April 2010

USD Graphic Rewind 04.29

April 29, 2010

USD Graphic Rewind 04.29

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Opening Comment 04.29

April 29, 2010

Opening Comment 04.29

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Questions on a Double Top

April 29, 2010

Questions on a Double Top

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TrinityCare Senior Living Developing Interactive Family Communication System — Seniors In Touch

April 29, 2010

Brian Lang Appointed as CEO

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Former U.S. Trustee Kelly Beaudin Stapleton Joins MorrisAnderson as Managing Director in Its New York Office

April 29, 2010

CHICAGO, IL–(Marketwire – April 29, 2010) –   MorrisAnderson today announced it has appointed Kelly Stapleton as a Managing Director in its New York office. MorrisAnderson is a leading financial and operational advisory firm, offering interim management and financial restructuring services to distressed and underperforming businesses across all industries in the middle market.

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Gonorrhea May Become Untreatable as Antibiotics Efficacy Wanes, WHO Says

April 29, 2010

By Simeon Bennett April 29 (Bloomberg) — Gonorrhea may become untreatable as the improper use of antibiotics reduces their ability to clear the sexually transmitted infection, the World Health Organization said. There is now “widespread resistance” to cheaper first- line antibiotics against the bacterium that causes gonorrhea, the WHO’s Western Pacific regional office said in a statement today. The agency said Australia, Hong Kong and Japan have reported treatment failures with cephalosporin, a class of antibiotics that’s the last line of defense against the disease. “We are dealing with a serious issue with the implication that gonorrhea may become untreatable,” Shin Young-soo , the WHO’s regional director for the Western Pacific, said in the statement. “This will have a major impact on our efforts to control the disease and will result in an increase in serious health-related complications,” Shin said. The WHO and U.S. Centers for Disease Control and Prevention have developed an action plan to improve monitoring for drug- resistant gonorrhea and identify alternative treatments against the disease, the Geneva-based agency said. Left untreated, gonorrhea can result in infertility, pelvic inflammatory disease, ectopic pregnancy, infections in newborn children and swelling of the scrotum, the WHO said. It also increases the likelihood of acquiring and transmitting HIV, the virus that causes AIDS. To contact the reporter on this story: Simeon Bennett in Singapore at sbennett9@bloomberg.net

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Democratic Draft of Immigration Legislation Emphasizes Border Security

April 29, 2010

By Laura Litvan April 29 (Bloomberg) — Democratic leaders in the Senate are drafting immigration legislation that would aim to bolster security at U.S. borders before later providing a way for illegal immigrants to become U.S. citizens. A proposal being drafted by a group that includes Senate Majority Leader Harry Reid of Nevada and Senator Charles Schumer of New York would require that more money first be poured into boosting the number of border officers and U.S. Immigration and Customs enforcement agents, according to a draft provided by a person familiar with their negotiations. More resources would also be provided to prosecute and try drug smugglers and those who cross into the country illegally. “Proponents of immigration reform acknowledge that we need to meet clear and concrete benchmarks before we can finally ensure that America’s borders are secure and effectively deal with the millions of illegal immigrants already in the United States,” according to the draft outline. Work on the Democratic legislation comes after efforts toward a bipartisan measure involving Schumer and South Carolina Republican Senator Lindsey Graham fell apart. Graham and other Republicans say Democrats are pushing too fast on legislation that needs more time before it can gather enough support with Republicans, and that a fast track promoted by Reid appears more geared toward boosting the Hispanic vote in an election year. Other senators working on the legislation include Senator Robert Menendez , a New Jersey Democrat and chairman of the Democratic Senatorial Campaign Committee , and Senator Dianne Feinstein , a California Democrat and a senior member of the Senate Judiciary Committee. Appetite for Action President Barack Obama this evening said there might not be the “appetite” in Congress to take on a big issue such as immigration after the recent completion of health-care legislation. He said he wants to see a working group of lawmakers start to lay important groundwork for action. “I don’t want us to do something just for the sake of politics that doesn’t solve the problem,” Obama said. “‘I think we need to start a process at least to open up a smarter better discussion than the one that is raging right now.” Calls for action from Hispanic groups, labor unions and Democratic lawmakers supporting an immigration overhaul have increased since Arizona Governor Jan Brewer last week signed a tough new immigration measure into law. The Arizona statute would make it a state crime to be in the U.S. illegally and require local police to determine the immigration status of anyone an officer suspects of being in the country without proper documentation. Arizona Law Members of the Congressional Hispanic Caucus joined others in calling for action yesterday. They said the Arizona law shows how states may fill the void with measures that challenge civil liberties. The Arizona law creates a “clear, pivotal moment” that should give momentum to an overhaul of the nation’s immigration policies, said Representative Luis Gutierrez , an Illinois Democrat and a member of the Hispanic caucus. He was joined by members of House caucuses representing black and Asian-American Democrats, as well as members of the Progressive caucus. Reid, who is up for re-election in a state where 15 percent of voters are Hispanic, has taken the lead. He acknowledges that any measure doesn’t yet have enough support to clear the chamber. The outline of legislation does not provide specific border-security benchmarks. It says that additional personnel and resources, including high-tech ground sensors on the U.S.- Mexico border and other equipment, will be provided. A bipartisan commission will offer additional recommendations. Verification Systems The legislation would also require the Social Security Administration to administer a new system of biometric cards that could be used to prevent hiring of illegal immigrants in U.S. workplaces. It would replace existing verification systems six years after enactment. The draft legislation would boost civil penalties for employers who knowingly hire illegal immigrants by 300 percent. The measure would create a new federal commission that would adjust caps for work visas for skilled and other workers based on whether too few, or too many, immigrants are arriving to meet the needs of the U.S. economy. The proposal also changes the high-skilled immigration system, allowing employment by foreign students with advanced degrees from U.S. institutions in certain fields, such as engineering and technology. The proposal attempts to provide a way for the estimated 10.8 million people in the U.S. with no legal status to become citizens. First they could be provided with a “lawful immigrant status” that lets them to work and travel outside the U.S. Later, eight years after current visa backlogs are cleared, they could petition to become permanent U.S. citizens, under the proposal. To contact the reporter on this story: Laura Litvan  in Washington at   or llitvan@bloomberg.net .

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Senate Republicans Vow to Amend U.S. Finance Legislation as Debate Begins

April 29, 2010

By Alison Vekshin and James Rowley April 29 (Bloomberg) — Senate Republicans abandoned their efforts to block debate over legislation overhauling U.S. financial rules, vowing instead to fight for changes to the bill on issues ranging from consumer protection to derivatives. The Senate today will begin considering amendments to the legislation, which is based on a proposal by President Barack Obama , beginning with the Democrats’ plan to strengthen oversight of the $605 trillion over-the-counter derivatives market. “I will be offering a lot of amendments” on parts of the bill, including a proposal to create a consumer financial protection bureau at the Federal Reserve, said Alabama Senator Richard Shelby , who negotiated on behalf of Republicans to get a bipartisan deal before talks broke off yesterday. Republicans and Democrats yesterday ended a two-week standoff on the bill, bringing Congress closer to approving the biggest financial-oversight restructuring since the 1930s, two years after a mortgage meltdown shook global markets and hobbled Lehman Brothers Holdings Inc. and other Wall Street firms. The move came a day after Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein and other company executives underwent more than 10 hours of questioning by a congressional panel looking at Wall Street’s role in the financial crisis. “Senate Republicans have finally agreed to let us begin this debate,” Majority Leader Harry Reid , a Nevada Democrat, said in a statement. “Obstruction has wasted enough of the American people’s time, and now it’s time to get to work.” No-Bailout Pledge The lawmakers agreed by unanimous consent to move forward with the legislation after Republicans said they got assurances that Democrats would change the most contentious piece of the bill aimed at preventing taxpayer-funded bailouts of big banks. On three previous votes this week, the chamber’s 41 Republicans united to block consideration of the bill, offered by Senate Banking Committee Chairman Christopher Dodd , a Connecticut Democrat. In a meeting with Dodd yesterday, Shelby got assurances that Democrats would remove from the bill a $50 billion industry-supported fund that would be used to wind down failing firms, according to an aide to the Republican lawmaker. He was also told taxpayers wouldn’t be exposed; that failing firms would be liquidated and shareholders wiped out; and that Congress would have a say in any guarantee program, the aide said. “The bill is in better shape than it was when it came out of committee,” Senate Republican Leader Mitch McConnell , a Kentucky Republican, told reporters yesterday. Derivatives Battle Today’s opening debate, over a derivatives measure that Senate Democrats agreed to this week, involves a provision offered by Senator Blanche Lincoln , an Arkansas Democrat, to require commercial banks to wall off their swaps-trading desks. Senator Bob Corker , a Tennessee Republican and member of the banking committee, said he wanted to eliminate that clause. “What is the point of doing that?” he told reporters yesterday. “All it does is lower the amount of capital available in America for actual lending.” Lincoln’s provision is “toast” because it “will be altered tremendously before a bill is passed,” Corker said. Republicans also may offer amendments to ease a measure requiring regulators to ban proprietary trading at U.S. banks; eliminate language removing the Fed’s authority to oversee banks with less than $50 billion in assets; and preserve the power of federal regulators to override states in applying consumer- protection rules at national banks. House Bill Differs The legislation, if passed in the Senate, would need to be merged with a version the House approved in December. The two measures differ over issues including the power of the Federal Reserve, consumer protection and derivatives regulation. Democrats held votes every day this week to begin debate, ratcheting up pressure on Republicans by portraying them as supporting Wall Street over the millions of Americans who lost jobs in the aftermath of the economic crisis. Republicans said they were holding firm to gain leverage in the negotiations to amend the bill and protect taxpayers. That ended after Shelby and Dodd agreed to halt their talks. After yesterday’s meeting, Shelby declared the discussions had reached an “impasse” and McConnell issued a statement signaling a willingness to begin the floor debate. “We haven’t been able to move at all on the consumer agency,” Shelby said, adding his “understanding” is that Dodd would remove the $50 billion fund from the bill. Praise From Obama Obama, who offered the proposal last June that formed the basis of the bill, said yesterday the Senate bill may cut Wall Street bonuses while shoring up the financial industry. “We’ll end up having a safer, more secure financial system,” Obama told reporters on his plane returning to Washington from two days of speeches in the Midwest. “Banks and other financial institutions can get back to making money the old-fashioned way by lending it to companies to build business and create jobs.” Polls show public support for tougher regulations on Wall Street. About two-thirds of Americans back tighter rules for banks and other financial institutions, according to an April 22-25 Washington Post/ABC News poll . To contact the reporters on this story: Alison Vekshin in Washington at avekshin@bloomberg.net ; James Rowley in Washington at jarowley@bloomberg.net

