April 2010

Icahn Finds Ex-Protege Rachesky a Tougher `Pill’ Than Lions Gate Defenses

April 30, 2010

By Ronald Grover April 30 (Bloomberg) — As Carl Icahn presses his hostile takeover bid for Lions Gate Entertainment Corp. , he’s finding his biggest obstacle isn’t a “poison pill” or management — it’s former protégé Mark Rachesky , the largest stockholder. Rachesky, president and co-founder of MHR Fund Management LLC, holds more stock in Vancouver-based Lions Gate, 19.7 percent to Icahn’s 18.8 percent, and has sided with management since joining the independent studio’s board in September. The company is urging rejection of Icahn’s $7-a-share offer. “He was a smart guy,” Icahn recalled in an interview. “We did some good things together.” No more. Rachesky and other investors publicly backing management of Vancouver-based Lions Gate, led by Chief Executive Officer Jon Feltheimer , hold 34 percent of the stock, according to Bloomberg data. A vote on the company’s poison pill, designed to deter billionaire Icahn from gaining control, was tilting Lions Gate’s way before regulators in British Columbia ruled it invalid on April 27. Icahn, 74, and Rachesky are old friends. In the early 1990s, Rachesky, who has a medical degree, was Icahn’s chief investment adviser and top lieutenant as they took large positions in biotechs like Cadus Pharmaceuticals Corp. and real estate. In 1993, Rachesky became Icahn’s representative on the board of Samsonsite parent E-II holdings. To win, Icahn will have to increase his bid, according to David Joyce, a Miller Tabak & Co. analyst in New York who recommends buying the stock and says it could reach $8 in the next year. Rachesky declined to comment. Higher Bid Icahn’s offer, up from $6 originally, values the company at about $826 million. It expires tonight unless extended, which Icahn told CNBC yesterday he is likely to do. “To get over 50 percent of the company, he clearly has to go over $7 a share,” said Alan Gould , an analyst with Soleil Securities Inc. in New York. Lions Gate, run from Santa Monica, California, gained 13 cents to $7 yesterday in New York Stock Exchange composite trading . Shares of the company, distributor of the “Saw” films, have risen 20 percent this year. The company said yesterday preliminary fiscal 2010 earnings before interest, tax, depreciation and amortization exceeded $115 million, compared with $75 million estimated in February. That implies Ebitda of at least $17.1 million in the fourth quarter, compared with a projected loss on that basis earlier. A higher bid would put more pressure on Rachesky, who began buying Lions Gate in mid 2005, when the stock traded between $9 and $11 a share. Before then, Rachesky, like Icahn, was mostly a buyer of distressed stocks. New York-based MHR Fund Management, which he started in 1996 after leaving Icahn, scooped up mobile services provider Leap Wireless International Inc. and Loral Space & Communications Inc. from bankruptcy proceedings. Expanding Production At the time, Lions Gate was making plans to expand film production and had purchased smaller libraries of older films from other studios. It was also gearing up to produce TV shows like “Weeds” and later “Mad Men,” the Emmy-winning drama on cable TV’s AMC network. By 2008, when Icahn publicly reported his holdings, the stock had started to decline as industry DVD sales stalled and the value of film libraries fell. At the time of his acquisition, Icahn said he planned to “have discussions with the executive officer” about increasing profitability, according to a filing . Unlike Icahn, who in the past had pressured companies into making changes, Rachesky had a history of working with management. When Rachesky bought a 19 percent controlling stake in Leap Wireless, he installed Doug Hutcheson , a member of the San Diego-based company’s founding group, as CEO. Still Friendly Lions Gate management sought out Rachesky. The company invited him to the Academy Awards and in July, Rachesky agreed to support management’s board candidates. Icahn and Rachesky are still friendly, the one-time boss said. “We see each other occasionally,” said Icahn, who celebrated Rachesky’s 50th birthday with him last year. “We simply disagree about Lion’s Gate.” Icahn, who didn’t reach an agreement for board seats at Lions Gate, has criticized management overhead, the purchase of the TV Guide cable channel and film budgets that he says are excessive. In his tender offer, Icahn has said he would replace Feltheimer and Vice Chairman Michael Burns . He also told the CNBC show “Fast Money” yesterday the next step could be a proxy fight. Lions Gate, which is asking Canadian courts to reinstate its poison pill, has said it is building value by increasing TV production, buying the TV Guide channel and expanding into premium cable services through the Epix movie channel with Viacom Inc. and Metro-Goldwyn-Mayer Inc. To contact the reporter on this story: Ronald Grover in Los Angeles at rgrover5@bloomberg.net

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Barclays Drops After Investment Banking Revenue Slides More Than Estimated

April 30, 2010

By Jon Menon and Andrew MacAskill April 30 (Bloomberg) — Barclays Plc , the U.K.’s third- largest bank by assets, fell in London trading after first- quarter investment banking revenue dropped more than estimated. Revenue at the Barclays Capital unit slumped 26 percent to 3.8 billion pounds ($5.8 billion) for the three months to March 31, missing the 4.9 billion-pound estimate of analyst Mark Phin at Keefe, Bruyette & Woods Ltd. The shares declined the most in 12 weeks . “We are skeptical about continued growth at Barclays Capital,” wrote Bruce Packard , a London-based analyst at Seymour Pierce, with a “sell” recommendation on the stock. Fixed-income bankers “have worked hard to perpetuate the scientific nonsense of everlasting, compounding growth.” While revenue declined at Barclays Capital, the securities unit led by Robert Diamond , investment banking revenue rose 41 percent at Deutsche Bank AG in the first quarter and was 1 percent lower at JPMorgan Chase & Co. Barclays Capital hired more than 750 people in Europe and Asia last year, adding equities and mergers and acquisitions advisers, after buying the U.S. unit of Lehman Brothers Holdings Inc. in 2008. Net income for the three months to March 31 rose to 1.07 billion pounds, or 8.7 pence a share, from 826 million pounds, or 6.8 pence in the same period of 2009, the London-based company said in a statement. “This is a disappointing statement,” wrote Jonathan Pierce, an analyst at Credit Suisse Group AG, in a note to investors today. “Consensus forecasts for 2010 are safe, but 2011 is more vulnerable.” ‘New Businesses’ The bank fell 5.7 percent to 340.5 pence at 10:43 a.m. in London trading, the worst performer in the five member FTSE 350 Index of U.K. banks. Barclays gained 31 percent in the year to yesterday compared with a 9.2 percent gain for the index. “In the next nine months, we would expect to see new businesses coming on stream,” said Barclays Capital President Jerry Del Missier in a telephone interview, who pointed to cash equities, credit business and underwriting. Revenue at Barclays Capital was lower because of a 38 percent decline in fixed income, commodities and currencies, Credit Suisse’s Pierce said. “Everyone is focusing on the revenue figure, it’s a disappointment,” Oliver Gilvarry , the head of research at Dolmen Securities in Dublin, with a “buy” recommendation said by phone. “The market got ahead of itself on what it was expecting on the revenue side.” Barclays said impairments fell 35 percent to 1.5 billion pounds compared with the same period a year earlier. ‘Too Dependent’ Pretax profit at Barclays Capital outstripped the performance of every other division, rising 62 percent to 1.47 billion pounds and contributing about 80 percent of group profit. That resulted from a 75 percent fall in impairments at Barclays Capital and a 66 percent rise in revenue from debt and equity underwriting. The second-biggest contributor to profit was the global retail banking unit, where pretax profit fell 6 percent to 403 million pounds. “The investment banking division has again driven performance,” said Keith Bowman , a London-based equity analyst at Hargreaves Lansdown. “Today’s results will again reinforce some people’s concerns that they are too dependent on that unit.” Barclays is accruing 38 percent to 39 percent of revenue in remuneration for employees in its investment bank, said Finance Director Chris Lucas in a conference call with journalists today. A decision on bonuses won’t be taken until the end of the year, he added. Credit Card Loss Lloyds Banking Group Plc , the 41 percent U.K. government- owned bank, this week said it returned to profit as bad loan provisions declined. Barclays Corporate posted a 75 million-pound loss and the Barclaycard credit card unit’s profit declined 34 percent to 118 million pounds. Profit rose 20 percent to 238 million pounds at the U.K. consumer banking unit. Barclays has “direct exposure” to government bonds in Greece of less than 200 million pounds, said Chief Risk Officer Robert Le Blanc in a conference call with analysts. The bank will hold its annual meeting of shareholders in London at 11.00 a.m. To contact the reporters on this story: Jon Menon in London at jmenon1@bloomberg.net Andrew MacAskill in London at amacaskill@bloomberg.net

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Icahn Finds Ex-Prot馮 Rachesky a Tougher `Pill’ Than Lions Gate Defenses

April 30, 2010

By Ronald Grover April 30 (Bloomberg) — As Carl Icahn presses his hostile takeover bid for Lions Gate Entertainment Corp. , he’s finding his biggest obstacle isn’t a “poison pill” or management — it’s former protégé Mark Rachesky , the largest stockholder. Rachesky, president and co-founder of MHR Fund Management LLC, holds more stock in Vancouver-based Lions Gate, 19.7 percent to Icahn’s 18.8 percent, and has sided with management since joining the independent studio’s board in September. The company is urging rejection of Icahn’s $7-a-share offer. “He was a smart guy,” Icahn recalled in an interview. “We did some good things together.” No more. Rachesky and other investors publicly backing management of Vancouver-based Lions Gate, led by Chief Executive Officer Jon Feltheimer , hold 34 percent of the stock, according to Bloomberg data. A vote on the company’s poison pill, designed to deter billionaire Icahn from gaining control, was tilting Lions Gate’s way before regulators in British Columbia ruled it invalid on April 27. Icahn, 74, and Rachesky are old friends. In the early 1990s, Rachesky, who has a medical degree, was Icahn’s chief investment adviser and top lieutenant as they took large positions in biotechs like Cadus Pharmaceuticals Corp. and real estate. In 1993, Rachesky became Icahn’s representative on the board of Samsonsite parent E-II holdings. To win, Icahn will have to increase his bid, according to David Joyce, a Miller Tabak & Co. analyst in New York who recommends buying the stock and says it could reach $8 in the next year. Rachesky declined to comment. Higher Bid Icahn’s offer, up from $6 originally, values the company at about $826 million. It expires tonight unless extended, which Icahn told CNBC yesterday he is likely to do. “To get over 50 percent of the company, he clearly has to go over $7 a share,” said Alan Gould , an analyst with Soleil Securities Inc. in New York. Lions Gate, run from Santa Monica, California, gained 13 cents to $7 yesterday in New York Stock Exchange composite trading . Shares of the company, distributor of the “Saw” films, have risen 20 percent this year. The company said yesterday preliminary fiscal 2010 earnings before interest, tax, depreciation and amortization exceeded $115 million, compared with $75 million estimated in February. That implies Ebitda of at least $17.1 million in the fourth quarter, compared with a projected loss on that basis earlier. A higher bid would put more pressure on Rachesky, who began buying Lions Gate in mid 2005, when the stock traded between $9 and $11 a share. Before then, Rachesky, like Icahn, was mostly a buyer of distressed stocks. New York-based MHR Fund Management, which he started in 1996 after leaving Icahn, scooped up mobile services provider Leap Wireless International Inc. and Loral Space & Communications Inc. from bankruptcy proceedings. Expanding Production At the time, Lions Gate was making plans to expand film production and had purchased smaller libraries of older films from other studios. It was also gearing up to produce TV shows like “Weeds” and later “Mad Men,” the Emmy-winning drama on cable TV’s AMC network. By 2008, when Icahn publicly reported his holdings, the stock had started to decline as industry DVD sales stalled and the value of film libraries fell. At the time of his acquisition, Icahn said he planned to “have discussions with the executive officer” about increasing profitability, according to a filing . Unlike Icahn, who in the past had pressured companies into making changes, Rachesky had a history of working with management. When Rachesky bought a 19 percent controlling stake in Leap Wireless, he installed Doug Hutcheson , a member of the San Diego-based company’s founding group, as CEO. Still Friendly Lions Gate management sought out Rachesky. The company invited him to the Academy Awards and in July, Rachesky agreed to support management’s board candidates. Icahn and Rachesky are still friendly, the one-time boss said. “We see each other occasionally,” said Icahn, who celebrated Rachesky’s 50th birthday with him last year. “We simply disagree about Lion’s Gate.” Icahn, who didn’t reach an agreement for board seats at Lions Gate, has criticized management overhead, the purchase of the TV Guide cable channel and film budgets that he says are excessive. In his tender offer, Icahn has said he would replace Feltheimer and Vice Chairman Michael Burns . He also told the CNBC show “Fast Money” yesterday the next step could be a proxy fight. Lions Gate, which is asking Canadian courts to reinstate its poison pill, has said it is building value by increasing TV production, buying the TV Guide channel and expanding into premium cable services through the Epix movie channel with Viacom Inc. and Metro-Goldwyn-Mayer Inc. To contact the reporter on this story: Ronald Grover in Los Angeles at rgrover5@bloomberg.net

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Yellen Anti-Inflation Credentials at Fed Are Defended by Gramley, Blinder

April 30, 2010

By Vivien Lou Chen April 30 (Bloomberg) — When Janet Yellen was first reported to be President Barack Obama ’s choice for Federal Reserve vice chairman early last month, the dollar weakened on speculation she would help keep interest rates at a record low through the end of the year. Less than two weeks later, the former professor at the University of California, Berkeley told reporters that she’d be ready to tighten policy to avoid kindling inflation. She pointed out that she had supported interest-rate increases 20 times in her years as a Fed governor from 1994 to 1997 and as president of the San Francisco Fed starting in 2004. “The Fed has to be ready to take away the punch bowl when it’s necessary,” Yellen, 63, said after a speech on March 23. “When the time has come, am I going to support raising interest rates ? You bet.” Investors should take her words at face value, say economists including Lyle Gramley , a former Fed governor, and Alan S. Blinder , a former vice chairman. “When inflation pops its ugly head up, Janet will be there as strongly anti-inflationary as anybody on the committee,” said Gramley, a senior economic adviser for Potomac Research Group in Washington. Obama yesterday announced he will nominate Yellen to the Fed’s seven-person Board of Governors, along with Sarah Bloom Raskin , Maryland’s commissioner of financial regulation, and Peter Diamond , an economics professor at the Massachusetts Institute of Technology. ‘Extended Period’ Yellen, if confirmed by the Senate, would join the Fed board as it considers when to signal an end to its policy of keeping interest rates low for an “extended period.” The Federal Open Market Committee this week renewed that pledge, prompting Kansas City Fed President Thomas Hoenig to dissent for a third straight meeting, saying the language limits the Fed’s ability to increase rates “modestly.” The Brooklyn-born economist would replace Donald Kohn , a 40-year veteran of the central bank. She would preside over board meetings in Chairman Ben S. Bernanke ’s absence and get a permanent vote on monetary policy, instead of having a vote one year out of every three as a regional Fed chief. Yellen would have a four-year term as vice chairman and a separate term as a governor. Yellen, in a statement yesterday, said she’s “strongly committed” to the central bank’s dual mandate from Congress to keep inflation low and stable while promoting maximum employment. Job Creation “If confirmed, I will work to ensure that policy promotes job creation and keeps inflation in check,” Yellen said. In an April 15 speech, Yellen said she’s increasingly certain the U.S. economy is “on the right track,” and that officials will “at some point” need to lift borrowing costs. Still, “it’s important not to lose sight of just how fragile this recovery is,” she said. Policy makers are contending with an unemployment rate that has been stuck at 9.7 percent for three straight months even as payrolls started to grow. Fed officials this week repeated that inflation is likely to be “subdued” and that consumer spending is held back by tight credit and weak income growth. U.S. central bankers have kept the benchmark lending rate in a range of zero to 0.25 percent since December 2008. Their purchases of $1.25 trillion in mortgage-backed securities, which ended last month, boosted the balance sheet to a record $2.34 trillion, creating concern among some officials that aggressive monetary stimulus could lead to imbalances later. Growth Forecast Gross domestic product grew at a 3.3 percent annual pace in the first quarter, according to the median forecast of economists surveyed by Bloomberg News ahead of a report today from the Commerce Department. After a 5.6 percent expansion in the prior three months, such growth would mark the best back-to- back performance since the last six months of 2003. Conditions in financial markets have also improved. Raytheon Co ., the world’s largest missile maker, and the finance unit of Royal Dutch Shell PLC led a drop in U.S. industrial company debt yields to 129 basis points more than similar- maturity Treasuries last week, according to Bank of America Merrill Lynch index data. Yellen spent most of her career teaching economics and researching labor markets, joining the University of California at Berkeley in 1980. She and her husband, George Akerlof , a Nobel Prize-winning economist, have written more than a dozen papers that included studies on unemployment, wages, street gangs and out-of-wedlock births. Goes to Washington In 1994, then-President Bill Clinton appointed Yellen to be a Fed governor in Washington, where she served until 1997, when she was moved to the White House to chair the Council of Economic Advisers. She left the position in 1999 to return to Berkeley. “You can’t put her in a box,” said University of California professor Aaron Edlin, who has known Yellen for 22 years and worked with her on the Council of Economic Advisers. “If dove means she cares about people who are unemployed, I suppose you can say she’s a dove. But it’s not the case that she doesn’t care about inflation.” Yellen rejoined the Fed in 2004 as president of its San Francisco district bank, which represents the largest region by area and economic output. In her years as a policy maker, she has never dissented from the FOMC’s majority on an interest-rate decision. Rate Risks In April 2006, Yellen became the first Fed official to warn about the risks of raising the overnight lending rate between banks too far. Her remarks foreshadowed an end to a two-year long campaign to lift the federal funds rate in quarter-point increments from a low of 1 percent. The committee stopped at 5.25 percent after its June 2006 meeting and left borrowing costs at that level for more than a year. “Janet’s very cognizant of the dangers of overstaying tightening or easing because of the failure to take into account long lags in policy,” said Blinder, a co-author of a 2001 book with Yellen called “The Fabulous Decade: Macroeconomic Lessons from the 1990s.” Then, in a September 2007 speech in San Francisco, Yellen appeared to signal another shift, saying that the U.S. economy was under “significant downward pressure” from turmoil in credit and housing markets. The Fed lowered the fed funds rate target a week later by a half point to 4.75 percent, the first cut in four years, to protect the U.S. from sinking into a recession. “If I were on the board right now, I would be as dovish in my remarks as she is,” Gramley said. “I don’t worry about her dovishness. She is an intellectual powerhouse. She has the enormous respect of her colleagues. She’s going to be a huge asset as the vice chairman of the Fed.” To contact the reporters on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net

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Papandreou Makes Austerity Pitch as Unions Slam Cuts

