still expects to recoup the money the government ploughed into the three lenders. “We will recoup the money,” he told reporters Jan. 25. “We will in fact make a profit.” “It will be politically unacceptable for the government to contemplate selling down at a loss any time soon,” said Ian Gordon , an analyst at Exane BNP Paribas SA in London who has “outperform” ratings on RBS and Lloyds. Unlike the privatizations of the last century, this time the arguments will revolve around price rather than political principle. Thatcher’s asset sales were attacked by the opposition Labour Party and by some members of her own Conservatives, including former Prime Minister Harold Macmillan , who in November 1985 likened her program to selling off a family’s “Georgian silver.” “This is not political, it’s a question of value,” said Peter Hahn , a senior lecturer at City University’s Cass Business School in London. RBS , which posted the biggest loss in U.K. history in 2008, may take five years to turn around, Hester said. ‘Massive Job’ Changing risk management at the bank is an “absolutely massive job” and may take years, John Kingman , CEO of United Kingdom Financial Investments Ltd. , said in November. UKFI, which manages the government’s bank stakes, has “no projections, no assumptions and no targets to hit” when it comes to selling the holdings. They will most likely be capital markets sales, John Crompton , head of investments, said in September. RBS and Lloyds aren’t expected to make an annual profit before 2011 at the earliest, according to analysts’ estimates compiled by Bloomberg. In the asset sales of the 1980s, Thatcher faced criticism for selling-off monopoly assets without breaking them up to increase competition, said James Foreman-Peck , a professor at Cardiff Business School and former economic adviser to the Treasury. “One of the challenges and trade-offs in the original privatizations was the need to encourage competition while getting a good price for the asset,” Foreman-Peck said. “There will be a similar issue for the banks. It’s taxpayer versus consumer: that’s the conflict.” To contact the reporter on this story: Jon Menon in London at jmenon1@bloomberg.net

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Toyota Recall: Alamo, Enterprise, Avis, And National Car Rental Companies Pull Recalled Toyotas From Fleets

January 28, 2010

NEW YORK — Three car rental companies said Wednesday they are pulling thousands of Toyotas from their fleets over faulty gas pedals. The Pontiac Vibe, made by General Motors Co. in conjunction with Toyota, has also been recalled and will be removed from service by Enterprise Holdings, which operates the Alamo Rent A Car, Enterprise Rent-A-Car and National Car Rental chains. Toyota Motor Co. announced Tuesday that it was suspending sales and halting production of eight models following last week’s recall to repair sticking gas pedals that could make the cars and trucks accelerate without warning. Avis Budget Group Inc. said that it is immediately removing about 20,000 Toyotas from its rental fleets in the U.S., Canada and Puerto Rico. Separately, Hertz Corp. said it would temporarily stop renting vehicles involved in the recall. Privately held Enterprise said it is also pulling the affected vehicles, which represent about 4 percent of its fleet, but is acting out of “an abundance of caution.” The Pontiac Vibe is affected by the recall because it was a joint venture product with Toyota, with the same engineering, products and manufacturing as Toyota vehicles. GM has since discontinued the line and the entire Pontiac lineup. A Buick-GMC spokesperson said the company is awaiting details from Toyota on the repairs necessary for existing Pontiac Vibe customers. Shares of Avis rose 16 cents to close at $11.53 Wednesday. Hertz shares added 27 cents to end at $11.01. Toyota shares fell $7.01, or 8.1 percent, to close at $79.77 and dropped 27 cents in after-hours trading.

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Toyota Recall: Alamo, Enterprise, Avis, And National Car Rental Companies Pull Recalled Toyotas From Fleets

January 28, 2010

NEW YORK — Three car rental companies said Wednesday they are pulling thousands of Toyotas from their fleets over faulty gas pedals. The Pontiac Vibe, made by General Motors Co. in conjunction with Toyota, has also been recalled and will be removed from service by Enterprise Holdings, which operates the Alamo Rent A Car, Enterprise Rent-A-Car and National Car Rental chains. Toyota Motor Co. announced Tuesday that it was suspending sales and halting production of eight models following last week’s recall to repair sticking gas pedals that could make the cars and trucks accelerate without warning. Avis Budget Group Inc. said that it is immediately removing about 20,000 Toyotas from its rental fleets in the U.S., Canada and Puerto Rico. Separately, Hertz Corp. said it would temporarily stop renting vehicles involved in the recall. Privately held Enterprise said it is also pulling the affected vehicles, which represent about 4 percent of its fleet, but is acting out of “an abundance of caution.” The Pontiac Vibe is affected by the recall because it was a joint venture product with Toyota, with the same engineering, products and manufacturing as Toyota vehicles. GM has since discontinued the line and the entire Pontiac lineup. A Buick-GMC spokesperson said the company is awaiting details from Toyota on the repairs necessary for existing Pontiac Vibe customers. Shares of Avis rose 16 cents to close at $11.53 Wednesday. Hertz shares added 27 cents to end at $11.01. Toyota shares fell $7.01, or 8.1 percent, to close at $79.77 and dropped 27 cents in after-hours trading.

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The Pelosi Fed Is the Dollar’s Worst Nightmare: Caroline Baum

January 27, 2010

Commentary by Caroline Baum Jan. 28 (Bloomberg) — Within days of the Republican upset in the Massachusetts special election for the late Ted Kennedy’s seat, Barbara Boxer saw the way forward. “It is time for a change — it is time for Main Street to have a champion at the Fed,” the three-term California Democratic senator said on Jan. 22. “Dr. Bernanke played a lead role in crafting the Bush administration’s economic policies, which led to the current economic crisis. Our next Federal Reserve chairman must represent a clean break from the failed policies of the past.” California voters are sympathetic to the idea of change, too. Boxer holds a slim lead over her three main Republican challengers in the 2010 Senate race. A Jan. 14 Rasmussen poll of 500 likely voters found Boxer leading former Hewlett-Packard Chief Executive Carly Fiorina by 3 points, 46 percent to 43 percent, an ominous sign. “Any incumbent who polls below 50 percent at this point in the season is considered potentially vulnerable,” said Scott Rasmussen , president of Rasmussen Research. Boxer’s support was at 46 percent in November when Fiorina was trailing by 9 points. Boxer wasn’t the only senator to have a sudden epiphany on needed change at the Fed. Twenty of her colleagues consulted their inner candidate and decided it was in their best interest to vote no on Bernanke. (Forty-nine will vote yes while 30 are undecided or declined to comment, according to a Bloomberg News tally.) Bernanke’s four-year term as Fed chairman ends Jan. 31. Policy Debate Boxer’s desire for a Main Street champion at the Fed is a transparent excuse for opposing Bernanke in the same way “the failed policies of the Bush administration” provide economic cover for the Obama administration. If Ms. Boxer senses the California Senate race is slipping out of her grasp, she could always throw her hat in the ring for Bernanke’s job. California is such a paragon of fiscal prudence, she might bring valuable input to the monetary policy process. All kidding aside, there are legitimate reasons for the Senate to debate Bernanke’s reappointment, but kowtowing to populist sentiment isn’t one of them. As a Fed governor from 2003 to 2005, Bernanke advocated interest-rate cuts to avoid deflation at a time when the economy needed just the opposite. He became Fed chairman in February 2006 as the housing bubble was cresting, failed to see the effect intertwined mortgage derivatives could have on the financial system and told us the subprime crisis was “contained.” No Character Questions But, hey, poor forecasting never disqualified anyone from a job at the Fed! The decisions the Fed made in 2008 to create a host of credit facilities to make loans to non-banks and support various markets were made under “unusual and exigent circumstances,” as specified in the Federal Reserve Act. No one would challenge that assessment of the financial backdrop. It’s easy in hindsight to be critical of this or that policy decision and offer alternative solutions. But do any of Bernanke’s newfound critics believe he acted in anything but the public’s best interest? “You can debate his policies, but you cannot impugn his character,” said David Kotok , chairman and chief investment officer of Cumberland Advisors in Vineland, New Jersey. “His record at Princeton, as a Fed governor, as an economic adviser to the president reveals not one single element of doubt on his character.” PR Campaign When Bernanke talked about his anger at having to bail out American International Group Inc. in a “60 Minutes” interview last year, his emotion was palpable. He did what he thought he had to do to avert Great Depression II. Just maybe Bernanke’s problem is poor public relations. If he weren’t a soft-spoken academic more comfortable in the classroom than the hearing room, he might be a stronger advocate for his reappointment. So Ben, here’s my advice. Take a leaf out of President Barack Obama’s book. Every time you give a speech or testify to Congress, invoke his disclaimer. Reiterate that “we inherited the worst economy since the Great Depression.” Link the crisis to your predecessor, Alan Greenspan , and George W. Bush in their shared aversion to regulation. And give everyone a taste of what Boxer envisions when she talks about a Main Street champion at the Fed. Populist Fed No doubt it would mean leaving the benchmark interest rate at zero until the unemployment rate falls to a politically palatable 5 percent. It would mean ignoring the potential for higher inflation. It would mean undoing everything you and your fellow central bankers across the globe have learned from trial and more errors than you care to remember: That — and you’ve said it best yourself — price stability is both an end in itself and a means to achieve maximum sustainable growth in employment and output. So the next time Boxer brandishes her faux populism, just tell the public you are turning interest-rate policy over to Nancy Pelosi . The dive in the markets will jolt those populists back to reality. ( Caroline Baum , author of “Just What I Said,” is a Bloomberg News columnist. The opinions expressed are her own.) Click on “Send Comment” in sidebar display to send a letter to the editor. To contact the writer of this column: Caroline Baum in New York at cabaum@bloomberg.net .

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Blankfein Avoids Apology as London Risks Suicide: Mark Gilbert

January 27, 2010

Commentary by Mark Gilbert Jan. 28 (Bloomberg) — When almost every media mention of your institution is accompanied by the nickname “vampire squid,” you might think it prudent to learn a little humility. Not, it seems, if your name is Lloyd Blankfein . The Goldman Sachs Group Inc. chief executive officer missed another opportunity to express contrition when he appeared before the U.S. Financial Crisis Inquiry Commission earlier this month. While his answers weren’t quite belligerent, he offered little in the way of an apology. He may regret not saying sorry if President Barack Obama makes good on his threat to geld the banking industry by imposing new regulations on proprietary trading, private-equity investments and future balance-sheet growth. More importantly, the furious White House reaction to the seeming indifference of finance chiefs to the economic chaos they created threatens to inspire a patchwork of unilateral rule changes around the world. Without coordination, financial reform won’t work. If countries go their own way, the result will be what Barclays Plc Chairman Marcus Agius last week called “regulatory arbitrage,” with financial firms shopping between different jurisdictions to find the least onerous regimes. A piecemeal approach to new rules may result in the regulatory equivalent of an arms race. Bashing bonus-hunting bankers has never been more popular, and no politician will want to miss this opportunity to play to the gallery. Public Wrath Finance chiefs still don’t seem to comprehend just how much anger they have aroused among ordinary folk, or how appalled most of the world is at the lack of either an apology or an acknowledgment that even the strongest players only survived the credit crunch because of the transfusion of billions of dollars of taxpayers’ money. If different administrations around the world reckon they can win more popular support by retaliating more fiercely than the country next door, those desired improvements in banking oversight could become too tough. The U.K., for example, has been championing the introduction of a so-called Tobin tax, designed to pinch a sliver of revenue every time a security is traded anywhere in the world. The proceeds would be set aside to build a rainy-day fund to protect us from future financial crises. ‘Arbitrage and Speculation’ The tax was initially proposed in 1971 by Nobel Prize- winning economist James Tobin . Back then, central banks were struggling to manage monetary policy after the collapse of the Bretton Woods system of pegging currencies. So Tobin, a professor emeritus of economics at Yale University before he died in March 2002, proposed a tax on currency trading, say 0.05 percent, to deter what he himself termed “speculators.” Tobin argued in an article published in the Financial Times in September 2001 that a tax would help underpin monetary policy. “Market arbitrage and speculation tend to keep money- market interest rates (risk-adjusted) the same in every currency throughout the world, preventing a central bank from adjusting its monetary policy to its local economy,” Tobin wrote. “If such arbitrage and speculation require repeated taxed transactions, one nation’s interest rates can differ from those in New York or Tokyo.” A tax, Tobin said, would “preserve some measure of national monetary autonomy.” On the surface, the idea is seductive. The authorities could sell it to the public as killing two birds with one stone, raising some much-needed revenue at the same time as deterring those pesky speculators. Farmer’s Futures Problems arise when you try to distinguish between, say, a legitimate hedging transaction in the futures market by a farmer seeking to guarantee the price of next season’s crop, and a trader punting on the price of wheat to boost this year’s bonus. A further complication springs up when a particular country decides that not implementing the tax will win it market share in financial trading. That’s a particular issue for London. U.K. Prime Minister Gordon Brown has to face an election in the first half of this year, and is behind in the opinion polls. There’s a non- negligible risk that he might seek salvation for his government by putting Britain at the forefront of financial regime change with the solo introduction of a transaction tax — a surefire vote-winner, albeit spelling commercial suicide for the City of London as a financial center. Public wrath will filter into government policies designed to lash safety air bags around the banking community. The next time a senior banker finds himself on public trial for the misdemeanors of his profession, it might be wise to show some remorse for the $1.7 trillion of financial-asset writedowns and the 25 percent drop in global stock-market values from the December 2007 peak — otherwise those bindings are more likely to smother than merely chafe. ( Mark Gilbert , author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable,” is the London bureau chief and a columnist for Bloomberg News. The opinions expressed are his own.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: Mark Gilbert in London at magilbert@bloomberg.net

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Obama Says Jobs `Number One Focus,’ Vows to Press Action to Boost Economy

January 27, 2010

By Nicholas Johnston and Edwin Chen Jan. 27 (Bloomberg) — President Barack Obama vowed to press ahead with his plan to overhaul the nation’s health-care system and called on Congress to pass a package of tax cuts and spending to stimulate the economy and create jobs. Obama, delivering his first State of the Union address, said the government also must tackle the federal budget deficit , forecast to be $1.35 trillion this year, and set aside the “tired battles” that have consumed Washington for years and threaten to leave the U.S. behind nations such as China in global competition. “I do not accept second-place for the United States of America,” Obama said. “As hard as it may be, as uncomfortable and contentious as the debates may become, it’s time to get serious about fixing the problems that are hampering our growth.” Obama’s speech tonight before a joint session of Congress and a national television audience was devoted mostly to economic concerns, particularly the loss of more than 7 million jobs since the start of the recession in December 2007. Many of the steps he outlined repeated initiatives he’s proposed previously. “Jobs must be our number one focus in 2010, and that is why I am calling for a new jobs bill tonight,” Obama said. Tax Breaks He called for an extension of tax incentives worth $38 billion over this year and next to encourage businesses to accelerate equipment purchases and elimination of capital gains taxes on small business investments. For individuals and middle- income families, Obama proposed an increased tax credit for child care and an expansion of tax credits to match retirement savings. He also defended the government bailouts of banks such as New York-based Citigroup Inc. and automakers General Motors Co. headquartered in Detroit and Auburn Hills, Michigan-based Chrysler Group LLC as necessary to prevent the collapse of the economy, even if it was broadly unpopular. “If there’s one thing that has unified Democrats and Republicans, it’s that we all hated the bank bailout,” Obama said. “I hated it. You hated it. It was about as popular as a root canal.” Obama said the government should use $30 billion of the money paid back by banks that were bailed out with the Troubled Asset Relief Program to assist community banks that give lend to small businesses. Republican Response The president’s focus on economic issues will be echoed by the Virginia Governor Bob McDonnell in the Republican response. McDonnell, who was elected last November and sworn-in earlier this month, will call for policies that promote entrepreneurship and innovation to make the U.S. more competitive globally, and will say lawmakers must lower the federal debt because it’s on an unsustainable path. “What government should not do is pile on more taxation, regulation, and litigation that kill jobs and hurt the middle class,” McDonnell says in the text of his remarks. Obama also laid out plans to rein in the federal deficit, such as a freeze of discretionary spending in the federal budget over three years. Defense and other national security-related agencies won’t be affected and some discretionary programs, such as education, will get increases. To take further action, he said he would set up by executive order a commission to recommend steps to cut the deficit. Drive on Health Care While his effort to overhaul the U.S. health-care system has gotten snagged in Congress, Obama vowed to press ahead. The president said he recognized that the issue has been divisive and said he shared some of the blame for not clearly explaining how it would benefit average Americans. “By the time I’m finished speaking tonight, more Americans will have lost their health insurance,” Obama said in the text. “I will not walk away from these Americans. And neither should the people in this chamber.” Obama said years of partisan battles over issues important to people and the growing influence of lobbyists have sown “deep and corrosive doubts” about the federal government. “We have to recognize we have more than a deficit of dollars right now. We have a deficit of trust,” Obama said in his text. To rebuild public trust, Obama called for rules requiring lobbyists disclose each contact they make on behalf of clients and limit their contributions to candidates for federal office. Campaign Finance He also asked Congress to draft legislation in response to a U.S. Supreme Court ruling last week that allows corporations and labor unions to make campaign donations, and require that all special spending requests made by lawmakers, known as earmarks, should be posted on a single Web site before being voted on. Obama had tough words for Democrats as well as Republicans in Congress over the deadlock that has held up action. He rejected the approach of “some on the right” that the path to prosperity was through tax cuts for the wealthy, elimination of regulations and leaving the health-care system as it is. “That’s what we did for eight years,” Obama said, in reference to his predecessor, Republican President George W. Bush . “That’s what helped lead us into this crisis. It’s what helped lead to these deficits.” He said his fellow Democrats can’t be paralyzed by fear of losing the next election. “I would remind you that we still have the largest majority in decades, and the people expect us to solve some problems, not run for the hills,” Obama said. —-With assistance from Roger Runningen , Julianna Goldman , Kate Anderson Brower , Holly Rosenkrantz and Angela Greiling Keane in Washington. Editors: Joe Sobczyk , Jim Kirk . To contact the reporters on this story: Nicholas Johnston in Washington at njohnston3@bloomberg.net ; Edwin Chen in Washington at EChen32@bloomberg.net ;