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Russia Cuts Refinancing Rate as Easing Cycle Draws to End, Inflation Looms

April 29, 2010

By Maria Levitov and Paul Abelsky April 29 (Bloomberg) — Russia’s central bank cut its main interest rates for the 13th time in a year to bolster economic growth and spur credit flows, nearing the end of an easing cycle on the prospect of accelerating inflation. Bank Rossii lowered the refinancing rate a quarter point to 8 percent, effective April 30, it said on its Web site today. It also cut the repurchase rate charged on one- and seven-day central bank loans by the same amount to 7 percent. The decision was expected by 20 of 27 economists in a Bloomberg survey. The bank last cut rates a quarter-point on March 26. It also cut the overnight deposit rate to 2.5 percent from 2.75 percent. The cuts are intended “primarily” to boost lending and make credit more “accessible,” the bank said in the statement. “The consumer price dynamics remain favorable” and the main indicators point to a “gradual trend towards the recovery of economic growth.” Still, the recovery is “unstable,” and “the necessity of supporting domestic demand remains.” Lending growth in March and April was “insignificant,” it said. The regulator has reduced rates a total of 5 percentage points in 13 months while the government last year raised spending by 27.3 percent to drag the world’s largest energy supplier out of its worst recession by unlocking credit flows and rekindling demand. Finance Minister Alexei Kudrin on April 6 warned the stimulus may trigger faster inflation and bring an end to the cuts. The refinancing rate has been higher than the inflation rate since the fourth quarter. Ruble The ruble gained 0.5 percent against the euro to trade at 38.6468 at 11:24 a.m. in Moscow. Against the dollar, the ruble was little changed at 29.2775. “When rates enter positive territory in real terms you do fewer stupid things, take fewer risks and this produces better- quality growth,” said Anton Stroutchenevski , an analyst with Troika Dialog in Moscow, before the announcement. Today’s cut “is an urgent necessity” to spur a recovery. Russia is the last so-called BRIC country cutting rates. Brazil’s central bank yesterday became the first in Latin America to increase borrowing costs in more than a year, raising the Selic rate to 9.5 percent from 8.75 percent. China and India have increased reserve requirements for banks to avoid stoking unsustainable lending growth. Australia, Norway, Israel and Vietnam have raised rates since the peak of the global crisis while the U.S. Federal Reserve has raised the rate charged to banks for direct loans, signaling an end to emergency measures to supply liquidity to financial institutions. Russian economic growth slowed to a seasonally adjusted 0.6 percent last quarter from 1.7 percent in the previous period and 2 percent in the third quarter, according to the Economy Ministry. Inflation, Banks Inflation , the slowest in 12 years last month at 6.5 percent, is set to accelerate and Bank Rossii has signaled it may start raising rates in the second half. An increase in bank lending to households and businesses may also prompt the regulator to start tightening policy, economists said. Bank Rossii has indicated it may withdraw liquidity by forcing lenders to raise reserve requirements to pre-crisis levels. Lending may grow 15 percent this year, bank Chairman Sergei Ignatiev said on April 9. The credit portfolio of Russian banks excluding the nation’s largest lender OAO Sberbank expanded about 1.5 percent in March, he said, adding the rise may be “a coincidence or a change of trend.” Corporate loans shrank 0.7 percent in February and retail lending contracted 0.6 percent in the month, central bank data show. ‘World’s Biggest Rebound’ That will help the economy grow 7 percent this year, compared with last year’s 7.9 percent contraction, marking the world’s biggest rebound, Bank of America Merrill Lynch said in an April 8 note. The bank has also signaled it may do less to cap ruble gains and Ignatiev on April 9 said the regulator “sharply reduced” the extent to which it steers the currency. A 76 percent surge in the past 12 months in Urals crude, Russia’s chief export blend, has supported a 14 percent appreciation in the ruble against the dollar. Policy makers may let the ruble strengthen more than the government wants, according to UBS AG and Commerzbank AG . Even after the currency’s gains, the ruble remains about 25 percent undervalued, Clemens Grafe , chief economist at UBS in Moscow, said in an April 20 interview. The central bank may allow the ruble to rise as it targets a free float regime and uses a stronger currency to cap inflation, Barbara Nestor , an emerging-markets strategist at Commerzbank in London, said in an April 12 note. To contact the reporter on this story: Maria Levitov in Moscow at mlevitov@bloomberg.net

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Merkel Vows Faster Greek Aid as Spain Downgrade Highlights Debt Contagion

April 29, 2010

By Andrew Davis and Emma Ross-Thomas April 28 (Bloomberg) — German Chancellor Angela Merkel and the International Monetary Fund pledged to step up efforts to overcome the Greek fiscal crisis as Standard & Poor’s downgraded Spain and investors sold bonds in Europe’s most indebted nations. “It’s completely clear that the negotiations between the Greek government, the European Commission and the IMF need to be speeded up now,” Merkel said in Berlin today. Flanked by IMF Managing Director Dominique Strauss-Kahn , she said the “stability of the euro zone” was at stake if a 45 billion-euro ($59 billion) loan package for Greece can’t be delivered fast. A failure by policy makers to match such talk with action has fanned concern that the crisis will spread beyond Greece. Merkel has delayed German approval of loans in the face of voters’ opposition and S&P today cut Spain’s credit rating, a day after it dropped Greece to junk status and downgraded Portugal. The euro fell to the lowest in a year. “The hesitant and haphazard reaction of euro-zone policymakers to Greece’s predicament underscores the dangers of contagion,” said Marco Annunziata , chief economist at UniCredit Group in London. “The euro-zone has taken over six months to react and is allowing uncertainty to persist. This does not bode well for their ability to react quickly should a second flashpoint burst.” Need for Action Speaking in Berlin, European Central Bank President Jean- Claude Trichet said the stability of the “euro zone is impacted” by the delays in delivering the Greek aid, “underscoring the need for action.” Strauss-Kahn told reporters that “every day that is lost is a day where a situation is getting worse and worse.” European stocks and bonds rallied earlier after a German lawmaker stoked speculation that Greece would get as much as 120 billion euros from the EU and the IMF, only for the Spanish downgrade to dash that optimism. The euro dropped 0.2 percent to $1.3143 and Spain’s IBEX 35 Index plunged 3 percent to 10,167 points, the lowest in two months. The yields on Spanish, Greek, Portuguese and Italian 10- year bonds rose. Spain had its credit rating cut one step by Standard & Poor’s to AA, putting it on a par with Slovenia. S&P said in a statement that the outlook on Spain is negative, reflecting the chance of a possible further downgrade if the “ budgetary position underperforms to a greater extent than we currently anticipate.” Spain was last cut by S&P in January 2009. Sovereign World “If you are in a situation where every single country in the peripheries is downgraded, and this is allowed to continue, then obviously the risk is that the contagion will carry on spreading,” said David Owen , chief European Financial Economist at Jefferies International Ltd. The premium on Greek bonds surpassed 8 percentage points at one point today. The extra yield that investors demand to hold Portuguese 10-year bonds over bunds rose 59 basis points to 277 points yesterday, the most since 1997, before slipping 1 point today. The spread on Spanish debt increased to the most in more than a year yesterday before dropping 2 basis points today. The German delay on approving Greek aid exacerbated the crisis this week. While Green Party lawmaker Juergen Trittin quoted Strauss-Kahn as telling German deputies it may be as much as 120 billion euros, the IMF chief later declined to publicly say how much aid Greece will require. Germany may make a final aid decision on May 7 when the upper house of parliament could approve its share of the package, German Finance Minister Wolfgang Schaeuble said at the Berlin press conference. Aid Package Contagion from the Greek crisis is “threatening the stability of the financial system,” Organization for Economic Cooperation and Development Secretary General Angel Gurria said in an interview with Bloomberg Television in Berlin today. “This is like Ebola. When you realize you have it you have to cut your leg off in order to survive.” As Greece waits for its euro-region partners to disburse funds, the European Union hasn’t announced concrete plans to help other nations should aid be needed. Negotiations on the conditions to be attached to Greece’s aid package continued today in Athens and Trichet said he expected them to be concluded by the weekend. The crisis has highlighted the absence of a common fiscal policy to cement Europe’s monetary union, frustrating Trichet’s efforts to promote a “common destiny” for its 16 members. Greece’s budget deficit amounted to 13.6 percent of gross domestic product last year, the second-highest in the euro region after Ireland and four times Germany’s shortfall. Ireland’s shortfall was 14.3 percent and Spain’s 11.2 percent. German Opposition Aid to Greece faces opposition in Germany, where state elections are due in North Rhine-Westphalia on May 9. Almost 60 percent of Germans don’t want to help Greece, Die Welt newspaper reported, citing a survey of 1,009 people. International concern is also growing. The Greek situation is “of great concern” to President Barack Obama , White House spokesman Bill Burton said today. Canadian Finance Minister Jim Flaherty told reporters in Ottawa that the crisis is a “significant concern” and that support needs to be provided “sooner rather than later.” To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

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Hewlett-Packard Will Acquire Palm for $1.2 Billion