April 30, 2010

By Maria Petrakis and Natalie Weeks April 30 (Bloomberg) — Prime Minister George Papandreou is starting his sales pitch to the Greek people as unions denounce “unjust” budget cuts linked to a potential $159 billion European Union bailout. “We find ourselves before the most savage, unprovoked and unjust attack,” Spyros Papaspyros , head of the ADEDY civil servants union, said in Athens late yesterday after meeting Papandreou. “The answer will be given in the street.” Greek officials aim to reach an agreement with the EU and the International Monetary Fund in coming days on budget cuts that may be worth 24 billion euros ($32 billion). While signs of an accord ended a bond market selloff in Europe yesterday, Moody’s Investors Service warned that Greece could be vulnerable to a “multi-notch” downgrade if measures don’t go far enough. Steps may include a three-year wage freeze for public workers and cutting two of the 14 salary payments that they receive annually, the ADEDY union said. Greece’s NET Radio said yesterday that cuts could amount to 10 percentage points of gross domestic product. The deficit was 13.6 percent of GDP in 2009. “It’s a tall order to assume that Greeks will be convinced because for years they have been used to getting a different type of treatment from their governments,” said Michael Massourakis , chief economist at Alpha Bank, the country’s third largest, in a telephone interview. “Papandreou doesn’t have the luxury of choosing the context or pace of the adjustment.” Retailers plan to shut their stores on May 5, joining a strike organized by the GSEE union, the nation’s biggest. Junk Rating Greece’s credit rating was cut to below investment grade, or junk, this week by Standard & Poor’s. Moody’s Investors Service, which currently has an A3 rating on the country, said its decision will depend on the measures announced by the EU and the IMF. A3 is the fourth-lowest investment grade. Other deficit-cutting steps include increasing sales tax and raising the cap on the number of workers who can be fired to 4 percent from 2 percent, Kathimerini newspaper said, without saying where it got the information. “We will do what is needed for the salvation of the country,” Papandreou said, according to the e-mailed transcript of his comments to union and business representatives. It didn’t give details of the austerity measures. Bond Yield The yield on the Greek 10-year government bond, which surged to 11.406 percent on April 28, fell 91 basis points to 9.04 percent yesterday as officials speed up efforts to finalize a rescue package. The ASE benchmark general index , which has lost nearly a fifth of its value this year, jumped 7 percent, the most since December. National Bank of Greece SA soared 18 percent. The euro was little changed against the dollar in Asia, trading at $1.3239 as of 2:17 p.m. in Tokyo. Stocks across the region snapped a three-day losing streak as earnings results from companies in the region bolstered confidence in Asia’s economic expansion. “The financial support will give Greece sufficient breathing space from pressures of financial markets,” EU Monetary Affairs Commissioner Olli Rehn said yesterday. Election Pledge Papandreou is stuck between investors, who want faster deficit cuts, and voters and unions, who are already chafing from existing austerity measures. Elected in October on pledges to raise wages for public workers, Papandreou has been forced to cut salaries, curb spending and raise taxes to reduce a deficit that was more than four times the EU’s limit last year. “We were and are the champions of change,” Papandreou said April 28. “We know we must put our economy in order if we are to survive.” The time has come to move on from “watching the spreads go up and down, usually more up than down.” “I got a taste of a very tough package,” Yannis Panagopoulos, head of the GSEE union, said after meeting Papandreou. He described it as “arbitrary and unjust.” Voters’ anger has been partly focused on the IMF and the political risks facing Papandreou are highlighted by the IMF’s most recent involvement in Europe. In Hungary, the first EU member to turn to the Washington- based lender, voters this month ousted the ruling Socialist party two years after it accepted a bailout. Fiscal conditions attached to the $27 billion loan exacerbated the country’s recession as unemployment soared to a record, souring support for the government. Popular Opposition Sixty-five percent of Greek voters polled by researcher Alco for the Proto Thema newspaper last week said Papandreou must reject any measures that lead to more wage and pension cuts. Europe’s fiscal crisis worsened this week after Germany’s reluctance to approve emergency funds sparked a drop in Greek bonds and S&P followed its Greek downgrade with cuts for Portugal and Spain. Papandreou, who said last week that his country faces a “new Odyssey,” will now have to convince voters that they don’t have a choice, said Alpha Bank’s Massourakis. Even after yesterday’s bond-market rally, Greece must pay 12.57 percent to borrow for two years. Germany pays 0.79 percent. “It’ll be difficult, but at end of the day people will realize that these are necessary because the country doesn’t have access to borrowing anymore,” he said. To contact the reporters on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net Natalie Weeks in Athens at nweeks2@bloomberg.net .

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Goldman Scrutinized by U.S. Prosecutors Examining SEC Case

April 30, 2010

By Justin Blum and David Glovin April 30 (Bloomberg) — Federal prosecutors in New York are investigating transactions by Goldman Sachs Group Inc. , accused of misleading investors by U.S. securities regulators, to determine whether to pursue a criminal fraud case, according to two people familiar with the matter. The federal review, which lawyers say is common in such a high-profile case, is being done by the U.S. attorney in Manhattan, said the people, who weren’t authorized to comment and spoke on condition of anonymity. The Securities and Exchange Commission filed a civil lawsuit against Goldman Sachs on April 16 alleging fraud tied to collateralized debt obligations that contributed to the worst financial crisis since the Great Depression. The burden of proof in a criminal case would be higher than in the SEC’s civil case. Criminal allegations have to be proven beyond a reasonable doubt. Based on public reports about the SEC matter, a criminal case may be difficult, said Douglas R. Jensen , an attorney with Park & Jensen LLP in New York. The case appears “highly complex” and Goldman Sachs would be able to make multiple arguments in its defense, he said in an interview. “In order to proceed criminally in a case, you need to have very clear evidence of lying, cheating and stealing,” said Jensen, a former deputy chief of the criminal division of the U.S. attorney’s office in the Southern District of New York who served on that office’s securities fraud task force. ‘Higher Profile’ Cases The U.S. attorney’s office in the Southern District “pretty consistently” reviews SEC cases that are “higher profile” such as those involving large dollar amounts or policy issues, he said. The reviews may begin before the SEC files a lawsuit. Yusill Scribner , a spokeswoman for U.S. Attorney Preet Bharara , declined to comment. Lucas van Praag , a spokesman for New York-based Goldman Sachs, said the company would “fully cooperate with any requests for information.” “Given the recent focus on the firm, we’re not surprised by the report of an inquiry,” he said. Goldman Sachs Chief Executive Officer Lloyd Blankfein said in an interview with CBS News this week: “It is my belief that nothing unethical and nothing illegal has happened, but I will tell you if I discovered something like this, or any senior person at Goldman Sachs discovered illegal or unethical behavior, we would eliminate that from the firm.” The Federal Bureau of Investigation hasn’t opened a criminal investigation, said a U.S. official who spoke on condition of anonymity and wasn’t authorized to comment publicly on the matter. The Postal Inspection Service , which also could investigate such cases, doesn’t have any open probes into Goldman, said Tom Boyle , a spokesman for the agency in New York. Own Investigators Two former prosecutors for the U.S. attorney’s office in New York, who spoke on condition of anonymity, said prosecutors have their own investigators who may be examining the case before determining whether to involve the FBI or postal inspectors. The SEC may have provided documents and other information to prosecutors gathered as part of its investigation, allowing them to assess whether a criminal case could be made, they said. The Justice Department sometimes brings criminal charges at the same time the SEC files suit. In other instances, criminal charges come later. The SEC sued financier R. Allen Stanford and his firm in February 2009 on claims he ran a Ponzi scheme. Stanford was indicted on criminal charges later that year. The SEC accused WorldCom Inc. of fraud in 2002. Two senior WorldCom executives were arrested on criminal charges later that year. SEC Suit Goldman Sachs created and sold CDOs linked to subprime mortgages in early 2007, as the U.S. housing market faltered, without disclosing that hedge fund Paulson & Co. helped pick the underlying securities and bet against the vehicles, according to the SEC’s lawsuit. At an April 27 congressional hearing, Goldman Sachs executives were questioned by U.S. lawmakers who compared the bank’s mortgage bankers to bookies. Company officials said they did nothing wrong. “The SEC and the courts will resolve the legal question of whether Goldman’s actions broke the law,” said Senator Carl Levin , a Michigan Democrat who is chairman of the Permanent Subcommittee on Investigations , at the hearing. “The question for us is one of ethics and policy.” Levin, whose panel is investigating Goldman Sachs, told reporters after the hearing that it was too soon to say whether he would refer any of the committee’s findings to the Justice Department or SEC. No Obligation Blankfein told Levin’s panel that market-makers have no obligation to tell clients about their own position in a security. Blankfein said the nature of the principal business often puts the firm on the opposite side of customers. Sixty-one House Democrats and one House Republican, led by Representative Marcy Kaptur , an Ohio Democrat, sent a letter to the Justice Department on April 23 asking Attorney General Eric Holder to investigate Goldman Sachs, if the Justice Department wasn’t already. The department will review the letter, Alisa Finelli, a spokeswoman, said in an April 27 e-mail. Billionaire John Paulson ’s firm earned $1 billion on the trade and wasn’t accused of wrongdoing. The SEC also sued Fabrice Tourre , a Goldman Sachs vice president who helped create the CDOs, known as Abacus. Goldman Sachs posted a record $13.4 billion profit in 2009, a year after receiving $10 billion in taxpayer aid during the financial crisis. It repaid the funds in June. The company has been criticized by lawmakers and pundits for its pay practices and its role in helping Greece mask the size of its debts. The company called the SEC’s claims “unfounded.” To contact the reporters on this story: Justin Blum in Washington at jblum4@bloomberg.net ; David Glovin in New York federal court at glovin@bloomberg.net

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Renault May Wait on Volvo Sale, Eliminate $6.8 Billion in Debt

April 30, 2010

By Laurence Frost and Ola Kinnander April 30 (Bloomberg) — Renault SA may keep its Volvo AB stake until a rebounding heavy-truck market boosts the price 25 percent, allowing the carmaker to raise about 50 billion kronor ($6.8 billion) and wipe out most of its debt. France’s second-biggest automaker will probably wait for Volvo’s improving outlook to push the stock to 112.5 kronor before unloading its 21.8 percent holding , the average estimate of 10 analysts surveyed by Bloomberg shows. The stock has gained 47 percent this year, closing yesterday at 90.15 kronor. Chief Executive Officer Carlos Ghosn pledged last month to reduce the carmaker’s net debt of 5.9 billion euros ($7.8 billion) through non-strategic asset sales. Banks are preparing to bid for the stock sale and expect invitations soon, according to people at two financial institutions, who asked not to be identified because the discussions are confidential. “Renault’s under no real pressure to refinance right now, so Ghosn can wait for the U.S. recovery to be better reflected in Volvo’s share price,” said Max Warburton , a Sanford C. Bernstein analyst in London who correctly predicted Renault’s share-swap deal with Daimler AG three weeks before the April 7 announcement. With credit conditions improving and a 3 billion-euro French government loan repayable next year at the earliest, Renault “may wait until then and do a clean swap,” he said. Volvo, along with European rivals Daimler AG , MAN AG and Scania AB, this month reported first-quarter earnings that beat analysts’ estimates as demand for heavy trucks improved. Volvo on April 23 posted net income of 1.68 billion kronor, its first profit in more than a year. Analysts had forecast a loss of 8 million kronor. The shares gained 10 percent. ‘Encouraged’ by Gains Chief Financial Officer Thierry Moulonguet said April 27 that Renault, based in the Paris suburb of Boulogne-Billancourt, was “encouraged” by Volvo’s share-price gains. The carmaker has the flexibility to dispose of the stake “when we judge most appropriate,” he added. Renault and Volvo spokesmen declined to comment for this story. As Ghosn waits, Volvo’s outlook is improving. The company will post second-quarter net income of 2 billion kronor on sales of 64.5 billion kronor, according to the average estimate of eight analysts. First-quarter trucks orders more than doubled in Europe and rose 19 percent in North America, Volvo said. Volvo forecasts growth of 10 percent for Europe’s truck market in 2010 and up to 30 percent in North America, after deliveries slumped in both regions last year. The Swedish company is also benefiting from reduced labor costs after shedding 12 percent of its workforce in 2009. Trading Higher “Volvo will trade higher as soon as there’s conclusive proof of orders recovering in the U.S.,” said Mike Tyndall , London-based automotive specialist with Nomura Securities. “There’s still more to come from developed markets as they recover, and as payback for all the work they did last year.” Renault may sell the stock to more than one institutional or industrial investor, analysts said. Among potential buyers are current Volvo owners Industrivarden AB and Christer Gardell’s Violet Partners LP, they said. Both companies declined to comment. “They’re probably sitting now and crunching the numbers” said Michael Andersson , an analyst with Evli Bank in Stockholm who has a “reduce” rating on Volvo. “It’s really open.” Reaching 112.5 kronor, the average share price seen by analysts as the likely trigger, would take Volvo to a high last seen on Dec. 14, 2007 — the year truckmakers posted record profit and sales on surging demand. About one-third of Renault’s stake is made up of so-called A-shares, which have 10 times the voting rights of the more widely held B-shares and currently are trading slightly lower. Renault acquired its Volvo stake in 2001, when Volvo swapped its shares for the French company’s Renault and Mack truck units. Whatever Renault decides, “Ghosn has already proven he’s a better broker than all those investors who were pushing him to sell at 60 kronor last year,” said Gaetan Toulemonde , a Paris- based analyst at Deutsche Bank AG. To contact the reporters responsible for this story: Laurence Frost in Paris at lfrost4@bloomberg.net ; Ola Kinnander in Stockholm at okinnander@bloomberg.net .

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U.S. Gulf States Mobilize for BP Oil Spill Reminiscent of Valdez Accident

April 30, 2010

By Jessica Resnick-Ault and Jim Polson April 30 (Bloomberg) — U.S. Interior Department inspectors began boarding deep-water platforms in the Gulf of Mexico, and Louisiana asked for help from the National Guard as an oil sheen reportedly washed ashore in the worst rig spill in four decades. The U.S. will “use every single available resource at our disposal,” in response to the spill, President Barack Obama said yesterday. BP Plc , which owns the leaking well, is “ultimately responsible” for paying for the cleanup, the president said. A faint sheen washed ashore on the Louisiana coastline last night, the Associated Press reported. Oil may hit Mississippi tomorrow, Alabama in two days and Florida in three, according to a government forecast . Oil is escaping from the well at a rate of about 5,000 barrels a day, five times faster than previously estimated, according to the U.S. Coast Guard. At that rate, the volume of the leak will exceed Alaska’s 1989 Exxon Valdez accident by the third week of June, making it the worst U.S. oil spill. “This has a danger of becoming an utter ecological disaster,” said Ken Medlock , a fellow in energy and resource economics at Rice University’s Baker Institute for Public Policy in Houston. “This is going to result in remediation costs, and is going to be burdensome, to say the least.” Louisiana Governor Bobby Jindal declared a state of emergency and demanded extra oil barriers from BP and the U.S. Coast Guard to protect wildlife preserves that nurture a $1.8 billion seafood industry, the richest in the U.S. behind Alaska. National Guard Jindal also requested federal funding for 90 days of military duty for as many as 6,000 National Guard troops. Shrimpers and fishermen filed suit in federal court on April 28 against BP and Transocean Ltd., owner of the sunken rig. The lawsuits say Louisiana supplies 25 percent of the seafood for the continental U.S. Families of some of the 11 workers killed when the rig exploded and sank have also filed suit. Louisiana is training crews to remove oil from marshes and plans to use prisoners, adding hands to the cleanup effort, Jindal said at a press conference. BP, unable to staunch the leak that began when a drilling rig burned and sank a week ago, yesterday proposed injecting detergent 5,000 feet below the surface in an effort to disperse oil before it can form a slick. U.S. Coast Guard Rear Admiral Mary Landry said she was considering the “novel” request. Permanent Solution BP has a rig on site to drill to the base of the damaged well and plug the leak, the only permanent solution, according to the company and federal officials. Drilling may start within 48 hours, Doug Suttles , chief operating officer of exploration and production, said yesterday at a press conference in Robert, Louisiana. The work may take three months, he said. “It’s the biggest U.S. offshore platform incident in 40 years,” Dagmar Schimdt Etkin , a Cortland, New York-based oil spill consultant who has worked for BP, the Coast Guard and the National Oceanic and Atmospheric Administration, said yesterday. “Well blowouts are extremely rare events and usually when they occur it’s only a few barrels.” Oil from the leaking well is lighter than the Alaskan crude spilled by the Exxon Valdez, Etkin said. “There are going to be more toxic impacts than the heavy black oil you saw with the Exxon Valdez.” Florida, Alabama and Mississippi dispatched all their marine research vessels to begin sampling water for oil and fish for taint, Robert L. Shipp, chairman of the department of marine sciences at the University of South Alabama in Mobile, said yesterday. Shares Plunge BP summoned offshore experts from Exxon Mobil Corp., Chevron Corp. and Royal Dutch Shell Plc to devise other ways to halt the leak, Suttles said. BP also called in Anadarko Petroleum Corp., its partner in the Macondo field where the rig was drilling. BP’s shares fell for a second day, dropping 12.5 pence, or 2.1 percent, to 571.7 pence at 8:15 a.m. in London. The shares have declined 12 percent since the April 20 explosion, valuing the company at 107.9 billion pounds ($165.8 billion). Transocean Ltd. fell 7.5 percent to $78.51 in composite trading on the New York Stock Exchange yesterday, the biggest drop in more than a year. BP’s costs, now $6 million a day, will rise as it adds people and equipment, Neil Chapman , company spokesman, said in an interview in Robert. The company would welcome additional assistance, including from the U.S. Defense Department and from volunteers, he said. Interior, Homeland Security The secretaries of the Interior and Homeland Security departments will join the head of the Environmental Protection Agency to visit the site today, Obama said. The president has contacted governors of states that may be affected, he said. Sixteen federal agencies are responding to the spill. Minerals Management Service inspectors will immediately check testing records of blowout preventers at all deep-water rigs, moving to safety inspections of all deep-water oil and gas producing platforms, Mike Saucier, an agency spokesman, said at the press conference in Robert. Blowout preventers are stacks of valves intended to cut off any unexpected pressure surge from a well. BP doesn’t know why the blowout preventer failed to avert last week’s explosion and fire that destroyed the rig, Suttles said. Crew aboard the Deepwater Horizon activated controls that should have triggered it, he said yesterday. The spill may cost the insurance industry as much as $1.5 billion in claims, according to Transatlantic Holdings Inc. Oil Executives Summoned Chief executive officers of BP, Exxon Mobil, ConocoPhillips, Royal Dutch Shell and Chevron have been summoned to testify on the spill before the Select Committee on Energy Independence and Global Warming, according to an e-mailed statement from the chairman, Representative Edward Markey , a Massachusetts Democrat. Representative Henry Waxman , chairman of the House Energy and Commerce Committee, sent letters to the heads of BP and Transocean seeking inspection reports for the Deepwater Horizon. There are 90 rigs searching for oil and natural gas in the U.S. Gulf of Mexico, according to the Minerals Management Service, which oversees drilling in federal waters as part of the Interior Department. The Exxon Valdez caused the worst oil spill in U.S. history. The tanker dumped about 260,000 barrels of crude into the Prince William Sound, for which Exxon Mobil paid $900 million in fines. To contact the reporters on this story: Jessica Resnick-Ault in New York at jresnickault@bloomberg.net ; Jim Polson in New York at jpolson@bloomberg.net .