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Taliban Pay-for-Peace Plan to Be Put in Motion at London Afghan Conference

January 27, 2010

By James Rupert Jan. 28 (Bloomberg) — A $500 million plan to entice Taliban fighters to quit the growing insurgency in Afghanistan will be put in motion today by governments at a conference in London. More than 60 foreign ministers will meet top Afghan officials to approve a political strategy backing the U.S.-led troop surge. The ministers will seek to show support for Afghan President Hamid Karzai and resolve to stabilize his country, while countering falling public support for the war in Europe and the U.S. by pledging troops can start coming home by 2011. “The trick in London will be to balance these two conflicting messages,” said Shada Islam , an analyst at the European Policy Centre , a research institute in Brussels. Governments attending the one-day meeting will pledge about $500 million to fund Taliban fighters who return to civilian life, German Chancellor Angela Merkel said Jan 26. The money will go for housing, jobs and agriculture. A senior member of Merkel’s Christian Social Union sister party, CSU General Secretary Alexander Dobrindt, dubbed it a “Taliban cash-for- clunkers” program. Conference attendees also will renew pressure on Karzai to reduce official corruption that has weakened his government. “We have made it clear that we want a transparent Afghan government and that fighting corruption must be a high priority,” Merkel told reporters yesterday after meeting Karzai in Berlin. Sanctions Lifted The reconciliation bid comes as the United Nations Security Council this week lifted sanctions against five former Taliban officials, in what the Afghan UN ambassador, Zahir Tanin , called “a message for anyone in the Taliban that wants to join the peace process.” The Taliban dismissed the London talks as “a waste of time” and repeated demands for a pullout of international forces, Pakistan’s GEO television reported, citing an e-mailed statement. In trying to stabilize the Afghan government before 2011, when the U.S. plans to begin reducing its military force, governments may be hampered by Karzai’s political weakness. The Afghan leader has failed to get parliament to approve his full Cabinet 12 weeks after being declared the winner of a fraud- tainted election. The London meeting will skip some issues, in part because Afghan government departments “still don’t have permanent ministers in all of the jobs,” said Mark Sedwill , the British ambassador to Afghanistan, who was appointed this week as the top civilian North Atlantic Treaty Organization official in the country. ‘Loss of Momentum’ The conference, hosted by the British government , will try to reverse what “was essentially a loss of momentum in the whole Afghan project” last year because of distractions around the disputed elections, plus Taliban military gains, Sedwill told reporters last week. In 2009, 520 NATO troops were killed in the Afghan war, a 76 percent jump over 2008, according to the casualty-monitoring Web site iCasualties.org . Since 2003, several Afghan reconciliation plans have collapsed because the government failed to deliver on promises of land, money or jobs for Taliban who quit the war. “This time they have to be sure the money gets through,” said the European Policy Centre’s Islam. The new effort has a better chance because it has greater international support, Afghan Finance Minister Omar Zakhilwal said in an interview with Bloomberg Television yesterday. U.S. Backing The U.S. backs the plan, its special representative for Afghanistan and Pakistan, Ambassador Richard Holbrooke , told MSNBC this week in an interview. Germany will contribute $70 million, Merkel has said. A reconciliation program should work at local and provincial levels to woo lower-level Taliban, and should exclude the Taliban leadership including its commander, Mullah Omar , former Afghan Foreign Minister Abdullah Abdullah told Bloomberg Television in an interview yesterday at the World Economic Forum in Davos, Switzerland. With governments in Britain, Germany and the U.S. losing support for any long-term commitment of their troops in Afghanistan, today’s conference will try to set “an indicative timeline” for NATO to hand over security control of districts and provinces to Afghan troops and police, Sedwill said. Merkel said yesterday she wants all security operations to be carried out by Afghan forces from 2014. Yet she said that setting any deadline for withdrawing foreign troops would be a “mistake” that would “only encourage the Taliban to carry out more attacks.” Corruption Concern Afghanistan is seen as the world’s second-most corrupt country, according to the annual survey by Transparency International , a Berlin-based corruption-monitoring group. Graft has outstripped the country’s violence as the biggest worry for Afghans, 59 percent of whom called it their top concern in a survey released this month by the UN Office on Drugs and Crime. Corruption has made it harder for Western governments to sell troop increases in Afghanistan to voters at home. NATO is getting 38,500 reinforcements in Afghanistan that will bring its troop strength to almost 150,000 in the ninth year of the war. While conceding that corruption is a problem rooted in “weak institutions” in Afghanistan, Zakhilwal disputed as “flawed” a conclusion by the UN report that Afghans pay annually the equivalent of 23 percent of the country’s gross domestic product in bribes. The Afghan government will detail its new anti-corruption plans at today’s conference, said Zakhilwal. “What we are aiming is not a 100 percent removal of corruption, but significant reduction, which will be possible.” To contact the reporter on this story: James Rupert in New Delhi at jrupert3@bloomberg.net .

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Obama Says Jobs Are `Number One Focus,’ Vows to Advance Health-Care Reform

January 27, 2010

By Nicholas Johnston and Edwin Chen Jan. 27 (Bloomberg) — President Barack Obama vowed to press ahead with his plan to overhaul the nation’s health-care system and called on Congress to pass a package of tax cuts and spending to stimulate the economy and create jobs. Obama, delivering his first State of the Union address, said the government also must tackle the federal budget deficit , forecast to be $1.35 trillion this year, and set aside the “tired battles” that have consumed Washington for years and threaten to leave the U.S. behind nations such as China in global competition. “I do not accept second-place for the United States of America,” Obama said. “As hard as it may be, as uncomfortable and contentious as the debates may become, it’s time to get serious about fixing the problems that are hampering our growth.” Obama’s speech tonight before a joint session of Congress and a national television audience was devoted mostly to economic concerns, particularly the loss of more than 7 million jobs since the start of the recession in December 2007. Many of the steps he outlined repeated initiatives he’s proposed previously. “Jobs must be our number one focus in 2010, and that is why I am calling for a new jobs bill tonight,” Obama said. Tax Breaks He called for an extension of tax incentives worth $38 billion over this year and next to encourage businesses to accelerate equipment purchases and elimination of capital gains taxes on small business investments. For individuals and middle- income families, Obama proposed an increased tax credit for child care and an expansion of tax credits to match retirement savings. He also defended the government bailouts of banks such as New York-based Citigroup Inc. and automakers General Motors Co. headquartered in Detroit and Auburn Hills, Michigan-based Chrysler Group LLC as necessary to prevent the collapse of the economy, even if it was broadly unpopular. “If there’s one thing that has unified Democrats and Republicans, it’s that we all hated the bank bailout,” Obama said. “I hated it. You hated it. It was about as popular as a root canal.” Obama said the government should use $30 billion of the money paid back by banks that were bailed out with the Troubled Asset Relief Program to assist community banks that give lend to small businesses. Republican Response The president’s focus on economic issues will be echoed by the Virginia Governor Bob McDonnell in the Republican response. McDonnell, who was elected last November and sworn-in earlier this month, will call for policies that promote entrepreneurship and innovation to make the U.S. more competitive globally, and will say lawmakers must lower the federal debt because it’s on an unsustainable path. “What government should not do is pile on more taxation, regulation, and litigation that kill jobs and hurt the middle class,” McDonnell says in the text of his remarks. Obama also laid out plans to rein in the federal deficit, such as a freeze of discretionary spending in the federal budget over three years. Defense and other national security-related agencies won’t be affected and some discretionary programs, such as education, will get increases. To take further action, he said he would set up by executive order a commission to recommend steps to cut the deficit. Drive on Health Care While his effort to overhaul the U.S. health-care system has gotten snagged in Congress, Obama vowed to press ahead. The president said he recognized that the issue has been divisive and said he shared some of the blame for not clearly explaining how it would benefit average Americans. “By the time I’m finished speaking tonight, more Americans will have lost their health insurance,” Obama said in the text. “I will not walk away from these Americans. And neither should the people in this chamber.” Obama said years of partisan battles over issues important to people and the growing influence of lobbyists have sown “deep and corrosive doubts” about the federal government. “We have to recognize we have more than a deficit of dollars right now. We have a deficit of trust,” Obama said in his text. To rebuild public trust, Obama called for rules requiring lobbyists disclose each contact they make on behalf of clients and limit their contributions to candidates for federal office. Campaign Finance He also asked Congress to draft legislation in response to a U.S. Supreme Court ruling last week that allows corporations and labor unions to make campaign donations, and require that all special spending requests made by lawmakers, known as earmarks, should be posted on a single Web site before being voted on. Obama had tough words for Democrats as well as Republicans in Congress over the deadlock that has held up action. He rejected the approach of “some on the right” that the path to prosperity was through tax cuts for the wealthy, elimination of regulations and leaving the health-care system as it is. “That’s what we did for eight years,” Obama said, in reference to his predecessor, Republican President George W. Bush . “That’s what helped lead us into this crisis. It’s what helped lead to these deficits.” He said his fellow Democrats can’t be paralyzed by fear of losing the next election. “I would remind you that we still have the largest majority in decades, and the people expect us to solve some problems, not run for the hills,” Obama said. —-With assistance from Roger Runningen , Julianna Goldman , Kate Anderson Brower , Holly Rosenkrantz and Angela Greiling Keane in Washington. Editors: Joe Sobczyk , Jim Kirk . To contact the reporters on this story: Nicholas Johnston in Washington at njohnston3@bloomberg.net ; Edwin Chen in Washington at EChen32@bloomberg.net ;

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Japan Plans Law to Boost Mine Investment as China, Korea Competition Grows

January 27, 2010

By Jae Hur and Ichiro Suzuki Jan. 28 (Bloomberg) — Japan plans to revise legislation in order to help domestic companies acquire mining rights overseas and secure raw materials amid competition from neighboring China and South Korea. The Ministry of Economy, Trade and Industry has prepared a bill that will allow state-owned Japan Oil, Gas and Metals National Corp. to invest in foreign mines in collaboration with private companies and to provide government guarantees to fund projects, according to Yohei Matsuda, deputy director at the ministry’s natural resources and energy agency. “Compared with China’s recent investment growth, Japan is well behind,” said Takashi Murata , an analyst at Daiwa Securities Capital Markets Co. in Tokyo. “This will help boost domestic companies’ investment in mines abroad.” China is purchasing overseas mines to feed growth that accelerated at the fastest pace since 2007 in the fourth quarter, moving it closer to overtaking Japan as the world’s second- largest economy. China’s central government plans to boost investment in overseas mineral exploration, the China Securities Journal reported in December. Under the proposed bill, JOGMEC, as the agency is known, can invest as much as 27.5 billion yen ($308 million) in overseas mines, Masanori Okada , chairman of the Japan Mining Industry Association, said Jan. 21. Under the current law, it can invest only in overseas projects for oil and natural gas. State Guarantees The bill, which will be submitted to the cabinet early next month, will allow JOGMEC to provide government guarantees to help private companies get financing for mineral resources projects such as rare metals, base metals and iron ore, Matsuda said in an interview today. “If everything goes well, the revised law will be effective from July,” he said. Japan’s auto and electronics sectors are among the world’s major consumers of metals such as platinum, indium, lithium and chrome that are used in mobile phones, computers, catalytic converters, liquid-crystal displays and so-called green technologies, including low-energy light bulbs. “With JOGMEC’s participation, private companies can hedge political risk in overseas mine investment,” said Yasuhiro Narita , an analyst specializing in trading companies at Nomura Securities Co. in Tokyo. On Jan. 20, Orocobre Ltd. , an Australian mineral exploration company, said it will set up a joint venture with Toyota Tsusho Corp. , which is 22 percent owned by Toyota Motor Corp. , to develop a mine in Argentina that will provide raw materials for vehicles powered by lithium-ion batteries. Foreign Mines If the proposed bill is passed by parliament, “companies can invest in overseas mines promptly if prices of mineral resources decline amid the yen’s rally,” Murata said. In addition to JOGMEC, the Japan Bank for International Cooperation , a unit of government-owned Japan Finance Corp ., provides support for overseas mining projects. The bank signed a contract to provide a $245 million loan for a copper mine expansion project in Chile, it said on Jan. 26. Japan is the biggest importer of copper concentrate after China. China’s foreign currency reserves, the world’s largest, rose to a record $2.4 trillion at the end of December. The central government has spent 735 million yuan ($108 million) supporting efforts by Chinese companies to explore and develop mines overseas, the China Securities Journal said last month. Chinese companies had spent $47.3 billion on overseas projects, excluding oil and gas developments, up to the end of 2008, the report said. China Investment China Investment Corp. , the nation’s sovereign wealth fund, has had “early” talks for direct investments in Brazil and Mexico, Chairman Lou Jiwei said Jan. 20. CIC, which held almost $300 billion in assets at the end of 2008, last year accelerated investments in resource-related companies, including Teck Resources Ltd. , Canada’s largest base-metals producer. Teck Resources sold a 17 percent stake to CIC in July for C$1.74 billion ($1.5 billion) to reduce debt. China Minmetals Corp. , the nation’s largest metals trader, bought $1.4 billion of mines, including the Century mine, from Australia’s OZ Minerals Ltd. in June. South Korea expects domestic companies to make record investments of more than $12 billion on overseas energy and mineral resource projects this year to boost supplies. That’s an increase of about 80 percent from $6.7 billion last year, the Ministry of Knowledge Economy said Jan. 19. To contact the reporters on this story: Jae Hur in Tokyo at jhur1@bloomberg.net ; Ichiro Suzuki in Tokyo at isuzuki@bloomberg.net

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China Shouldn’t Rescue Greece by Buying Debt, Ex-Central Bank Adviser Says