April 29, 2010

By Connie Guglielmo and Ari Levy April 28 (Bloomberg) — Hewlett-Packard Co. agreed to buy Palm Inc. , the money-losing handset maker that was once a Silicon Valley icon, for $1.2 billion to challenge Apple Inc. in the smartphone market. Palm’s common shareholders will receive $5.70 a share in cash, a 23 percent premium over the closing price, Hewlett- Packard said in a statement today. Elevation Partners LP, Palm’s biggest investor, gets $485 million for its preferred shares and warrants. The Palm deal moves Hewlett-Packard back into contention with the world’s biggest smartphone makers, including Nokia Oyj, Apple and Research In Motion Ltd. Hewlett-Packard’s current iPaq device hasn’t kept up with competitors. The company also gets a team headed by ex-Apple engineers and a Palm patent lineup that spans mobile hardware, software and power-saving technologies. “This is a low-price, low-risk way for them to at least attempt to penetrate the smartphone market,” said Brian Alexander , an analyst for Raymond James & Associates Inc. He has a “strong buy” rating on Hewlett-Packard’s stock, which he doesn’t own. “We always wondered why they didn’t have much of a smartphone strategy.” Palm’s shares, which closed at $4.63 on the Nasdaq Stock Market before the deal was announced, rose as much as $1.32 to $5.95 in extending trading, as some investors speculated another company may make a bid. Possible buyers include Nokia, said Shaw Wu , an analyst at Kaufman Brothers in San Francisco. Nokia spokeswoman Laurie Armstrong declined to comment. Palm Pre Palm, a pioneer in the market for mobile devices, has a bigger slice of the phone market than Hewlett-Packard. Yet it too has struggled to match the appeal of Apple ’s iPhone, RIM’s BlackBerry and phones using Google Inc.’s Android operating system software. Palm’s Pre and Pixi phones, released last year in a comeback bid, didn’t sell as well as expected. Sunnyvale, California-based Palm has reported 11 straight quarterly losses . “Clearly the market is extremely competitive and a lot of the competitors are very large,” Palm Chief Executive Officer Jon Rubinstein , who will run Palm at Hewlett-Packard, said in an interview. “Palm could have continued on its own, but clearly merging with H-P allows it to get to scale much, much, much faster.” About a decade after the introduction of the iPaq, Hewlett- Packard is redoubling efforts to win at smartphones, the fastest-growing area of the mobile-phone market. Global smartphone shipments may rise 36 percent to 247 million this year, according to researcher ISuppli Corp. in El Segundo, California. Elevation “H-P has better strategic reach, better marketing abilities and more resources to develop some of the technologies developed by Palm,” said Michael Cuggino , portfolio manager of San Francisco-based Permanent Portfolio Funds, which owns 520,000 shares of Hewlett-Packard. Elevation, the Menlo-Park, California-based investment firm whose partners include U2’s Bono and Silver Lake co-founder Roger McNamee , first invested in Palm in June 2007, purchasing $325 million in convertible preferred shares. The firm has since invested another $135 million through preferreds, warrants and common shares. Because of the terms of its investments, Elevation made $25 million, or a 5.4 percent gain, on Palm, while common shareholders lost 65 percent in that period, based on the purchase price. Former Apple finance chief Fred Anderson is also an Elevation partner. He recruited Palm CEO Rubinstein, who at Apple led development of the iPod media player. He went on to build Palm’s current operating system, called WebOS. Trailblazer The sale marks the end of an era for an innovator in mobile computing. Palm was founded in 1992 by Jeff Hawkins and Donna Dubinsky and was part of 3Com Corp. until 2000. Its devices surged in popularity in the 1990s and early part of the next decade, but in recent years were eclipsed by the iPhone, BlackBerry and Android handsets. Investors had high expectations for the Pre, unveiled at the Consumer Electronics Show in January 2009. By Sept. 30, the stock had surged almost fivefold to $17.46 from $3.57 before the announcement, only to erase most of the gain in five months. By March, when Palm said its current-quarter sales would be less than half of Wall Street estimates, some analysts began questioning the company’s viability. There was speculation it may even be forced to seek Chapter 11 bankruptcy protection. Goldman Sachs Group Inc. and Qatalyst Group are providing financial advice to Palm, and Davis Polk & Wardwell LLP is legal counsel. Bank of America Corp. is Hewlett-Packard’s financial adviser, and Gibson Dunn & Crutcher LLP is giving legal advice. Software, Patents Palm’s WebOS was a key driver behind the deal, said Todd Bradley , head of Hewlett-Packard’s personal-computer division. Besides pushing “more aggressively” into smartphones, Hewlett- Packard plans to use the software in other mobile devices including tablet computers, though Bradley declined to say when. Hewlett-Packard is the world’s largest PC maker. “Our focus as we looked at Palm was to further enhance our smartphone position,” Bradley said in an interview. “We looked to acquire them for the WebOS, their broad patent portfolio and broadly deploy devices around the WebOS.” Palm will become a business unit for Palo Alto, California- based Hewlett-Packard. Today’s acquisition, expected to close by the end of July, also will reunite Palm with networking gear maker 3Com, which Hewlett-Packard purchased this month. “This solidifies the portfolio of products they can offer an enterprise,” said Bill Kreher , an analyst at Edward Jones & Co. in St. Louis. He recommends buying Hewlett-Packard’s shares, which he doesn’t own. “You are combining the exciting technology from Palm and the scale and distribution capabilities of H-P.” To contact the reporters on this story: Ari Levy in San Francisco at alevy5@bloomberg.net ; Connie Guglielmo in San Francisco at cguglielmo1@bloomberg.net

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Euro Sales Extend as Morgan Stanley Mulls EU Breakup

April 29, 2010

By Bo Nielsen and Liz Capo McCormick

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Stadiums Beat Stocks After Public Colleges Bet Football Is Recession-Proof

April 29, 2010

By Curtis Eichelberger April 29 (Bloomberg) — The University of Texas is profiting from a decision to renovate its football stadium four years ago instead of investing in securities. As the worst recession since the Great Depression beat down the S&P 500 Index 41 percent between July 2, 2007, and July 1, 2009, and caused more than 8 million job losses, athletic departments such as Texas and Louisiana State University used their on-field success to drive increases in operating revenue. Among the largest schools — the nine with at least $90 million in operating revenue — the biggest winners were Texas, up 32 percent to $138.5 million; LSU, up 32 percent to $100.9 million; and Texas A&M , up 33 percent to $98.1 million, according to a review of athletic department financial records. “Good grief, who is in charge down there?” asked Texas Athletic Director DeLoss Dodds , making a joke on his own behalf. “He needs a raise.” Dodds, 72, said the school’s annual debt payment from the football stadium construction is about $14 million, while revenue from the renovation is about $24 million a year. He said placing the money in endowments would have produced a 30 percent drop. Texas played for the national football championship twice in the past five years, winning in 2005, and has sold out 59 straight home football games dating to Sept. 9, 2000. Records Request Bloomberg News received financial statements for the fiscal years ending in 2007 through 2009 from 51 public universities in the Atlantic Coast, Big East, Big Ten, Big 12, Southeastern and Pacific 10 conferences after filing open-records requests. The average increase in operating revenue — money from things like tickets, concessions and program sales, but excluding items such as interest on investments — was 11 percent. Jim Isch , interim president of the Indianapolis-based National Collegiate Athletic Association, said the significance of revenue gains at schools such as Texas and LSU will become more apparent when this year’s data is available this fall. All but the most successful athletic departments probably will show declines in ticket revenue, contributions and endowment income, he said. “These schools are the anomalies,” Isch said in a telephone interview. “They are playing for national football championships, they have tradition, people know if they don’t keep their tickets, someone else is standing in line to get them. “But the average programs are going to see declines.” Stadium Renovation In Austin, Texas, the Longhorns renovated their football stadium in stages between 2006 and 2009, adding 13,000 seats priced from $65 to $95 depending on the game; 2,200 club seats starting at a minimum $2,000 annual donation, plus the cost of the ticket; 2,450 chairback seats priced at a minimum $750 annual donation, plus the ticket; 47 suites priced from $62,000 to $75,000 plus the tickets and catering; an $8 million, 55- foot-by-134-foot video scoreboard; and ribbon scoreboards that offer more opportunities for advertisers. At their baseball field, they added 19 suites priced from $32,000 to $40,000 plus catering; 400 club seats at field level priced at a minimum $750 annual donation, plus the tickets; and a video board. The bricks-and-mortar investment paid off, according to Texas’s athletic director. “Had we gone with endowments, we’d be down 30 percent,” Dodds said. “This is a huge success.” LSU’s Championship LSU Athletic Director Joe Alleva , 56, said the Tigers’ 2007 national football title is still driving revenue increases. “Everything stems from the championship,” he said in a telephone interview from his office. “We increased ticket prices, we increased seat-licensing revenue, and we had a lot of licensing revenue generated by the championship that spilled over into subsequent years.” Alleva said that while New Orleans is just an hour’s drive from the school’s Baton Rouge campus, LSU sports are everything to the hometown community. “I have never seen passion like LSU fans have for Tiger football and our other sports,” said Alleva, who was Duke University’s athletic director from 1998 to 2008. “I’ve had people tell me they’d rather give up a vacation and other luxury items before they’d give up their tickets to Tiger Stadium.” Michigan’s Boost Michigan increased its sponsorship and licensing revenue by 43 percent to $17.3 million after exiting an apparel sponsorship with Nike Inc. for a new agreement with Adidas AG in June 2007. In August 2008, the Ann Arbor-based school bundled most of its athletic sponsorship accounts and outsourced them to closely held IMG Worldwide Inc., the U.S.’s largest collegiate licensing and multimedia rights agency, representing more than 200 properties. “We had fortuitous timing,” said Jason Winters, the chief financial officer for Michigan’s athletic department. “It’s a challenging market. But our brand is sustainable. We have a long history and tradition of success.” Isch said schools may begin showing the recession’s effects when financial results are calculated for the fiscal year ending in 2010. Some schools close their books in June, others wait until August. “I believe you will see that intercollegiate athletics is not recession-proof,” Isch said. Revenue Skids Nineteen of the 51 schools in the Bloomberg survey showed declines in operating revenue in the final year of the three- year survey. Andrew Zimbalist , an economics professor at Smith College in Northampton, Massachusetts, said when 2009-10 data becomes available later this year, it will probably show back- to-back years of revenue declines for many schools. “The sharp impact of the downturn happens around the beginning of October 2008,” he said. “By that time, many of the season tickets, the booster donations, the catering functions have already been booked for the 2008-09 year.” Schools that had drops in operating revenue between fiscal 2007 and 2009 include the University of Florida, down 11 percent to $96.8 million; Arizona State, down 5 percent to $51.9 million; and the University of Washington, down 9 percent to $54 million. A separate Bloomberg survey in November showed that 45 of the largest U.S. college athletic programs lost a combined $209 million in their investment portfolios between June 30, 2007, and June 30, 2009, with the University of North Carolina experiencing the biggest loss — $52 million, dropping the market value of its endowment fund to $148 million, according to the school. More to Come Meanwhile, in Austin, the athletic department’s finances promise even greater success in the future. “I’ve just spent 20 minutes with the (Longhorns) Foundation to check on donor levels, and they tell me we are going to be up this year on donations,” said Dodds. “It’s our football success. It’s the passion people have for football in Texas.” To contact the reporter on this story: Curtis Eichelberger in Washington at ceichelberge@bloomberg.net