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U.S. Economy Probably Grew as Consumer Spending Rose Most in Three Years

April 30, 2010

By Timothy R. Homan April 30 (Bloomberg) — The U.S. economy probably expanded in the first quarter, capping the biggest six-month gain since 2003, as consumers spent more freely, economists said before a government report today. Gross domestic product grew at a 3.3 percent annual pace from January through March, according to the median estimate of 85 economists surveyed by Bloomberg News. Household purchases may have climbed by the most in three years. Consumers may play a more active role in the recovery, increasing the likelihood the rebound will be sustained, as growing sales at companies from General Electric Co. to Caterpillar Inc. promote hiring. The report may also show prices increased at the slowest pace on record, highlighting why Federal Reserve policy makers are pledging to keep interest rates low. “The economy is still on a moderate-recovery track, and inflation pressures are easing,” said Nigel Gault , chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “The economy gained momentum as the first quarter progressed, so the second quarter should see stronger growth.” The Commerce Department’s report on economic growth is due at 8:30 a.m. in Washington. Bloomberg survey estimates spanned from 1.8 percent to 4.5 percent. Following a 5.6 percent pace of growth in the last three months of 2009, the back-to-back readings mark the strongest performance since the last half of 2003. Spending Pickup Consumer spending , which accounts for about 70 percent of the economy, probably rose at a 3.3 percent annual rate last quarter, the fastest pace since the first three months of 2007, the report may also show. Fed policy makers this week acknowledged the improvement, saying household spending had “picked up recently,” according to their April 28 statement announcing the benchmark interest rate would remain near zero. Today’s GDP report may also show the Fed’s preferred inflation gauge , which is tied to consumer spending and strips out food and fuel costs, climbed at a 0.5 percent annual rate at the start of the year, according to the survey median. The gain would be the smallest since record-keeping began in 1959. “Economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period,” policy makers said in this week’s statement. Labor Costs Another report today may show labor costs are contained. The employment cost index rose 0.5 percent in the first quarter after increasing 0.4 percent in the prior three months, the survey showed before Labor Department figures at 8:30 a.m. Expenses were up 1.5 percent in the 12 months through December, matching the smallest increase since records began in 2001. Also today, figures from Reuters/University of Michigan may show measures of consumer confidence diverged this month. The group’s sentiment gauge probably fell to 71 from 73.6 in March, according to a survey median. A similar report this week from the Conference Board, a New York research group, showed confidence climbed to the highest level since September 2008. An improving job market is one reason why households are more willing to spend. Payrolls probably rose again in April following a 162,000 gain in March that was the biggest in three years, according to the median estimate of economists surveyed before the Labor Department’s monthly employment report on May 7. The jobless rate was at 9.7 percent for a fourth month, the survey also showed. Stocks Rise Stocks gained in the first quarter of the year on mounting signs the economic recovery was taking hold. The Standard & Poor’s 500 Index climbed 4.9 percent from January through March, and has increased 3.2 percent in April. Caterpillar, the world’s largest maker of construction equipment, had its first earnings increase in seven quarters as demand rose, and said it will bring back at least 9,000 jobs this year of the 19,000 it cut globally in 2009. The Peoria, Illinois-based company has added about 1,500 workers since year- end because of higher production, including 600 in the U.S. Business investment rather than consumer spending will drive the U.S. economic recovery as profits climb, GE’s Chief Executive Officer Jeffrey Immelt said this week. “The clouds are breaking and the forecast ahead of us is promising,” Immelt told shareholders at an April 28 meeting in Houston. The company sees growth coming from emerging markets such as China, where it garnered $6 billion in sales last year, including about 40 percent from goods exported from the U.S. Immelt said he plans to hire more workers in the U.S. this year. To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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Bond Rally Teeters as Yield Spreads Expand, Offerings Slow: Credit Markets

April 30, 2010

By Bryan Keogh and Sonja Cheung April 30 (Bloomberg) — The record rally in corporate bonds is showing signs of cracking, with yields rising the most in 13 months relative to government debt and new sales falling to the lowest level this year. The extra interest investors demand to own company bonds widened 6 basis points this week to 149 basis points, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. Global company bond issuance tumbled 56 percent from last week to $19.6 billion, data compiled by Bloomberg show. Ratings downgrades in Greece, Portugal and Spain drove investors from credit markets on concern worsening government finances may undermine the global recovery, curbing revenue and providing less cushion for borrowers to meet debt payments. Company bond spreads were at a 2 1/2-year low before this week, generating total returns of about 22 percent including reinvested interest since the market bottomed in March 2009. “Corporate bonds could only defy gravity for so long,” said Eric Cherpion , deputy head of syndicate at Societe Generale SA in London. “The volatility from Greece is pushing spreads out, which have remained tight despite the credit risks in the market.” The pullback was sharpest in Europe, where spreads widened 11 basis points to a six-week high of 152 basis points, according to Bank of America’s EMU Corporate index. U.S. investment-grade spreads rose 4 basis points to 155 basis points, or 1.55 percentage points. Global corporate bond spreads are still down from the record 511 basis points in March 2009 and 176 at the end of last year, the data show. Toyota, GMAC Elsewhere in credit markets, Toyota Motor Corp. sold $1.25 billion of bonds backed by auto loans and GMAC Inc.’s Ally Bank issued $703 million of debt backed by payments from auto dealers, according to people familiar with the transactions, who declined to be identified because terms aren’t public. U.S. commercial paper outstanding jumped the most in five months, the Federal Reserve said yesterday on its Web site. The market for short-term IOUs without seasonal adjustment rose $19.7 billion to $1.1 trillion in the week ended April 28, the biggest surge since the period ended Nov. 18 and the highest level since March 10, according to data compiled by Bloomberg. On a seasonally adjusted basis, the amount soared $32.9 billion to $1.11 trillion, the highest level since March 31. The Fed’s holdings of bonds of government-chartered agencies such as Fannie Mae and Freddie Mac on behalf of foreign institutions and central banks increased for a sixth straight week to $788 billion, up from last year’s low of $760 billion in November and below the peak of $984 billion in July 2008. Covered Bonds Spreads on covered bonds, which are mainly issued by banks in Europe, widened 2 basis points to 106 more than government debt as of yesterday, the biggest gap since Aug. 12, according to Bank of America Merrill Lynch’s EMU Covered Bonds Index. Greek covered bonds had their ratings cut for the second time in a week by Moody’s Investors Service, which cited the expensive refinancing rates issuers face as a result of the nation’s soaring funding costs. Greek bonds plunged this week after Standard & Poor’s slashed its credit rating three steps to BB+, or below investment grade. Emerging-market bonds fell, as spreads widened 3 basis points to 259 basis points, up from 230 on April 15, JPMorgan Chase & Co.’s EMBI+ Index shows. In Brazil, Fibria Celulose SA sold $750 million of 10-year bonds to yield 7.625 percent, Bloomberg data show, while Sao Paolo-based Marfrig Alimentos SA, the world’s fourth-largest meatpacker, issued $500 million of similar-maturity notes to yield 9.75 percent. Bond Spreads Brazil’s real surged to the strongest level in more than three months after the central bank lifted its benchmark interest rate for the first time in more than a year to 9.5 percent from a record low of 8.75 percent. Average spreads on global corporate bonds widened the most this week since the five-day period ended March 13, 2009, when they jumped 14 basis points, the Bank of America index shows. The index has narrowed in 42 of the past 54 weeks. Spreads finished last week at 143 basis points, after dropping to 142 on April 21, the lowest since November 2007. The last time spreads rose in a week was in the period ended Feb. 12. The widening may not last, as profits are still growing, said Guy Lebas , chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. “What we’re seeing is a short-lived widening rather than an end to the rally,” Lebas said in an e-mail. “Investor risk aversion appears to be increasing in response to sovereign credit concerns.” Credit-Default Swaps In the U.S., the Markit CDX North America Investment Grade Index of credit-default swaps dropped 4.5 basis points to a mid- price of 94 basis points. The Markit iTraxx Europe Index of 125 investment-grade companies fell 8 basis points to 90, according to Markit Group Ltd. The indexes are a benchmark for the cost of insuring company bonds against default. A decline signals an improvement in investor perceptions of credit quality. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A basis point on a contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan fell 2 basis points to 99 basis points today, while the Markit iTraxx Japan index declined 9 basis points to 99, according to prices from Royal Bank of Scotland Group Plc and Morgan Stanley. Japanese markets were shut yesterday. Daiwa Loans Daiwa Securities Group Inc. , Japan’s second-largest brokerage, borrowed 50 billion yen ($531 million) to fund expansion in Asia. The company got a 30 billion yen three-year loan and a 20 billion yen five-year loan from 30 banks led by Mitsubishi UFJ Financial Group Inc., said Daiwa spokesman Ryoji Fuchinoue , without elaborating. Global corporate bond issuance fell from $44.8 billion last week, with the monthly total at $164.2 billion compared with $311 billion in March, Bloomberg data show. In the U.S., sales fell to $12.9 billion from $23.1 billion last week, while European issuance dropped to 2.4 billion euros from 4.5 billion euros. Smiths Group Plc , the world’s biggest maker of airport scanners, was the only investment-grade issuer to tap the European debt market. Sales Pulled Casino Guichard-Perrachon SA , the biggest supermarket owner in Paris, withdrew initial yield guidance for its sale of 8 1/2- year notes, while U.K. rail and bus operator National Express Group Plc delayed its debut euro debt issue. The Czech government also postponed offerings of euro-denominated notes. High-yield companies sold $7.23 billion in debt globally, matching the weekly average for the year and down from $10.2 billion last week. Ziggo, the Dutch cable television operator, sold 1.2 billion euros of non-investment grade, 8 percent notes, while blue jeans maker Levi Strauss & Co. issued 300 million euros of 7.75 percent bonds due 2018. High-yield, or junk, bonds are ranked lower than Baa3 by Moody’s and below BBB- by S&P. Spreads on junk debt widened 13 basis points to 569 basis points, the first increase in eight weeks, according to Bank of America’s Global High-Yield Index. “The high-yield market seems to be trading in its own parallel universe” and is unaffected by the Greek debt crisis because it’s used to volatility, said Alex Moss , a fund manager at Insight Investment Management in London. “There’s been a lot of inflow into the market recently and investors have committed money for the long term and are not inclined to sell at the moment.” To contact the reporters on this story: Bryan Keogh in London at bkeogh4@bloomberg.net ; Sonja Cheung in London at scheung58@bloomberg.net

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Yen Weakens, Euro Climbs on Greece Aid Talks, Outlook for Economic Growth

April 30, 2010

By Matthew Brown and Candice Zachariahs April 30 (Bloomberg) — The yen fell against higher- yielding currencies and the euro climbed on signs Greece may reach an agreement on budget cuts needed to win a potential $159 billion bailout. The euro strengthened for a third day versus the dollar and the yen after European Commission President Jose Barroso said he is confident a rescue package for Greece will be completed “in days.” Japan’s currency tumbled toward the lowest level since September 2008 against Australia’s dollar as stocks gained. The pound rose versus the dollar as U.K. opposition leader David Cameron won a television debate, boosting the likelihood of there being an outright winner in next week’s election. “It looks like we’re going to get an announcement early next week, which is bringing a bit of optimism that’s hurting the yen and giving the euro some support,” said Ian Stannard , a foreign-exchange strategist at BNP Paribas SA in London. “Upside for the euro will be short-lived, because whatever aid package is agreed, the underlying problems remain.” The yen fell 0.5 percent to 87.63 per Australian dollar as of 8:21 a.m. in London. It depreciated to 87.77 on April 26, the weakest level since September 2008. Japan’s currency declined 0.7 percent to 11.7202 won. The yen weakened to 125.20 per euro, from 124.45 yesterday. The euro advanced to $1.3297, from $1.3233, paring this week’s loss to 0.6 percent. The dollar increased to 94.17 yen, from 94.03, poised for a second monthly gain. The euro has fallen 1.5 percent against the dollar in April as Greece struggled to contain its deficit and its debt was downgraded to junk status by Standard & Poor’s. That marks a fifth monthly decline, the longest stretch since November 2008. ‘Austerity’ Package The International Monetary Fund told German lawmakers this week Greece may need as much as 120 billion euros ($159 billion). The nation has agreed on the outlines for an “austerity” package of as much as 24 billion euros in return for a loan from the European Union and the IMF, the Financial Times said, citing people familiar with the talks. The EU, IMF and the European Central Bank are making “rapid progress” on a rescue package, Barroso said today at a briefing in Beijing. Debt restructuring is not a part of the package, he said. Barroso also said he has “no doubts” about the solidity of the euro. “Greece looks like it’ll be rescued, suggesting the worst is over at this stage,” said Tsutomu Soma , a bond and currency dealer at Okasan Securities Co. Ltd. in Tokyo. “This is leading to a short-term relief rally in the euro.” ‘Risk Appetite’ The EU’s statistics office in Luxembourg will release a report today that will show consumer prices in the euro area rose 1.5 percent in April from a year earlier, according to a Bloomberg News survey of economists. The report is due at 10 a.m. London time. “If you can get the focus off of Greece, the incoming economic indicators for the euro zone actually look pretty good,” said Ray Attrill , global research director at Forecast Ltd. in Sydney. “The dollar and yen have benefited most from the loss of risk appetite, so any reversal of that and you’d expect to see the dollar and yen being the weaker currencies.” The U.S. Commerce Department will say today gross domestic product expanded at a 3.3 percent annual pace from January through March, a Bloomberg survey showed. Korean factory output rose a greater-than-estimate 22.1 percent from a year earlier, according to a report from the statistics office today. The MSCI World Index of shares rose 0.4 percent, while the Stoxx Europe 600 Index added 0.4 percent. Australian Dollar Australia’s dollar was set for a second weekly advance against the greenback before a Reserve Bank of Australia meeting on May 4, where policy makers will increase the benchmark interest rate, a survey of economists indicated. “The mess in Greece is likely to settle down gradually,” said Morio Okayasu , chief analyst in Tokyo at FOREX.com Japan Co., a unit of the online currency trading firm Gain Capital in Bedminster, New Jersey. “An improvement in risk appetite will encourage investors to chase higher-yielding currencies such as Australia’s dollar.” Reserve Bank Governor Glenn Stevens has raised rates five times over the past six meetings to 4.25 percent, making Australian assets a favorite among those seeking higher-yielding investments using low-cost funds. Benchmark rates are 0.1 percent in Japan and as low as zero in the U.S. The Bank of Japan kept interest rates near zero today and said it will examine ways to help strengthen the economic recovery. The central bank’s decision came hours after government figures showed the export-led recovery is spreading, even as deflation persists. Ichimoku Cloud The U.S. dollar may extend this month’s gains against the yen to reach the strongest since August 2008 should it close above 95 yen, rising through the top of a weekly ichimoku cloud and its 21-month average, said Barclays Capital. The dollar “is testing its weekly cloud cap” at 94.30 yen, strategists led by Jordan Kotick , the New York-based head of technical strategy, wrote in an e-mailed note. The dollar’s 21-month moving average is at 94.76 yen, Bloomberg data show. “Both these trend-following techniques have a remarkably good track record of calling one- to three-year U.S. dollar moves over the last 25 years,” the analysts wrote. A close above 95 yen “would target 110.” The greenback last traded above 110 yen on Aug. 25, 2008. To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net ; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

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Obama’s Rebounding Economy Reflected in Junk Bond Market’s Dividend Deals

April 30, 2010

By Caroline Salas and John Detrixhe April 30 (Bloomberg) — Buyers of high-yield, high-risk debt are betting that President Barack Obama is leading the U.S. economy to an enduring recovery. Investors have gobbled up $99.6 billion of junk-bond sales in 2010, a record for the first four months of the year, including the most bonds to fund dividends for private-equity firms since before the credit crisis began in August 2007, according to data compiled by Bloomberg and Standard & Poor’s LCD. Prices for the average speculative-grade security climbed to 99.7 cents on the dollar this week, the highest since June 2007, up from 54.8 cents in December 2008, according to the Bank of America Merrill Lynch U.S. High Yield Master II Index. The return of an appetite for risk shows growing confidence that the U.S. will avoid a double-dip recession, said John Lonski , chief economist at Moody’s Capital Markets Group. Profits for companies in the Standard & Poor’s 500 Index surged 176 percent in the final three months of 2009, and the U.S. economy grew at a 3.3 percent annual pace in first quarter, according to the median forecast of 85 economists surveyed by Bloomberg News, after expanding 5.6 percent in the fourth quarter. The junk-bond rally demonstrates “a sense that the worst is over for the U.S. economy and that a self-sustaining recovery could materialize by the summer,” Lonski said in an interview from his New York office. High-yield, or junk, bonds are those rated below Baa3 by Moody’s Investors Service and lower than BBB- by Standard & Poor’s. Neediest Companies The reopening in the high-yield market helps the neediest companies avoid bankruptcy because they can refinance their debt, said Daniel Janis , a money manager at MFC Global Investment Management in Boston. The high-yield default rate fell to 9.9 percent in the first quarter from 13 percent at the end of 2009, according to Moody’s. The measure will decline to 2.8 percent by year-end, the lowest in two years, Moody’s predicts. The access to financing also helps spur economic growth because companies can fund business investments, Janis said. Forty-seven percent of corporate executives plan to spend more during the next six months, while only 7 percent plan to reduce expenditures, according to the Business Roundtable’s CEO Economic Outlook Survey released April 7. The balance anticipated no change. “Now you have companies that have the ability to borrow,” said Janis, who oversees $4.2 billion in fixed-income assets. “As you refinance, then their business plans and capital- expenditures stuff gets funded. Before, they were shut out.” Pay Dividends The rally has given businesses on the brink of default, such as Harrah’s Entertainment Inc. , access to capital and allowed leveraged-buyout firms to sell more debt to pay themselves dividends than at any point since before the credit markets seized up. High-yield companies controlled by private- equity groups have sold $3.1 billion of bonds so far this year to fund payouts, compared with $600 million in all of 2009, according to Standard & Poor’s LCD data. Maxim Crane Works LP , based in Bridgeville, Pennsylvania, and owned by Platinum Equity Capital, sold $250 million of 12.25 percent notes on March 31 to finance a dividend. The debt is rated Caa1 by Moody’s and B by S&P. “There is a bit of a feeding frenzy going on,” said Bruce Monrad , money manager at Northeast Investment Management Inc., who co-manages the $709 million Northeast Investors Trust high- yield fund in Boston. “A lot of the doomsday scenarios have abated.” Potential Default Las Vegas-based Harrah’s, the world’s biggest casino operator, averted a potential default in 2008 and 2009 by shaving $4.2 billion of debt when some creditors agreed to swap their holdings at a discount for new bonds. This month, the casino company was able to sell $750 million of 12.75 percent notes due in 2018 that were rated Ca by Moody’s, two levels above default. Harrah’s was acquired by private equity firms Apollo Management LP and TPG in January 2008. While investors have been rewarded with a record 68.7 percent return in junk bonds since 2008, the overall economic recovery hasn’t generated enough jobs or inflation to prompt the Federal Reserve to budge from near-zero interest rates. Unemployment has persisted above 9 percent since May 2009, and policy makers’ preferred inflation gauge, the personal consumption expenditures price index minus food and energy, declined to a 1.3 percent annual rate in February from 1.5 percent in January. Inflation Expectations Economic conditions, including “subdued inflation trends and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period,” the Federal Open Market Committee in Washington said in an April 28 statement. The Fed said it has seen some signs of life in the job market, which means the economy is strengthening. U.S. employers added 162,000 jobs in March, the third gain in five months and the most in three years. Consumers in the U.S. also turned more optimistic this month. The Conference Board’s confidence index rose to 57.9, exceeding all forecasts of economists surveyed by Bloomberg News and the highest level since Lehman Brothers Holdings Inc. collapsed in September 2008, according to data from the New York-based private research group. Corporate-bond buyers have been emboldened by company profits and the improvement in gross domestic product, according to Lonski of Moody’s. The fourth-quarter expansion was the most in six years. Extra Yield The extra yield, or spread, investors demand to own speculative-grade securities instead of similar-maturity Treasuries shrank to 5.42 percentage points on April 26, the narrowest since June 17, 2008, and down from the record 13.2 percentage points in December 2008, Bank of America Merrill Lynch data show. The spread was 5.54 percentage points on April 29. “It’s difficult to become especially concerned about credit when you have earnings growing at a rate that is a magnitude of the growth of debt,” Lonski said. Profits at U.S. nonfinancial companies grew by 11.5 percent in the fourth quarter, compared with a 1.5 percent expansion by corporate debt in the same period, according to data compiled by Moody’s based on information from the Federal Reserve and Commerce Department. Ford Motor Co. , the only major U.S. automaker to avoid bankruptcy in 2009, reported first-quarter earnings of $2.1 billion this week, and Chief Executive Officer Alan Mulally forecast a “solid” 2010 profit. The Dearborn, Michigan-based company had a fourth straight quarter of net income, its longest streak since 2005. Ford Bonds Ford’s $1.8 billion of 7.45 percent bonds due in 2031 have climbed to 93.25 cents on the dollar from 15 cents in November 2008, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Ford, the second-largest U.S. car company, has benefited from a recovering auto market as Americans begin to spend more. Consumer purchases probably rose at a 3.3 percent annual rate in the first three months of this year, more than double the fourth-quarter pace and the most in three years, according to a Bloomberg survey . Data will be released today. “Some of the indicators have shown that things are a little bit better,” MFC Global’s Janis said. “The economy, I feel, is fine. I’m saying ‘We have no double dip.’” To contact the reporters on this story: Caroline Salas in New York at csalas1@bloomberg.net John Detrixhe in New York at jdetrixhe1@bloomberg.net