January 27, 2010

By Bloomberg News Jan. 28 (Bloomberg) — China shouldn’t buy a “large chunk” of Greek government debt to help rescue the nation because the securities are more risky than U.S. Treasuries, said Yu Yongding , a former adviser to the Chinese central bank. Greece has a lower debt rating than the U.S. and its statistics have been “sharply” criticized by the European Commission, said Yu, currently a member of the Chinese Academy of Social Sciences, a government-backed research body. The Greek Finance Ministry yesterday “categorically“ denied a report in the Financial Times that it is wooing China to buy as much as 25 billion euros ($35 billion) of its bonds. “It is unreasonable for an economist to support a diversification away from an unsafe asset class to a much more unsafe asset class,” Yu said in an e-mailed response to questions. “Let European governments and the European Central Bank rescue Greece.” China wants to improve management of its $2.4 trillion foreign-currency reserves by both seeking safety and increasing the value of its holdings, the State Administration of Foreign Exchange said on Jan. 6 after its annual work meeting. Chinese investors cut their holdings of U.S. Treasuries by $9.3 billion in November to $789.6 billion in November, Treasury Department data show. Yu’s views have received official backing before. In February, he called for China to seek guarantees that its investments in Treasuries won’t be eroded by “reckless policies.” A month later, Premier Wen Jiabao did just that during an annual session of parliament. Yu was picked by the China Daily to grill U.S. Treasury Secretary Timothy Geithner in Beijing in June about risks that the record U.S. fiscal deficit would undermine the value of its debt. Greek Fund Raising Greece is seeking to raise funds from global investors to reduce a budget deficit of almost 13 percent of gross domestic product, the biggest shortfall in the European Union. The government sold 8 billion euros of five-year bonds with a coupon of 6.1 percent this week. The Greek Finance Ministry said yesterday it plans to reduce the deficit to 3 percent of GDP by 2012. Finance Minister George Papaconstantinou said on Jan. 20 that the government is considering bond issues in Asia and the U.S. and may market debt to Greek retail investors. The country is rated A2 by Moody’s, the fifth-lowest investment-grade, and two steps lower at BBB+ by S&P. The U.S. has the highest rating from Moody’s and S&P. An official in SAFE’s press department who asked not to be named yesterday said he hadn’t heard about the plan for China to buy Greek debt and declined to comment. “Even if pricing is attractive, one key problem for Greek government bonds is the lack of credibility,” Yu said. “We trust U.S. statistics on debt and deficits. The numbers are not pretty but we have a pretty good idea, so we would know what we are buying. In contrast, Greece’s statistics have been sharply criticized by the European Commission.” — Belinda Cao , Natalie Weeks . Editors: Sandy Hendry , James Regan To contact the Bloomberg news staff on this story: Belinda Cao in Beijing at lcao4@bloomberg.net

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Asia Stocks Rise on Canon, Sony Profit Outlook; Dollar Gains, Copper Falls

January 27, 2010

By Rocky Swift Jan. 28 (Bloomberg) — Asian stocks rose and the dollar strengthened on signs profits are recovering and the Federal Reserve will relax easing measures as the U.S. economy recovers. Copper prices and shares in Chinese banks slid. The MSCI Asia Pacific Index gained 0.6 percent to 118.83 at 12:05 p.m. in Tokyo, with three stocks rising for each one that fell. The dollar climbed to a six-month high against the euro before a report forecast to show the U.S. economy expanded at the fastest pace in almost four years. Copper led declines among industrial metals amid concern Chinese curbs on its economy will dent demand for materials. Canon Inc. projected its biggest profit increase in a decade, while the Nikkei newspaper said earnings may climb for Sony Corp. and Honda Motor Co. Taiwan stocks rose on speculation Apple Inc.’s new Ipad tablet will increase orders for technology companies. China’s bank regulator took steps to prevent asset bubbles in the world’s fastest-growing major economy. “Some companies are telling us they’re seeing signs of improvement,” said Hugh Dive , who helps manage $3.5 billion at Investors Mutual Ltd. in Sydney. “Still, markets have run a bit ahead of themselves and many investors are starting to realize that the recovery is going to be a bit slower and more protracted than they might have expected.” MSCI’s regional gauge was set to snap eight days of losses, the longest losing streak since May 2004. Japan’s Nikkei 225 Stock Average gained 1.3 percent, while the Hang Seng Index added 1.7 percent. Taiwan’s Taiex index climbed 1.5 percent. S&P Futures Rise Futures on the Standard & Poor’s 500 Index added 0.3 percent. The gauge gained 0.5 percent yesterday as the Fed reiterated a pledge to keep rates low “for an extended period” and Apple unveiled a $499 tablet computer that costs half what some analysts estimated. Wintek Corp. , a Taiwanese maker of Apple’s flat-panel displays, rose 1.3 percent. Microsoft Corp., Ford Motor Co. and AT&T Inc. are among S&P-listed companies reporting earnings today. Canon Earnings Canon, the world’s biggest camera maker, rose 1.9 percent to 3,685 yen after saying yesterday net income will probably jump 52 percent this year. Honda , Japan’s second-largest carmaker, added 4.9 percent to 3,190 yen. It will likely post an operating profit of more than 300 billion yen ($3.3 billion) for the year to March, compared with its 190 billion yen forecast, Nikkei English News reported. Sony , which makes the PlayStation 3 game console, jumped 4.4 percent to 3,070 yen. The company may report its first profit in five quarters, Nikkei said. The MSCI Asia Pacific Index sank 6.9 percent in the past eight days as U.S. President Barack Obama proposed measures to limit risk taking at banks and concern grew China will rein in growth. The equity gauge is still 42 percent higher from a year ago, having gained on optimism for a global economic recovery. Banks in China, which have been powering the recovery in the world economy, were told by regulators to step up scrutiny of property loans as it seeks to control credit growth and prevent asset bubbles. Bank of China Ltd. fell 1 percent and China Citic Bank Corp. lost 2.9 percent. China Vanke Co. , the nation’s largest listed developer, declined 0.9 percent. Poly Real Estate Group Co. , the second-biggest, dropped 1.6 percent. Toyota Recall Toyota Motor Corp. fell 1.8 percent to 3,640 yen, its fifth straight decline, after saying yesterday it will expand a vehicle recall to Europe. That came a day after announcing it would suspend the sale and production of models that account for more than half its U.S. deliveries. Woolworths Ltd. , Australia’s biggest retailer, sank 2.6 percent to A$26.10 as UBG AG cut its share-price estimate. The dollar rose to a six-month high against the euro on speculation the Fed will relax its low-interest rate stance amid signs the U.S. economy is gathering momentum, boosting demand for the nation’s assets. The dollar strengthened to $1.3982 per euro from $1.4024 in New York yesterday, after climbing to $1.3938, the strongest since July 14. The greenback rose to 90.32 yen from 90 yen. Kansas City Fed President Thomas Hoenig said the time has come to change the promise to keep rates low. The Fed reiterated at the conclusion of its two-day policy meeting yesterday that interest rates will stay low for an “extended period” and held its target lending rate at zero to 0.25 percent. ‘Relatively Hawkish’ “With Hoenig sounding relatively hawkish, they are a bit more upbeat than people had expected,” said Danica Hampton , a senior strategist at Bank of New Zealand Ltd. in Wellington. “The U.S. dollar is going to find a bit more support. I think that will be further supported with the U.S. GDP data.” Economists in a Bloomberg survey forecast U.S. gross domestic product expanded 4.6 percent in the fourth quarter after gaining 2.2 percent in the third. The Commerce Department in Washington is set to release the data tomorrow. That would be the strongest since the first three months of 2006. “The worst of the storm has passed” for the economy, President Obama said in his State of the Union address. Oil traded near a five-week low after falling yesterday as a government report showed inventories of gasoline rose to a 22- month high in the U.S., the world’s biggest energy consumer. Crude oil for March delivery was at $73.78 a barrel in electronic trading on the New York Mercantile Exchange at 9:27 a.m. Singapore time. Yesterday, the contract fell $1.04 to $73.67, the lowest settlement since Dec. 21. Copper for three-month delivery dropped 1.9 percent to $7,095 a metric ton on the London Metal Exchange, near a one- month low, as China, the world’s biggest metals consumer, takes steps to rein in lending to cool the economy. The metal has lost 4.9 percent in three days. Aluminum declined 1.6 percent to $2,145 a ton as the dollar gained for a third day against six major currencies. Gold was little changed at $1,086.50 an ounce. To contact the reporter for this story: Rocky Swift at in Tokyo or rswift5@bloomberg.net .

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Toyota Plunges as Expanded 5.3 Million Recall of Vehicles Tarnishes Image

January 27, 2010

By Alan Ohnsman and Mike Ramsey Jan. 28 (Bloomberg) — Toyota Motor Corp. , the world’s largest carmaker, fell in Tokyo for a fifth straight day as it expanded recalls by more than 1 million vehicles, adding to concerns its reputation for quality may be permanently tarnished. The shares dropped as much as 4.7 percent to 3,530 yen and traded at 3,620 yen as of 10:21 a.m. local time, bringing their decline to 14 percent since Jan. 21, when Toyota announced a recall of 2.3 million vehicles after finding a pedal flaw linked to unintended acceleration. Toyota’s “reputation for long-term quality is finished,” Maryann Keller , senior adviser at Casesa Shapiro Group LLC in New York, said yesterday in an interview. “People aren’t going to buy Toyotas, period. It doesn’t matter which model. What’s happened is sufficient to keep people out of the stores.” The carmaker said late yesterday it’s expanding a record 4.3 million-vehicle recall announced in November to include 1.09 million additional U.S. vehicles, to fix accelerator pedals at risk of being trapped by floor mats. Losing its reputation for quality would undercut Toyota’s decades-long campaign to promote reliability and safety that helped it become No. 2 in U.S. sales. Models Added The company said Jan. 26 it would suspend the U.S. sale and production of eight models involved in the Jan. 21 recall. Those models account for more than half its deliveries in the country, including its top-selling Camry and Corolla cars. “We don’t know how long the sales halt will last, which makes the stock unattractive,” said Hiroichi Nishi , an equities manager at Nikko Cordial Securities Inc. in Tokyo. Models that were added yesterday to the November recall are 2008-2010 Highlander sport-utility vehicles; 2009-2010 Corolla compact cars; 2009-2010 Venza wagons; and the 2009-2010 Toyota Matrix hatchback. General Motors Co.’s 2009-2010 Pontiac Vibe, a version of the Matrix, is also to be recalled, said Martha Voss , a Toyota spokeswoman. Toyota’s American depositary receipts fell the most in more than a year yesterday, and GM added incentives to woo owners of the U.S. autos being recalled to fix the pedal flaw. “This is going to have severe ramifications for Toyota,” said John Wolkonowicz , an analyst at IHS Global Insight in Lexington, Massachusetts. “The Teflon seems to have evaporated.” Quality Concerns Two Toyota recalls in three months compounded concern that quality may have slipped after a decade of North American expansion. The company’s 1,460 U.S. Toyota and Lexus dealers and hundreds of North American suppliers are awaiting word that engineers have found a solution for the pedal defect. While Toyota City, Japan-based Toyota is aware that its reputation for quality may be endangered, “this is a customer safety issue,” said Irv Miller , U.S. group vice president for corporate communications. Miller said he wasn’t aware whether the decision to halt production was made by President Akio Toyoda . “He is certainly aware of the issue,” Miller said. Along with Camry and Corolla, Toyota’s recall covers the Avalon sedan and Matrix hatchback; RAV4, Highlander and Sequoia SUVs; and Tundra pickups. Also included is the Pontiac Vibe, a version of the Matrix built at a joint Toyota-GM plant until last year. Weekly Fallout Global Insight estimated that Toyota would lose 20,000 vehicle sales a week as long as it ceases selling and producing the eight models. U.S. sales of the affected Toyota vehicles totaled 998,744 in 2009, according to researcher Autodata Corp. of Woodcliff Lake, New Jersey. Wolkonowicz said the models accounted for 70 percent of Toyota brand sales and about 56 percent of overall U.S. sales when Lexus is included. Stopping sales of some models will cut Toyota’s offerings as U.S. consumers begin returning to dealer lots after last year’s slump. Toyota posted a 32 percent gain in December U.S. deliveries, topping the industry’s 15 percent increase, and will report January totals on Feb. 2. On Feb. 4, Toyota will release earnings for its fiscal third quarter ended Dec. 31. Wolkonowicz, the Global Insight analyst, said the fallout for Toyota may not end soon. The U.S. was Toyota’s largest market through 2007, contributing half or more of global operating income. Toyota trails only GM in U.S. sales and surpassed the Detroit-based automaker’s global total in 2008. ‘Biggest Crisis’ “This is the biggest crisis in the auto industry since the bankruptcies of GM and Chrysler,” he said. “Toyota is not going to be able to contain this problem in a short period of time. It’s going to drag on and linger, unlike the bankruptcies of GM and Chrysler last summer.” The automaker retained the top spot in June in J.D. Power & Associates’ survey of initial quality and topped Consumer Reports magazine’s annual survey of automotive brand perceptions this month. Still, Toyoda already was under pressure to improve quality since he took the helm in June, and the latest setbacks probably will add to the strain as competitors including South Korea’s Hyundai Motor Co. narrow Toyota’s lead. Toyota continues to investigate the pedal-related flaw reported last week and doesn’t yet have figures on any related accidents, injuries or fatalities, said Brian Lyons , a spokesman. The company is aware of at least five deaths related to the floor mat-related recall from November, he said. Pedal Fixes Last week’s recall involved a potential flaw in pedal parts made by CTS Corp. that could, “in rare instances, mechanically stick in a depressed position or return slowly to the idle position,” according to Toyota. Toyota said in a statement late yesterday that pedals using a revised design “are now in full production at CTS to support Toyota’s needs.” The company is also working with CTS to test modifications to existing pedals that will be available “as quickly as possible.” Toyota accounts for about 3 percent of annual sales at Elkhart, Indiana-based CTS, according to the company. Vehicles with pedal parts from Toyota-affiliated Denso Corp. weren’t included in last week’s recall. “This is a very rare occurrence, incidents of sudden acceleration, but because Toyota’s had made multiple actions related to it, the perceived image is they don’t have a handle on it,” said Jake Fisher , senior auto engineer for Consumer Reports. “They’ve been trying to be proactive, but that’s probably not what consumers will draw from this.” Consumer Response Bill Visnic, senior editor at consumer researcher Edmunds.com, said shoppers may not differentiate between the Toyota autos on the recall list with those still available on showroom floors. “It’s definitely going to put a damper on the entire atmosphere around a dealership,” he said. “This is a real test of the strength of the brand.” At Santa Monica Toyota in suburban Los Angeles, General Manager Billy Rinker said he received about 15 customer calls early yesterday about the recall. “I don’t think they lost” the reputation for quality, Rinker said of Toyota. “Toyota wants to be as perfect as possible, so they are fixing it.” News of the recalls was “scary,” said Prius owner Caroline Schkolnick, 51, of Beverly Hills, California, who was having her car serviced in Santa Monica. She reported no problems with her hybrid, which was covered by the November floor-mat recall, and said she isn’t worried about the pedals. “There were mistakes and I respect them for fixing them,” Schkolnick said. Toyota may be “overreacting” in suspending sales and production, said Mickey Anderson, president of Performance Auto Group in Omaha, Nebraska, which owns three Toyota stores and two Lexus outlets. “Probably, that’s the right thing to do,” Anderson said. “While this will be a burden for Toyota and the dealers, it is absolutely the most proactive way to take care of the customers.” To contact the reporters on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net ; Mike Ramsey in Southfield, Michigan, at mramsey6@bloomberg.net

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TARP Tax Polls: Beware Wall Street, Americans Love Obama’s Bank Tax

January 27, 2010

President Obama has had a rough few weeks. His proposed health care overhaul is in trouble and voters are saying he’s not doing enough to improve the economy, according to a new poll conducted by Republican researcher Glen Bolger and Democrat Stan Greenberg. The one bright spot for Obama is his proposed “TARP tax.”

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In a Surprise, Office Market Posts Unexpectedly Good Results

January 27, 2010

Even though the overall number of U.S. jobs continued to disappear through December of last year, the U.S. office market unexpectedly posted positive net absorption for the quarter. The most likely explanation is that jobs in the office sector increased…

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Investor Focus: Hotels Poised for Picking?