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Wind Projects May Stall on U.K. Grid-Connection Rules, E.ON, Centrica Say

April 29, 2010

By Kari Lundgren April 29 (Bloomberg) — A U.K. plan to install more than 8,000 offshore wind turbines by 2020 may be delayed by a government plan to contract out work to connect the wind-farms to the grid, according to Centrica Plc and E.ON AG . Regulator Ofgem has said allowing competitive bids would attract investors to the industry and curb the 15 billion-pound ($23 billion) cost of connecting 33,000 megawatts of capacity over the decade. Wind-power producers contend that awarding the work exclusively to other companies, who may lack expertise in offshore wind, could slow projects. “We don’t want to build a generation asset and then be beholden to a transmission company — and we don’t know who that’s going to be — in getting our power to shore,” Sarwjit Sambhi, managing director of power generation at Centrica, said by telephone. The Windsor, England-based utility runs three offshore wind farms, has another slated for construction this year and a permit to erect more turbines in the Irish Sea. The U.K. aims to get 15 percent of its power from renewable sources by 2020, a sevenfold jump from 2008. The majority of that will come from offshore wind farms, which cost as much as 3 million pounds a megawatt to build, more than double the cost of onshore farms, Citigroup Inc. data show. One megawatt can supply about 650 households, according to industry group RenewableUK . Regulator’s Review Ofgem is considering how best to build and manage grid connections, which account for 15 to 20 percent of the cost of an offshore project, while containing expenses for the owners. Tendering for future grid links, which would give winners a regulated income over 20 years, would start later this year. “Ofgem is opening up this investment opportunity to alternative sources of capital in a bid to create competition and reduce the burden of procurement for sponsors,” said Charlie Hodges, an analyst at Bloomberg New Energy Finance. “Developer margins will improve if less money is spent upfront.” Centrica and E.ON were among companies that won rights to build wind farms off Britain in the country’s third licensing round in January. Existing transmission arrangements, which are temporary, allow wind-park owners to construct their own point- to-point connections and then auction them off. ‘Layer of Complexity’ “We’d ideally like the flexibility to build our own connection,” Mike Lewis, managing director for Europe at E.ON Climate & Renewables , said in a telephone interview. Bringing in a contractor “adds another layer of complexity. We want the simplest regime that’s going to get as much capacity built as quickly as possible.” The technology to lay power lines offshore is new and presents engineering challenges. The cables are sunk to depths of as much as 260 feet, equivalent to 18 double-decker buses stacked up, and stretch as far as 200 kilometers (120 miles) across shipping lanes where strong winds can hamper repairs. An auction of offshore grid connections held earlier this year attracted bidders including National Grid Plc , Denmark’s Dong Energy A/S, U.K. builder Balfour Beatty Plc and Macquarie Capital Group Ltd., an Australian investment bank. Those licenses will be awarded next month. The sale sparked “strong competition for the first transitional phase for over 1 billion pounds of connections,” Mark Wiltsher , a spokesman for Ofgem, said in an e-mail. “Ofgem has worked to deliver practical solutions that deliver timely and cost-effective connections.” Wider Network Any new tendering system should seek to reduce the financial burden on project owners, while encouraging a broader network linking wind farms to each other and to the U.K. grid, National Grid ’s head of European Union and U.K. Public Affairs Janine Freeman said. The offshore network will be an “incredibly complex piece of engineering, and unless companies have the right incentives to coordinate and anticipate development then consumers will pay the cost of inefficient network designs,” Freeman said by phone. “Instead of building point-to-point connections right out into the North Sea, we need a more coordinated regime.” The U.K. is the first country in Europe to attempt to create a market for offshore transmission links. In Germany and Denmark, the onshore grid operator manages the connections, while in the Netherlands and Belgium they’re controlled by the wind-farm developers. Intermittent Power “European countries are looking at our regime and not understanding it,” Freeman said. “The risk here is that increasingly we will want to see more interconnection, especially as we’re relying on more intermittent renewables.” Sources of renewable energy such as wind depend on the weather to generate power. Electricity can’t be stored, so utilities need to have backup plants to meet demand when renewable power falls short. Interconnector cables to other markets provide outlets for surplus supply. “The grid connection is the umbilical link to the generation,” Peter Madigan, head of offshore at RenewableUK, said by telephone. “Building the transmission network is a critical time constraint to this process,” he said. “By retaining control, the developer is able to keep costs under control as project complexities are worked through.” To contact the reporter on this story: Kari Lundgren in London at klundgren2@bloomberg.net

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Four Seasons, Starwood, Marriott Take Aim at Europe After Dominating U.S.

April 29, 2010

By Nadja Brandt and Armorel Kenna April 29 (Bloomberg) — Europe is the new battleground for the world’s largest hotel companies as they look for sources of growth outside the saturated U.S. market. Four Seasons Hotels Inc. , Starwood Hotels & Resorts Worldwide Inc. and Marriott International Inc. are stepping up expansion efforts in Europe, where about 34 percent of hotels fly chain flags, Otus & Co. estimates. In the U.S., they already control about 70 percent of the market, according to Smith Travel Research Inc. of Hendersonville, Tennessee. The chains can build market share in Europe by appealing to visitors from the U.S., China and India who are likely to seek out internationally recognized brands when traveling, said Rod Taylor, chairman and co-founder of hotel consultants Taylor Global Advisors Ltd. in London. Within the next five to 10 years, the branded chains may increase their market share in the region by 5 percentage points, according to Patrick Scholes , a New York-based analyst at Friedman Billings Ramsey & Co. “The U.S. hotel chains have a high penetration rate in North America,” said Bernie Williams, who helps manage $44 billion for San Antonio-based USAA Investment Management Co. He didn’t specify which hotel shares he holds. “As the sector starts to recover, Europe’s very fragmented market offers far more opportunities.” Hotel owners have struggled to attract customers in the past two years as the recession deterred vacationers and forced companies to cut travel budgets. A lodging industry recovery is occurring more quickly in Europe than in the U.S. Hotel occupancy in Europe climbed in February to 57 percent from 54 percent a year earlier and average daily rates increased to $127 from $119, according to London-based STR Global . North American occupancy stayed little changed at 53 percent, while rates dropped 3 percent on average to $98. Hyatts Abroad Hyatt Hotels Corp. , the chain controlled by Chicago’s Pritzker family, expects to have a higher percentage of rooms abroad than in the U.S. within 10 years, Chief Executive Officer Mark Hoplamazian said in January. He said the company was seeking acquisitions in Italy and Spain. Four Seasons, based in Toronto, has 14 hotels in Europe and another seven slated to open in the next three to five years. Blackstone Group LP’s Hilton Worldwide operates about 184 hotels across Europe. It had 18 openings in the past year, which included takeovers of independent hotels and franchise agreements. That compares with 12 in both 2008 and 2007. Starwood had 159 European hotels at the end of 2009 and 20 in the pipeline. Bethesda, Maryland-based Marriott said last month that it expects to double its 40,000 rooms in Europe by 2015 with such brands as the Ritz-Carlton and Bulgari Hotels & Resorts. It plans about 30 projects in the region, including in Moscow, Budapest and Ankara, Turkey. ‘Stronger Presence’ “Europe overall may be still dominated by small independents, but in some markets chain operators are already having a much stronger presence,” said Jonathan Goldstein , deputy CEO at Heron International Ltd., a London-based real estate development company. Heron is developing the Heron office tower in the U.K. capital and the adjacent Four Seasons hotel, slated to open in 2014. It will be the chain’s third hotel in the London metropolitan area. About 15,000 hotels with 1.8 million rooms spread through 49 European countries are run by chain brands, according to London-based Otus, which advises companies including Starwood, Marriott and Hilton. Accor SA , based in Evry, France, is the largest chain operator in the region. The top 10 also include Windsor, England-based InterContinental Hotels Group Plc , and the Dubai- owned British hotel chain Travelodge. Loyalty Programs The chains’ global reservation systems, marketing reach and loyalty programs give them an advantage over independent, “boutique” hotels and are helping them secure financing for expansion, company executives say. “Right now, banks are more likely to back a Hilton brand, knowing it’s got wide distribution, than they are an independent brand,” said Simon Vincent, Hilton’s area president for Europe. One hurdle for the chains is the limited amount of land available for building in Europe, analysts said. That is leading them to try to take over independent hotels or let them operate under a chain’s brand in exchange for a fee. In the major European markets, “there are plenty of hotel rooms, and the challenge is to break into an existing market in a meaningful way,” said Ian Gamse, a director at Otus. “This can only really be done by doing big deals, either by acquisition or franchise.” Waldorf Astoria Hilton, based in McLean, Virginia, in the past year converted the Trianon Palace Versailles in France into one of its Waldorf Astoria properties. It has flagged seven independent hotels under its Doubletree brand across the U.K. since 2008. Hilton also converted three U.K. hotels formerly operated by Real Hotel Group, whose business went into administration last year, into its Hampton economy brand. Not all independent hotels are eager to strike deals with the global brands. Investors in London’s 3 1/2-year-old Hoxton Hotel , including Pret A Manger co-founder Sinclair Beecham , are confident they will be able to open other locations in the U.K. and wouldn’t consider selling to a chain, General Manager David Taylor said. Starhotels , a Florence, Italy-based group of 22 four-star hotels in Italy, Paris and New York, has rebuffed approaches from U.S. chains to manage its properties, said CEO Elisabetta Fabri. Ultimately, the quality of service will determine a hotel’s success, regardless of whether it’s an internationally recognized brand, said Taylor from Taylor Global. “Many independent, boutique owner-operators provide a guest experience that is second to none,” said the consultant, a former head of Barclays Plc’s hospitality & leisure finance team. “Branded or unbranded, let your customer down and they are unforgiving. Get it right and they’ll keep coming back.” To contact the reporter on this story: Nadja Brandt in Los Angeles at nbrandt@bloomberg.net or Armorel Kenna in Milan at akenna@bloomberg.net .