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Spain’s Unemployment Rate Exceeds 20%, Complicating Efforts to Cut Deficit

April 30, 2010

By Emma Ross-Thomas April 30 (Bloomberg) — Spain’s unemployment rate rose above 20 percent for the first time in more than a decade, undermining Prime Minister Jose Luis Rodriguez Zapatero ’s fight to cut the euro region’s third-largest budget deficit . The jobless rate rose to 20.1 percent in the first quarter from 18.8 percent in the previous three months, the Madrid-based National Statistics Institute said today. The rate is above a median forecast of 19.8 percent in a Bloomberg News survey of 10 economists . Spanish unemployment is the highest in the euro region and double the average rate in the European Union, according to separate data from the EU’s statistics office . Spanish borrowing costs have surged in the past two weeks on concern the country will struggle to push the deficit below the EU limit of 3 percent of economic output. Standard & Poor’s cut Spain’s credit rating on April 28, saying the government was underestimating its fiscal problems and overestimating growth prospects. Adding to public spending, Zapatero has extended benefits for the long-term unemployed. “The government’s scenario is a bit more optimistic than what we’re seeing, so the welfare costs for the unemployed are going to be higher,” said Jesus Castillo , an economist at Natixis in Paris. “If they don’t take new measures the 3 percent deficit target is not going to be met.” The extra yield investors demand to hold Spanish debt rather than German equivalents fell to 97 basis points today from 99 basis points yesterday. The premium reached the highest in more than a year this week. Budget Deficit At 11.2 percent of gross domestic product, Spain’s budget shortfall was the third-biggest in the euro area last year, trailing only Greece and Ireland. S&P said it expects the Spanish deficit to stay above 5 percent in 2013, the year the government has pledged to cut it to the EU’s 3 percent limit. EU officials are speeding up efforts to agree a bailout package for Greece as the market turmoil caused by its fiscal crisis spreads through the southern euro region. Spanish Finance Minister Elena Salgado urged European colleagues to be “clearer and faster” in lending aid to Greece as the situation is “generating instability” that’s affecting Spain, according to an interview published in Cinco Dias newspaper today. S&P expects Spain’s economy to grow an average of 0.7 percent a year through 2016, and sees the jobless rate reaching 21 percent this year. The government, which says unemployment is peaking, forecasts 1.8 percent expansion next year, accelerating to 3.1 percent in 2013. ‘Knock-On Implications’ “I suspect employment will continue falling for most of the rest of this year,” said Ben May , an economist at Capital Economics Ltd. in London. “Clearly it has knock-on implications for fiscal policy.” The Socialist government has extended unemployment benefits for the long-term unemployed and 80 percent of those out of work receive some kind of subsidy, Labor Ministry data shows. Zapatero has pledged to maintain welfare payments even as he works to cut the budget shortfall. Spain has some of the highest firing costs for open-ended contracts in Europe, according to the World Bank’s Doing Business Index , while around a quarter of the country’s workers have temporary contracts . The Bank of Spain says a labor-market overhaul is “urgent” as high unemployment poses a risk to banks and the Socialist government has pledged to change labor legislation after talks with unions and employers. Banking System “If Spain maintains for a prolonged period these millions of workers out of jobs, the banking system could become an obstacle to achieving economic recovery after being a support for the economy during the crisis,” Bank of Spain Governor Miguel Angel Fernandez Ordonez said on April 13. Banco Santander SA Chief Executive Officer Alfredo Saenz said yesterday that changes to labor rules should be carried out immediately. The surge in unemployment is eroding support for Zapatero, who was re-elected in 2008 on pledges of full employment. The opposition People’s Party would win 40 percent of the vote, compared with 36.2 percent for the ruling Socialists, according to a poll by the state-run Center for Sociological Research carried out in January. To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

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Louisiana Oil Spill Brings New Questions About Regulation, Self-Policing After Accident

April 30, 2010

WASHINGTON — Suddenly, everything changed. For days, as an oil spill spread in the Gulf of Mexico, BP assured the government the plume was manageable, not catastrophic. Federal authorities were content to let the company handle the mess while keeping an eye on the operation. But then government scientists realized the leak was five times larger than they had been led to believe, and days of lulling statistics and reassuring words gave way Thursday to an all-hands-on-deck emergency response. Now questions are sure to be raised about a self-policing system that trusted a commercial operator to take care of its own mishap even as it grew into a menace imperiling Gulf Coast nature and livelihoods from Florida to Texas. The pivot point had come Wednesday night, at a news conference at an oil research center in the tiny community of Robert, La. That’s when the nation learned the earlier estimates were way off, and an additional leak had been found. On Thursday, President Barack Obama set in motion a larger federal mobilization, pledging to deploy “every single available resource” to the area and ordering his disaster and environmental leaders to get down there in person. Only a few days after the Coast Guard assured the country there was “ample time” to protect the coast if oil came ashore, warnings from the government were newly alarming. “I am frightened for the country, for the environment,” David Kennedy, assistant chief of the National Ocean Service at the National Oceanic and Atmospheric Administration, told The Associated Press. “This is a very, very big thing, and the efforts that are going to be required to do anything about it, especially if it continues on, are just mind-boggling.” The political subtext of the crisis was clear and increasingly on people’s minds, whether from a federal office deploying oil-containment booms or from a Louisiana parish awaiting yet another sucker punch from the sea. Will this be Obama’s Katrina? Should the federal and state governments have done more, and earlier? Did they learn the lessons of the devastating hurricane? Political calculations vied with the increasingly scary Gulf reality – hundreds of thousands of gallons of oil and its progression to landfall Thursday night. Florida Gov. Charlie Crist, who also is in a hot campaign for the Senate, flew over the slick and commended the federal actions to date but wondered if anyone, really, could be doing enough in this situation. “It appeared to me,” he said, “that this is probably much bigger than we can fathom.” The crisis began with a massive explosion aboard the drilling rig Deepwater Horizon on April 20, more than 40 miles off the Louisiana coast. The search for 11 missing workers overshadowed environmental concerns until they were given up for lost. Rear Adm. Mary Landry, chief of the Coast Guard in the region, said at the outset that most of the oil was burning off, leaving only a moderate rainbow sheen on the water and no sign of a major spill. “Both the industry and the Coast Guard have technical experts actively at work,” she said. “So there’s a whole technical team on both sides of the aisle here to ensure we keep the conditions stable.” Two days later, the Deepwater Horizon sank and crews spotted a 1-by-5-mile sheen with a dark center that appeared to be a crude oil mix. Obama got his first briefing on the accident. Landry said the following day that no oil appeared to be leaking from a well head at the ocean floor, nor was any leaking noted at the surface. At the White House, Obama spokesman Robert Gibbs said that sometimes accidents happen, and the loss of the Deepwater Horizon was no reason to back off on the president’s recent decision to support expanded offshore drilling. Throughout last week and into this one, the government was deferring to BP on what was being done at the site and on assessments of progress. The Coast Guard was not doing its own independent, firsthand assessment of the seabed rupture. Landry repeatedly asserted that BP was the responsible party and would shoulder the costs and organizational duties associated with the cleanup effort while the Coast Guard monitored things and approved the numbers of vessels working the scene and the methods of control. On Monday, Landry offered assurances that the Gulf Coast should be safe. “This is ample time to protect sensitive areas and prepare for cleanup should the oil impact this area,” she said. And at sea, BP officials were “doing their best.” On Wednesday night, she reported the findings of federal experts that up to 5,000 barrels a day were leaking from the well. BP had estimated only 1,000. As well, the company told the Coast Guard a new leak had been found. Obama was briefed on these developments on Air Force One while returning at night from the Midwest. By Thursday afternoon, the White House had assembled a team of top advisers to showcase the administration’s determination to head off the damage posed by the oil slick. And Gibbs acknowledged details of the president’s drilling proposal might be revisited, depending on the investigation into the rig explosion and spill. The equation had changed, like a hurricane setting a new course. ___ Associated Press writers Brian Schwaner and Mike Kunzelman in New Orleans, Kelly Daschle and H. Josef Hebert in Washington and Brendan Farrington in St. Petersburg, Fla., contributed to this report.

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Gene Mapper’s DNA Profile Reveals His Heart Risk, Which Drugs Work Best

April 29, 2010
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Gene Mapper’s DNA Profile Reveals His Heart Risk, Which Drugs Work Best

April 29, 2010
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South Korea’s Factory Output Increases for Ninth Month on Global Recovery

April 29, 2010
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South Korea’s Factory Output Increases for Ninth Month on Global Recovery

April 29, 2010
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Buffett, Bernanke Met for Lunch a Week Before Confirmation by U.S. Senate

April 29, 2010
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Buffett, Bernanke Met for Lunch a Week Before Confirmation by U.S. Senate

April 29, 2010
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Marks Spencer Investors Want an Encore From New Chief Executive Bolland

April 29, 2010
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Marks Spencer Investors Want an Encore From New Chief Executive Bolland

April 29, 2010
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Wall Street Faces Capital Shortfalls, Pay Cuts in Banking Bill

April 29, 2010
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Wall Street Faces Capital Shortfalls, Pay Cuts in Banking Bill

April 29, 2010
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U.S. Stocks Rally Most Since March as Motorola, Starwood Gain

April 29, 2010

By Elizabeth Stanton April 29 (Bloomberg) — U.S. stocks rallied, sending benchmark indexes up the most since at least March, as better- than-estimated earnings at companies from Motorola Inc. to Starwood Hotels & Resorts Worldwide Inc. added to evidence the economy is strengthening. Motorola, the largest U.S. mobile-phone maker, advanced 3.5 percent after reporting an unexpected profit, and Starwood rose 5.7 percent. Palm Inc. surged 26 percent as Hewlett-Packard Co. agreed to buy the maker of Pre phones for about $1.2 billion. BP Plc, Transocean Ltd. and Cameron International Corp. plunged after the U.S. Coast Guard said an oil well in the Gulf of Mexico is leaking five times faster than previous estimates. The Standard & Poor’s 500 Index gained 1.3 percent to 1,206.77 at 4 p.m. in New York. The Dow Jones Industrial Average rallied 122.05 points, or 1.1 percent, to 11,167.32. It was the biggest gain since March 5 for both measures. The Nasdaq-100 Index jumped 1.8 percent for its best rally since November. “Earnings season has been spectacular,” said Eric Green , senior money manager at Penn Capital Management in Philadelphia, which oversees about $5 billion. “The recovery has been stronger than most have expected.” The S&P 500 closed within 0.9 percent of its 19-month high last week. The benchmark for U.S. stocks fell 2.3 percent on April 27, the most since February, as credit-rating downgrades of Greece and Portugal triggered a flight from risky assets. Earnings Season Profit at companies in the S&P 500 surged 176 percent during the final three months of 2009, the most in Bloomberg data going back to 1998, and analysts estimate a 44 percent increase for the first quarter of 2010. Earnings estimates for companies in the index rose 9.1 percent on average in April, the largest monthly increase since at least 2006. Income for the first three months of this year is beating estimates at nearly the fastest rate ever, with 78.4 percent of the companies that have reported topping projections. That compares with 79.5 percent in the third quarter and 72.3 percent in the period before that. Companies reporting better-than-estimated results since yesterday’s close include Akamai Technologies Inc., Aetna Inc. and International Paper Co. The S&P 500 has rallied 78 percent from a 12-year low in March 2009 as earnings returned to growth following a record nine-quarter slump and the Federal Reserve kept its benchmark interest rate at a record low to safeguard the recovery from recession. The Fed yesterday reiterated its pledge to keep its target rate for overnight lending between banks near zero for an “extended period” even as the labor market shows signs of improvement. Jobless Benefits A Labor Department released before exchanges opened today showed the number of Americans filing claims for unemployment benefits declined last week to a one-month low, adding to signs the economic rebound is lifting the job market. European stocks also advanced, lifting the Stoxx Europe 600 Index from a six-week low, as the region’s leaders moved closer to approving a rescue plan for Greece. European Union Economic and Monetary Affairs Commissioner Olli Rehn today told reporters in Brussels that he is confident discussions on the aid package for Greece will conclude “in the next days.” Motorola gained 3.5 percent to $7.16 after posting first- quarter profit, excluding some items, of 2 cents a share. Analysts predicted a loss of 1 cent on average. The company’s forecast for second-quarter earnings beat analysts’ estimates, signaling demand for models like the Droid is helping to reverse a three-year sales slump. Starwood, Palm Starwood climbed 5.7 percent to $56.29. The owner of the St. Regis and W hotel brands said first-quarter profit surged fivefold as revenue exceeded the average analyst projection. Palm rallied 26 percent to $5.84 after agreeing to be bought by Hewlett-Packard for $5.70 a share. The deal puts Hewlett-Packard back in contention with the biggest smartphone makers, including Nokia Oyj, Apple Inc. and Research In Motion Ltd. Acquisitions are rebounding after takeovers of U.S. companies tumbled 83 percent from their 2007 peak to a six-year low of $89.2 billion in last year’s fourth quarter, according to Bloomberg data. Volume totaled $179.1 billion during the first quarter, and $71.1 billion of deals have been announced this month. U.S. shares of BP, based in London, plunged 8.3 percent to $52.56 in U.S. trading. The company will have to pay the costs associated with an oil spill in the Gulf of Mexico after last week’s explosion of a well that is leaking as much as 5,000 barrels of crude a day, the Obama administration said today. Shrimpers Sue Transocean, which owns the oil rig, lost 7.5 percent to $78.51. Halliburton Co. retreated 5.3 percent to $31.60. Louisiana fishermen and shrimpers sued BP, Transocean and Halliburton on claims the oil spill will destroy the state’s fishing industry. Halliburton was responsible for capping the well, according to the lawsuit. Cameron International lost 13 percent to $38.70. Its gear has been used on the Deepwater Horizon rig since the vessel was commissioned. Baidu Inc., the operator of China’s biggest Internet search engine, rallied 14 percent to $709.87. First-quarter net income rose to 480.5 million yuan ($70.4 million) from 181.1 million yuan a year earlier. That exceeded the 364.6 million-yuan average of analysts’ estimates compiled by Bloomberg. Akamai, the largest supplier of software and services to make Web sites load faster, rose 19 percent to $39.63. Aetna, the third-biggest U.S. health insurer, climbed 2.4 percent to $31.24. International Paper, the world’s largest maker of white paper used in offices, increased 3 percent to $28. ‘Exceptional Condition’ “Corporations are in exceptional condition,” said Carmine Grigoli , chief investment strategist at Mizuho Securities USA Inc. in New York. “Profitability is approaching levels last seen in 2007 at the peak of the profit cycle.” Education companies retreated following a report that Robert Shireman , the U.S. undersecretary for education, criticized the panels that evaluate for-profit colleges. Apollo Group Inc. fell 6.1 percent, Corinthian Colleges Inc. declined 5.5 percent and ITT Educational Services Inc. dropped 6.6 percent. Inside Higher Ed reported that Shireman compared the agencies that handle accreditation of for-profit colleges to credit-ratings firms, which he said played a role in the “flawed” regulatory process that allowed Wall Street firms to contribute to the financial crisis that began in 2007. To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net

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Cameron Bolsters Bid to Oust Brown With Win in U.K. Campaign Debate Polls

April 29, 2010

By Thomas Penny and Gonzalo Vina April 30 (Bloomberg) — Conservative leader David Cameron won the final debate of the U.K. election campaign, three instant-reaction polls showed, gaining momentum in his bid to oust Prime Minister Gordon Brown in the May 6 vote. Cameron’s central message in the 90-minute debate in Birmingham, central England, was that 13 years of Labour Party rule had left Britain struggling to recover from its longest recession and the highest unemployment in 16 years. “If you vote Labour, you’re going to get more of the same,” Cameron said. “If you vote Conservative on Thursday, you can have a new fresh government, making a clean break.” Brown countered by describing himself as the most able steward of a recovering economy. “They are not ready for government because they have not thought through their policies,” Brown said of Cameron and Liberal Democrat leader Nick Clegg . “We are desperate to get this country through the recession and into the recovery.” Opinion surveys before the event put Brown in third place in a three-way race behind Cameron and Liberal Democrat Nick Clegg. Forecasts point to a so-called hung Parliament, with the Conservatives having the most seats, though short of a majority. The prospect of a hung Parliament may unsettle investors on concern that a government lacking a majority would be too weak to fix Britain’s record budget deficit . The pound has dropped about 1 percent against the dollar since Clegg surged into contention after he was judged by polls to have won the first TV debate on April 15. Instant Polls In the final encounter last night, 41 percent of 1,151 viewers questioned immediately after the debate said Cameron performed best, according to a YouGov Plc poll. Clegg was called the winner by 32 percent and 25 percent favored Brown. Of the 2,372 voters questioned for a ComRes Ltd. instant poll, 35 percent thought Cameron won and 33 percent saw Clegg as the winner, with 26 percent for Brown. Another poll by ICM Ltd. for the Guardian had Cameron at 35 percent, Brown at 29 percent and Clegg at 27 percent. “Cameron was very strong at looking assured and looking like he knew what he was doing,” said Justin Fisher, professor of politics at London’s Brunel University. Brown began the debate by repeating an admission that he’d erred on April 28 in describing a voter as “bigoted.” The prime minister was forced to apologize after being caught on a microphone talking about a widow and self-described Labour supporter in northwest England with whom he’d been discussing immigration. ‘Run the Economy’ “As you saw yesterday, I don’t get all of it right, but I do know how to run the economy, in good times and in bad,” Brown said. A YouGov poll for The Sun newspaper released before the debate showed Conservative support unchanged from the previous day at 34 percent, while the Liberal Democrats fell 3 points to 28 percent and Labour was unchanged at 27 percent. YouGov questioned 1,623 voters April 28 and yesterday. That would give the Conservatives 268 lawmakers, 58 short of a majority in the 650-seat House of Commons, Labour 261 and Clegg’s party 90, according to the seat calculator on the U.K. Polling Report website. During the debate, Brown and Cameron clashed over the timing of cuts in government spending. ‘Tory Budget’ “I do fear an emergency Tory budget in a few weeks time putting the very work that we’ve done to secure the recovery in jeopardy,” Brown said, referring to the Conservatives’ pledge to announce revised spending plans within 50 days of winning power. Labour “confuse the economy with the government,” Cameron said. “What we’re saying is save government waste to put money back in people’s pockets. Gordon’s argument in a way is ‘Let me go on wasting your money so I can put your taxes up next year.’” “Cameron knew Brown would go on his record as an experienced leader in the economic crisis so he sought to lay the blame for the economic malaise at Labour’s door,” said Andrew Russell , who teaches politics at the University of Manchester. The deficit, which at more than 11 percent of gross domestic product is the largest in the Group of Seven, has been a dominant theme of the campaign. “We need to build a new stronger and fairer economy,” Clegg said. “We’ve got to do things differently.” The Conservatives, who have pledged to go further and faster than Labour and the Liberal Democrats in cutting spending, suggested last week the International Monetary Fund might need to bail out the U.K. if the vote produces an indecisive result. The British economy grew in the first quarter at 0.2 percent, half the pace of the previous three months, and unemployment is at a 16-year high. Gross domestic product contracted for six straight quarters through September 2009. To contact the reporters on this story: Thomas Penny in Birmingham, England, at tpenny@bloomberg.net ; Gonzalo Vina in Birmingham, England, at gvina@bloomberg.net .