January 27, 2010

Private equity firms and corporations seemed poised to take advantage of opportunities in the distressed hotels arena this year. In the past week, an affiliate of Lone Star Funds agreed to acquire Lodgian Inc. for $270 million, including assumed debt…

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Banks Report Slowing CRE Loan Charge-Offs

January 27, 2010

A number of major regional banks reported a general slowing in the rate of deterioration of their commercial real estate loan portfolios in the fourth quarter, with several reporting a decline in the rate of charge-offs — loans deemed mostly uncollectable…

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Japan’s Retail Sales Unexpectedly Slide for 16th Month as Stimulus Wanes

January 27, 2010

By Tsuyoshi Inajima and Aki Ito Jan. 28 (Bloomberg) — Japan’s retail sales unexpectedly fell for a 16th month in December as dwindling paychecks and deteriorating job prospects weighed on consumers in the world’s second-largest economy. Sales slid 0.3 percent from a year earlier, the Trade Ministry said today in Tokyo. The median estimate of 12 economists surveyed by Bloomberg News was for a 0.3 percent gain. The benefits of the nation’s export-led recovery haven’t spurred hiring or paychecks for the nation’s households, hurting companies including Right On Co. Stimulus from emergency government spending that helped pull the nation out of a recession is starting to fade, an indication that domestic demand won’t gain momentum, according to economist Junko Nishioka . “Until paychecks rebound, we’re not going to see a stable, sustainable recovery in consumer spending,” said Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo. “The recovery will start to stall as early as this quarter.” Sales at jeans and casual-wear maker Right On fell 21 percent from a year earlier in the month ended Jan. 20, marking the 14th straight drop, the company said this month. Its net income in the three months ended Nov. 20 slumped 80 percent. Sales fell a seasonally adjusted 1.2 percent last month, today’s report showed. Government measures have included incentives to purchase energy-saving appliances and cars and one-time cash handouts to households. Prime Minister Yukio Hatoyama unveiled a 7.2 trillion yen ($81 billion) stimulus package last month on concern falling prices and slower growth would hurt households once existing measures fade. Spending Flat Consumer spending was probably flat in the three months ended Dec. 31 because of the diminished boost from government incentives, according to Deutsche Securities Inc. in Tokyo. The company forecasts spending will drop this quarter and next. Household sentiment slipped to a six-month low in December. Job prospects are also worsening, which may weigh on consumer spending in coming months. A report tomorrow will show the unemployment rate rose for a second month to 5.3 percent in December, according to the median estimate of 28 economists surveyed by Bloomberg News. Employee compensation will slide a record 3.9 percent in the fiscal year ending March 31, and will probably decline 0.7 percent in following 12 months, the government said last week. Winter bonuses slid 15 percent in 2009, the Japan Business Federation said last month. Falling Wages Falling wages have entrenched consumers’ deflationary expectations, a sign they may delay purchases in anticipation of lower prices. A government report this month showed the portion of people who expect costs of household goods to decline exceeded those who see them becoming more expensive for the first time the survey began in April 2004. Bank of Japan Governor Masaaki Shirakawa told lawmakers yesterday that it’s “critical” that the central bank helps overcome falling prices. His policy board kept the benchmark interest rate at 0.1 percent this week and affirmed forecasts for deflation to continue through the year ending March 2012. To contact the reporter on this story: Tsuyoshi Inajima in Tokyo at tinajima@bloomberg.net ; Aki Ito in Tokyo at aito16@bloomberg.net

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Spyker’s Muller May Struggle for Cash to Revive Saab After Deal With GM

January 27, 2010

By Ola Kinnander and Chris Reiter Jan. 28 (Bloomberg) — Victor Muller , whose Spyker Cars NV is buying Saab, says he has to sell 100,000 cars a year to make the business profitable. He may struggle to find enough cash to build the new model he needs to help reach his goal. Muller, chief executive officer at Dutch luxury-car maker Spyker, may take four years to reach his sales goal, according to an estimate by IHS Global Insight. Saab, owned by General Motors Co. for 20 years, is expected to sell 53,000 cars in 2010, the Lexington, Massachusetts-based researcher said. Spyker will probably need to invest more money to develop a successor to the mainstay 9-3 sedan because sales of the 9-5 coming out this year won’t be enough to fund the project, said Paul Newton , Global Insight’s London-based analyst. Spyker, which built 42 sports cars in 2008, hasn’t made an annual profit since its initial public offering and Saab had 198 million euros ($278 million) in cash at the end of last year. “Saab risks burning through its cash if it invests on a new model before stabilizing sales and distribution of the 9-5, but delays in introducing another model could jeopardize long- term viability,” said Jim Hall , principal of Birmingham, Michigan-based consulting firm 2953 Analytics. “They’re damned if they do and damned if they don’t” proceed with new models. Developing a second model could cost as much as 500 million euros and Spyker may not be able to finance that, said Stefan Bratzel , director of the Center of Automotive at the University of Applied Sciences in Bergisch Gladbach, Germany. ‘Intense Work’ Muller, 50, is keeping Saab CEO Jan-Aake Jonsson to help him halt a wind-down started by GM and restart manufacturing at the main factory in Trollhaettan, which employs 3,500 workers. He will also oversee the introduction of the new 9-5 model by mid-April and of future vehicles. “Think about the opportunities going forward, we’ll have two beautiful iconic brands under the same roof,” Muller said in an interview. The CEO said he expects Saab to become profitable in “the foreseeable future.” Spyker could also raise additional capital for new models, he said. Spyker had 781,000 euros in cash as of June 30, according to the company’s most recent financial report. Jonsson told reporters in Stockholm this week that while there’s “intense work” ahead, “we have secured the future for Saab.” Trollhaettan, Sweden-based Saab’s loss before interest, taxes and depreciation widened to 400 million euros last year from 300 million euros in 2008. Deliveries slumped 58 percent to 39,903 cars and revenue fell 38 percent to 1 billion euros. Backup Financing “They’re buying an old platform and the license to a new one,” said Global Insight’s Newton. “It would take so much money to develop a new 9-3, that given the volumes it’s working on, it wouldn’t make sense.” Under its agreement with GM, announced this week, Zeewolde, Netherlands-based Spyker will pay $74 million in cash and $326 million in preferred shares in the new company, called Saab Spyker Automobiles NV. As backup financing, Spyker received a 150 million-euro credit facility from New York-based GEM Global Yield Fund Ltd. The transaction is subject to the approval of a 400 million-euro loan by the European Investment Bank, the European Union’s lending arm. The EIB originally signed off the credit in October based on previous bidder Koenigsegg Group AB before a deal collapsed. Detroit-based GM and Spyker said they want to complete the transaction by February. M&A Expert Muller began his career in 1984 as a lawyer at the Amsterdam office of Baker & McKenzie. In 1989, he became a member of the management team of offshore company Heerema in Leiden specializing in acquisitions. He later took part in a management buyout that made him president of Weismuller Holding BV, a Dutch harbor-towage and marine-salvage company. A lover of classic cars, the 6-foot-4 bespectacled executive has traveled around the world to show off his own collection, which included the 1958 Ferrari 250 GT and 1928 Rolls Royce Phantom 1 Experimental Jarvis. In 1998, Muller met Maarten de Bruijn , a speedboat builder who had designed and produced a sports car and was looking for a business partner and investor. The next year, the pair acquired the Spyker brand, which was founded in 1898 and went out of business in the 1920s. Muller and De Bruijn took Spyker Cars public in 2004 at 15.50 euros a share. The shares fell to a record level of 1.49 euros on Oct. 9, 2009. They closed at 5.51 euros in Amsterdam yesterday, valuing the carmaker at 120 million euros. Mubadala Development Spyker’s new C8 Aileron nudges 300 kilometers (186 miles) an hour on the speedometer and costs 198,500 euros. While Muller’s credentials included winning Mubadala Development Co. as Spyker investor, he struggled to turn around the loss-making Midland Formula One racing team Spyker took over in 2006 before selling it the following year. “He moves fast, shifts gears quickly, talks easy and knows how to enthuse someone,” said Lex Roukens , a former Spyker chief financial officer who is now a partner at Value Recovery Group BV, a turnaround adviser in Hilversum, Netherlands. “He’s a good dealmaker.” After Koenigsegg’s talks with GM broke down Nov. 24, Muller sent an e-mail to GM Vice Chairman Bob Lutz expressing interest in Saab, according to people familiar with the matter. Lutz responded within eight minutes, and Muller put in a bid five days later, the people said. Russian Exit To allay GM’s concern about financing from Vladimir Antonov , Spyker’s largest shareholder, Muller lined up credit that would allow him to buy out the Russian investor. Saab has struggled since GM bought half of the automaker in 1990 from Investor AB, the Wallenberg family’s publicly traded holding company, and acquired the rest in 2000. The company has made a profit in only one of the last 20 years. The carmaker, whose popularity peaked in the 1980s, when the 900 model drew buyers seeking a European car that stood for technical innovation, safety, luxury and idiosyncratic design, is still a niche brand whose potential can be exploited in areas such as low emission vehicles, said Pete Kelly , a senior director at J.D. Power & Associates. “The biggest thing that Spyker has acquired is the Saab brand, the sporty brand with innovative technology and with safety and green features,” Kelly said. To contact the reporters on this story: Ola Kinnander in Stockholm at okinnander@bloomberg.net ; Chris Reiter in Berlin at creiter2@bloomberg.net .

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Clinton Makes Rounds in London to Push for Tougher Sanctions Against Iran

January 27, 2010

By Indira A.R. Lakshmanan Jan. 28 (Bloomberg) — U.S. Secretary of State Hillary Clinton is taking advantage of meetings with foreign ministers in London to push for tougher sanctions aimed at Iran’s nuclear program. “In the course of many consultations, including today, we believe that there is a growing understanding in the international community that Iran should face consequences for its defiance of international obligations,” Clinton told reporters traveling with her last night. Clinton is discussing strengthening the implementation of existing sanctions and the possible elements of a new United Nations resolution aimed at reining in Iran’s nuclear ambitions, according to U.S. officials who spoke on condition of anonymity because of the sensitivity of the private talks. While Iran says its nuclear program is aimed at generating electricity, the U.S., Europeans and UN inspectors have cast doubt on Iran’s motives for building clandestine atomic facilities and enriching uranium, which can be used for bomb- making. President Barack Obama said he would focus on diplomacy through 2009 before pressing for tougher international pressure this year in an attempt to force Iran to comply with inspectors. Clinton’s effort to drum up support for sanctions while in London for international meetings on Yemen and Afghanistan is a sign of the Obama administration’s attempt to rejuvenate a policy that has foundered in the UN Security Council. China in particular has resisted new sanctions on Iran, which is China’s third-largest source of crude oil. ‘Openness’ to Sanctions Asked how she would change Chinese Foreign Minister Yang Jiechi ’s mind about sanctions when they meet today, Clinton said, “I don’t think there is a mind to change. I think there is an openness” to sanctions and “an awareness of the importance of the international community standing together.” Clinton told reporters she thinks there is a “growing sense” among Security Council powers that Iran’s refusal to “agree to the Tehran research reactor proposal” was “a turning point.” She was referring to an international offer to swap Iran’s uranium for enriched fuel for a medical reactor. Clinton is also scheduled to meet today with foreign ministers from Britain and France, the other nations that sit with the U.S., Russia and China as permanent member of the UN Security Council with veto power. She talked yesterday with her counterparts from Russia, Indonesia and Turkey, and will confer tomorrow with ministers from Germany, Italy, Saudi Arabia and the United Arab Emirates, U.S. officials said. A State Department official said Clinton and Russian Foreign Minister Sergei Lavrov had a constructive talk about how to effectively pressure Iran, including what the official called appropriate action at the UN. Iran Absent Iran announced yesterday that it wasn’t sending a representative to today’s international conference, though it shares a border with Afghanistan. “The approach to the London conference is increasing military presence and not the root of problems,” Ramin Mehmanparast , a foreign ministry spokesman, told the state-run Mehr news agency. Clinton is pressing some countries, such as Indonesia, to use moral persuasion to convince Iran that it isn’t meeting its obligations to the international community, while talks with others will focus on the possible language of a new UN resolution, U.S. officials said. Revolutionary Guard Clinton has indicated the U.S. wants to target Iran’s Revolutionary Guard Corps, an elite military branch with far- reaching business interests and involvement in nuclear and missile development. Iran is already subject to three rounds of UN sanctions, including a 2007 resolution freezing assets and banning travel for some Revolutionary Guard-affiliated companies and officials. Officials representing the five permanent Security Council members and Germany — a group that has held regular talks on the Iranian nuclear issue for several years — plan to hold a conference call this week to discuss the first draft of a sanctions resolution, according to a European diplomat. The group will discuss a proposed U.S. text that suggests strengthening existing measures and probably would add certain Revolutionary Guard individuals or entities to the UN travel ban and asset freeze, the diplomat said. Sanction Implementation U.S. Treasury Undersecretary Stuart Levey , who has played a pivotal role in the design and enforcement of financial restrictions on Iran since the George W. Bush administration, is in London to discuss the implementation of sanctions with foreign officials, the U.S. officials said. The Treasury Department has identified 119 Iranian companies, banks and officials, saying they support Iran’s nuclear or terrorist activities and banning them from dealings with U.S. companies and allowing the U.S. to seize their assets. Treasury officials have discussed with European counterparts the possibility of additional restrictions on financial transactions or insurance for Iranian cargo shipments. Lutz Guellner , spokesman for European Union foreign policy chief Catherine Ashton , told reporters in Brussels yesterday that while there’s “no precise calendar” for a UN debate on Iran, “we can’t wait forever.” To contact the reporter on this story: Indira Lakshmanan in London at ilakshmanan@bloomberg.net .

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Obama to Urge Congress to Reject `Tired Battles’ in State of Union Speech

January 27, 2010

By Nicholas Johnston Jan. 27 (Bloomberg) — President Barack Obama will say tonight the nation needs to move beyond the “tired battles” that have consumed Washington and resolve differences on issues including health care and reducing government debt “Let’s try common sense,” Obama will say in his State of the Union address to a joint session of Congress, according to excerpts released by the White House. “Let’s meet our responsibility to the people who sent us here.” In the speech, scheduled for 9 p.m. Washington time, Obama will focus on the economy and government actions to bring down the nation’s unemployment rate, which is at 10 percent, according administration officials and Democratic leaders. Obama will call for a freeze on federal discretionary spending, tax cuts aimed at middle-income Americans, tax incentives for businesses, regulating the financial-services industry, remaking the nation’s immigration laws and addressing the federal budget deficit, which is forecast to be $1.35 trillion this year. To contact the reporter on this story: Nicholas Johnston in Washington at njohnston3@bloomberg.net

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Philippines May Hold Interest Rate as Central Bank Prepares Stimulus Exit

January 27, 2010

By Karl Lester M. Yap and Michael Munoz Jan. 28 (Bloomberg) — The Philippine central bank will probably keep borrowing costs at a record low to support the economy even as it prepares to unwind some stimulus measures amid signs growth may accelerate. Bangko Sentral ng Pilipinas will keep its benchmark interest rate unchanged at 4 percent for a fifth straight meeting today, according to all 15 economists surveyed by Bloomberg News. A report at 10 a.m. may show that economic growth accelerated last quarter, according to a separate survey. The rate decision is due about 4 p.m. in Manila. The central bank plans to raise interest rates as its final step in unwinding measures implemented to counter the global recession, Deputy Governor Diwa Guinigundo said this week. Asian economies need to time their exits from stimulus carefully as the region rebounds this year, the Asian Development Bank said this month. “It is still premature to raise interest rates considering growth is still fragile,” said Antonio Espedido , treasurer at China Banking Corp. in Manila. “Once they are convinced growth is sustainable, the central bank may pull out some stimulus measures to prevent inflation from creeping in.” Benchmark 10-year bond yields climbed to a seven-month high last week on speculation the central bank will raise borrowing costs this year as inflation accelerates. Seven-year bond yields rose 12 basis points yesterday on concern Governor Amando Tetangco will signal the start of monetary tightening today. Inflation Accelerates Inflation in the Philippines accelerated to an eight-month high of 4.4 percent in December, driven by rising oil and food costs. Tetangco said yesterday price gains may reach a 10-month high of as much as 5.4 percent in January. The Philippine economy grew 1.1 percent in the fourth quarter from a year earlier, the fastest pace since the final three months of 2008, according to the median forecast of 12 economists in a Bloomberg News survey. Growth in Asian economies from China to Vietnam is accelerating after policy makers boosted public spending and cut borrowing costs to fight the worst global slump since World War II. Philippine President Gloria Arroyo , whose term ends this June, is increasing outlays on roads, schools and state programs to a record 1.58 trillion pesos ($34 billion) this year to bolster the economy. Ayala Land Inc. , the Philippines’ largest builder, expects a “very strong” start in 2010 as low interest rates spur home purchases, Chairman Fernando Zobel de Ayala said this month. The company expects to sell 9,200 residential units this year, up from 2,500 units last year, Zobel said Jan. 19. Stimulus Measures The Philippines’ benchmark interest rate is at the lowest level since central bank data started in 1990. Easing inflation last year allowed Bangko Sentral to slash the overnight borrowing rate by 2 percentage points from December 2008 to July 2009 to support economic growth as exports collapsed. Policy makers also reduced the amount of cash banks need to set aside as reserves and raised the amount of money available for loans to local lenders in late 2008. “We have already an exit strategy put in place,” Guinigundo said in a Jan. 25 interview. “We will activate it as and when the signs are clearer. All the things we put in place are all subject to possible unwinding or reversal. Interest rates will be the last to change.” Bangko Sentral is planning its exit from the measures taken during the global recession because a “delayed response could stir up inflation and create destabilizing asset bubbles,” Governor Tetangco said this month. The authority may increase the rates it charges lenders for borrowing money from the central bank, he said. Regional Moves Central banks throughout the region are taking steps to restrain inflation as global growth recovers. Australia and Vietnam raised interest rates late last year, and the People’s Bank of China increased the proportion of deposits that banks must set aside as reserves this month. Malaysia’s central bank said this week that borrowing costs cannot be kept “too low” for too long even as it kept interest rates unchanged, prompting Citigroup Inc. and Maybank Investment Bank Bhd. to predict it may begin raising the benchmark rate from a record-low 2 percent as early as March. To contact the reporter on this story: Karl Lester M. Yap in Manila at kyap5@bloomberg.net