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Citigroup’s Return to Saudi Arabia May Need More Than Help From Alwaleed

April 29, 2010

By Camilla Hall April 29 (Bloomberg) — Citigroup Inc . is aiming to open for business in Saudi Arabia six years after selling its stake in a bank there. Returning might not be as easy as departing. Since leaving the country in 2004, the company has said it would like to regain a foothold. Saudi officials, though, are protecting banks from new competition, according to Jean- Francois Seznec , visiting associate professor at Georgetown University’s Center for Contemporary Arab Studies. “They’re not as in love with U.S. banks as they used to be,” Seznec said by telephone from Riyadh, the Saudi capital. “The competitive environment is really key to this. Citibank was very successful here in the past.” Billionaire shareholder Prince Alwaleed Bin Talal , Saudi Arabia’s richest businessman, said on April 27 in an interview with Bloomberg Television that the country “welcomes the presence of a Citibank office.” He said in an interview last month he’s helping New York-based Citigroup and its chief executive officer, Vikram Pandit , set up in Saudi Arabia. The U.S. company, in which filings show Alwaleed held 218 million shares as of November 2008, first started a business in Saudi Arabia in 1955. Citigroup sold its 20 percent holding in Saudi American Bank, now known as Samba Financial Group , to a state investment group in 2004, netting $760 million. The previous year, it had ended its management contract with the bank after first selling a 2.83 percent stake. A fifth of Samba’s market value today equates to about $2.9 billion, according to Bloomberg data. Under Control The company, then the largest financial services company in the world, said its strategy was to invest in countries where it could have majority control of the banks it ran. Citigroup currently is the fourth-largest bank in the U.S. “The franchise that Citibank led in Saudi Arabia was very robust and prosperous for many years and they decided at that point to exit,” said John Sfakianakis , chief economist at Riyadh-based Banque Saudi Fransi. The Saudi Arabian Monetary Agency, the central bank, “has temporarily halted the issuance of new bank licenses in order to evaluate the many licenses issued so far,” he said. The central bank, known as SAMA, did not respond to questions sent by Bloomberg News, and neither did the Capital Markets Authority, the country’s regulator. Citigroup’s Dubai- based spokesman, Karim Seifeddine , declined to comment. William Rhodes , the Citigroup senior vice-chairman stepping down this month, said in 2006 that the bank was interested in returning to Saudi Arabia. Charles Prince , then chief executive officer, met in April that year with government officials in Riyadh at an event hosted by Alwaleed, the Saudi investor’s Kingdom Holding Company said in a statement at the time. ‘Mistake’ A year later, Mohammed al-Shroogi , the Middle East managing director, called the exit a “mistake” and said the bank was reapplying for a license to operate. Competitors such as Tokyo-based Nomura Holdings Inc., New York’s Goldman Sachs Group Inc. and Deutsche Bank AG meanwhile have expanded in the Arab world’s largest economy. Frankfurt-based Deutsche Bank announced April 12 the formation of Deutsche Gulf Finance, a joint Shariah-compliant home financing company owned 40 percent by the bank’s Riyadh branch and 60 percent by Saudi investors. The government forecast the Saudi Arabian economy to grow more than 4 percent this year, after 0.2 percent last year. The world’s largest oil exporter is spending $400 billion on infrastructure to stimulate the economy. Lending Slowdown Bank lending to private companies rose 1.6 percent in February. That growth averaged 27 percent between 2004 and 2008, according to Riyadh-based Jadwa Investment Co. Twenty banks have full banking licenses and branches operating in the kingdom, according to the central bank’s February monthly statistics bulletin. More than 100 investment companies have licenses to conduct securities business, according to the Capital Markets Authority Web site. Previously, in the 1970s, the Saudi government forced foreign banks such as Citigroup, HSBC Holdings Plc and ABN Amro Holdings NV to sell majority stakes in their local operations to Saudi nationals. A law in 2003 opened the door for foreign banks to apply for licenses. To contact the reporters on this story: Camilla Hall in Abu Dhabi at chall24@bloomberg.net

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Fed Signals Sustained Job Gains Needed Before End to Low-Rate Commitment

April 29, 2010

By Joshua Zumbrun and Scott Lanman April 29 (Bloomberg) — Federal Reserve officials signaled they’ll need to see more evidence of sustained gains in the job market before ending their pledge to keep the benchmark lending rate at a record low for an “extended period.” Policy makers said yesterday that while the labor market is “beginning to improve,” employers remain reluctant to hire, and consumer spending is restrained by tight credit and limited wage gains. Inflation will remain “subdued for some time,” they said in a statement after a two-day meeting in Washington. Chairman Ben S. Bernanke and his colleagues aren’t in a hurry to withdraw stimulus with 15 million Americans unemployed, even as economic growth outpaces analysts’ forecasts. Slack labor markets have pushed inflation lower, allowing the Fed to keep its zero interest-rate policy in place to encourage businesses and households to borrow and spend. “You need the economy hitting a critical speed in the Fed’s mind, have enough momentum behind it to be able to withstand the first moves to renormalize monetary policy,” said John Ryding , a former Fed researcher who is now chief economist and founder of RDQ Economics LLC. Fed officials need to see “a few months of pretty solid private-sector job creation before they will tinker with the extended-period language.” The FOMC left the main interest rate in a range of zero to 0.25 percent, where it has been since December 2008. Kansas City Fed Bank President Thomas M. Hoenig dissented from the statement for the third meeting in a row, saying the Fed’s promise of low rates was no longer warranted and may “increase risks to longer-run macroeconomic and financial stability.” Stocks Rose Treasury notes fell and stocks rose after the decision. The Standard & Poor’s 500 Index gained 0.7 percent to close at 1,191.36 in New York. Two-year Treasury notes fell, pushing up the yield two basis points to 1.02 percent. A basis point is 0.01 percentage point. The unemployment rate, which hit a 26-year high of 10.1 percent in October, is forecast to remain at 9.7 percent in April for the fourth straight month in a May 7 Labor Department report, according to the median estimate in a Bloomberg survey. Economists in the Bloomberg survey forecast employers will add 175,000 jobs in April, following a gain of 162,000 workers in March. The economy has not added jobs in two consecutive months since November and December 2007, the month the recession started. Raised Forecasts Economists have raised growth forecasts from earlier this month as reports showed consumer spending climbed, inventories rose and businesses invested in new equipment. 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. The central bank said household spending has “picked up recently.” The panel said last month that household spending was “expanding at a moderate rate.” Retail sales increased 1.6 percent last month, more than anticipated and the biggest gain in four months, according to figures from the Commerce Department. “I would have expected them to be a touch more enthusiastic on growth, just because the numbers have come in better,” Michael Feroli , chief U.S. economist at JPMorgan Chase & Co. in New York, said in reference to policy makers. In recent speeches and testimony, central bankers’ “rhetoric had been a little more open to some of the good news,” he said. “I wasn’t expecting to break out the champagne, but maybe a little bit more” optimistic. Lower Labor Costs The improving economy, demand from overseas and lower labor costs led a surge in corporate profits last quarter, according to results from Standard & Poor’s 500 companies that have reported earnings this month. About 80 percent of S&P 500 companies to have posted first- quarter earnings have topped analysts’ projections, according to data compiled by Bloomberg. Policy makers, in line with their mixed view on the economy, said in the statement that housing starts have “edged up but remain at a depressed level.” The FOMC “upgraded to a lighter shade of gray,” said Stuart Hoffman , chief economist at PNC Financial Services Group Inc. in Pittsburgh. The Fed needs to see more job growth, he said, and “the big picture is still not changed in terms of inflation, it’s still subdued for some time.” Weakness in labor markets and resulting low wage pressures have held down consumer prices. The so-called core inflation rate, which excludes food and energy, was 1.1 percent for the 12 months ending March, down from 1.3 percent in February. The Fed’s preferred gauge of inflation, the core personal consumption expenditures price index, will increase at an 0.5 percent annual rate in the first three months of 2010, according to a Bloomberg survey. That would be the smallest quarterly gain in records dating back to 1959. “The inflation numbers just look incredibly tranquil,” said former Fed Governor Lyle Gramley , a senior economic adviser at Potomac Research Group in Washington. To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net ; Joshua Zumbrun in Washington at jzumbrun@bloomberg.net

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Siemens Raises Full-Year Profit Forecast on Demand for Factory Equipment