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Takefuji Sues Merrill Lynch for $309 Million of Losses on Structured Bond

April 29, 2010

By Finbarr Flynn April 30 (Bloomberg) — Takefuji Corp. sued Merrill Lynch Japan Securities Co. for about 29 billion yen ($309 million), claiming the brokerage failed to provide sufficient explanation of a financial transaction. Takefuji, a Japanese consumer lender, entered into a deal with Merrill Lynch in 2007 to remove a 30 billion yen bond from its balance sheet. As part of the transaction, Takefuji invested the same amount in a structured bond set up by Merrill Lynch, Kentaro Itai , a Takefuji spokesman, said in an interview. Takefuji ended up booking a 29.6 billion loss on the investment in the year ended March 31, 2008, after the value of the securities backing the bond slumped in value. Merrill Lynch, which was bought by Bank of America Corp. last year, failed to fully explain the risks involved in the deal, Itai said. The Japanese company sued Merrill Lynch in the Tokyo District Court on April 28, according to Itai. The bond, which was scheduled to mature in 2020, was liquidated in 10 months, after the value of underlying securities fell, he said. “We deny the allegation, and we will defend ourselves vigorously,” said Takayuki Inoue , a Tokyo-based spokesman at Merrill Lynch. Takefuji’s credit rating was downgraded one level by Moody’s Investors Service in March to Caa2, eight notches below investment grade, citing pressure on the company’s liquidity. Japan’s four largest consumer lenders, including Takefuji, have booked 2 trillion yen in losses during the past three fiscal years after the Supreme Court ruled in 2006 interest charges in excess of 20 percent were illegal. Takefuji has 42.4 billion yen of 1.5 percent notes due in 2018 that investors can ask it to redeem on June 19, according to data compiled by Bloomberg. The Tokyo-based company’s “current efforts to increase liquidity” will enable it to “prepare the necessary amount of cash,” Katsuhide Takahashi , a credit specialist at Citigroup Global Markets Japan, said in a note to clients April 26. Takefuji, which has reported losses of $7.5 billion since April 1 2006, has declined 2.6 percent this year, after dropping 46 percent and 73 percent respectively in the two previous years. Takefuji is forecasting a profit of 13 billion yen for the year ended March 31. The company’s shares fell 0.8 percent to 379 yen at the 11 a.m. trading break in Tokyo. To contact the reporter on this story: Finbarr Flynn in Tokyo at fflynn3@bloomberg.net

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Samsung Electronics Profit Rises Seven-Fold to $3.6 Billion on Chip Prices

April 29, 2010

By Kevin Cho April 30 (Bloomberg) — Samsung Electronics Co. , Asia’s biggest maker of semiconductors, flat screens and mobile phones, reported record profit after rebounding demand for personal computers drove up chip prices. First-quarter net income rose almost seven-fold to 3.99 trillion won ($3.6 billion) in the three months ended March 31, from 582.2 billion won a year earlier, the Suwon, South Korea- based company said in a statement today. Sales, including those of overseas affiliates, increased 21 percent to 34.64 trillion won. Samsung said it expects to boost spending and earnings growth to extend into this quarter, joining technology companies including Intel Corp. and Apple Inc. in signaling a revival in demand for electronics ranging from televisions to PCs. Analysts predict Samsung’s earnings growth will probably extend until the third quarter, while higher memory-chip and flat-panel prices will help the company post record profit this year. The likelihood of increased spending “reflects a confidence in demand,” said Chang In Whan , president of Seoul- based KTB Asset Management Co., which manages the equivalent to $10 billion in assets. “I think overall the company will post stronger earnings than we previously anticipated.” Samsung , which climbed 77 percent last year, rose 1.6 percent to 838,000 won at 10:58 a.m. in Seoul trading, while the benchmark Kospi index gained 0.8 percent. The shares have climbed 4.9 percent this year, compared with the 3.6 percent advance by the Kospi. Cautiously Optimistic The company said it’s “cautiously optimistic” second- quarter earnings will rise, citing demand for products across all of Samsung’s major product categories. Samsung also expects capital spending this year to be substantially higher than it projected, though the electronics maker can’t currently disclose specific figures, said Robert Yi , head of investor relations. “We will continue to widen the gap with competitors in the memory business, improve profitability in the LCD business, and strengthen our competiveness and market dominance in the handset and TV businesses,” Yi said. Operating profit, or sales minus the cost of goods sold and administrative expenses, jumped to a record 4.41 trillion won from 593 billion won, Samsung said. The year-earlier results were revised following Samsung’s adoption of International Financial Reporting Standards from this year, the company said. Chip Division First-quarter profit at Samsung’s semiconductor division was 1.96 trillion won, compared with a loss a year earlier, as prices rose. Micron Technology Inc. and Hynix Semiconductor Inc. , which compete against Samsung in computer memory, both reported quarterly profit that beat analysts’ estimates. Intel , the biggest chipmaker, this month forecast record profit margins for 2010 and said sales will rise this quarter. Samsung, the world’s largest maker of computer-memory chips, said last month it expects prices to remain “stable” in the second half of the year, buoyed by strong demand. The company said in January it plans to spend 5.5 trillion won in capital investment on semiconductors this year, compared with 4.5 trillion won in 2009. Kwon Oh-Hyun , head of Samsung’s chip division, said March 16 a decision on raising capital spending for chips will be taken in the second quarter. Flat-Screen TV Demand At the flat-screen business, Samsung reported a profit of about 490 billion won, compared with a year-earlier loss, driven by higher TV demand. LG Display Co. , the second-largest liquid- crystal display maker after Samsung, last week reported its fourth straight quarterly profit after prices increased. Prices of most panels used in computer monitors, notebooks and TVs rose in the second half of March from a year earlier, according to Taipei-based researcher WitsView Technology Corp. Panel prices will probably remain flat in the current period and rebound in the third quarter, James Kim , an analyst at Nomura Holdings Inc., wrote in a report this month. A shortage of components for LCDs will continue throughout this year, which will help limit supply growth, he wrote. Samsung’s digital media division, which makes TVs, posted a profit of about 520 billion won from 470 billion won, as the company increased sales of more expensive models using light- emitting diodes as screen backlights. Global shipments of LCD TVs may rise 24 percent to more than 180 million units in 2010, Austin, Texas-based DisplaySearch said last month. Samsung, the world’s largest TV maker, said in January it expects to sell 35 million LCD sets this year. Mobile Phones LG Electronics Inc. , the second-ranked TV maker, this week posted a quarterly profit compared with a year-earlier loss, helped by sales of TVs and appliances. LG said its first-quarter LCD TV shipments increased 62 percent to 5.2 million sets. Samsung, also the world’s second-largest mobile-phone maker, said profit from the telecommunications division fell to 1.1 trillion won from 1.12 trillion won. First-quarter handset shipments climbed 40 percent to 64.3 million, Samsung said. The company said in February its handset shipments may grow 19 percent to more than 270 million units, helped by demand for smartphones. Samsung has said it plans to triple shipments of the devices this year from 6 million in 2009. Nokia, Apple Nokia Oyj , the world’s biggest maker of mobile phones, last week cut its margin forecast and posted profit that missed analysts’ estimates because of competition from Apple’s iPhone. Apple said last week its second-quarter iPhone sales more than doubled and profit increased 90 percent. LG Electronics, the world’s third-largest handset maker, this week said earnings from its mobile phones fell 89 percent as the company fell behind in introducing new models in the smartphone market, the fastest growing segment. Worldwide sales of smartphones will increase 36 percent to 247 million in 2010 and expand 30 percent next year, ISuppli said last month. The total mobile-phone industry shipments will probably rise 11 percent to 1.28 billion units this year, according to ISuppli. To contact the reporters on this story: Kevin Cho in Seoul at kcho2@bloomberg.net

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Japan Household Spending, Wages Rise as Consumer Prices Tumble 13th Month

April 29, 2010

By Aki Ito and Keiko Ujikane      April 30 (Bloomberg) — Japan’s household spending, wages and job openings increased, while consumer prices tumbled for a 13th straight month, signaling a sustained recovery that’s still not strong enough to end deflation.      Today’s statistics were released hours before Bank of Japan policy makers are scheduled to announce their decision on monetary policy. Board members must decide whether to step up their efforts to contain price declines by expanding a 20 trillion yen ($212 billion) lending program for lenders. The bank is forecast to keep its benchmark interest rate near zero. “The economy’s recovery is steadily continuing,” said Hiroshi Miyazaki , chief economist at Shinkin Asset Management Co. in Tokyo. Even so, “deflationary pressures are still deep- seated in the economy,” he said. Household outlays rose 4.4 percent in March from a year earlier, the biggest gain since May 2004, the statistics bureau said today in Tokyo. Consumer prices excluding fresh food slid 1.2 percent from a year earlier. Wages advanced 0.8 percent, the first increase in 22 months, the Labor Ministry said. The ratio of jobs to applicants climbed to 0.49, meaning there are 49 jobs for every 100 candidates, the Labor Ministry said. The unemployment rate unexpectedly climbed to 5 percent as college graduates entered the job market. The median estimate of economists was for the rate to stay at 4.9 percent. Factory Output A Trade Ministry report showed industrial production climbed 0.3 percent in March from February, when output declined for the first time in a year. The increase was less than the 0.8 percent median estimate of 28 economists surveyed by Bloomberg. Output climbed 6.7 percent in the first quarter, the fourth straight gain. Inventories declined 1.6 percent last month, signaling companies’ excess capacity is narrowing and deflationary pressure is moderating, said Curtis Freeze , chairman of Honolulu-based Prospect Asset Management Inc. “ As long as that figure contracts we’re in good shape,” Freeze said on Bloomberg Television. The Nikkei 225 Stock Average rose 1.4 percent at the lunch break in Tokyo. The yen traded at 94.10 per dollar at 11:56 a.m. in Tokyo from 94.05 before the figures were published. The yield on Japan’s 10-year bond was unchanged at 1.285 percent. Exports to Asia have fueled Japan’s recovery from its worst postwar recession. A pickup in demand from the region prompted Canon Inc. to raise its full-year profit forecast and helped JFE Holdings Inc. post higher earnings in the three months ended March 31. Firm Recovery “We are on track for a firm recovery,” Yoshiki Shinke , a senior　economist at Dai-Ichi Life Research Institute in Tokyo. Today’s numbers “prove that the pickup in exports is starting to benefit households,” he said. Figures released earlier this month showed retail sales surged the most in 13 years in March and consumer confidence climbed to the highest level in more than two years. Still, deflation continues to damp the outlook for companies. Matsuya Foods Co. and Zensho Co. , operators of beef- bowl restaurants, this month slashed prices, following Yoshinoya Holding Co., the country’s biggest chain. Yoshinoya said this month its loss will expand almost seven times from an initial forecast because of the discount competition. Production Forecasts The economic recovery may slow as the effects of government stimulus measures wear off, according to economist Mari Iwashita chief market economist at Nikko Cordial Securities Co. in Tokyo. Companies surveyed by the Trade Ministry said they will increase output 3.7 percent in April before cutting it by 0.3 percent in May, today’s report showed. BOJ Governor Masaaki Shirakawa and his colleagues will hold the key rate at 0.1 percent today, all 16 economists surveyed by Bloomberg News said. Thirteen said they expect the board to refrain from adding funds to the banking system. Policy makers have signaled over the past month that they may raise their projections for gross domestic product and prices in a twice-yearly outlook report later today. Finance Minister Naoto Kan said today that the central bank may forecast deflation will end next fiscal year by predicting consumer prices will either increase or be unchanged. Currently the board sees a 0.2 percent decline for the year ending March 2012 and a 0.5 percent drop in the current year. The central bank is expected to announce its policy decision early afternoon and release its economic forecasts at 3 p.m. in Tokyo. Shirakawa will speak to the press at 3:30 p.m. Kan last week last week called for price gains of as much as 2 percent. The ruling Democratic Party of Japan this month said it may include an inflation target in its platform for a July upper house election. The BOJ will face “mounting pressure as the election approaches,” said Hiroaki Muto , a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “For politicians, it’s easy to blame the central bank for lingering deflation and stagnant economic growth, and by doing that they can show the public they’re taking some action.” To contact the reporters on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net ; Aki Ito in Tokyo at aito16@bloomberg.net

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Japan Household Spending, Wages Rise as Consumer Prices Tumble 13th Month

April 29, 2010

By Aki Ito and Keiko Ujikane      April 30 (Bloomberg) — Japan’s household spending, wages and job openings increased, while consumer prices tumbled for a 13th straight month, signaling a sustained recovery that’s still not strong enough to end deflation.      Today’s statistics were released hours before Bank of Japan policy makers are scheduled to announce their decision on monetary policy. Board members must decide whether to step up their efforts to contain price declines by expanding a 20 trillion yen ($212 billion) lending program for lenders. The bank is forecast to keep its benchmark interest rate near zero. “The economy’s recovery is steadily continuing,” said Hiroshi Miyazaki , chief economist at Shinkin Asset Management Co. in Tokyo. Even so, “deflationary pressures are still deep- seated in the economy,” he said. Household outlays rose 4.4 percent in March from a year earlier, the biggest gain since May 2004, the statistics bureau said today in Tokyo. Consumer prices excluding fresh food slid 1.2 percent from a year earlier. Wages advanced 0.8 percent, the first increase in 22 months, the Labor Ministry said. The ratio of jobs to applicants climbed to 0.49, meaning there are 49 jobs for every 100 candidates, the Labor Ministry said. The unemployment rate unexpectedly climbed to 5 percent as college graduates entered the job market. The median estimate of economists was for the rate to stay at 4.9 percent. Factory Output A Trade Ministry report showed industrial production climbed 0.3 percent in March from February, when output declined for the first time in a year. The increase was less than the 0.8 percent median estimate of 28 economists surveyed by Bloomberg. Output climbed 6.7 percent in the first quarter, the fourth straight gain. Inventories declined 1.6 percent last month, signaling companies’ excess capacity is narrowing and deflationary pressure is moderating, said Curtis Freeze , chairman of Honolulu-based Prospect Asset Management Inc. “ As long as that figure contracts we’re in good shape,” Freeze said on Bloomberg Television. The Nikkei 225 Stock Average rose 1.4 percent at the lunch break in Tokyo. The yen traded at 94.10 per dollar at 11:56 a.m. in Tokyo from 94.05 before the figures were published. The yield on Japan’s 10-year bond was unchanged at 1.285 percent. Exports to Asia have fueled Japan’s recovery from its worst postwar recession. A pickup in demand from the region prompted Canon Inc. to raise its full-year profit forecast and helped JFE Holdings Inc. post higher earnings in the three months ended March 31. Firm Recovery “We are on track for a firm recovery,” Yoshiki Shinke , a senior　economist at Dai-Ichi Life Research Institute in Tokyo. Today’s numbers “prove that the pickup in exports is starting to benefit households,” he said. Figures released earlier this month showed retail sales surged the most in 13 years in March and consumer confidence climbed to the highest level in more than two years. Still, deflation continues to damp the outlook for companies. Matsuya Foods Co. and Zensho Co. , operators of beef- bowl restaurants, this month slashed prices, following Yoshinoya Holding Co., the country’s biggest chain. Yoshinoya said this month its loss will expand almost seven times from an initial forecast because of the discount competition. Production Forecasts The economic recovery may slow as the effects of government stimulus measures wear off, according to economist Mari Iwashita chief market economist at Nikko Cordial Securities Co. in Tokyo. Companies surveyed by the Trade Ministry said they will increase output 3.7 percent in April before cutting it by 0.3 percent in May, today’s report showed. BOJ Governor Masaaki Shirakawa and his colleagues will hold the key rate at 0.1 percent today, all 16 economists surveyed by Bloomberg News said. Thirteen said they expect the board to refrain from adding funds to the banking system. Policy makers have signaled over the past month that they may raise their projections for gross domestic product and prices in a twice-yearly outlook report later today. Finance Minister Naoto Kan said today that the central bank may forecast deflation will end next fiscal year by predicting consumer prices will either increase or be unchanged. Currently the board sees a 0.2 percent decline for the year ending March 2012 and a 0.5 percent drop in the current year. The central bank is expected to announce its policy decision early afternoon and release its economic forecasts at 3 p.m. in Tokyo. Shirakawa will speak to the press at 3:30 p.m. Kan last week last week called for price gains of as much as 2 percent. The ruling Democratic Party of Japan this month said it may include an inflation target in its platform for a July upper house election. The BOJ will face “mounting pressure as the election approaches,” said Hiroaki Muto , a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “For politicians, it’s easy to blame the central bank for lingering deflation and stagnant economic growth, and by doing that they can show the public they’re taking some action.” To contact the reporters on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net ; Aki Ito in Tokyo at aito16@bloomberg.net

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Goldman Sachs Under Scrutiny of Federal Prosecutors Reviewing Suit by SEC