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Asian Stocks Rise for First Time in Nine Days on Canon Outlook; Sony Gains

January 27, 2010

By Shani Raja Jan. 28 (Bloomberg) — Asian stocks rose for the first time in nine days, led by electronics and technology companies, after Canon Inc. forecast its biggest profit increase in a decade. Canon , a Japanese camera maker, rose 2.2 percent. Sony Corp. and Honda Motor Co. jumped more than 5 percent after the Nikkei newspaper flagged improved profitability at the two companies. Macarthur Coal Ltd. added 2.9 percent in Sydney after its share- price estimate was raised at Royal Bank of Scotland Group Plc. The MSCI Asia Pacific Index added 0.3 percent to 118.48 at 10:38 a.m. in Tokyo, with five stocks rising for every two that dropped. The gauge sank 6.9 percent in the past eight days as U.S. President Barack Obama proposed measures to limit risk taking at banks and concern grew China will rein in growth. The index is still 42 percent higher than a year ago. “Some companies are telling us they’re seeing signs of improvement,” said Hugh Dive , who helps manage about $3.5 billion at Investors Mutual Ltd. in Sydney. “Still, markets have run a bit ahead of themselves and many investors are starting to realize that the recovery is going to be a bit slower and more protracted than they might have expected.” Japan’s Nikkei 225 Stock Average gained 1.4 percent. Australia’s S&P/ASX 200 Index rose 0.3 percent. South Korea’s Kospi gained 0.6 percent, while Taiwan’s Taiex added 1.4 percent. Among stocks that fell today, Toyota Motor Corp. fell 2.3 percent in Tokyo after saying it will expand a vehicle recall to Europe. Woolworths Ltd. , Australia’s biggest retailer, sank 2.7 percent as UBG AG downgraded the stock. Canon, Honda Futures on the Standard & Poor’s 500 Index added 0.4 percent. The gauge gained 0.5 percent yesterday as the Federal Reserve reiterated a pledge to keep rates low “for an extended period” and Apple Inc. announced a tablet computer that costs half what some analysts estimated. Canon, the world’s biggest camera maker, rose 2.2 percent to 3,695 yen after saying yesterday net income will probably jump 52 percent this year. Sales are expected to rise 7.5 percent in the period, the company said. Honda, Japan’s No. 2 carmaker, added 5.6 percent to 3,210 yen. It will likely post an operating profit of more than 300 billion yen ($3.3 billion) for the year to March, compared with its 190 billion yen forecast, Nikkei English News reported. Sony, a Japanese maker of consumer electronics, jumped 5.1 percent to 3,090 yen. The company may report an operating profit of 100 billion yen in the three months ended December, the first profit in five quarters, Nikkei said. Japanese exporters gained as the yen depreciated to 90.26 today against the dollar from 89.14 yesterday. A weaker yen boosts the value of overseas income at Japanese companies when converted into their home currency. Toyota fell 2.3 percent to 3,620 yen in Tokyo after saying yesterday it will expand a vehicle recall to Europe. That came a day after announcing it would suspend the sale and production of models that account for more than half its U.S. deliveries. In Sydney, Woolworths sank 2.7 percent to A$26.07. UBS cut its share-price estimate to A$32.50 from A$33.50. To contact the reporter for this story: Shani Raja in Sydney at sraja4@bloomberg.net .

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Toyota Falls as Quality Image May Be `Finished’ on Halt of Sales, Output

January 27, 2010

By Alan Ohnsman and Mike Ramsey Jan. 28 (Bloomberg) — Toyota Motor Corp. fell in Tokyo trading, headed for a fifth day of declines amid concerns that a widening vehicle recall and a U.S. sales halt for its top- selling models may have permanently tarnished its reputation. The shares dropped as much as 4.7 percent to 3,530 yen and traded at 3,555 yen as of 9:19 a.m. local time, bringing their decline to 15 percent since Jan. 21, when Toyota announced a recall of 2.3 million vehicles after finding a pedal flaw linked to unintended acceleration. Toyota’s “reputation for long-term quality is finished,” Maryann Keller , senior adviser at Casesa Shapiro Group LLC in New York, said yesterday in an interview. “People aren’t going to buy Toyotas, period. It doesn’t matter which model. What’s happened is sufficient to keep people out of the stores.” The company said yesterday it would expand a U.S. vehicle recall to Europe, a day after announcing it would suspend the sale and production of models that account for more than half its U.S. deliveries, including Camry and Corolla cars. Losing its reputation for quality would undercut a decades-long campaign to promote reliability and safety that helped Toyota become the world’s largest carmaker and No. 2 in U.S. sales. “We don’t know how long the sales halt will last, which makes the stock unattractive,” said Hiroichi Nishi , an equities manager at Nikko Cordial Securities Inc. in Tokyo. Toyota’s American depositary receipts fell the most in more than a year yesterday, and General Motors Co. added incentives to woo owners of the U.S. autos being recalled to fix the pedal flaw. ‘Severe Ramifications’ U.S. sales of eight models are being suspended after last week’s recall, and five North American plants are being idled, Toyota said Jan. 26. That followed a 4.3 million-unit recall in 2009 for a related problem tied to floor mats. “This is going to have severe ramifications for Toyota,” said John Wolkonowicz , an analyst at IHS Global Insight in Lexington, Massachusetts. “The Teflon seems to have evaporated.” Two Toyota recalls in three months compounded concern that quality may have slipped after a decade of North American expansion. The company’s 1,460 U.S. Toyota and Lexus dealers and hundreds of North American suppliers are awaiting word that engineers have found a solution for the pedal defect. While Toyota City, Japan-based Toyota is aware that its reputation for quality may be endangered, “this is a customer safety issue,” said Irv Miller , U.S. group vice president for corporate communications. Weekly Fallout Miller said he wasn’t aware whether the decision to halt production was made by President Akio Toyoda . “He is certainly aware of the issue,” Miller said. Along with Camry and Corolla, Toyota’s recall covers the Avalon sedan and Matrix hatchback; RAV4, Highlander and Sequoia SUVs; and Tundra pickups. Also included is the Pontiac Vibe, a version of the Matrix built at a joint Toyota-GM plant until last year. Global Insight estimated that Toyota would lose 20,000 vehicle sales a week as long as it ceases selling and producing the eight models. U.S. sales of the affected Toyota vehicles totaled 998,744 in 2009, according to researcher Autodata Corp. of Woodcliff Lake, New Jersey. Wolkonowicz said the models accounted for 70 percent of Toyota brand sales and about 56 percent of overall U.S. sales when Lexus is included. ‘Short-Term’ Sales Stopping sales of some models will cut Toyota’s offerings as U.S. consumers begin returning to dealer lots after last year’s slump. Toyota posted a 32 percent gain in December U.S. deliveries, topping the industry’s 15 percent increase, and will report January totals on Feb. 2. On Feb. 4, Toyota will release earnings for its fiscal third quarter ended Dec. 31. Wolkonowicz, the Global Insight analyst, said the fallout for Toyota may not end soon. The U.S. was Toyota’s largest market through 2007, contributing half or more of global operating income. Toyota trails only GM in U.S. sales and surpassed the Detroit-based automaker’s global total in 2008. “This is the biggest crisis in the auto industry since the bankruptcies of GM and Chrysler,” he said. “Toyota is not going to be able to contain this problem in a short period of time. It’s going to drag on and linger, unlike the bankruptcies of GM and Chrysler last summer.” Toyota Probe The automaker retained the top spot in June in J.D. Power & Associates’ survey of initial quality and topped Consumer Reports magazine’s annual survey of automotive brand perceptions this month. Still, Toyoda already was under pressure to improve quality since he took the helm in June, and the latest setbacks probably will add to the strain as competitors including South Korea’s Hyundai Motor Co. narrow Toyota’s lead. Toyota continues to investigate the pedal-related flaw reported last week and doesn’t yet have figures on any related accidents, injuries or fatalities, said Brian Lyons , a spokesman. The company is aware of at least five deaths related to the floor mat-related recall from November, he said. Last week’s recall involved a potential flaw in pedal parts made by CTS Corp. that could, “in rare instances, mechanically stick in a depressed position or return slowly to the idle position,” according to Toyota. Toyota said in a statement late yesterday that pedals using a revised design “are now in full production at CTS to support Toyota’s needs.” The company is also working with CTS to test modifications to existing pedals that will be available “as quickly as possible.” Consumer Response Toyota accounts for about 3 percent of annual sales at Elkhart, Indiana-based CTS, according to the company. Vehicles with pedal parts from Toyota-affiliated Denso Corp. weren’t included in last week’s recall. “This is a very rare occurrence, incidents of sudden acceleration, but because Toyota’s had made multiple actions related to it, the perceived image is they don’t have a handle on it,” said Jake Fisher , senior auto engineer for Consumer Reports. “They’ve been trying to be proactive, but that’s probably not what consumers will draw from this.” Bill Visnic, senior editor at consumer researcher Edmunds.com, said shoppers may not differentiate between the Toyota autos on the recall list with those still available on showroom floors. “It’s definitely going to put a damper on the entire atmosphere around a dealership,” he said. “This is a real test of the strength of the brand.” ‘Perfect as Possible’ At Santa Monica Toyota in suburban Los Angeles, General Manager Billy Rinker said he received about 15 customer calls early yesterday about the recall. “I don’t think they lost” the reputation for quality, Rinker said of Toyota. “Toyota wants to be as perfect as possible, so they are fixing it.” News of the recalls was “scary,” said Prius owner Caroline Schkolnick, 51, of Beverly Hills, California, who was having her car serviced in Santa Monica. She reported no problems with her hybrid, which was covered by the November floor-mat recall, and said she isn’t worried about the pedals. “There were mistakes and I respect them for fixing them,” Schkolnick said. Toyota may be “overreacting” in suspending sales and production, said Mickey Anderson, president of Performance Auto Group in Omaha, Nebraska, which owns three Toyota stores and two Lexus outlets. “Probably, that’s the right thing to do,” Anderson said. “While this will be a burden for Toyota and the dealers, it is absolutely the most proactive way to take care of the customers.” To contact the reporters on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net ; Mike Ramsey in Southfield, Michigan, at mramsey6@bloomberg.net

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UBS-IRS Deal: Court Ruling Forces Swiss To Rethink Deal To Reveal Names

January 27, 2010

GENEVA — The Swiss government said Wednesday it may have to renegotiate a carefully wrought deal with the United States to hand over thousands of files on suspected tax cheats in return for an end to U.S. legal proceedings against Switzerland’s biggest bank, UBS AG. Bowing to a court decision that declared parts of the deal illegal, officials will now seek a way to salvage the agreement reached with Washington in August without breaking Swiss law, Justice Minister Eveline Widmer-Schlumpf said. “The discussions that we will lead may result in formal or material changes to the treaty,” she told a news conference after a Cabinet meeting in the capital, Bern. The Internal Revenue Service, the U.S. agency that has taken the lead on this issue, said it expects the Swiss government “to continue to honor the terms of the agreement.” Until the legal impasse has been resolved, Switzerland will stop transferring any more files on UBS customers alleged to have hidden money in offshore accounts with the bank’s help, Widmer-Schlumpf said, adding that only six such files have been transferred to the U.S., each time with the client’s written consent. A further 1,168 files are close to completion. UBS said in a statement that it fully supports the government’s decision to seek talks with U.S. authorities. “As before, we will fulfill all our commitments under the agreement,” it said. The latest episode in the UBS saga is an embarrassment for Switzerland, which is trying to shed its image as a haven for tax cheats, and a headache for the bank, whose reputation has been tarnished by revelations about its cross-border dealings with rich American clients. Shares in UBS closed 2.4 percent lower at 14.15 Swiss francs ($13.50) on Wednesday. Widmer-Schlumpf said the outcome of the talks, which could require parliament to approve changes to Swiss law, will affect not just the future of UBS but “also the stability of the financial center and the economic situation of Switzerland.” U.S. authorities last year agreed to drop their demand for details of 50,000 American UBS clients, if the Swiss divulged the names of 4,450 U.S. customers believed to have been involved in large-scale tax evasion or fraud. In a separate deal, UBS paid a $780 million penalty as part of a deferred prosecution agreement that included disclosure of an additional 150 names. Widmer-Schlumpf said the government would do what it could to prevent Switzerland or UBS from being punished for not meeting its side of the bargain. But she explicitly ruled out an emergency decree to force through a change in Swiss law. In its Friday ruling, the Swiss Federal Administrative Court found that UBS clients’ failure to fill out a required tax form – even if this concerned large sums of money and occurred repeatedly – couldn’t be interpreted as fraud or fraud-like activity. This is required for Switzerland to break its strict banking secrecy rules and hand over files to foreign governments. Experts say the current treaty includes a clause that may allow the Swiss government to avoid having to change the law or renegotiate its treaty with Washington, if 10,000 UBS customers voluntarily give themselves up under a U.S. tax amnesty program.

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Tavis Smiley: My Conversation With Filmmaker Eugene Jarecki on Move Your Money

January 27, 2010

Award-winning filmmaker and author Eugene Jarecki is one of forces behind the Move Your Money campaign, a movement that encourages everyday people to move their money from large banks to smaller, community-based organizations. Here’s a clip from my interview with Jarecki: The full conversation with Eugene airs Friday night on PBS.

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Impax Energy Services Income Trust Announces Additional Court Order

January 27, 2010

CALGARY, ALBERTA–(Marketwire – Jan. 27, 2010) – NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR DISSEMINATION IN THE UNITED STATES. Impax Energy Services Income Trust (TSX VENTURE:MPX.UN) (the “Trust”) announces that Impax Energy Services Master Limited Partnership and Impax Energy Services Ltd. (collectively, “Impax”) and its related entities have obtained an Order from the Alberta Court of Queen’s Bench (the “Alberta Court”) approving the previously announced resignations of all the trustees, directors, and officers, of the Trust, other than the Chief Financial Officer, who has agreed to temporarily remain as Chief Financial Officer to facilitate completion of certain outstanding sale and other miscellaneous matters. The resignations were effective January 26, 2010. The Court’s Order also provides for an expansion of the court-appointed Monitor’s responsibilities to facilita

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Walter Energy Names Keith M. Shull as Sr. Vice President – Human Resources

January 27, 2010

TAMPA, FL–(Marketwire – January 27, 2010) – Walter Energy ( NYSE : WLT ), a leading U.S. producer and exporter of premium metallurgical coal for the global steel industry, announced today that it has named Keith M. Shull as the Company’s Sr. Vice President – Human Resources. Shull joins Walter Energy from Arrow Electronics, where he was Senior Vice President, Human Resources from 2005 to 2008. Prior to that appointment, he served as Senior Vice President, Human Resources for BHP Billiton’s Base Metals and Petroleum business groups from 1996 to 2004.