April 29, 2010

By Richard Weiss April 29 (Bloomberg) — Siemens AG , Europe’s largest engineering company, said full-year earnings will be higher than previously forecast after it cut jobs and demand for light bulbs and factory automation equipment rebounded. Operating profit at the main industrial, energy, and health-care units will exceed the 7.5 billion euros ($9.9 billion) posted in fiscal 2009, Munich-based Siemens said in a statement today. That compares with a previous target of 6 billion euros to 6.5 billion euros. “We are profiting from measures we initiated early on to strengthen our competitiveness,” Chief Executive Peter Loescher said in the release. Europe’s manufacturers are emerging from the deepest contraction in decades as clients resume orders for products ranging from power cables to factory drives and medical gear. Siemens said today its three main divisions are on target to achieving their profitability goals and that demand in shorter- cycle businesses has picked up. Siemens rose as much as 1.8 percent to 73.26 euros and was trading at 72.62 euros as of 10.39 a.m. in Frankfurt, valuing the company at 66.3 billion euros. The stock has gained 13 percent this year, beating the 8 percent advance in the 84- member Bloomberg European Industrials Index. Profit Boost Operating profit from the three sectors rose 16 percent to 2.14 billion euros in the fiscal second quarter ended March 31, beating the 1.96 billion-euro mean estimate of nine analysts in a Bloomberg survey. Sales fell 3.9 percent to 18.23 billion euros, while net income rose 54 percent to 1.48 billion euros, Siemens said. Eleven of 14 divisions that report profitability figures reached their margin targets, while 3 fell short. “I was amazed by the quarterly profit,” said Jochen Klusmann , an analyst at BHF-BANK in Frankfurt who has a reduce ratings on Siemens shares and expects them to fall to 62 euros within 6 months. “The question, however, is what the underlying profit is, all charges and one-time effects aside, also when looking into 2011.” Siemens reported one-time gains of 180 million euros from U.S. pensions in the quarter ended March 31 and 110 million euros from currency and commodity hedging in the previous quarter. The company has said it expects further charges from its Nokia Siemens Network joint venture, and for workforce cuts in its industrial and information-technology divisions. Job Cuts Siemens cut 12,600 mainly administrative jobs in the fiscal year, reducing costs by 2 billion euros. About 5,000 posts were lost at the Osram lighting unit, where the quarterly operating margin jumped to 13.4 percent from 0.8 percent a year earlier. The company, whose products include high-speed trains and hospital scanners, has continued to cut jobs this year as demand dropped for some industrial products and its computer-services division, where 4,200 jobs will go, failed to improve its performance. Siemens employs 402,000 people worldwide. The fresh round of job cuts as Siemens targets a record sector profit — a measure introduced in 2008 — drew protests in Munich yesterday, with demonstrations outside the company’s headquarters. The improved figures at Siemens contrast with those of General Electric Co. , which on April 16 posted first-quarter revenue that trailed analyst estimates as sales of large equipment in the energy, aviation and rail industries declined. ABB Ltd., which competes with Siemens in power distribution and automation, on April 22 reported a lower-than-expected profit for the first quarter as clients in Asia and the Middle East delayed large power projects and prices fell. To contact the reporter on this story: Richard Weiss in Frankfurt at rweiss5@bloomberg.net .

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Mobius Says Default by `Rich’ Greece Is Best Way to Ease European Crisis

April 29, 2010

By Shiyin Chen and Susan Li April 29 (Bloomberg) — A default by “rich” Greece on its debt would be the best way to ease the European fiscal crisis and help allay fears of a contagion, Templeton Asset Management Ltd.’s Mark Mobius said. Greece should consider restructuring its debt to pay 25 cents to 50 cents for every dollar, helping to cut its debt level to a more sustainable level, said Mobius, who oversees about $34 billion in emerging-market assets as executive chairman of Templeton Asset. Lending aid to Greece may drag down the European Union as other indebted nations seek a bailout in turn, he said. “A default will help to plug the leak,” Mobius said in an interview with Bloomberg Television in Singapore today. “A bailout at this stage does not make sense to me.” Concern that the debt crisis in Europe is widening has spurred a sell-off in stocks worldwide and sent the euro toward a one-year low against the dollar. The MSCI AC World Index , tracking both emerging and developed markets, has dropped 2.8 percent since Standard & Poor’s cut its credit rating for Greece to below investment grade and downgraded Portugal and Spain. Greece has 8.5 billion euros of bonds maturing next month. While the country said last week it wants to activate a 45 billion euro aid package from the EU and the International Monetary Fund, Germany is insisting on further austerity measures from the country. ‘Rich’ Greeks Greek Prime Minister George Papandreou’s government is facing criticisms from opposition parties and threats of further strikes by unions resisting tighter limits on spending. The nation’s 2009 budget deficit of 13.6 percent of gross domestic product is more than fourfold the EU’s limit of 3 percent of GDP. “The Greeks are rich. If you look at what happened during the Olympics, they raised $10 billion and there are only 10 million people,” Mobius said. “The problem is that they don’t want to pay taxes because the government is not serving them well. Corruption is rife, government workers sleep on the job and this has to be corrected.” The problems in Greece are just the “tip of the iceberg” as rising sovereign debt from the U.S. to Japan will ultimately lead to higher deflation or government defaults, Nouriel Roubini , the New York University professor who predicted the U.S. recession more than a year before its start in December 2007, said yesterday. Mobius is more optimistic, saying fears of a so-called contagion won’t develop into a “long-term problem” once Greece resolves its debt woes. These concerns may start to ease in the next three to four months, he said, adding that he’s a “firm believer” in the euro. “I don’t have any problem with this so-called contagion,” Mobius said. “It’s a short-term phenomenon and people are getting panicked. This is driven by market makers, people who are shorting the debt in these countries.” Compared with developed nations, emerging markets are in “very good shape” in terms of debt relative to their economies, Mobius said. To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net

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Estate Coffee Holdings Corp. Appoints Errol Gillespie to the Board of Directors

April 29, 2010

CALGARY, AB–(Marketwire – April 29, 2010) –  Estate Coffee Holdings Corp. (the “Company”) ( OTCBB : ECHD ), a specialty coffee company with plans to grow by vertical integration, is pleased to announce the appointment of Errol Gillespie to the Board of Directors.

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Terry Beneke, Chief Investment Officer of Family Office Antares Capital – Opalesque.TV

April 29, 2010

Terry Beneke is Chief Investment Officer of Antares Capital Management, a Dallas based single family office. In this Opalesque.TV interview, Mr Beneke explains what typically attracts family offices to hedge funds. Antares Capital is currently invested in 20 single hedge funds and does not use fund of funds. Beneke also shares the pivotal relevance of 2008 when assessing hedge funds, or money managers generally. ‘What exactly did you do in 2008?’ has become a key question for sophisticated investors when benchmarking asset managers. The analysis includes in-depth analysis of a managers’ positions, gross and net exposures, change of exposures, actions including investor communication during the financial crisis – all of which have become a strong filter how allocators judge and select managers post-crisis. Before joining Antares, Terry was chief operating officer of Atlas Capital, a long-short hedge fund focused in US equities. He also served as Principal with Banc of America Prime Brokerage in Dallas from 2002-2004, where he led the capital introduction efforts for BofA in the Southwest. From 1989-2002 he was with White Capital Management, a Dallas area family office, which from 1999 to 2002 he served as President and Chief Investment Officer.

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Milken Faults Companies Failing to Reduce Excess Debt as Markets Recover

April 28, 2010

By Gabrielle Coppola April 29 (Bloomberg) — Companies failing to exploit the recovery in bond and equity markets to pay down debt are making a mistake, according to Michael Milken , the junk-bond billionaire turned philanthropist. Near-zero interest rates in the U.S. and Europe have fueled demand for high-risk securities, providing companies with an opportunity to cut debt incurred during the excesses of the credit boom, Milken told an audience at the Milken Global Institute conference yesterday in Beverly Hills, California. “It’s the individual’s fault, the individual leadership of that organization, if they are not taking advantage of today’s markets to sell equity and debt, de-leverage and push out maturities,” he said during a panel moderated by Matt Winkler , editor-in-chief of Bloomberg News. Companies sold $98.9 billion of high-yield bonds in the U.S. this year, on pace to beat the record $162.7 billion issued in 2009 after government measures unlocked credit markets frozen by Lehman Brothers Holdings Inc.’s collapse. The extra yield investors demand to own junk bonds instead of Treasuries fell to 5.51 percentage points yesterday from a peak of 21.82 percentage points in December 2008, according to Bank of America Merrill Lynch’s U.S. High-Yield Master II index. The average junk bond traded at 99.5 cents on the dollar from a low of 54.9 cents on Dec. 15, 2008, Merrill data show. Risks ‘Exaggerated’ “Defaults were exaggerated, the risks were exaggerated,” Milken said of the recovery in high-yield bonds. “Those risks existed in mortgage-backed securities, but they didn’t exist in industrial companies, and that’s what the market is saying.” The debt has returned 4.8 percent this year, following a record 58 percent return in 2009, Merrill data show. High-yield, or junk, bonds are ranked lower than Baa3 by Moody’s Investors Service and below BBB- by Standard & Poor’s. Milken, 63, pioneered the junk-bond market in the 1970s as the high-yield bond chief at Drexel Burnham Lambert Inc. He was indicted on 98 counts of racketeering and securities fraud in 1989, ultimately serving about two years after a plea bargain and sentence reduction. For the past decade he has focused on philanthropy and running the research institute he founded, which seeks ways to generate capital for people around the world. To contact the reporter on this story: Gabrielle Coppola in New York at gcoppola@bloomberg.net

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Lula Promising Best World Cup in Spending Spree Sees TCU as Only Obstacle

April 28, 2010

By Adriana Brasileiro

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Goldman Sachs Champion Buffett Draws on 69-Year Past With Firm Under Fire