April 29, 2010

By Justin Blum and David Glovin April 29 (Bloomberg) — Federal prosecutors in New York have been examining transactions by Goldman Sachs Group Inc. , accused of fraud by U.S. securities regulators, to determine whether to pursue a criminal case, according to two people familiar with the matter. The federal review, which lawyers say is common in such a high-profile case, is being done by the U.S. attorney in Manhattan, said the people, who weren’t authorized to comment and spoke on condition of anonymity. The Securities and Exchange Commission filed a civil lawsuit against Goldman Sachs on April 16 alleging fraud tied to collateralized debt obligations that contributed to the worst financial crisis since the Great Depression. The burden of proof in a criminal case would be higher than in the SEC’s civil case. Criminal allegations have to be proven beyond a reasonable doubt. Based on public reports about the SEC matter, a criminal case may be difficult, said Douglas R. Jensen , an attorney with Park & Jensen LLP in New York. The case appears “highly complex” and Goldman Sachs would be able to make multiple arguments in its defense, he said in an interview. “In order to proceed criminally in a case, you need to have very clear evidence of lying, cheating and stealing,” said Jensen, a former deputy chief of the criminal division of the U.S. attorney’s office in the Southern District of New York who served on that office’s securities fraud task force. ‘Higher Profile’ Cases The U.S. attorney’s office in the Southern District “pretty consistently” reviews SEC cases that are “higher profile” such as those involving large dollar amounts or policy issues, he said. The reviews may begin before the SEC files a lawsuit. Yusill Scribner , a spokeswoman for U.S. Attorney Preet Bharara , declined to comment. Lucas van Praag , a spokesman for New York-based Goldman Sachs, said the company would “fully cooperate with any requests for information.” “Given the recent focus on the firm, we’re not surprised by the report of an inquiry,” he said. Goldman Sachs Chief Executive Officer Lloyd Blankfein said in an interview with CBS News this week: “It is my belief that nothing unethical and nothing illegal has happened, but I will tell you if I discovered something like this, or any senior person at Goldman Sachs discovered illegal or unethical behavior, we would eliminate that from the firm.” The Federal Bureau of Investigation hasn’t opened a criminal investigation, said a U.S. official who spoke on condition of anonymity and wasn’t authorized to comment publicly on the matter. The Postal Inspection Service , which also could investigate such cases, doesn’t have any open probes into Goldman, said Tom Boyle , a spokesman for the agency in New York. Own Investigators Two former prosecutors for the U.S. attorney’s office in New York, who spoke on condition of anonymity, said prosecutors have their own investigators who may be examining the case before determining whether to involve the FBI or postal inspectors. The SEC may have provided documents and other information to prosecutors gathered as part of its investigation, allowing them to assess whether a criminal case could be made, they said. The Justice Department sometimes brings criminal charges at the same time the SEC files suit. In other instances, criminal charges come later. The SEC sued financier R. Allen Stanford and his firm in February 2009 on claims he ran a Ponzi scheme. Stanford was indicted on criminal charges later that year. The SEC accused WorldCom Inc. of fraud in 2002. Two senior WorldCom executives were arrested on criminal charges later that year. SEC Suit Goldman Sachs created and sold CDOs linked to subprime mortgages in early 2007, as the U.S. housing market faltered, without disclosing that hedge fund Paulson & Co. helped pick the underlying securities and bet against the vehicles, according to the SEC’s lawsuit. At an April 27 congressional hearing, Goldman Sachs executives were questioned by U.S. lawmakers who compared the bank’s mortgage bankers to bookies. Company officials said they did nothing wrong. “The SEC and the courts will resolve the legal question of whether Goldman’s actions broke the law,” said Senator Carl Levin , a Michigan Democrat who is chairman of the Permanent Subcommittee on Investigations , at the hearing. “The question for us is one of ethics and policy.” Levin, whose panel is investigating Goldman Sachs, told reporters after the hearing that it was too soon to say whether he would refer any of the committee’s findings to the Justice Department or SEC. No Obligation Blankfein told Levin’s panel that market-makers have no obligation to tell clients about their own position in a security. Blankfein said the nature of the principal business often puts the firm on the opposite side of customers. Sixty-one House Democrats and one House Republican, led by Representative Marcy Kaptur , an Ohio Democrat, sent a letter to the Justice Department on April 23 asking Attorney General Eric Holder to investigate Goldman Sachs, if the Justice Department wasn’t already. The department will review the letter, Alisa Finelli, a spokeswoman, said in an April 27 e-mail. Billionaire John Paulson ’s firm earned $1 billion on the trade and wasn’t accused of wrongdoing. The SEC also sued Fabrice Tourre , a Goldman Sachs vice president who helped create the CDOs, known as Abacus. Goldman Sachs posted a record $13.4 billion profit in 2009, a year after receiving $10 billion in taxpayer aid during the financial crisis. It repaid the funds in June. The company has been criticized by lawmakers and pundits for its pay practices and its role in helping Greece mask the size of its debts. The company called the SEC’s claims “unfounded.” To contact the reporters on this story: Justin Blum in Washington at jblum4@bloomberg.net ; David Glovin in New York federal court at glovin@bloomberg.net

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Goldman Sachs Under Scrutiny of Federal Prosecutors Reviewing Suit by SEC

April 29, 2010

By Justin Blum and David Glovin April 29 (Bloomberg) — Federal prosecutors in New York have been examining transactions by Goldman Sachs Group Inc. , accused of fraud by U.S. securities regulators, to determine whether to pursue a criminal case, according to two people familiar with the matter. The federal review, which lawyers say is common in such a high-profile case, is being done by the U.S. attorney in Manhattan, said the people, who weren’t authorized to comment and spoke on condition of anonymity. The Securities and Exchange Commission filed a civil lawsuit against Goldman Sachs on April 16 alleging fraud tied to collateralized debt obligations that contributed to the worst financial crisis since the Great Depression. The burden of proof in a criminal case would be higher than in the SEC’s civil case. Criminal allegations have to be proven beyond a reasonable doubt. Based on public reports about the SEC matter, a criminal case may be difficult, said Douglas R. Jensen , an attorney with Park & Jensen LLP in New York. The case appears “highly complex” and Goldman Sachs would be able to make multiple arguments in its defense, he said in an interview. “In order to proceed criminally in a case, you need to have very clear evidence of lying, cheating and stealing,” said Jensen, a former deputy chief of the criminal division of the U.S. attorney’s office in the Southern District of New York who served on that office’s securities fraud task force. ‘Higher Profile’ Cases The U.S. attorney’s office in the Southern District “pretty consistently” reviews SEC cases that are “higher profile” such as those involving large dollar amounts or policy issues, he said. The reviews may begin before the SEC files a lawsuit. Yusill Scribner , a spokeswoman for U.S. Attorney Preet Bharara , declined to comment. Lucas van Praag , a spokesman for New York-based Goldman Sachs, said the company would “fully cooperate with any requests for information.” “Given the recent focus on the firm, we’re not surprised by the report of an inquiry,” he said. Goldman Sachs Chief Executive Officer Lloyd Blankfein said in an interview with CBS News this week: “It is my belief that nothing unethical and nothing illegal has happened, but I will tell you if I discovered something like this, or any senior person at Goldman Sachs discovered illegal or unethical behavior, we would eliminate that from the firm.” The Federal Bureau of Investigation hasn’t opened a criminal investigation, said a U.S. official who spoke on condition of anonymity and wasn’t authorized to comment publicly on the matter. The Postal Inspection Service , which also could investigate such cases, doesn’t have any open probes into Goldman, said Tom Boyle , a spokesman for the agency in New York. Own Investigators Two former prosecutors for the U.S. attorney’s office in New York, who spoke on condition of anonymity, said prosecutors have their own investigators who may be examining the case before determining whether to involve the FBI or postal inspectors. The SEC may have provided documents and other information to prosecutors gathered as part of its investigation, allowing them to assess whether a criminal case could be made, they said. The Justice Department sometimes brings criminal charges at the same time the SEC files suit. In other instances, criminal charges come later. The SEC sued financier R. Allen Stanford and his firm in February 2009 on claims he ran a Ponzi scheme. Stanford was indicted on criminal charges later that year. The SEC accused WorldCom Inc. of fraud in 2002. Two senior WorldCom executives were arrested on criminal charges later that year. SEC Suit Goldman Sachs created and sold CDOs linked to subprime mortgages in early 2007, as the U.S. housing market faltered, without disclosing that hedge fund Paulson & Co. helped pick the underlying securities and bet against the vehicles, according to the SEC’s lawsuit. At an April 27 congressional hearing, Goldman Sachs executives were questioned by U.S. lawmakers who compared the bank’s mortgage bankers to bookies. Company officials said they did nothing wrong. “The SEC and the courts will resolve the legal question of whether Goldman’s actions broke the law,” said Senator Carl Levin , a Michigan Democrat who is chairman of the Permanent Subcommittee on Investigations , at the hearing. “The question for us is one of ethics and policy.” Levin, whose panel is investigating Goldman Sachs, told reporters after the hearing that it was too soon to say whether he would refer any of the committee’s findings to the Justice Department or SEC. No Obligation Blankfein told Levin’s panel that market-makers have no obligation to tell clients about their own position in a security. Blankfein said the nature of the principal business often puts the firm on the opposite side of customers. Sixty-one House Democrats and one House Republican, led by Representative Marcy Kaptur , an Ohio Democrat, sent a letter to the Justice Department on April 23 asking Attorney General Eric Holder to investigate Goldman Sachs, if the Justice Department wasn’t already. The department will review the letter, Alisa Finelli, a spokeswoman, said in an April 27 e-mail. Billionaire John Paulson ’s firm earned $1 billion on the trade and wasn’t accused of wrongdoing. The SEC also sued Fabrice Tourre , a Goldman Sachs vice president who helped create the CDOs, known as Abacus. Goldman Sachs posted a record $13.4 billion profit in 2009, a year after receiving $10 billion in taxpayer aid during the financial crisis. It repaid the funds in June. The company has been criticized by lawmakers and pundits for its pay practices and its role in helping Greece mask the size of its debts. The company called the SEC’s claims “unfounded.” To contact the reporters on this story: Justin Blum in Washington at jblum4@bloomberg.net ; David Glovin in New York federal court at glovin@bloomberg.net

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Asian Stocks, Copper Advance as Earnings Improve, Greek Debt Crisis Eases

April 29, 2010

By Masaki Kondo April 30 (Bloomberg) — Asian stocks advanced for the first time in four days and copper gained as improving earnings and signs the Greek debt crisis is easing boosted speculation the global recovery is intact. The South Korean won rose. The MSCI Asia Pacific Index climbed as much as 1.1 percent after Samsung Electronics Co. reported first-quarter net income jumped almost sevenfold. Copper futures gained for the first time in four days, rising 1.5 percent, and crude oil climbed 0.5 percent. Standard & Poor’s 500 Index futures were 0.3 percent lower after the biggest gain since March 5 yesterday. German Chancellor Angela Merkel and the International Monetary Fund pledged yesterday to step up efforts to overcome the Greek fiscal crisis, easing investor concern that the nation may default. First-quarter gross domestic product growth in the U.S., due for release later today, may show a 3.3 percent expansion, according to a Bloomberg survey of 85 economists. “The global economy is picking up and corporate earnings are improving,” said Kiyoshi Ishigane , a strategist in Tokyo at Mitsubishi UFJ Asset Management Co., which oversees about $64 billion. “Investors aren’t very, very bullish but cautiously believe the market will remain resilient.” The MSCI Asia Pacific Index rose 1.1 percent to 125.83 as of 12:06 p.m. in Tokyo. The gauge has climbed about 10 percent from its closing low this year on Feb. 8 on better-than- estimated economic and earnings reports. The won gained 0.6 percent to 1,108.15 per dollar as speculation Greece will secure international aid gave investors confidence to buy Asian assets. ‘Bit of a Boost’ “Greece is taking the weight off sovereign debt issues and giving the equity markets a bit of a boost,” said Bernard Yeung , Hong Kong-based head of currency trading for Asia at National Australia Bank Ltd. Emerging-market bond funds received more than $5 billion this month as investors pulled money out of European equity markets amid concerns about ratings downgrades for Greece, Spain and Portugal, EPFR Global said in an e-mailed statement. Japan’s Nikkei 225 Stock Average advanced as much as 1.5 percent after being closed yesterday for a holiday, and Australia’s S&P/ASX 200 Index rose 0.8 percent. Macquarie Group Ltd. , Australia’s largest investment bank, said second-half net income more than doubled. The stock surged 4.7 percent. “Into 2011, there’s a lot of anticipation for a pretty good rebound in earnings,” said Chris Hall , who helps manage about $3.6 billion of assets including Macquarie stock at Argo Investments in Adelaide, Australia. Taiwan’s Taiex index gained 1.4 percent and South Korea’s Kospi index rose 1.2 percent after the nation’s industrial production grew for a ninth straight month in March. Output jumped 22.1 percent from a year earlier, more than estimated. ‘Quite Impressive’ “The output growth is quite impressive,” said Park Sang Hyun , an economist at HI Investment & Securities Co. in Seoul. “Inventories and corporate investments have begun to rise on reviving global demand.” Samsung Electronics Co. , Asia’s biggest chipmaker, climbed 2.7 percent after reporting profit surged as rebounding demand for personal computers drove up prices for semiconductors. “Earnings reports are affirming the global economy is improving and that’s inducing investors to buy in,” said Juichi Wako , a strategist at Tokyo-based Nomura Holdings Inc. Acer Inc. , the world’s second-largest computer supplier, advanced as much as 2.4 percent in Taipei. The company reported its strongest profit growth in nine quarters after overtaking Hewlett-Packard Co. to take top spot in the laptop market. Three-month delivery copper on the London Metal Exchange rose from the lowest in more than one month, gaining by as much as 1.5 percent to $7,465 a metric ton. Nickel, aluminum and zinc futures also climbed. ‘Less Concern’ “There seemed to be a little less concern with events unfolding in Europe,” said Toby Hassall , a commodity analyst at CWA Global Markets Pty in Sydney. “ There are sources of uncertainty in the market that have threatened to derail confidence in the economic recovery, but we are still seeing an encouraging flow of data in the U.S. and elsewhere.” Greek Prime Minister George Papandreou said he’ll do what is needed to save Greece, according to an e-mailed transcript of statements yesterday in Athens. The euro rose for a third day against the dollar, advancing to $1.3240 from $1.3233 yesterday. The single currency also climbed against the yen. “Greece looks like it’ll be rescued, suggesting the worst is over at this stage,” said Tsutomu Soma , a bond and currency dealer at Okasan Securities Co. Ltd. in Tokyo. “This is leading to a short-term relief rally in the euro.” Crude oil for June delivery rose as much as 0.5 percent to $85.63 a barrel on the New York Mercantile Exchange. Futures are poised for a 0.3 percent gain for the week and a 1.9 percent advance for April, marking the third month of gains. To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net

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Asian Stocks, Copper Advance as Earnings Improve, Greek Debt Crisis Eases

April 29, 2010

By Masaki Kondo April 30 (Bloomberg) — Asian stocks advanced for the first time in four days and copper gained as improving earnings and signs the Greek debt crisis is easing boosted speculation the global recovery is intact. The South Korean won rose. The MSCI Asia Pacific Index climbed as much as 1.1 percent after Samsung Electronics Co. reported first-quarter net income jumped almost sevenfold. Copper futures gained for the first time in four days, rising 1.5 percent, and crude oil climbed 0.5 percent. Standard & Poor’s 500 Index futures were 0.3 percent lower after the biggest gain since March 5 yesterday. German Chancellor Angela Merkel and the International Monetary Fund pledged yesterday to step up efforts to overcome the Greek fiscal crisis, easing investor concern that the nation may default. First-quarter gross domestic product growth in the U.S., due for release later today, may show a 3.3 percent expansion, according to a Bloomberg survey of 85 economists. “The global economy is picking up and corporate earnings are improving,” said Kiyoshi Ishigane , a strategist in Tokyo at Mitsubishi UFJ Asset Management Co., which oversees about $64 billion. “Investors aren’t very, very bullish but cautiously believe the market will remain resilient.” The MSCI Asia Pacific Index rose 1.1 percent to 125.83 as of 12:06 p.m. in Tokyo. The gauge has climbed about 10 percent from its closing low this year on Feb. 8 on better-than- estimated economic and earnings reports. The won gained 0.6 percent to 1,108.15 per dollar as speculation Greece will secure international aid gave investors confidence to buy Asian assets. ‘Bit of a Boost’ “Greece is taking the weight off sovereign debt issues and giving the equity markets a bit of a boost,” said Bernard Yeung , Hong Kong-based head of currency trading for Asia at National Australia Bank Ltd. Emerging-market bond funds received more than $5 billion this month as investors pulled money out of European equity markets amid concerns about ratings downgrades for Greece, Spain and Portugal, EPFR Global said in an e-mailed statement. Japan’s Nikkei 225 Stock Average advanced as much as 1.5 percent after being closed yesterday for a holiday, and Australia’s S&P/ASX 200 Index rose 0.8 percent. Macquarie Group Ltd. , Australia’s largest investment bank, said second-half net income more than doubled. The stock surged 4.7 percent. “Into 2011, there’s a lot of anticipation for a pretty good rebound in earnings,” said Chris Hall , who helps manage about $3.6 billion of assets including Macquarie stock at Argo Investments in Adelaide, Australia. Taiwan’s Taiex index gained 1.4 percent and South Korea’s Kospi index rose 1.2 percent after the nation’s industrial production grew for a ninth straight month in March. Output jumped 22.1 percent from a year earlier, more than estimated. ‘Quite Impressive’ “The output growth is quite impressive,” said Park Sang Hyun , an economist at HI Investment & Securities Co. in Seoul. “Inventories and corporate investments have begun to rise on reviving global demand.” Samsung Electronics Co. , Asia’s biggest chipmaker, climbed 2.7 percent after reporting profit surged as rebounding demand for personal computers drove up prices for semiconductors. “Earnings reports are affirming the global economy is improving and that’s inducing investors to buy in,” said Juichi Wako , a strategist at Tokyo-based Nomura Holdings Inc. Acer Inc. , the world’s second-largest computer supplier, advanced as much as 2.4 percent in Taipei. The company reported its strongest profit growth in nine quarters after overtaking Hewlett-Packard Co. to take top spot in the laptop market. Three-month delivery copper on the London Metal Exchange rose from the lowest in more than one month, gaining by as much as 1.5 percent to $7,465 a metric ton. Nickel, aluminum and zinc futures also climbed. ‘Less Concern’ “There seemed to be a little less concern with events unfolding in Europe,” said Toby Hassall , a commodity analyst at CWA Global Markets Pty in Sydney. “ There are sources of uncertainty in the market that have threatened to derail confidence in the economic recovery, but we are still seeing an encouraging flow of data in the U.S. and elsewhere.” Greek Prime Minister George Papandreou said he’ll do what is needed to save Greece, according to an e-mailed transcript of statements yesterday in Athens. The euro rose for a third day against the dollar, advancing to $1.3240 from $1.3233 yesterday. The single currency also climbed against the yen. “Greece looks like it’ll be rescued, suggesting the worst is over at this stage,” said Tsutomu Soma , a bond and currency dealer at Okasan Securities Co. Ltd. in Tokyo. “This is leading to a short-term relief rally in the euro.” Crude oil for June delivery rose as much as 0.5 percent to $85.63 a barrel on the New York Mercantile Exchange. Futures are poised for a 0.3 percent gain for the week and a 1.9 percent advance for April, marking the third month of gains. To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net

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BP Oil Spill: Company Loses $25 Billion In Market Value

April 29, 2010

NEW YORK — BP shares tumbled more than 8 percent Thursday, and the company has lost roughly $25 billion in market value since an offshore rig it hired in the Gulf of Mexico exploded last week and started spewing huge amounts of oil. Eleven workers are missing and presumed dead following the disaster on the Deepwater Horizon, and a huge oil slick is creeping closer to land. Estimates of the amount of oil gushing from the seabed have risen to 5,000 barrels per day – five times what was originally thought. BP shares fell Thursday as the situation seemed to be getting worse. Experts said the oil may reach shore by Friday, and President Barack Obama said BP will be responsible to pay for the cleanup. Transocean Ltd., the oil services company that owned the Horizon, has lost about $4.35 billion in market value since the explosion. In Thursday trading, BP shares gave up $4.78 to close at $52.56. Transocean lost $6.32, or 7.5 percent, to end at $78.51.

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CoStar’s People of Note (April 25-May 1)

April 29, 2010

This week’s People of Note includes the following markets: Atlanta, Baltimore, Boston, Los Angeles, New York City, Sacramento and Pittsburgh ATLANTA, BALTIMORE, BOSTON, LOS ANGELES, NEW YORK CITY CBRE Investors Names Khourie as CEO Matt Khourie…

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Fred Whelan and Gladys Stone: Employer vs. Employee Mentality. Which Do You Have?