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China Pledges `Reasonable’ Financing, Urges Scrutiny of Property Loans

January 27, 2010

By Bloomberg News Jan. 28 (Bloomberg) — China’s banking regulator told lenders to step up scrutiny of property loans while pledging to satisfy “reasonable” financing needs as it seeks to control credit growth and prevent asset bubbles. Banks should “strictly” follow real estate lending policies, the China Banking Regulatory Commission said yesterday in a statement on its Web site after a quarterly assessment of the nation’s economic and financial situation. It repeated a call for banks to “reasonably control” lending growth. China’s stocks fell for a fourth day on concern efforts to rein in lending will slow the world’s fastest-growing major economy. Chinese banks advanced a record 9.59 trillion yuan ($1.4 trillion) of new loans last year, helping spur an 80 percent increase in the Shanghai Composite Index and driving property prices to their biggest gain in 18 months in December. “The key this year is the timing and pace of lending,” said Sheng Nan , a Shanghai-based analyst at UOB Kayhian Investment Co. “The risk from not lending enough is even bigger” than lending too fast because projects started last year will need continued funding support, he said. The Shanghai Composite slid 1.1 percent to 2,986.61, dropping below 3,000 for the first time since October. Industrial & Commercial Bank of China Ltd. led the decline, dropping 1.8 percent to 4.90 yuan. January Surge Chinese banks, including Bank of China Ltd. and China Construction Bank Corp., have begun restricting new loans, responding to a push by regulators to contain credit after a surge in lending in the first half of this month, people familiar with the situation said yesterday. “I don’t see a slowdown in lending as a bad thing,” investor Mark Mobius , who oversees about $34 billion in emerging markets funds as chairman of Templeton Asset Management Ltd., said in an interview at a conference in Sydney yesterday. “It moderates risk to some degree because people don’t go overboard.” Beijing-based ICBC, the world’s largest bank by market value, said yesterday that loan growth has “stabilized” after growing at a relatively fast pace in the first half of January. The bank said it will focus on financing existing government projects. ICBC said it “won’t rush” and will “pace its lending,” according to yesterday’s statement. Speculative Flows The Wall Street Journal reported earlier that ICBC ordered branches in Beijing to stop issuing new loans until the end of the month. Banks across the country have suspended new lending since Jan. 19, Dong Tao , a Hong Kong-based economist at Credit Suisse Group AG, wrote in a note to clients yesterday. Liu Mingkang , chairman of the banking regulator, said in an opinion piece earlier this month that bank loans had been channeled into stock and property markets, and the regulator “stepped in to stop that.” China tightened rules on loans for homes, automobiles, fixed-asset investments and working capital to limit speculative flows. Global equities tumbled last week on concern China will raise borrowing costs after the economy grew 10.7 percent in the fourth quarter, the fastest pace since 2007, and inflation accelerated to 1.9 percent in December. The Shanghai gauge has lost 9 percent this year. The People’s Bank of China raised the proportion of deposits that banks must set aside as reserves starting Jan. 18. The banking regulator reiterated that banks should pace their lending every quarter, according to yesterday’s statement. The regulator has capped new lending at 7.5 trillion yuan for 2010. — Luo Jun , Zhang Dingmin , Li Yanping . Editor: Chitra Somayaji , Matthew Brooker To contact the reporter on this story: Yanping Li in Beijing at yli16@bloomberg.net

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Ford’s Mulally May Pull Off `Impossible’ With $2.65 Billion Annual Profit

January 27, 2010

By Keith Naughton Jan. 27 (Bloomberg) — Ford Motor Co. may report 2009 net income of $2.65 billion tomorrow after overcoming the worst U.S. auto market in 27 years and avoiding a federal bailout. An annual profit would be the first for Chief Executive Officer Alan Mulally and ratify his strategy of developing new models such as the Fusion hybrid while slashing the North American workforce by about 47 percent since he joined Ford from Boeing Co. in late 2006. The full-year earnings projection, the average of three analysts’ estimates compiled by Bloomberg, would end three straight losses at Dearborn, Michigan-based Ford that included 2008’s record $14.7 billion. Adjusted fourth-quarter profit may be 26 cents a share, based on 13 estimates. “This is a company that absolutely bled money in the last five years,” said Bernie McGinn , president of McGinn Investment Management of Alexandria, Virginia, which owns 320,000 Ford shares . “Mulally has done what had been considered impossible in a very short amount of time.” Net income for 2009 was buoyed by a $2.8 billion second- quarter accounting gain. Ford’s operating loss was $1.02 billion, based on five estimates, as the recession and the bankruptcies at General Motors Co. and Chrysler Group LLC helped drag U.S. auto sales to their lowest levels since 1982. The projected quarterly profit of 26 cents a share excludes some costs and gains, and compares with a year-earlier loss of $1.37 a share on that basis. Bill Collins , a spokesman, said Ford had no comment before tomorrow’s announcement. Mulally’s Outlook Mulally, 64, reiterated yesterday to reporters in Washington that Ford won’t be “solidly profitable” on an operating basis until 2011, saying he’ll give “updated guidance” once earnings are out. Analysts expect operating profit of $3.61 billion in 2010, the average of 5 estimates. “My confidence in Ford has improved dramatically, even in the last few weeks,” Efraim Levy , a New York-based equity analyst for Standard & Poor’s, said in a Jan. 22 interview. He cut his rating on the shares to “sell” from “hold” on Dec. 23, citing the stock’s rise past his $9 forecast. Ford rose 26 cents to $11.45 at 9:43 a.m. in New York Stock Exchange composite trading . After jumping fourfold in 2009, the shares have climbed 14 percent this year. The company’s 7.45 percent notes due July 2031 more than tripled in the past year to 87.94 cents on the dollar yesterday, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The yield fell to 8.7 percent from 33.2 percent a year earlier. ‘Paying Attention’ December sales were “an excellent sign that consumers are paying attention to Ford,” Levy said. The automaker’s U.S. deliveries rose 33 percent, more than twice the industrywide gain in December, to cap a year in which its market share rose to 16.1 percent from 15 percent in 2008. Ford swept car and truck of the year honors at the Detroit auto show on Jan. 11 and is rolling out two small, fuel-efficient models, the Fiesta and Focus, over the next 12 months. Shunning a federal rescue helped improve Ford’s standing with U.S. buyers, according to Mulally. “I wouldn’t trade the goodwill and the interest in Ford that we got for standing tall for the industry in the United States,” Mulally told reporters at a Jan. 11 dinner in Detroit. “People have discovered that we’ve got great products.” The competitive disadvantage for Ford is that bankruptcy cleansed debt from GM’s balance sheet, Mulally said. ‘Lot of Debt’ Ford’s total debt grew to $36.8 billion at the end of 2009 from $26.9 billion on Sept. 30, according to slides from a Jan. 15 presentation by Himanshu Patel , a JPMorgan Chase & Co. analyst who advises holding the shares. “The good news is that Ford didn’t go through bankruptcy, but they still have a lot of debt,” said Jeremy Anwyl , CEO of auto researcher Edmunds.com in Santa Monica, California. Ford borrowed $23 billion in late 2006 before credit markets froze. The automaker put up all major assets, including the Ford name, as collateral in what Mulally called “the world’s largest home-equity loan” to build a cash cushion to withstand losses while developing new models. Now, “a key question for its business-risk profile is whether Ford can continue improving its market share” with GM and Chrysler out of bankruptcy, S&P’s Robert Schulz and Gregg Lemos Stein , two New York-based debt analysts, wrote on Jan. 15. Market Share Ford grabbed more of its home market in 2009 because its 15.3 percent sales drop was smaller than the industry’s 21.2 percent contraction, according to researcher Autodata Corp. of Woodcliff Lake, New Jersey. That probably translated into a 25 percent drop in full- year revenue to $110 billion, based on the average of estimates from 12 analysts. A recovery in auto demand may help in 2010, with Ford forecasting U.S. auto sales rising as much as 18 percent from last year’s 10.4 million deliveries. Of 17 analysts covering the shares, 9 say buy, 6 advise holding and 2 recommend selling, according to data compiled by Bloomberg. In January 2009, 1 analyst had a buy rating while 8 said hold and 3 said sell. “The whole perception of Ford in the marketplace is radically different than it was a year ago,” said McGinn, the Virginia investor. “The analyst community for the last 10 years has been nothing but negative. Now there is actually some excitement around Ford.” To contact the reporter on this story: Keith Naughton in Southfield, Michigan, at Knaughton3@bloomberg.net

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Ex-White House Counsel Greg Craig to Join Skadden Arps Firm in Washington

January 27, 2010

By Carlyn Kolker Jan. 27 (Bloomberg) — Former White House Counsel Greg Craig will join the New York-based law firm Skadden Arps Slate Meagher & Flom LLP as a partner in its Washington office, the law firm said today in an e-mailed statement. Craig, 64, resigned as White Counsel in November and was replaced by Bob Bauer . He led the Obama administration efforts to close the detention center at Guantanamo Bay, Cuba. Craig was previously a partner at Williams & Connolly LLP, a Washington law firm, and represented former President Bill Clinton during his impeachment proceedings. Skadden was the highest-grossing law firm in the U.S. in 2008, based on the most recent survey by the American Lawyer, a trade publication. To contact the reporter on this story: Carlyn Kolker in New York at ckolker@bloomberg.net .

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Republican Leaders to Watch Obama’s State of the Union Speech From Waikiki

January 27, 2010

By John McCormick Jan. 27 (Bloomberg) — The Republican Party’s leadership plans to watch President Barack Obama’s State of the Union speech tonight from a Hawaiian resort’s South Pacific Ballroom. The picture-perfect weather along Honolulu’s Waikiki Beach matches the mood of Republican National Committee members gathered for their winter meeting starting today. They convene following Scott Brown’s Jan. 19 win in Massachusetts to claim the U.S. Senate seat formerly held by the late Democratic Senator Edward M. Kennedy , a victory that invigorated the party. “We feel very positive about Republican success in 2010,” said Sean Mahoney, an RNC member from Portsmouth, New Hampshire. “Independent voters are coming back to Republican principles.” The Republicans say this can be a year of opportunity as they seek to capture congressional seats and governors’ offices held by Democrats. More than 100 RNC members are at the conference at the oceanfront Hilton Hawaiian Village amid swimming pools and lagoons in the city where Obama was born. Brown’s victory, in a state Obama won by 26 percentage points in 2008, was the third recent high-profile Democratic loss. In November, the president’s party lost the governor’s mansions in New Jersey and Virginia. Mahoney, 43, said his party is poised to take advantage of an angry electorate amid a national unemployment rate of 10 percent and gridlock in Congress. “People are now questioning whether more government spending is the right remedy for long-term prosperity,” he said. Senate and House After Brown is seated, Democrats will control 59 Senate votes compared with 41 for the Republicans. In the House, Democrats outnumber Republicans 256 to 178. Bob Bennett, 70, an RNC member from Cleveland, Ohio, said there is no shame in meeting in a palm-tree-lined locale, though he also said, “If you took a poll of members, they probably would have held it a little closer to home.” Hawaii Governor Linda Lingle , the state’s first Republican governor since 1962, is a former state party chairman who has long lobbied for a gathering in her state, Bennett said. “She has a lot of friends on the committee,” said Bennett, wearing a Hawaiian shirt. “It’s a show of support.” Michael Steele , the RNC chairman, told the Associated Press he isn’t concerned about gathering in a lush place and wants to recognize the efforts of Republicans from Hawaii and U.S. territories in the Pacific Ocean who usually must travel to the mainland for such events. “Hawaii’s going through a recession, too,” Steele told AP. “So we’re going to help the economy a little bit.” Luau After Obama Speech After the State of the Union, RNC members plan a luau with a speech by Hawaii Lieutenant Governor James “Duke” Aiona, a Republican candidate for governor in the state. Before adjourning Jan. 30, the committee is considering a resolution that would bar party contributions to Republicans who fail to meet a test of conservative principles. As drafted, the resolution would require Republican candidates to agree to at least eight of 10 positions on issues including abortion, gay marriage and gun control. “There is no final text on the purity resolution,” said Gail Gitcho, a committee spokeswoman. “I don’t know what it will say, or if it will be in fact voted on.” The idea was proposed by James Bopp Jr ., an Indiana lawyer, after discontent over the party’s handling of a special election last fall in upstate New York. Democrat Bill Owens won the open seat in November after some Republicans rebelled against the party’s pro-choice nominee, who withdrew from the race, leaving a Conservative Party candidate to oppose Owens. Mahoney said he is undecided on the resolution, which is named after former President Ronald Reagan . “It is important that we have Republicans that both campaign as Reagan Republicans and govern as Reagan would, not as Jimmy Carter would,” he said. Mahoney said Republicans will also look at how to work with the anti-establishment “Tea Party” movement. “Our candidates would be wise to engage anti-tax advocates of all stripes,” he said. To contact the reporter on this story: John McCormick in Honolulu at jmccormick16@bloomberg.net .

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China Pledges `Reasonable’ Financing, Urges Scrutiny of Real Estate Loans

January 27, 2010

By Bloomberg News Jan. 28 (Bloomberg) — China’s banking regulator told lenders to step up scrutiny of property loans while pledging to satisfy “reasonable” financing needs as it seeks to control credit growth and prevent asset bubbles. Banks should “strictly” follow real estate lending policies, the China Banking Regulatory Commission said yesterday in a statement on its Web site after a quarterly assessment of the nation’s economic and financial situation. It repeated a call for banks to “reasonably control” lending growth. China’s stocks fell for a fourth day on concern efforts to rein in lending will slow the world’s fastest-growing major economy. Chinese banks advanced a record 9.59 trillion yuan ($1.4 trillion) of new loans last year, helping spur an 80 percent increase in the Shanghai Composite Index and driving property prices to their biggest gain in 18 months in December. “The key this year is the timing and pace of lending,” said Sheng Nan , a Shanghai-based analyst at UOB Kayhian Investment Co. “The risk from not lending enough is even bigger” than lending too fast because projects started last year will need continued funding support, he said. The Shanghai Composite slid 1.1 percent to 2,986.61, dropping below 3,000 for the first time since October. Industrial & Commercial Bank of China Ltd. led the decline, dropping 1.8 percent to 4.90 yuan. January Surge Chinese banks, including Bank of China Ltd. and China Construction Bank Corp., have begun restricting new loans, responding to a push by regulators to contain credit after a surge in lending in the first half of this month, people familiar with the situation said yesterday. “I don’t see a slowdown in lending as a bad thing,” investor Mark Mobius , who oversees about $34 billion in emerging markets funds as chairman of Templeton Asset Management Ltd., said in an interview at a conference in Sydney yesterday. “It moderates risk to some degree because people don’t go overboard.” Beijing-based ICBC, the world’s largest bank by market value, said yesterday that loan growth has “stabilized” after growing at a relatively fast pace in the first half of January. The bank said it will focus on financing existing government projects. ICBC said it “won’t rush” and will “pace its lending,” according to yesterday’s statement. Speculative Flows The Wall Street Journal reported earlier that ICBC ordered branches in Beijing to stop issuing new loans until the end of the month. Banks across the country have suspended new lending since Jan. 19, Dong Tao , a Hong Kong-based economist at Credit Suisse Group AG, wrote in a note to clients yesterday. Liu Mingkang , chairman of the banking regulator, said in an opinion piece earlier this month that bank loans had been channeled into stock and property markets, and the regulator “stepped in to stop that.” China tightened rules on loans for homes, automobiles, fixed-asset investments and working capital to limit speculative flows. Global equities tumbled last week on concern China will raise borrowing costs after the economy grew 10.7 percent in the fourth quarter, the fastest pace since 2007, and inflation accelerated to 1.9 percent in December. The Shanghai gauge has lost 9 percent this year. The People’s Bank of China raised the proportion of deposits that banks must set aside as reserves starting Jan. 18. The banking regulator reiterated that banks should pace their lending every quarter, according to yesterday’s statement. The regulator has capped new lending at 7.5 trillion yuan for 2010. — Luo Jun , Zhang Dingmin , Li Yanping . Editor: Chitra Somayaji , Matthew Brooker To contact the reporter on this story: Yanping Li in Beijing at yli16@bloomberg.net

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Toyota’s Reputation for Quality Is `Finished’ as Sales, Production Halted