April 28, 2010

By Andrew Frye April 29 (Bloomberg) — Warren Buffett , who called Goldman Sachs Group Inc. an “exceptional institution” when he invested $5 billion in the firm, will have his biggest platform to discuss the bank after it was sued for fraud by regulators and pilloried in Congress. Buffett, who will host shareholders of his Berkshire Hathaway Inc. at the May 1 annual meeting, was a satisfied Goldman Sachs client when he extended capital and credibility to the firm during the credit crisis in 2008. Buffett has since defended the bank amid public outrage about its pay and conduct, drawing on a relationship that dates to a visit with a Goldman Sachs executive in New York at the age of 10. “That’s more than 60 years of experience with Goldman Sachs that’s talking,” said Jeff Matthews , author of “Pilgrimage to Warren Buffett’s Omaha” and founder of the hedge fund Ram Partners LP. “Buffett is not going to be turning around selling his Goldman Sachs.” Buffett said people who feel cheated by the recession have unfairly lashed out at Wall Street when regulators, mortgage lenders and politicians should share the blame. “They’re going to rewrite Genesis and have Goldman Sachs offering the apple,” Buffett said in a March 1 interview with CNBC. The billionaire has “great confidence” in his investment, according Berkshire Director Thomas Murphy , who told Bloomberg Television that he spoke with Buffett after the Securities and Exchange Commission sued Goldman Sachs on April 16. Goldman Sachs Chief Executive Officer Lloyd Blankfein said he also spoke privately with Buffett after the lawsuit. Shareholder Questions Buffett will take about five hours of shareholder questions at the meeting and, according to Murphy, should expect inquiries about Goldman Sachs, which was accused of misleading clients on the sale of mortgage-related investments. About 35,000 people attended last year’s meeting at Omaha’s Qwest Center arena. Buffett’s comments from the gathering and subsequent press conference are read throughout the world. Buffett, a critic of Wall Street greed and corruption, has supported a firm that’s been a lightning rod for criticism. Public regard for Goldman Sachs plunged in the year and a half since Buffett, Berkshire’s chairman and chief executive officer, bought preferred securities paying 10 percent interest. Berkshire makes $500 million a year in interest on the Goldman Sachs perpetual preferred stock, which the bank may call at any time by paying a 10 percent premium. The warrants Buffett negotiated as part of the deal give Berkshire the option to buy $5 billion of common stock for $115 a share. Berkshire’s paper profit on the warrants was about $1.8 billion as of yesterday, down from $3 billion before the SEC lawsuit was announced. Goldman Shares Goldman Sachs advanced $3.97, or 2.6 percent, to $157.01 yesterday in New York trading. The bank closed at $184.27 on April 15. Berkshire rose $675 to $115,625. The transaction is reminiscent of a 1987 deal with Salomon Inc. in which Buffett invested $700 million. Buffett was named interim chairman of Salomon in 1991 after the firm was accused of misconduct in the Treasury debt auction market, and he worked with regulators to restore the company’s credibility. In testimony to Congress, he summarized his message for Salomon employees: “Lose money for the firm, and I will be understanding,” Buffett said. “Lose a shred of reputation for the firm, and I will be ruthless.” Senate Hearing Goldman Sachs executives endured more than 10 hours of grilling before the Senate’s Permanent Subcommittee on Investigations on April 27 about their duty to clients and the ethics of betting against the housing market as the bank sold mortgage-linked securities. Michigan Democrat Carl Levin said he was “troubled” that the company doesn’t seem to understand conflicts of interest. Goldman Sachs has said the SEC suit is unfounded. “What clients or customers are buying is they are buying an exposure,” Blankfein told the committee. “The thing we are selling to them is supposed to give them the risk they want. They are not coming to us to represent what our views are.” Goldman Sachs posted a record $13.4 billion profit in 2009, a year after receiving $10 billion in a taxpayer bailout. It repaid the funds with interest in June. Buffett told television interviewer Charlie Rose in November that the bank didn’t need the bailout. As politicians railed about bonuses, Buffett, the world’s third-richest person, praised Blankfein and said, “I don’t mind paying for performance.” Finding a Target “You’ve got to expect vilification of banks,” Buffett said in a January interview. “If I lost my job I’d be mad at somebody, I’d probably be mad at everybody. And that’s human nature. And it sometimes gets fanned by people to whom it’s to their advantage to have a target.” The Goldman Sachs case is the SEC’s first contested lawsuit against a major investment bank in more than a decade, and comes as the regulator seeks to restore a reputation tarnished by its failure to detect Bernard Madoff ’s Ponzi scheme. Buffett, who has ridiculed investment bankers for the size of their fees, relied on Goldman Sachs for some of his biggest deals, including the $4.5 billion acquisition of Marmon Holdings Inc. in 2008 and the $1.45 billion takeover of McLane Co. Those deals were facilitated by Byron Trott , the former Goldman Sachs managing director of whom Buffett said “I trust him completely.” An Investing Icon At last year’s meeting, Buffett praised Wells Fargo & Co. and dismissed the importance of government analysts who were reviewing banks in an industrywide stress test. The San Francisco-based bank jumped 44 percent the following week. “Warren Buffett is certainly an icon in terms of picking the right companies and investing with a long-term strategy,” said Jeff Resnick of Opinion Research Corp., a specialist in brand and reputation consulting. A good reputation “will give you a reservoir of goodwill among your most important stakeholders.” Berkshire rose to first place this month in Harris Interactive’s annual survey of corporate reputations. Goldman Sachs came in 56th out of 60. “He’s an important client as well as an investor,” Blankfein said of Buffett in the April 27 Bloomberg Television interview. “I can’t speak for Warren.” Buffett said last year in Omaha that almost everyone associated with finance, from bankers to regulators to insurers, contributed to the crisis. “Some of it stemmed from greed, some from stupidity, some from people saying the other guy was doing it,” Buffett said. To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net

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Roubini Says Rising Debt Leads to Inflation, Defaults

April 28, 2010

By Vivien Lou Chen and Gabrielle Coppola April 28 (Bloomberg) — Nouriel Roubini , the New York University professor who predicted the U.S. recession more than a year before its start in December 2007, said rising sovereign debt from the U.S. to Japan and Greece will ultimately lead to higher inflation or government defaults. “While today markets are worried about Greece, Greece is just the tip of the iceberg, or the canary in the coal mine for a much broader range of fiscal problems,” Roubini, 52, said today during a discussion on financial markets at the Milken Institute Global Conference in Beverly Hills, California. Increasing tax revenue won’t be enough “to save the day.” Roubini’s remarks underscore statements by officials such as Dominique Strauss-Kahn , managing director of the International Monetary Fund, that the global economy still faces risks. Credit-rating cuts on Greece, Portugal and Spain in the past two days are spurring investors’ concern that the European deficit crisis is spreading and intensifying pressure on policy makers to widen a bailout package. “The thing I worry about is the buildup of sovereign debt,” Roubini, who teaches at NYU’s Stern School of Business, told attendees at the Beverly Hilton hotel. If the issue isn’t addressed, nations will either fail to meet obligations or experience higher inflation as officials “monetize” their debts, or print money to tackle the shortfalls. Michael Milken , founder of the Milken Institute, said the U.S. has the ability to continue selling private and public debt because its markets remain liquid. “I would say it is individual leadership’s fault if they are not taking advantage of today’s markets,” Milken, the junk- bond billionaire turned philanthropist, said on the panel moderated by Matt Winkler , editor-in-chief of Bloomberg News. Debt Crisis The Stoxx Europe 600 Index fell 1.3 percent to 258.24, a six-week low, after Standard & Poor’s downgraded Spain’s debt by one step to AA. The euro traded at $1.3205 at 4:02 p.m. in New York, compared with $1.3175 yesterday, after touching $1.3115, the lowest since April 28, 2009. Almost $1 trillion of worldwide equity value was erased yesterday on concern that rising public debt will spur defaults, derailing the global economy, data compiled by Bloomberg show. German Chancellor Angela Merkel and the IMF pledged to step up efforts to overcome the Greek fiscal crisis, after bonds and stocks plunged across Europe in the past week. “The bond vigilantes are walking out in Greece, Spain, Portugal, the U.K. and Iceland,” said Roubini, a former senior economist for the White House Council of Economic Advisers, adviser to the U.S. Treasury Department and IMF consultant. ‘No Willingness’ “Eventually, the fiscal problems of the U.S. will also come to the fore,” he said. “The risk of something serious happening in the U.S. in the next two or three years is going to be significant” because there’s “no willingness in Washington to do anything” unless forced by the bond markets. Roubini, chairman and co-founder of Roubini Global Economics LLC in New York, said the U.S. probably will need a combination of increased tax revenue and lower government spending, while Europe needs to curb spending. Both Roubini and Milken supported a carbon tax on gasoline, saying it would reduce American dependence on oil from overseas, shrink the trade deficit and carbon emissions, and help pay down the U.S. budget deficit. Roubini predicted a bubble in U.S. housing prices during an interview with Bloomberg News in October 2005, months before the market peaked, and said in August 2006 that he expected a “painful” recession. Education Better Investment Today, he said the U.S. invested too heavily in housing during the past 20 to 30 years, and that spending on education and technology would be better in the long run. Milken, 63, is the former high-yield bond chief from Drexel Burnham Lambert Inc. who was indicted on 98 counts of racketeering and securities fraud in 1989, ultimately serving about two years after a plea bargain and sentence reduction. For the past decade, he has focused on philanthropy and running the research institute, which seeks ways to generate capital for people around the world. To contact the reporters on this story: Vivien Lou Chen in Los Angeles at vchen1@bloomberg.net ; Gabrielle Coppola in Los Angeles at gcoppola@bloomberg.net

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BP Oil Well Leaks Up to 5,000 Barrels a Day, Five Times More Than Estimate