April 29, 2010

We were coaching a woman (we’ll call her Donna) who is an associate partner in a law firm. Donna has been with the firm for 10 years and was promoted to limited partner 18 months ago. The managing director of the firm expected to see a change in how Donna approached the business – after all, she was now a limited partner. Her next career step would be a full fledged equity partner, assuming she was invited to join at that level. The managing director was starting to have doubts about her future with the firm. He had spoken to Donna about the expectations he had of partners and explained he wanted her to act more like an employer than an employee. It had been a year and a half, and Donna wasn’t getting it. When we sat down with Donna she had a very definite goal – to be an equity partner. Since she was highly motivated we asked her what was preventing her from making that transition to more of an employer mentality. She said “I’m not sure how to do that”. She said she knew that it meant thinking more like a boss but what did that really entail? It might seem fairly straightforward but there are thing that are indicative of an employer mentality. Here’s what companies are looking for: What do we need to do to grow the business? This is the type of thinking that senior management is looking for, and you don’t necessarily have to have all the answers. Just by raising the questions, “How do we increase our business in this vertical?” or “How do we penetrate new markets?” will demonstrate that you are thinking about the big picture. Once that’s on the table, a plan can be put in place to address it. Problems then Solutions – Every company has their share of problems. Whether it’s growing their brand, training their people or streamlining processes, there are usually some areas that need to be strengthened. What employees typically do is complain about things without offering potential solutions. Thinking more like an employer means having some idea of how you would approach the problem. Even if your solution isn’t the one that’s embraced, it’s important to have some ideas of how to solve it. Mentoring – Help people grow in their careers, even those who aren’t your direct reports. If someone has a skill deficiency, help them turn that around. Let them know you care. You can send them to training or put them on a project that will developed that skill, or work with them side by side until they’ve improved. Beyond helping them with a specific skill, position them for advancement. Delegate to them or have them sit in on important meetings. Investing in your company’s talent will benefit everyone and elevate you in senior management’s eyes. Bigger Presence – Developing your own brand and having a bigger presence will benefit you and your organization. You can raise the profile of the firm and attract new clients by joining a board, writing articles (traditional or blogs), speaking on panels or attending and hosting networking events. To be pegged as someone who is always looking for ways to strengthen the business by increasing the company’s reputation as well as your own, will mark you as someone ticketed for bigger things. Having a POV in Management Meetings – The management meeting exist to highlight and solve problems and explore opportunities. Bringing managers together and having all that brain power in the same room doesn’t do any good if no one contributes. You’re in the room because they want to know your point of view. It doesn’t mean that they’ll agree with it, but as a manager, they certainly expect you to have something substantive to say. Most meetings have agendas that are circulated beforehand. Take a close look at all the items on the agenda and come up with one or two key points about each one. Importantly, you don’t need to be in management to have an employer mentality. In fact, that’s how most people rise to senior management. They take ownership in the business and look for ways to help strengthen the company. This thinking can be done at all levels and is appreciated even at the most basic levels. Whether you are already part of senior management, transitioning to senior management or just starting your career, it’s important to start thinking more like your employer. Having an employer mentality will shift you to the major leagues. Fred & Gladys Whelan Stone Executive Search and Coaching Authors of GOAL! Your 30 Day Career Plan for Business & Career Success

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Obama Social Secretary Rogers Says She Has No Tears, Regret After Leaving

April 29, 2010
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Bank of Japan May Keep Rate at 0.1%, Debate Increasing Bank-Loan Program

April 29, 2010
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Bank of America’s New Chairman Holliday May Assist With Overseas Expansion

April 29, 2010
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Papandreou Makes Austerity Pitch as Unions Slam Unjust Cuts

April 29, 2010
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Coast Guard Restricts Mississippi River Ship Traffic Amid Gulf Oil Spill

April 29, 2010

By Moming Zhou and Leela Landress April 29 (Bloomberg) — The U.S. imposed its first restrictions on shipping into the Mississippi River, the most important North American waterway, as the massive BP Plc oil spill in the Gulf of Mexico moves closer to the land. Ships were ordered by the Coast Guard to slow down in three of the four lanes connecting to the river to prevent damage to vessels and injuries to workers maintaining a boomed-off safety area around the oil spill, according to a bulletin issued by the Coast Guard yesterday. Traffic through the main deepwater channel, the Southwest Pass, is not restricted. A 500-meter (1,640-foot) security zone around the spill area is in place for the next three days, according to the Coast Guard. The oil is about three miles (4.8 kilometers) from the nearest point of land. “It is our goal to not allow the disruption of traffic on the Mississippi River,” U.S. Coast Guard Rear Admiral Mary Landry said today at a press conference. “We cannot disrupt maritime commerce.” The boomed-off safety area is in the vicinity of the river’s three entrances, the South Pass, the Southeast Pass and the Pass a Loutre, the bulletin showed. Vessels going through the area should move “at a slow bell to assist in maintaining a no wake zone,” according to the bulletin. Coast Guard Captain Edward Stanton, the captain of the port, has the “sole authority” to open and close the river, Thomas Blue, a Coast Guard spokesman, said by phone today. 5,000 Barrels The Coast Guard said today the damaged BP oil well is leaking about 5,000 barrels a day, five times more than previously estimated. The growing slick is drifting toward the U.S. coastline and may reach the Mississippi delta area by tomorrow. “We hope the slick will stay to the east of the pass and we are hopeful that they can contain it,” said Pat Gallwey, chief operating officer of the Port of New Orleans, which handles as many as 2,000 vessels a year. Vessels going through the oil spill can further disperse and expand the slick, said Basil Karatzas, managing director at ship sale and purchase broker Compass Maritime Services in Fort Lee, New Jersey. Oil is flammable and it’s “definitely dangerous for navigating through.” Port Fourchon The Coast Guard has plans to stop the slick from reaching Port Fourchon, a facility about 50 miles west of the mouth of the Mississippi, said Jon Callais, chief of police at the port. “If the oil were to come and block the entrance of the port, you cannot run ships through it,” he said in a telephone interview. In that case, “the port will essentially be shut down.” Ships were moving normally through the Southeast Pass, said Brian McMichael, a Venice, Louisiana-based dispatcher at the Associated Branch Pilots, which guides ships at the mouth of the river. U.S. grain exports are shipped via the Mississippi and tankers take oil to and from refineries next to the river. The largest U.S. crude oil import facility, the Louisiana Offshore Oil Port, or LOOP, hasn’t been affected, said Barb Hesterman n, a spokeswoman for the facility. To contact the reporters on this story: Moming Zhou in New York at mzhou29@bloomberg.net ; Leela Landress in Houston at llandress@bloomberg.net

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U.S. to Inspect Oil Rigs After Gulf Spill as Louisiana Prepares for Slick

April 29, 2010

By Jessica Resnick-Ault and Jim Polson April 29 (Bloomberg) — The U.S. Interior Department announced immediate inspections of all deep-water drilling rigs in the Gulf of Mexico and Louisiana’s governor declared a state of emergency as oil from a sunken rig approached the coast. The U.S. will “use every single available resource at our disposal,” in response to the spill, President Barack Obama said today. BP Plc , which owns the leaking well, is “ultimately responsible” for paying for the costs of the cleanup, the president said. Oil is escaping at a rate of 5,000 barrels a day, about five times faster than previously estimated, according to the U.S. Coast Guard. At that rate, the spill will exceed Alaska’s 1989 Exxon Valdez accident by the third week of June, making it the worst U.S. oil spill. “This has a danger of becoming an utter ecological disaster,” said Ken Medlock , a fellow in energy and resource economics at Rice University’s Baker Institute for Public Policy in Houston, Texas. “This is going to result in remediation costs, and is going to be burdensome, to say the least.” BP’s shares plunged the most in more than a year on concern that the costs of containing the worsening oil spill will escalate. BP declined 40.8 pence, or 6.5 percent, to 584.2 pence in London, the sharpest drop since December 2008. Transocean Ltd., which owned the rig, saw its shares fall $6.51, or 7.7 percent, to $78.31 at 3:16 p.m. in composite trading on the New York Stock Exchange. BP’s costs of operation, previously estimated at $6 million a day “are ramping up” as they bring more people and equipment, Neil Chapman , company spokesman, said in an interview in Robert, Louisiana. He said the company would welcome additional assistance, including help from the U.S. Defense Department. Visiting the Site The secretaries of the Interior and Homeland Security Departments will join the head of the Environmental Protection Agency to visit the site tomorrow, Obama said. The president said he has contacted governors of states that may be affected by the spill. Sixteen federal agencies are responding to the spill, which is edging toward fisheries and shrimping areas. Shrimpers and commercial fishers filed suit yesterday against BP and Transocean in federal court. The lawsuits say Louisiana supplies 25 percent of the seafood for the continental U.S. The families of some of the 11 workers killed as a result of the explosion and sinking of the rig last week have also filed suit. The spill may cost the insurance industry as much as $1.5 billion in claims, according to Transatlantic Holdings Inc. Emergency Declaration Louisiana Governor Bobby Jindal , a Republican, said oil may reach wetlands preserves on his state’s coast in two days. The slick was 16 miles (26 kilometers) off the coast of Louisiana yesterday, the Coast Guard said in a statement today. “A declaration of emergency is necessary to allow state agencies to thoroughly prepare for and respond to any eventuality and to allow federal agencies and federal resources to be deployed if necessary,” Jindal said in an e-mailed release today. The eastern end of the slick was about 84 miles south of Pensacola, Florida, according to a map posted yesterday by the spill-response command. “There are berms that have been staged, and are being deployed in some sensitive areas as a preventative measure,” said Scott Hughes, spokesman for Alabama’s Department of Environmental Management. “Hopefully they will prevent or minimize any onshore impacts that might occur.” CEOs Testify Representative Edward Markey , a Massachusetts Democrat who chairs the Select Committee on Energy Independence and Global Warming, cited the spill in announcing a hearing featuring the chief executive officers of major oil companies. The CEOs of BP, Exxon Mobil Corp., ConocoPhillips, Royal Dutch Shell PLC, and Chevron Corp. were asked to testify, Markey said in an e-mailed statement. Representative Henry Waxman , chairman of the House Energy and Commerce Committee, sent letters to the head of BP and Transocean seeking inspection reports for the Deepwater Horizon rig. There are 90 rigs searching for oil and natural gas in the U.S. Gulf of Mexico, according to the Minerals Management Service, which oversees drilling in federal waters as part of the Interior Department. Government Inspectors Inspectors from the Minerals Management Service visited several rigs owned by Diamond Offshore Drilling Inc. in the last day or two, said Gary Krenek , the Houston-based company’s chief financial officer. It’s normal for the officials to inspect the documentation every so often, he said. “It’s unusual for them to hit all of the rigs all at one time,” Krenek said. Statoil ASA welcomes any U.S. review, said Kjersti Torgersen , a Houston-based spokeswoman for the Norwegian company. Statoil complies with more stringent requirements when drilling off the shore of Norway, including the use of acoustic blowout preventative control systems, she said. It’s too early to know whether the inspections will slow or interrupt drilling that is ongoing in the gulf, said Torgersen. The Coast Guard has partly restricted traffic in and out of the Mississippi River. Ships were asked to slow down in three of the four lanes to prevent disturbance of an area around the spill, according to a bulletin issued by the Coast Guard yesterday. The main entrance to the river is still open. To contact the reporters on this story: Jessica Resnick-Ault in New York at jresnickault@bloomberg.net ; Jim Polson in New York at jpolson@bloomberg.net .

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ICBC, Construction Bank Post Largest Profits Among World’s Banks on Growth

April 29, 2010

By Bloomberg News April 30 (Bloomberg) — Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp. posted the largest first-quarter profits among the world’s banks, powered by the fastest economic growth in three years. ICBC, the world’s biggest lender by market value, said net income climbed 18 percent to 41.55 billion yuan ($6.1 billion) in the three months ended March 31, while Construction Bank’s profit increased 34 percent to 35.2 billion yuan, according to the Beijing-based companies’ filings to the Hong Kong stock exchange yesterday. ICBC and Construction Bank, emerging from the financial crisis to become the world’s two most profitable lenders, boosted provisions for bad loans as the Chinese government tries to curb speculation in property. The banks’ shares have fallen this year even as the economy grew, reflecting investor concern that their record lending in 2009 will lead to more bad loans. “The earnings this year are strong, but a decrease in bad loans and bad-loan ratios won’t continue like this after the fast credit expansion last year,” said Leo Gao , who helps oversee about $600 million at APS Asset Management Ltd. in Shanghai. “Looking into the long term, there will be some problems with the banks” as monetary policy tightens, he said. ICBC shares have dropped 12 percent this year in Hong Kong, making it the worst performer in the Hang Seng Finance Index, which has retreated 8.6 percent since Dec. 31. Construction Bank has declined 7.7 percent in the same period. Growth Quickens China’s four largest publicly traded banks need at least 480 billion yuan of additional capital to fund loan growth and comply with regulatory requirements for financial strength over the next five years, ICBC President Yang Kaisheng wrote in an article published in the 21st Century Business Herald in April. ICBC, Bank of China Ltd. and Bank of Communications Co. have announced plans to raise 107 billion yuan by selling bonds and shares this year. Construction Bank said yesterday it plans to raise as much as 75 billion yuan in a rights offering in Shanghai and Hong Kong. ICBC boosted the provision coverage ratio to 180 percent while Construction Bank increased the ratio to 192 percent, compared with the 150 percent required by the nation’s banking regulator. The proportion of non-performing loans at both banks dropped to 1.35 percent. The biggest challenge to “the industry right now is whether the government can manage asset bubbles without tightening too much and hurting the economy,” said Li Ming, a portfolio manager at Dacheng Fund Management Co., which oversees about $15 billion in Shenzhen. China’s economic growth accelerated to 11.9 percent in the first quarter, the fastest pace in almost three years. New Loans The government this month told banks to stop loans for third-home purchases in cities with excessive price gains, and raised mortgage rates and down-payment ratios for second homes. Deutsche Bank AG economist Jun Ma called the measures the “most draconian” in history and said they may trigger a 20 percent drop in home prices. “I do see more downside for the Chinese banks,” Andy Mantel , managing director of Pacific Sun Investment Ltd., said in a Bloomberg Television interview yesterday. “Loan books will be slowing down tremendously in the next two years.” ICBC advanced about 334 billion yuan of new loans in the first quarter, while Construction Bank offered 240 billion yuan of new credit in the period. Their capital adequacy ratio fell to 11.98 percent and 11.44 percent respectively as of March 31, still above the minimum requirement of 11.5 percent for large state-owned lenders. — Luo Jun . With assistance from Zhao Yidi in Beijing. Editors: Philip Lagerkranser , Chitra Somayaji To contact Bloomberg News staff of this story: Luo Jun in Shanghai at +8621-6104-7021 or jluo6@bloomberg.net

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BofA Said to Hire MacKenzie as Head of European High-Yield Capital Markets

April 29, 2010

By Kate Haywood and Pierre Paulden April 29 (Bloomberg) — Bank of America Corp. hired Bruce MacKenzie to head European high-yield capital markets as junk- rated companies increase their borrowing and the biggest U.S. lender seeks to build investment banking overseas. MacKenzie, who was part of Deutsche Bank AG’s London-based debt unit, will join as a managing director in July and report to David Ross , head of European leveraged finance, according to a person close to Bank of America familiar with the hire, who declined to be identified because it hasn’t been announced. Bank of America Chief Executive Officer Brian Moynihan has hired dozens of bankers outside the U.S. to build on the firm’s 2009 purchase of Merrill Lynch & Co., which had three times as many corporate customers in Asia, Europe and the Middle East as Bank of America. MacKenzie couldn’t immediately be reached for comment. Bank of America spokeswoman Kerrie McHugh in New York and Deutsche Bank spokeswoman Michelle Gathercole in London declined to comment. Bank of America, based in Charlotte, North Carolina, is ranked ninth in underwriting European high-yield and second in the U.S. this year, according to data compiled by Bloomberg. Bank of America also added Giles Hutson as a managing director in its Europe, Middle East and Africa debt capital markets unit in London earlier this month. Hutson came from Morgan Stanley. High-yield debt is rated below Baa3 by Moody’s Investors Service and lower than BBB- by Standard & Poor’s. To contact the reporters on this story: Kate Haywood in London at khaywood@bloomberg.net ; Pierre Paulden in New York at ppaulden@bloomberg.net

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BP Oil Spill May Cost Insurance Industry $1.5 Billion, Transatlantic Says

April 29, 2010

By Sapna Maheshwari April 29 (Bloomberg) — The growing oil spill in the Gulf of Mexico, caused by a leaking BP Plc well, may cost the insurance industry as much as $1.5 billion in claims, according to Transatlantic Holdings Inc . Transatlantic, the reinsurer divested by American International Group Inc., said its own costs from the spill may be less than $15 million, according to the company’s earnings conference call held earlier today. JPMorgan Chase & Co. analyst Michael Huttner had estimated the insurance-industry cost would be $1.6 billion, in a report dated April 23. The explosion and sinking last week of the Deepwater Horizon drilling rig left 11 of the 126-member crew dead. The oil spill, which originated about 130 miles (210 kilometers) southeast of New Orleans, is 600 miles in circumference, the Coast Guard said. That’s about twice the land area of Maryland. The well is leaking about 5,000 barrels a day. Montpelier Re Holdings Ltd., a Bermuda-based reinsurer, may have costs tied to the explosion of as much as $20 million, Chief Underwriting Officer David Sinnott said in a conference call. Hannover Re, Germany’s second-biggest reinsurer, estimated a net loss of about 40 million euros ($53 million) from the accident, according to an e-mailed statement. “As the size of the industry loss gets bigger, it would be more likely for us to pick up exposure,” Montpelier Re Chief Executive Officer Christopher Harris said in the call. The insurer holds contracts for the rig that may trigger two payments of $10 million each, the company said in a statement. BP Bears Costs BP, the biggest oil producer in the Gulf of Mexico, had leased the rig from Transocean Ltd. BP will bear the costs associated with the spill, which the U.S. government has declared an event of “national significance,” the Obama administration said. Sixteen federal agencies responded to the spill and the declaration will open the way for more resources, Homeland Security Secretary Janet Napolitano said today at a White House briefing. “BP pays for all of this,” White House press secretary Robert Gibbs said at the briefing. Insurers, including Transatlantic, Hannover Re and Montpelier Re, reported losses of at least $3.02 billion from the 8.8-magnitude earthquake that struck Chile in February. The quake was the world’s fifth-strongest in a century, toppling bridges, smashing factories and closing ports. Insured losses may reach $8 billion, catastrophe modeler Eqecat said. The total cost of the earthquake may be almost $30 billion, President Sebastian Pinera told reporters in March. To contact the reporter on this story: Sapna Maheshwari in New York at sapnam@bloomberg.net

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Yellen Anti-Inflation Record Defended by Ex-Fed Officials Gramley, Blinder