January 27, 2010

By Alan Ohnsman and Mike Ramsey Jan. 27 (Bloomberg) — Toyota Motor Corp. ’s image as the highest-quality automaker may have been permanently tarnished after an accelerator-pedal defect halted sales of the models that account for more than half its U.S. deliveries. Toyota’s “reputation for long-term quality is finished,” Maryann Keller , senior adviser at Casesa Shapiro Group LLC in New York, said today in an interview. “People aren’t going to buy Toyotas, period. It doesn’t matter which model. What’s happened is sufficient to keep people out of the stores.” Losing that aura would undercut a decades-long campaign to promote its vehicles as safe and reliable, an effort that propelled Toyota to No. 2 in U.S. sales behind General Motors Co. and helped the Japanese company wrest the title of the world’s largest automaker from GM in 2008. Toyota’s American depositary receipts fell the most in more than a year, and GM added incentives to woo owners of the 2.3 million U.S. autos including the top-selling Camry and Corolla being recalled to fix a flaw blamed for sudden acceleration. Late today, Toyota extended the recall to Europe. U.S. sales of eight models are being suspended after last week’s recall, and five North American plants are being idled, Toyota said yesterday. That followed a 4.3 million-unit recall in 2009 for a related problem tied to floor mats. Those moves compounded concern that quality may have slipped after a decade of North American expansion. The company’s 1,460 U.S. Toyota and Lexus dealers and hundreds of North American suppliers are awaiting word that engineers have found a solution for the pedal defect. ‘Biggest Crisis’ “This is the biggest crisis in the auto industry since the bankruptcies of GM and Chrysler,” said John Wolkonowicz , an analyst at IHS Global Insight in Lexington, Massachusetts. “Toyota is not going to be able to contain this problem in a short period of time. It’s going to drag on and linger, unlike the bankruptcies of GM and Chrysler last summer.” While Toyota City, Japan-based Toyota is aware that its reputation for quality may be endangered, “this is a customer safety issue,” said Irv Miller , U.S. group vice president for corporate communications. Miller said he wasn’t aware whether the decision to halt production was made by President Akio Toyoda . “He is certainly aware of the issue,” Miller said. ADRs Fall Toyota’s American depositary receipts fell $7.01, or 8.1 percent, to $79.77 at 4:15 p.m. in New York Stock Exchange composite trading for the biggest decline since Nov. 6, 2008. Along with Camry and Corolla, Toyota’s recall covers the Avalon sedan and Matrix hatchback; RAV4, Highlander and Sequoia SUVs; and Tundra pickups. Also included is the Pontiac Vibe, a version of the Matrix built at a joint Toyota-GM plant until last year. Global Insight estimated that Toyota would lose 20,000 vehicle sales a week as long as it ceases selling and producing the eight models. U.S. sales of the affected Toyota vehicles totaled 998,744 in 2009, according to researcher Autodata Corp. of Woodcliff Lake, New Jersey. Global Insight’s Wolkonowicz said the models accounted for 70 percent of Toyota brand sales and about 56 percent of overall U.S. sales when Lexus is included. Quality Heritage The automaker retained the top spot in June in J.D. Power & Associates’ survey of initial quality and topped Consumer Reports’ magazine’s annual survey of automotive brand perceptions this month. Still, Toyoda already was under pressure to improve quality since he took the helm in June, and the latest setbacks probably will add to the strain as competitors including South Korea’s Hyundai Motor Co. narrow Toyota’s lead. Toyota continues to investigate the pedal-related flaw reported last week and doesn’t yet have figures on any related accidents, injuries or fatalities, said Brian Lyons , a spokesman. The company is aware of at least five deaths related to the floor mat-related recall from November, he said. Last week’s recall involved a potential flaw in pedal parts made by CTS Corp. that could, “in rare instances, mechanically stick in a depressed position or return slowly to the idle position,” according to Toyota. “We at CTS have no knowledge of any incidents, accidents or injuries that have resulted from this,” said Mitch Walorski , a spokesman for the Elkhart, Indiana-based company. He said there were eight warranty claims related to sticky pedals among millions of vehicles equipped with the part since 2005. Partsmaker’s View “We are working with their engineers and are actively working to support Toyota,” Walorski said in an interview. Toyota makes up about 3 percent of CTS’s annual sales, he said. Vehicles with pedal parts from Toyota-affiliated Denso Corp. weren’t included in last week’s recall. “This is a very rare occurrence, incidents of sudden acceleration, but because Toyota’s had made multiple actions related to it, the perceived image is they don’t have a handle on it,” said Jake Fisher , senior auto engineer for Consumer Reports. “They’ve been trying to be proactive, but that’s probably not what consumers will draw from this.” Bill Visnic, senior editor at consumer researcher Edmunds.com, said shoppers may not differentiate between the Toyota autos on the recall list with those still available on showroom floors. “It’s definitely going to put a damper on the entire atmosphere around a dealership,” he said. “This is a real test of the strength of the brand.” ‘Perfect as Possible’ At Santa Monica Toyota in suburban Los Angeles, General Manager Billy Rinker said he received about 15 customer calls early today about the recall. “We’re still selling cars,” he said, reporting that the dealership had made one sale by 10:30 a.m., against a usual daily tally of about 10 transactions. “I don’t think they lost” the reputation for quality, Rinker said of Toyota. “Toyota wants to be as perfect as possible so they are fixing it.” Toyota may be “overreacting” in suspending sales and production, said Mickey Anderson, president of Performance Auto Group in Omaha, Nebraska, which owns three Toyota stores and two Lexus outlets. “Probably, that’s the right thing to do,” Anderson said. “While this will be a burden for Toyota and the dealers, it is absolutely the most proactive way to take care of the customers.” To contact the reporters on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net ; Mike Ramsey in Southfield, Michigan, at mramsey6@bloomberg.net

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Apple’s IPad Name May Develop Into Trademark Dispute With Fujitsu of Japan

January 27, 2010

By Susan Decker Jan. 27 (Bloomberg) — Apple Inc. ’s plan to call its new tablet computer the iPad may run into trademark problems because of an older application for the name by Japanese computer maker Fujitsu Ltd. Fujitsu has sought a trademark on the name since 2003 for a hand-held computing device, according to the Web site of the U.S. Patent and Trademark Office . Apple, which said in filings with the agency that it might oppose Fujitsu’s right to the name, has until Feb. 28 to file an objection. “They probably need to talk to us and we haven’t had any direct communications with Apple,” Fujitsu lawyer Edward Pennington of Hanify & King in Washington said today in a phone interview. “Apple filed extensions to oppose it and now it makes sense. Now we can see why they did.” A lawyer using the address of a Delaware firm that acts as registered agents for other companies filed an application for the iPad name on Jan. 16. According to the application, the trademark would cover a range of goods, including computers, paper, toys and telecommunications. The trademark was first sought in Trinidad and Tobago, the application shows. Apple used a similar type of Delaware company to file a trademark application on the word iPhone in the U.S. and first filed in Trinidad and Tobago. Susan Lundgren , a spokeswoman for Apple, didn’t immediately return an e-mail seeking comment. Cisco Settlement Three years ago, Cupertino, California-based Apple had to negotiate a settlement with Cisco Systems Inc. to clear its rights to use the iPhone name for mobile phones. Fujitsu uses the name for machines that are used in the self-service checkout stands at grocery stores. The application had been delayed while the U.S. officials considered another iPad trademark , one for keypads used to enter and encrypt personal identification numbers. Registered trademarks for the name iPad also have been granted for automotive engines and bras. The purpose of a trademark is to prevent confusion over the origin of the product, so Apple hasn’t filed any opposition to those. Pennington said Apple may try to convince the trademark office that there would be no confusion between its tablet computer and Fujitsu’s device used in grocery stores, making both eligible to register the word in their fields. “Our application has been pending for quite some time,” Pennington said. “Their position is a little awkward.” To contact the reporters on this story: Susan Decker in Washington at sdecker1@bloomberg.net .

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Obama Proposal to Limit Bank Risks Dominates, Divides Discourse at Davos

January 27, 2010

By Christine Harper and Aaron Kirchfeld Jan. 27 (Bloomberg) — U.S. President Barack Obama’s plan to impose new rules on bank size and risk dominated talk among bankers on the first day of the World Economic Forum in Davos, Switzerland, as executives said big banks are essential and rules should be coordinated globally. “We are in a global financial market and need a level playing field,” Josef Ackermann , chief executive officer of Deutsche Bank AG, Germany’s biggest bank, told reporters today. “It would not be productive to have different regulatory frameworks.” While Ackermann and other European bankers raised concerns, U.S. bank executives in Davos said little. Other experts, including economist Nouriel Roubini and hedge-fund billionaire George Soros , said Obama should go further in revamping the industry. French President Nicolas Sarkozy said he supported Obama’s effort to dissuade speculation and wanted to take the debate to the Group of 20 nations. Peter Sands , CEO of London-based Standard Chartered Plc, said that a failure of international coordination creates “the risk of arbitrage, contradictions and just costs of complexity.” Sands added: “to the specific question of ‘would it help the recovery for big banks to be broken up?’ I think the unambiguous answer is no.” The Group of 20 nations agreed last year to require that banks hold more capital and liquid assets and change their compensation plans to tie them to long-term performance, an approach that has been championed by U.S. Treasury Secretary Timothy F. Geithner . Proprietary Trading Obama surprised bankers last week by throwing his support behind a more radical plan proposed over a year ago by former Federal Reserve Chairman Paul Volcker . The plan would bar banks from owning or sponsoring hedge funds and private equity funds, as well as engaging in so-called proprietary trading that’s not related to clients. Bank stocks in the U.S. and elsewhere fell after Obama made his plans public. “President Obama is right when he says that banks must be dissuaded from engaging in proprietary speculation or financing speculative funds,” Sarkozy said in his opening address on the first day of the forum. “This debate must be settled within the G-20.” His comment echoed remarks by Robert Diamond , president of Barclays Plc, the U.K.’s third-biggest bank by market value, who spoke earlier in the day at a panel titled “Rethinking Systemic Financial Risk.” ‘Isolated Actions’ “Isolated actions in the U.S. and U.K. aren’t beneficial when compared with the opportunity we have to work constructively through the G-20,” Diamond said. Diamond said banks have only grown bigger because their customers, business and global capital flows demanded it. He said he’s found agreement among Asian finance ministers and the 30 most important chief investment officers of the largest pension funds that they need big, so-called universal banks that can do business in many countries. “The impact on jobs, the economy, would be very negative” if banks are required to split up and become more specialized, he said. Jaime Caruana , general manager of the Basel, Switzerland- based Bank for International Settlements that helps draft global regulatory guidelines, said at the same session that Obama’s plan has helped fuel debate. “The message that comes from the United States is that, on this occasion, reform of the financial sector is quite serious,” he said. “There is a determination to go to a different place, not the same place where we’ve come from.” Emerging Markets Caruana also agreed with former Mexico Central Bank Governor Guillermo Ortiz , who noted that some of the emerging market countries that had applied more stringent financial regulations following earlier crises had been more successful at weathering the latest crisis. “The issue that those countries that are more strict will be in an inferior condition or will be at a disadvantage, I’m not convinced,” Caruana said. “There are many cases where those who have applied more stringent application of some similar standards have produced better results, especially in crisis.” In addition to curbing risky activities, Obama said he’d like to set limits on the size of banks in the U.S., capping growth in their liabilities and preventing further consolidation that he said is bad for consumers and for the economy. Unintended Risks Bankers at Davos criticized Obama’s proposals as difficult to implement, while others said it would create new and unintended risks. “It’s very, very difficult to think that we can differentiate between the risk banks take in the normal course of business for their clients and customers and proprietary trading,” said Diamond, 58. He said that banks like Barclays make markets in government bonds that blur the lines between client and proprietary trading. Ackermann said the limits could mean that some of the riskiest activities move “into the non-regulated sector, then we will have less transparent and efficient markets, and that would not be in the interest of the real economy.” At a debate sponsored by CNBC, Lloyd’s of London Chairman Peter Levene sparred with Barney Frank , the Democrat congressman from Massachusetts who chairs the House Financial Services Committee. U.S. regulation such as the Sarbanes-Oxley law was good for London, Levene said, because it drove companies out of the U.S. Frank countered that the head of the U.K.’s Financial Services Authority recently said that “the era of light-touch regulation” is over. ‘Mommy and Daddy’ “Mommy and daddy can’t get played against each other,” Frank said. U.S. bank executives attending the forum in Davos, including Bank of America Corp. CEO Brian Moynihan and Citigroup Inc. CEO Vikram Pandit , haven’t commented publicly on the Obama plan. Gary Cohn , president of Goldman Sachs Group Inc. , said that neither he nor Goldman Sachs have a position on the plan. Soros , the 79-year-old founder of Soros Fund Management LLC, said that Obama’s plan, which draws a distinction between systemically important depositary institutions and the rest of the financial system, doesn’t address some types of firms that he said would remain too dangerous for governments to allow to fail. “Some of the banks will spin off investment banks that will still be too big to fail,” he said. Hedge Funds Roubini , who founded of Roubini Global Economics LLC and predicted the crisis a year before it began, said he thinks Obama should take tougher measures to control the financial system. He advocates separating deposit-taking institutions from investment banks, and limiting all principal risk-taking to hedge funds and private equity. “The proposals of the Obama administration are going finally in the right direction, but in my view those restrictions are not enough,” he said. “If financial institutions are too big to fail, they are just too big and should be split up.” While the bankers warned that governments face dire consequences if they go too far in regulating financial companies, a poll of the people attending the CNBC debate found that was a minority concern. Asked by host Maria Bartiromo to vote on which issue was most likely to cause the next crisis, overregulation received just 12 percent of the vote. More than half of the audience said their top concern was sovereign debt, while 37.3 percent said protectionism was the worst danger. To contact the reporter on this story: Christine Harper in Davos at charper@bloomberg.net .

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Stocks in U.S. Gain, Paring Global Drop as Dollar Advances, Oil Retreats

January 27, 2010

By Michael P. Regan and Craig Trudell Jan. 27 (Bloomberg) — U.S. stocks rose as the Federal Reserve pledged to keep interest rates low, while global equities fell for a sixth day and Greek bond yields surged amid concern growing sovereign debt will derail the economic recovery. Oil fell to a five-week low. The Standard & Poor’s 500 Index added 0.5 percent to 1,097.50 at 4 p.m. in New York, led by a 2.3 percent rally in financial shares. The MSCI World Index of 23 developed nations retreated 0.4 percent to bring its six-day slide to 5.4 percent. The yen weakened against 13 of 16 major currencies after gaining versus all of them earlier. Greek bonds tumbled, driving the 10- year note yield up 51 basis points to 6.76 percent, the highest since 1999. One-month Treasury bill rates turned negative earlier for the first time in 10 months on demand for safer assets. The dollar rose against 14 of 16 counterparts. Investors had bet that economic growth will falter as the Fed and European Central Bank curb stimulus measures and economists predict central banks in China, India, Brazil and Australia will push up borrowing costs. The Fed today confirmed a plan to end a program that bought mortgage-backed securities in March, while maintaining its pledge to leave interest rates near a record low for an extended period. “The Fed basically kicked the can down the road,” said Burt White , chief investment officer at Boston-based LPL Financial Corp., which manages $269 billion. “We’re nowhere near that point where they’d consider making a change in rates, or even hint by changing the language.” Beating Forecasts Caterpillar Inc. plunged 4.3 percent for the biggest loss in the Dow Jones Industrial Average after its profit forecast trailed estimates. A record nine-quarter earnings slump for S&P 500 companies ended in the fourth quarter with a 73 percent increase in profits, according to analyst estimates compiled by Bloomberg. About 130 companies are scheduled to release results this week. U.S. equities fell earlier as new-home purchases in the declined 7.6 percent to an annual pace of 342,000, the fewest since March, the Commerce Department said. For all of 2009, sales slid 23 percent to 374,000, the lowest since records began in 1963. “The market has lost momentum,” said Bruce Bittles , chief investment strategist at Milwaukee-based Robert W. Baird & Co. “We’ve got a mixed bag of economic and earnings numbers. It’s just surprising that Caterpillar disappointed at a time when infrastructure is being emphasized around the world. Plus, there’s China tightening now. We’ve got a debt bubble. That’s the problem. Not only for Greece, but for the U.S.” Yen, Real, Peso The yen climbed the most against the Brazilian real, strengthening 0.9 percent. The dollar climbed at least 0.5 percent against the real and Mexican peso. The Bombay Stock Exchange Sensitive Index lost 2.9 percent before a central bank meeting this week that economists predict will result in higher reserve requirements for banks. Brazil’s central bank will probably signal its readiness to raise borrowing costs after leaving its benchmark interest rate at a record low, economists said before today’s policy meeting. Greek bonds declined after the Finance Ministry in Athens denied a Financial Times report that it plans to sell 25 billion euros ($35 billion) of debt to China as the government struggles to cut the largest budget deficit in the European Union. Deteriorating Credit The Markit CDX North America Investment Grade Index rose in its first increase this week, climbing 2 basis points to 96 basis points as of 10:05 a.m. in New York, according to broker Phoenix Partners Group. The index, a benchmark gauge of credit risk that’s linked to 125 companies, rises as investor confidence deteriorates. Traders are buying protection against defaults on sovereign debt at more than five times the pace of company bonds, as governments fund ballooning deficits. The net amount of credit- default swaps outstanding on 54 governments from Japan to Italy jumped 14.2 percent since Oct. 9, compared with 2.6 percent for all other contracts, according to Depository Trust & Clearing Corp. data. European countries led the increase, with the amount of protection on Portugal rising 23 percent, Spain 16 percent and Greece 5 percent. Oil tumbled as much as 2.8 percent after the Energy Department said that gasoline supplies climbed 1.99 million barrels to 229.4 million last week, the highest level since March 2008. Oil stockpiles dropped amid expectations that they would increase. European Shares Europe’s Dow Jones Stoxx 600 Index fell 0.8 percent as financial shares retreated. Banco Bilbao sank 6.4 percent in Madrid. Man Group Plc, the largest publicly traded hedge fund company, plunged 6.5 percent in London after the value of its biggest program-driven fund dropped the most in seven weeks. Man Group has retreated in 14 of the past 16 days. Asian stocks declined for an eighth day, the longest losing streak since May 2005 as the MSCI Asia Pacific Index slid 1.1 percent. The MSCI Emerging Markets Index fell 0.9 percent, taking its six-day retreat to 8.3 percent in the longest slump in a year. The Shanghai Composite Index sank 1.1 percent as banks dropped on lending curbs and investors speculated policy makers may soon raise rates. To contact the reporters on this story: Michael P. Regan in New York at mregan12@bloomberg.net ; Craig Trudell in New York ctrudell1@bloomberg.net .

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Richard H. Smith: Breaking News From 1948: B of A Ousts Fed Chairman

January 27, 2010

Wall Street has made clear over the last week that it wants Federal Reserve Chairman Ben Bernanke to stay in his position. Banking Committee Chairman Chris Dodd (D-Conn.) has been making sure that his colleagues have gotten that message. “I’m just hoping my colleagues understand this is not a vote without implications. And the idea that markets recover very quickly doesn’t make any difference. It does make a difference,” Dodd told reporters this week, reminding them repeatedly that investor Warren Buffett warned that he’d sell if Bernanke went down. “Warren Buffett said it well, in terms of how he would react,” Dodd said. “And that ought to be a signal across the bow. If that’s Warren Buffett telling you what it would mean in terms of the markets, people ought to pay attention.” It looks to be working. The Senate is scheduled to vote on his confirmation on Thurday, a vote that leadership wouldn’t have scheduled if they didn’t think they had it locked up. The White House and Treasury Department have stuck with him and appear poised to put down an uprising of rank-and-file lawmakers. That’s not the way to take out a Fed chairman. If history is any guide, it’s not up to the people. It’s up to the banks. Just ask Bank of America. Never-before-published letters from Bank of America’s A.P. Giannini to President Harry Truman’s Treasury Secretary show that Giannini was able to use his bank’s influence to oust Fed Chairman Marriner Eccles, an FDR New Dealer who opposed the opening of 20 new Bank of America branches in California, warning of what he called a “banking octopus of the West Coast.” (Imagine what it must have been like to have a central banker who talked like Matt Taibbi .) Giannini didn’t hold back, either, denouncing regulatory measures Eccles was pushing as “Nazi-Fascist methods of dictatorship.” The papers detail Giannini’s confidential campaign through Treasury Secretary John W. Snyder to torpedo Eccles’ reappointment and to scuttle legislation that would have restrained his Transamerica holding company – while continually assuring Snyder that the moment he left Government, he would be assured of the top executive position, alongside Giannini’s son and heir, at the Bank of America. At the time Giannini began this correspondence with Snyder, months after Harry Truman’s unexpected succession to the Presidency, the banker had just retired as Chairman of the Board of Bank of America and handed over managerial reins of his companies to his son, leaving him free to concentrate on protecting his interests in Washington. Since he obviously considered Snyder a good friend on whom he could rely, the papers are full of blunt comments which demonstrate the wide variety of those interests, past and present. Inscribed books and letters to Snyder from Truman, Eisenhower and Kennedy, were sold at Christie’s in New York in June of this year, but this historic collection escaped public sale – possibly because of the sensitive content of the letters. What is certain is their extreme rarity: Typed letters by Giannini are rarely seen outside institutional collections – the last auctioned in San Francisco 15 years ago – but handwritten letters with such explosive content are virtually non-existent. Giannini himself was no longer actively involved in the company, but his son and successor also … thinks so well of you and of your proved friendship that in discussing with you the matter of a tie-up that I think he will just say to you ‘Write you own ticket’. He feels a man of your caliber and international standing is very much needed in our organization now that we are the top Bank of the country, which we want to continue to be and with your added help it will be a dead certainty…I stand a full 100% on anything that my son, Mario, may have said to you and that you are welcome at any time that your own good judgment dictates and most heartily too…You’ll fit in to the picture perfectly and it’ll be practically your own picture. In vowing his loyalty to Snyder and Truman, Giannini sometimes went overboard. After listening to broadcast journalists Drew Pearson and Walter Winchell attacking Truman and Snyder: Isn’t there really some way that the President can curb these two fellows through censoring their Radio talks or ruling them off the Radio whenever they indulge in any comments on the air that’s contrary to the interests of the Govt or its people. Their Press columns should also receive the Govt’s previous OK. All of this was leading up to a very big favor. Giannini’s Transamerica Holding Company was under increased fire as a runaway monopoly from Federal Reserve Chairman Eccles, who sponsored a bill in Congress specifically aimed at reining in Transamerica. Convinced that Justice seems to be impossible of achievement in Washington these days for the B of A… the combative Giannini declared war. The issue came to a head at the beginning of the presidential election year of 1948 when Marriner Eccles came up for reappointment as Fed chairman. Rumors seem to point to the reappointment of a certain man who has consistently violated his Oath of office when acting on many of the matters pertaining to certain Interests. I’m wondering if, at the moment, there isn’t any one readily available as successor… On January 27, 1948, Wall Street was puzzled by the news that President Truman had “demoted” Eccles to Vice Chairman of the Federal Reserve, appointing another chairman in his stead. One liberal Democratic Senator demanded to know “who went to the President” to engineer Eccles’ ouster – especially since the newspapers reported that Giannini had publicly boasted “I did it!” Truman said it was his own idea. Giannini wired Snyder: Heartiest congratulations John. Too bad it wasn’t good riddance but things I know don’t usually work that way politically. Strikes me successor is of the proper caliber… and will doubtless follow the law and absolutely safe and sound policies not Doctor Keynes… As for Drew Pearson’s report that “accused B of A of being responsible for Eccles demotion”, this was a damnable falsehood… I want to assure you, John, that I certainly didn’t make that boast and he isn’t going to be able to prove it. Of course, my saying it to you in the last letter had no connection with it but I guess I made the mistake of saying to you what would probably indicate I had been responsible for its previous use. Snyder was taking no chances. The letter to which Giannini refers – in which he apparently made his boast privately – is missing from these files. Snyder was later called before a Senate Committee and pointedly asked if Giannini had promised him a job with Bank of America; he refused to reply and the Senators had no evidence that linked the Secretary of the Treasury with Giannini’s campaign to “reshuffle” the Federal Reserve Board. The rest of that year, Giannini made clear to Snyder his gratitude, and his commitment, “with the greatest of pleasure”, to the embattled Truman’s reelection, which many pundits felt to be a losing cause. Giannini offered to sign a personal letter to all his companies’ stockholders and depositors and 15,000 employees, praising Truman for overruling the holdover “New Dealers” in his Administration who were allied in a “diabolical Conspiracy” against the Bank, “smearing us all over the world” as a monopoly. Thanks to you and your Chief for righting an injustice…we ought to shout his name from the house tops… Ryan Grim contributed reporting.

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Education Realty Trust to Host Fourth Quarter 2009 Earnings Conference Call

January 27, 2010

MEMPHIS, Tenn., Jan. 27, 2010 (GLOBE NEWSWIRE) — Education Realty Trust, Inc. (NYSE:EDR), a leader in the ownership, management and development of student housing, today announced that the Company will release financial results for the fourth quarter of 2009 after the market closes on Tuesday, February 23, 2010.

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Mice Tail Skin Cells Turned Into Brain Cells in Feat Possible for Humans

January 27, 2010

By Rob Waters Jan. 27 (Bloomberg) — Skin cells from the tails of mice were turned into neurons able to form connections crucial to brain function, a study said. The Stanford University scientists who performed the feat said it should work with human tissue. The research, published today in the journal Nature , is the latest demonstration that cells’ basic functions can be transformed by inserting or turning on the right genes in their DNA. In this case, that was accomplished without first turning the skin cells into the equivalent of embryonic stem cells before they were changed into different kinds of body cells. The work provides a more efficient way to make neurons from the skin of people with Alzheimer’s and Parkinson’s diseases than a method developed four years ago by Shinya Yamanaka of Kyoto University in Japan. Yamanaka’s breakthrough showed that skin cells from mice or humans could be made into stem cells and manipulated again to become any cell in the body. The paper “might be a landmark,” said Jeanne Loring , director of the Center for Regenerative Medicine at the Scripps Institute in La Jolla, California. “There’s a long history of failure in this field. Researchers tried for 30 years to convert a common cell type into neurons. People published papers, but no one ever made a real neuron.” Two years ago, Douglas Melton , a researcher at Harvard University’s Stem Cell Institute who focuses on diabetes, showed that one cell in the pancreas could be turned into another without first reverting to a primitive, embryo-like cell. Melton said the Stanford work was a major advance because it starts with cells that can be easily obtained from a person. Fat, Skin, Hair “If you wanted to make more cells for yourself, the ones you’d be willing to give up are fat, skin, hair, blood — not brain cells,” Melton said. The process also takes a more direct route to changing the function of cells than Yamanaka’s method, Melton said. “Instead of trying to turn them back into pluripotent stem cells and then make those into differentiated cells, he’s short- circuiting that process and saying let’s go right from one readily available cell to another cell of interest,” Melton said in a Jan. 24 telephone interview. The research was led by Marius Wernig, an assistant professor of pathology at Stanford’s Institute for Stem Cell Biology and Regenerative Medicine . Wernig, 35, and his colleagues identified 19 genes that are active in neurons and inserted them into skin cells taken from the tails of young mice. The team used a type of virus known as a lentivirus to carry the genes into the skin cells. Cells Transformed After a month, a few of the skin cells showed signs of having turned into brain cells. The team then used a trial-and- error process to identify three genes from among the 19 that could do the job on their own. Using the three, Wernig’s team found that in just two weeks, 20 percent of the skin cells had morphed into neurons. “That means reprogramming doesn’t only go backward, but can occur in any direction,” Wernig said in a Jan. 22 telephone interview. “If you extrapolate from this, you could probably turn any cell in your body into any other cell if you just know the right factors. A year ago, I would not really have believed this was possible.” Wernig and his colleagues are trying to do the same thing with human cells and Stanford has applied for a patent on the process. If it works in human cells, researchers could use the method to turn skin cells from a patient with Parkinson’s or Alzheimer’s disease, for example, into neurons with the genetic defects that cause the condition. Studying Disease This would allow researchers to study the workings of the disease and to test drugs that might treat it, Wernig said. Two closely held companies, Ipierian Inc. of South San Francisco and Fate Therapeutics of San Diego are using similar approaches to develop therapies. New York-based Pfizer Inc., London-based GlaxoSmithKline Plc and Novartis AG , based in Basel, Switzerland, are among the major pharmaceutical companies with stem-cell programs. Before the cells have practical use, they’ll have to be shown to be true neurons, Loring said in a Jan. 25 e-mail. “The question now is how these genetically engineered neurons stack up against real neurons in a real test — can they be used to repair the brains of mice that have experimentally induced Parkinson’s disease, for example?” she said. “There’s a lot of work to do but it’s exciting.” To contact the reporter on this story: Rob Waters in San Francisco at rwaters5@bloomberg.net .

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Penthouse Publisher FriendFinder Said to Delay Initial Offer to Next Week

January 27, 2010

By Michael Tsang and Nikolaj Gammeltoft Jan. 27 (Bloomberg) — FriendFinder Networks Inc., the publisher of Penthouse magazine, has pushed back its initial public offering scheduled for today until next week, according to a person familiar with the situation. FriendFinder, the Boca Raton, Florida-based operator of Web sites from AdultFriendFinder.com to Cams.com, had planned to raise as much as $240 million selling 20 million shares at $10 to $12 each today, according to a Jan. 8 filing with the Securities and Exchange Commission and Bloomberg data. Calls and e-mails to FriendFinder’s office were not immediately returned. The delay comes after Terreno Realty Corp. became the first U.S. company to postpone a 2010 IPO this week, Cellu Tissue Holdings Inc. cut its price by 24 percent and Chesapeake Lodging Trust raised 40 percent less than originally sought, Bloomberg data show. FriendFinder has lost money for five straight years and was in default on its debt covenants until October. “FriendFinder looks like an IPO out of necessity rather than opportunity,” Steven M. Rogé , manager at R.W. Rogé & Co. in Bohemia, New York, which has $200 million in assets, said before the delay. “A lot of companies have an IPO to get cash to grow. Whatever cash FriendFinder can raise is going straight to their creditors.” While U.S. IPOs are forecast to triple according to London based Barclays Plc, 2010’s first offers show buyers are wary of new deals after almost 40 percent of deals in the second half of 2009 left investors with losses. S&P 500 FriendFinder was offering shares after the Standard & Poor’s 500 Index fell the most since October last week. The publisher, which also runs so-called general audience social networking venues from SeniorFriendFinder.com to BigChurch.com, got about 70 percent of its revenue from its adult-themed Web sites in the first nine months of 2009, according to the SEC regulatory filing. The company was selling a 49 percent stake and planned to use the proceeds to pay down debt. After the offering, it would have $5.24 million in cash compared with $286 million in debt. FriendFinder’s sales would have declined 1.5 percent in 2009 from a year ago, based on $244 million in revenue generated in the first nine months of the year. Sales from both its adult- themed and general audience sites fell during the nine-month period from a year ago, while interest expenses exceeded operating profit by 66 percent. ‘Biggest Concern’ “The biggest concern is just the fact that it’s got a lot of debt and really hasn’t grown,” said Nick Einhorn , an analyst at Greenwich, Connecticut-based Renaissance Capital LLC, which has followed IPOs since 1991. The firm isn’t affiliated with FriendFinder’s lead underwriter of the same name. “Companies that have lots of debt and slowed growth have really not been attractive for investors,” he said before the delay. Playboy Enterprises Inc. , the owner of the namesake men’s magazine, had operating income equal to 1.02 times interest expenses of $4.46 million in 2008 as the Chicago-based company posted its biggest annual loss since at least 1987. FriendFinder has also lost about as many fee-paying subscribers from its adult-themed Web sites as it has gained in each of the past four years. It had breached loan agreements in such areas as failing to deliver certified annual financial statements, missing certain sales targets for the films that it produced and distributed and not keeping senior debt below certain levels. Renaissance Capital of Moscow and Ledgemont Capital Group LLC in New York are the lead underwriters for FriendFinder. Neither firm was credited with arranging any U.S. company IPOs last year, according to Bloomberg league tables. To contact the reporters on this story: Michael Tsang in New York at mtsang1@bloomberg.net ; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net .

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