April 29, 2010

By Vivien Lou Chen April 29 (Bloomberg) — When Janet Yellen was first reported to be President Barack Obama ’s choice for Federal Reserve vice chairman early last month, the dollar weakened on speculation she would help keep interest rates at a record low through the end of the year. Less than two weeks later, the former professor at the University of California, Berkeley told reporters that she’d be ready to tighten policy to avoid kindling inflation. She pointed out that she had supported interest-rate increases 20 times in her years as a Fed governor from 1994 to 1997 and as president of the San Francisco Fed starting in 2004. “The Fed has to be ready to take away the punch bowl when it’s necessary,” Yellen, 63, said after a speech on March 23. “When the time has come, am I going to support raising interest rates ? You bet.” Investors should take her words at face value, say economists including Lyle Gramley , a former Fed governor, and Alan S. Blinder , a former vice chairman. “When inflation pops its ugly head up, Janet will be there as strongly anti-inflationary as anybody on the committee,” said Gramley, a senior economic adviser for Potomac Research Group in Washington. Obama today announced he will nominate Yellen to the Fed’s seven-person Board of Governors, along with Sarah Bloom Raskin , Maryland’s commissioner of financial regulation, and Peter Diamond , an economics professor at the Massachusetts Institute of Technology. ‘Extended Period’ Yellen, if confirmed by the Senate, would join the Fed board as it considers when to signal an end to its policy of keeping interest rates low for an “extended period.” The Federal Open Market Committee yesterday renewed that pledge, prompting Kansas City Fed President Thomas Hoenig to dissent for a third straight meeting, saying the language limits the Fed’s ability to increase rates “modestly.” The Brooklyn-born economist would replace Donald Kohn , a 40-year veteran of the central bank. She would preside over board meetings in Chairman Ben S. Bernanke ’s absence and get a permanent vote on monetary policy, instead of having a vote one year out of every three as a regional Fed chief. Yellen would have a four-year term as vice chairman and a separate term as a governor. Yellen, in a statement today, said she’s “strongly committed” to the central bank’s dual mandate from Congress to keep inflation low and stable while promoting maximum employment. Job Creation “If confirmed, I will work to ensure that policy promotes job creation and keeps inflation in check,” Yellen said. In an April 15 speech, Yellen said she’s increasingly certain the U.S. economy is “on the right track,” and that officials will “at some point” need to lift borrowing costs. Still, “it’s important not to lose sight of just how fragile this recovery is,” she said. Policy makers are contending with an unemployment rate that has been stuck at 9.7 percent for three straight months even as payrolls started to grow. Fed officials yesterday repeated that inflation is likely to be “subdued” and that consumer spending is held back by tight credit and weak income growth. U.S. central bankers have kept the benchmark lending rate in a range of zero to 0.25 percent since December 2008. Their purchases of $1.25 trillion in mortgage-backed securities, which ended last month, boosted the balance sheet to a record $2.34 trillion, creating concern among some officials that aggressive monetary stimulus could lead to imbalances later. Growth Forecast Gross domestic product grew at a 3.3 percent annual pace in the first quarter, according to the median forecast of economists surveyed by Bloomberg News ahead of a report tomorrow from the Commerce Department. After a 5.6 percent expansion in the prior three months, such growth would mark the best back-to-back performance since the last six months of 2003. Conditions in financial markets have also improved. Raytheon Co ., the world’s largest missile maker, and the finance unit of Royal Dutch Shell PLC led a drop in U.S. industrial company debt yields to 129 basis points more than similar- maturity Treasuries last week, according to Bank of America Merrill Lynch index data. Yellen spent most of her career teaching economics and researching labor markets, joining the University of California at Berkeley in 1980. She and her husband, George Akerlof , a Nobel Prize-winning economist, have written more than a dozen papers that included studies on unemployment, wages, street gangs and out-of-wedlock births. Goes to Washington In 1994, then-President Bill Clinton appointed Yellen to be a Fed governor in Washington, where she served until 1997, when she was moved to the White House to chair the Council of Economic Advisers. She left the position in 1999 to return to Berkeley. “You can’t put her in a box,” said University of California professor Aaron Edlin, who has known Yellen for 22 years and worked with her on the Council of Economic Advisers. “If dove means she cares about people who are unemployed, I suppose you can say she’s a dove. But it’s not the case that she doesn’t care about inflation.” Yellen rejoined the Fed in 2004 as president of its San Francisco district bank, which represents the largest region by area and economic output. In her years as a policy maker, she has never dissented from the FOMC’s majority on an interest-rate decision. Rate Risks In April 2006, Yellen became the first Fed official to warn about the risks of raising the overnight lending rate between banks too far. Her remarks foreshadowed an end to a two-year long campaign to lift the federal funds rate in quarter-point increments from a low of 1 percent. The committee stopped at 5.25 percent after its June 2006 meeting and left borrowing costs at that level for more than a year. “Janet’s very cognizant of the dangers of overstaying tightening or easing because of the failure to take into account long lags in policy,” said Blinder, a co-author of a 2001 book with Yellen called “The Fabulous Decade: Macroeconomic Lessons from the 1990s.” Then, in a September 2007 speech in San Francisco, Yellen appeared to signal another shift, saying that the U.S. economy was under “significant downward pressure” from turmoil in credit and housing markets. The Fed lowered the fed funds rate target a week later by a half point to 4.75 percent, the first cut in four years, to protect the U.S. from sinking into a recession. “If I were on the board right now, I would be as dovish in my remarks as she is,” Gramley said. “I don’t worry about her dovishness. She is an intellectual powerhouse. She has the enormous respect of her colleagues. She’s going to be a huge asset as the vice chairman of the Fed.” To contact the reporters on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net ; Scott Lanman in Washington at 1934 or slanman@bloomberg.net

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Papandreou Makes Austerity Pitch as Unions Slam `Unjust’ Bailout Measures

April 29, 2010

By Maria Petrakis and Natalie Weeks April 30 (Bloomberg) — Prime Minister George Papandreou is starting his sales pitch to the Greek people as unions denounce as “unjust” budget cuts linked to a potential $159 billion European Union bailout. “We find ourselves before the most savage, unprovoked and unjust attack,” said Spyros Papaspyros , head of the ADEDY civil servants union, in Athens late yesterday after meeting Papandreou. “The answer will be given in the street.” Greek officials will reach agreement with the EU and the International Monetary Fund in the next days on budget cuts that may be worth 24 billion euros ($32 billion). While signs of an accord ended a bond market selloff in Europe yesterday, Moody’s Investors Service warned that Greece could be vulnerable to a “multi-notch” downgrade if measures don’t go far enough. Steps may include a three-year wage freeze for public workers and cutting two of the 14 salary payments that they receive annually, the ADEDY union said. Greece’s NET Radio said yesterday that cuts could amount to 10 percentage points of gross domestic product. The deficit was 13.6 percent in 2009. “It’s a tall order to assume that Greeks will be convinced because for years they have been used to getting a different type of treatment from their governments,” said Michael Massourakis , chief economist at Alpha Bank, the country’s third largest, in a telephone interview. “Papandreou doesn’t have the luxury of choosing the context or pace of the adjustment.” Retailers plan to shut their stores on May 5, joining a strike organized by the GSEE union, the country’s largest. Multi-Notch Cut? Greece’s credit rating was cut to junk this week by S&P and Moody’s Investors Service, which currently has an A3 rating on the country, said its decision will depend on the measures announced by the EU and the IMF. Other deficit-cutting steps include increasing sales tax and raising the cap on the number of workers who can be fired to 4 percent from 2 percent, Kathimerini newspaper said, citing no one. “We will do what is needed for the salvation of the country,” Papandreou said, according to the e-mailed transcript of his comments to union and business representatives. It didn’t give details of the austerity measures. The yield on the Greek 10-year government bond, which surged to 11.406 percent on April 28, fell 91 basis points to 9.04 percent yesterday as officials speed up efforts to finalize a rescue package. The ASE benchmark general index , which has lost nearly a fifth of its value this year, jumped 7 percent, the most since December. National Bank of Greece SA soared 18 percent. ‘Tough Package’ “The financial support will give Greece sufficient breathing space from pressures of financial markets,” EU Monetary Affairs Commissioner Olli Rehn said yesterday. Papandreou is stuck between investors, who want faster deficit cuts, and voters and unions, who are already chafing from existing austerity measures. Elected in October on pledges to raise wages for public workers, Papandreou has been forced to cut salaries, curb spending and raise taxes to reduce a deficit that was more than four times the EU’s limit last year. “We were and are the champions of change,” Papandreou said April 28. “We know we must put our economy in order if we are to survive.” The time has come to move on from “watching the spreads go up and down, usually more up than down.” “I got a taste of a very tough package,” Yannis Panagopoulos, head of the GSEE union, said after meeting Papandreou. He described it as “arbitrary and unjust.” Voters’ anger has been partly focused on the IMF and the political risks facing Papandreou are highlighted by the IMF’s most recent involvement in Europe. Pension Cuts In Hungary, the first EU member to turn to the Washington- based lender, voters this month ousted the ruling Socialist party two years after they accepted a bailout. Fiscal conditions attached to the $27 billion loan exacerbated the country’s recession as unemployment soared to a record, souring support for the government. Sixty-five percent of Greek voters polled by researcher Alco for the Proto Thema newspaper last week said Papandreou must reject any measures that lead to more wage and pension cuts. Europe’s fiscal crisis worsened this week after Germany’s reluctance to approve emergency funds sparked a drop in Greek bonds and S&P followed its Greek downgrade with cuts of Portugal and Spain. Papandreou, who said last week that his country faces a “new Odyssey,” will now have to convince to voters that they don’t have a choice, said Alpha Bank’s Massourakis. Even after yesterday’s bond market rally, Greece must pay 12.57 percent to borrow for two years. Germany pays 0.79 percent. “It’ll be difficult, but at end of the day people will realize that these are necessary because the country doesn’t have access to borrowing any more,” he said. To contact the reporters on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net Natalie Weeks in Athens at nweeks2@bloomberg.net .

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Mary Bottari: USAA Members Can Support Financial Reform

April 29, 2010

As a consumer advocate and a military brat, I have long been a huge fan and a lifelong member of USAA. USAA is an insurance company that was set up to assist military families and their dependents. It has a reputation for low rates and great service, but I am disappointed in the firm this week for its clumsy foray into the world of lobbying. USAA was founded in 1922 by a group of U.S. Army officers to self-insure each other after they were turned down by insurance firms for being a “high-risk” group. USAA is a Fortune 500 firm, but it has an unusual structure under Texas law that allows it to be an insurance company with a banking arm and an investment arm. Since there are no shareholders, profits are retained to maintain the institutions financial strength or they are returned to the members. When I got in my first car accident last year, USAA was on the case within the hour and had my car repaired and all issues taken care of within two weeks. But as Reuters has reported, USAA has taken a wrong turn on financial reform. As a client, I along with millions of others received an unusual email from the firm entitled “USAA CEO requests your help today.” The email argued that the firm should be exempt from provisions in the financial reform bill being debated in Congress because it would “Prevent USAA from managing the association’s portfolio as we have for the past 87 years” and “Limit our ability to return money to our members.” Yikes. They asked me to call my member of Congress and tell them to exempt USAA from the “Volcker Rule.” Tens of thousands of responsible USAA members promptly did so. I am asking my fellow USAA members to pause and consider why every consumer group in America is a big backer of the Volcker Rule. USAA Members Should Support the Volcker Rule The idea was developed by former Federal Reserve chairman Paul Volcker as a modern way to restore depression-era “Glass-Steagall” consumer protections that set up a firewall between Wall Street gambling and Main Street banking. The spotlight in Washington has been on Wall Street vultures who used their proprietary trading desks to bet that the housing market would collapse. They bet on catastrophe and won, but in the process they mislead their investors and their reckless trading amplified the crisis for the rest of us. Now those same firms have been reorganized and enjoy the backing of the federal government and American taxpayers. In other words, now when they gamble taxpayers are on the hook for their lousy bets. Americans for Financial Reform , an organization made up of 250 public interest groups fighting to crack down on Wall Street, believe this is a impossible situation that should not continue, thus they support the Volcker Rule. The Volcker rule separates most forms of proprietary trading from the federal guarantee. In other words, you can gamble, but if you do it you have to do it with your own money. The Volcker Rule is a critical reform to the financial system. No one thinks USAA engaged in they type of reckless trading that caused the crisis, but the fact that such rules may also require smaller, well-managed firm like USAA to slightly change their organizational structure is not a sufficient reason in my mind to give USAA an exemption. The next thing you know other firms will start to organize themselves to look like USAA and the whole fiasco starts all over again. But for those of you who think an exemption is the best way to go, there is a solution that allows for a fix without undermining the rules that rein in the Goldman Sachs and AIGs of the world. Concerned USAA Members Can Get Behind the Merkley-Levin Amendment Rather than taking a position that is considered by some as a vote “against” reform, USAA members can support meaningful financial reform. Tell you Senator that you support an amendment proposed by Sens. Merkley and Levin. The Merkley-Levin amendment would allow an insurance company like USAA whose trading desk is subject to state level regulation to continue its insurance business without being subject to the Volcker Rule restrictions on holding a bank. However, if an insurance company also has a separate hedge fund, private equity fund, or some other Wall Street entity that is not regulated by the state insurance regulator like AIG did, then it would be subject to the restrictions. USAA members can support USAA and support reform. Dare I say, it could be a win win for all of us? Learn more: read Americans for Financial Reform’s letter on the amendment here . See Americans for Financial Reform’s Open Letter to USAA members below. *************************************************************************** An Open Letter to USAA Members: If you are one of the 300 million Americans who have been affected by the financial crisis – if your family has lost a job or retirement savings, or if you’ve seen state budget cuts and foreclosures in your community – then financial reform is for you. But financial lobbyists have spent $1.4 million a day trying to kill a bill to hold them accountable, and everyday Americans don’t have lobbyists to make their support for financial reform heard. That’s why we’re concerned. Senators can interpret the calls from USAA members as opposition to strong reform, an invitation to carve out loopholes for every lobbyist, or worse yet–opposition to the bill overall. It’s important to get the facts first. Q: Why would “the Volcker Rule” affect USAA? A: Because USAA is an insurance company that owns a bank, it may be subject to the Volcker Rule’s limits on companies doing “proprietary” trading, or trading for the company’s own profit, when they also own federally-insured banks. The Rule is designed to stop loosely-regulated, large Wall Street firms like AIG (also an insurance company) from taking high-risk gambles with our savings in ways that don’t benefit us, the customers. For years now, banks have been increasingly looking to Wall Street–not Main Street–for investments. That has meant riskier investments, huge bonuses, and ultimately, a financial crash that left taxpayers with the bill. But since USAA is a well-regulated company that invests premiums for the benefit of its customers, it is seeking an amendment to clarify that it is exempt from the Rule. Q: What can we do to help? A: Senators Merkley and Levin have created the right amendment to exempt USAA from these limitations. They clarify that the Rule is targeted at the AIGs of the world, not the USAAs. That’s why we urge you to support the right amendment – because supporting just any amendment could open up a loophole big enough for AIG. Tell your Senator that you support the Merkley-Levin amendment to the Volcker Rule: • It would allow an insurance company like USAA that has good state level regulation to continue its insurance business without being subject to the Volcker Rule restrictions on holding a bank. However, if an insurance company also has a separate hedge fund, private equity fund, or some other Wall Street entity that is not regulated by the state insurance regulator (think AIG), then it would be subject to the restrictions. And while you’re at it, tell your Senator that you support strong financial reform that holds Wall Street accountable, protects consumers and taxpayers, and helps prevent another financial crisis. The bill would: • Bring derivatives into a transparent stock-exchange style market so that speculators can no longer make huge, risky and secret bets with our retirement accounts, pensions, and college savings. • End the era of “too big to fail” banks — by restoring the separation between commercial banks that take deposits, make loans and receive federal backstops from investment activities that carry different risks, and by setting up an orderly system for dismantling failed financial institutions so that those entities are treated to a “wind down”, not a bailout. • Create a new, independent and accountable Consumer Financial Protection Agency with broad authority to make sure payday lenders, auto dealers, mortgage companies and others who fell between the cracks of the old regulatory world are held to new standards of fairness that prevent tricks and traps in the fine print, kickbacks, and other hard-to-find “gotcha’s”. • Require venture capital and private equity fund advisers to comply with the new requirements to register with the SEC that hedge fund managers will meet. • Give shareholders a stronger voice in the selection of the boards of directors and the executive pay policies of the companies they own. • Establish a duty for brokers and insurance agents recommending securities, annuities and other investments to act in the best interests of the customers to whom they are making recommendations, and • Hold credit rating agencies to higher standards – by making them more accountable to investors and the SEC – so that they can’t escape responsibility for the “buy” recommendations so many investors rely on. Sincerely, Americans for Financial Reform

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Jack Nadel: JOBS, PROSPERITY AND THE GREAT AMERICAN ADVANTAGE…

April 29, 2010

In our current preoccupation with derivatives and other non-productive financial instruments, we are ignoring the Great American Advantage that exists in our small businesses and entrepreneurs. It is a statistical fact that most wealth and jobs are created by small and medium-sized business. There are several economic facts that make it imperative that we start paying more attention to this highly productive opportunity. It’s time to take a long cool look at economic conditions, and start concentrating on those areas that can be most productive, not only for a select few, but the entire world of American business. I have always felt that in order for an entrepreneur to be successful he must find a need and fill it . These needs are all around us, if we but look for them. And we must continually expand our markets. For many years Americans have either ignored or feared the world of export. The economic fact is that in 2010 the American dollar is very cheap. When the American dollar loses value, it is a boon to American exports. A cheap dollar makes all American merchandise more competitive, and an expensive dollar makes that same merchandise more expensive in the global marketplace. There is a worldwide demand for anything American. People around the world, if they cannot get to America, would at least like to live like Americans. Our music and motion pictures are universal in their appeal. There is an unparalleled demand for American entertainment. This in turn leads to a huge demand for the American brand (e.g. iPhones, iPods, Blackberry, Google, Yahoo) and has created this tremendous need that did not even exist 20 years ago. All manner of American equipment and merchandise have an insatiable marketplace in stores and shops around the world. Add this to the ability to actually sell on the Internet both on a wholesale and retail basis, bringing unparalleled opportunity to American suppliers. I have dealt in the international marketplace for the past 60 years. John F. Kennedy and Ronald Reagan were two of the greatest proponents of removing trade barriers thereby creating incentives that make Americans more export conscious. I remember about 30 years ago the United States government had a remarkable incentive to encourage American exports; a 50% tax savings on profits created by selling overseas. I participated directly in this effort when President Reagan invited me to join an American trade mission to Japan to promote and encourage American exports to that country. There were 10 entrepreneurs and no attention was paid to whether we were Republicans or Democrats. We were all interested in getting the job done to make it easier for Americans to export. As big as the opportunity was then, it is far greater now. Today more than ever we need to encourage Americans to participate and prosper in world trade. There is a huge market outside of the United States anxious and waiting for all kinds of American products. Many countries particularly China and Japan enjoy a surplus of American dollars. The people in those countries want to sing American songs, wear American clothing, and use our high tech equipment. There should be a united effort to educate and incentivize our businesspeople and make it all happen. The result will be more jobs, and greater opportunities Most people are not aware of the tremendous opportunities that exist in international trade. We live in a global marketplace. Our government should set the stage for free and fair trade. We must realize that when we set restrictions on imports, foreign governments will control the amount of merchandise that can be purchased from the United States. At present our imports are far greater than our exports. We need to strive to balance our exports with imports and create greater opportunities for American manufacturers to sell their merchandise on the foreign marketplace. In 1975 I was manufacturing ballpoint pens in New York City and selling them throughout the United States. A European distributor contacted us for our product to sell in the European Common Market. Conditions were much the same as they are today. The American dollar was cheap which made our products more competitive. Very shortly we were selling more pens in Europe than in the United States. Today it is much easier to find customers and suppliers. A simple search on the Internet identifies prospects in a matter of seconds. Contacting vendors and customers is far simpler through e-mail and responses are instantaneous. We must expand our thinking. There is a huge market out there. It is up to us to seize the initiative. It is all part of the Great American Advantage .

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