April 28, 2010

By Jim Polson and Yee Kai Pin April 29 (Bloomberg) — A damaged BP Plc oil well in the Gulf of Mexico is leaking as many as 5,000 barrels of crude a day, five times more than previously estimated, the U.S. Coast Guard said. “There’s an additional breach in the well,” Coast Guard spokesman Erik Swanson said by telephone from Robert, Louisiana. The National Oceanic and Atmospheric Administration has increased its estimates of the flow of crude from 1,000 barrels a day, he said. The explosion and sinking of the Deepwater Horizon drilling rig about 130 miles (210 kilometers) southeast of New Orleans last week caused a slick that had drifted within 16 miles of the coast, according to a Coast Guard map released after a press conference yesterday. The spill is about 600 miles in circumference, the Coast Guard said. That’s about twice the land area of Maryland. The oil may reach land for the first time tomorrow in Louisiana, bringing tar balls and mousse-like hunks of emulsified oil later, Charlie Henry, the U.S. government’s lead forecaster for the spill, said yesterday at the press conference in Robert. BP burned a section of the slick yesterday, testing whether it may be used to reduce potential shoreline damage, Swanson said earlier. Results will be announced today, Doug Suttles , BP’s chief operating officer for exploration and production, said at the press conference. Daren Beaudo , a spokesman for BP, couldn’t immediately be reached for comment late yesterday. “The winds are going to be sustained out of the southeast for days and days and days,” Tom Downs , a meteorologist at Weather 2000 Inc. in New York, said yesterday in an interview. “That will push everything toward the coast.” Southeast winds may build to 40 miles an hour today, he said. Floating Boom A forecast map published after the press conference showed landfall possible by 6 p.m. local time tomorrow. Heavier oiling would occur should winds continue out of the southeast, Henry said. BP expanded placement of floating boom designed to block oil slicks to 100,000 feet (30 kilometers) today and has another 500,000 feet available, Suttles said. Louisiana’s marshy coastline extends 15,000 miles, according to its Department of Natural Resources. BP is trying to protect areas most sensitive to oiling from the delta to Mobile Bay, Alabama, he said. BP expects to clean up some oil off the shore, he said. “It’s probably not possible to collect all the oil offshore,” Suttles said. Hazed Birds Damage to birds in the Pass a Loutre and Delta Wildlife Refuges, both in the projected path of the spill, was “extremely low” after a pipeline spill caused by Hurricane Ivan in 2004 because wildlife officials hazed birds away from the oil with noise, Henry said. “We’re hoping for the same outcome,” he said. Currents and tides may change the trajectory as the oil nears shore, he said. BP expects to begin drilling tomorrow a new well to reach the damaged well and stop the flow. The well will be started a half mile away and stopping the flow through that method may take three months, he said. BP is spending $6 million a day trying to clean up the spill and stop the leak, according to Suttles. The application of chemical dispersant by airplanes, evaporation and other “natural processes” will dissipate most of the slick, which is thin enough to appear as a sheen on the surface, the Coast Guard said in a statement yesterday. The rig, owned by Geneva-based Transocean Ltd., exploded and sank last week, leaving 11 of the 126-member crew dead. The U.S. Interior Department’s Minerals Management Service and the Coast Guard are investigating the cause as they guide the cleanup. To contact the reporters on this story: Jim Polson in New York at jpolson@bloomberg.net ; Yee Kai Pin in Singapore at kyee13@bloomberg.net

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Brown `Bigoted’ Comment Undermines Trust Argument Going Into Final Debate

April 28, 2010

By Kitty Donaldson and Thomas Penny April 29 (Bloomberg) — Gordon Brown is aiming in tonight’s final leaders’ debate to convince U.K. voters that only his Labour Party can be trusted to safeguard the economy. Yesterday, already fighting for his political life, he made his job harder. The prime minister was forced to apologize, calling himself a “penitent sinner,” after being overheard calling a widow and self-described Labour supporter in northwest England “bigoted” following a disagreement over immigration. “For Brown, the last throw of the dice tonight was going to be ‘I may be flawed in presentation but you can trust me,’” said Andrew Hawkins , chairman of London-based pollster ComRes Ltd. “That has been undermined. Take away his potency on trust and you have taken away about his only asset.” Brown has been running third behind the Conservatives and Liberal Democrats in voter preference in most recent polls. Still, some pollsters have forecast that Labour will win a plurality of seats in Parliament. Yesterday’s incident may benefit the Liberal Democrats because wavering Brown supporters may turn to that party, Hawkins said. This would increase the chances of a so-called hung Parliament in which no party wins a majority of seats. That prospect 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 2 percent against the dollar since Liberal Democrat leader Nick Clegg was judged by polls to have won the first TV debate on April 15. ‘Preposterous’ With neither Brown nor Conservative leader David Cameron set to win a majority, Clegg may be able to name his price for backing one of the other parties. The Liberal Democrat leader said April 25 it would be “preposterous” for Brown to remain premier if Labour finishes third in the popular vote. A daily YouGov Plc poll for The Sun newspaper released last night showed Conservative support gaining 1 percentage point to 34 percent, while the Liberal Democrats rose 3 points to 31 percent and Labour slipped 2 points to 27 percent. YouGov questioned 1,530 voters April 27 and yesterday. That would give the Conservatives 259 lawmakers, 67 short of a majority, Labour 251 and Clegg’s party 109, according to the seat calculator on the U.K. Polling Report Web site. Forty-six percent of Labour supporters said they might change their mind, according to an Ipsos Mori poll published April 23, and almost half of all voters have yet to make a final decision. Economic Focus The economy will be the focus of the first half of tonight’s debate in Birmingham, central England. Labour officials had been counting on the event giving Brown a platform to talk about his record in tackling the financial crisis and to press his claim that only his party can be trusted to ensure a continued recovery. “The person with the most to lose is Gordon Brown because his job is on the line,” said Paul Whitely, professor of government at Essex University. “Brown will reiterate that the Tories will put the economy at risk and he is right to do that, but it’s not very easy.” Brown’s debate preparations were thrown into disarray yesterday when he was campaigning in Rochdale, near Manchester, a district Labour is aiming to win from the Liberal Democrats. The prime minister was confronted by Gillian Duffy, 66, who complained about levels of immigration and difficulties experienced by people who are unable to work in claiming state benefits. ‘Eastern Europeans’ “You can’t say anything about the immigrants,” she told him. “All these eastern Europeans coming in — where are they flocking from?”     Immigration is the second-most important topic for voters, with 29 percent saying it is one of the biggest issues facing Britain today, according to an Ipsos Mori poll of 977 voters between April 9 and 15. No margin of error was given. The poll rated the economy as most important, cited by 55 percent. “She was just a sort of bigoted woman who said she used to be Labour,” Brown, 59, said to an aide after getting back in his car. “That was a disaster. Who put me with that woman?” The incident “crystallized widespread doubts about Brown, that he is grumpy and misanthropic,” said Bill Jones , professor of politics at Liverpool Hope University. The prime minister has thrown pens and a stapler at staff, and once shoved a laser printer off a desk in a rage, according to one former adviser. Another aide was warned to watch out for “flying Nokias” when he joined Brown’s team. In February, Brown denied he ordered his aides to undermine Chancellor of the Exchequer Alistair Darling in 2008. Darling said “the forces of hell were unleashed” from Brown’s office after he gave an interview saying Britain faced the worst recession in 60 years. “Labour is at a point of vulnerability and can’t afford to be hemorrhaging votes at this stage,” said Mark Wickham-Jones , a professor of politics at Bristol University. “One of the consequences of this gaffe is that rather than talking about the economy they will spend the next few days talking about immigration.” To contact the reporters on this story: Kitty Donaldson in London at kdonaldson1@bloomberg.net ; Thomas Penny in London at tpenny@bloomberg.net .

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Obama’s Fed Choices Will Help Bernanke Engineer Exit From Record Stimulus

April 28, 2010

By Scott Lanman and Hans Nichols April 29 (Bloomberg) — President Barack Obama’s appointment of three Federal Reserve governors will bring the board to full strength for the first time in four years, helping Chairman Ben S. Bernanke manage a withdrawal of record monetary stimulus and an overhaul of bank supervision. Obama today plans to announce his choice of San Francisco Fed President Janet Yellen to be vice chairman of the Board of Governors under Bernanke, according to two people familiar with the decision. Obama will also name Sarah Bloom Raskin , Maryland’s commissioner of financial regulation, and Peter Diamond , an economics professor at the Massachusetts Institute of Technology, to the seven-person board. The three, who are subject to Senate confirmation, join the 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.” “This will be a group of doves slanted toward job creation and growth, increasing the likelihood of rates staying low for a long time,” said former Atlanta Fed research director Robert Eisenbeis , now chief monetary economist at Cumberland Advisors Inc. in Vineland, New Jersey. Yellen, 63, would replace Donald Kohn , who said in March he would step down June 23 after a 40-year Fed career. She would gain a more prominent role in Fed policy with a permanent vote on the FOMC, instead of having a vote one year out of every three as a regional Fed chief. All governors have a vote on rate decisions. ‘Right Track’ 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. 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. 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. Yellen rejoined the Fed in 2004 as president of its San Francisco district bank, which represents the largest region by area and economic output. She has always voted with the majority of policy makers on interest-rate decisions. Regional Banks The Fed has 12 regional Fed banks. The president of the New York Fed, currently William Dudley , has a permanent vote on the FOMC; the heads of the other regional banks rotate. The San Francisco Fed president doesn’t vote again until 2012. Raskin, a 49-year-old attorney, was appointed in August 2007 as Maryland’s top banking regulator. She was previously managing director of Promontory Financial Group, a consulting firm, and worked at the New York Fed and as a counsel for the Senate Banking Committee. She graduated from Harvard Law School in 1986. Her husband, Jamie Raskin , is a law professor and a Democratic Maryland state senator. Diamond, a specialist in taxation and behavioral economics who turns 70 today, has written widely on overhauling entitlement programs. His 2003 book “Saving Social Security” was co-written with Peter Orszag , director of the Office of Management and Budget. He joined MIT’s faculty in 1966. ‘Widely Respected’ “The new nominees, particularly Yellen and Diamond, are widely respected centrists who will help the chairman ensure that reason prevails in FOMC decisions,” said New York University economist Mark Gertler , who co-wrote research with Bernanke. The Senate agreed yesterday to begin debate on a Democratic proposal for the biggest restructuring of financial-market oversight since the 1930s as Republicans abandoned their effort to stall the bill’s progress. The legislation is aimed at strengthening regulations in response to the financial crisis that led to bailouts for firms such as Citigroup Inc. and Bank of America Corp. The bill, sponsored by Senate Banking Committee Chairman Christopher Dodd of Connecticut, would set up a new consumer- protection regulator, create a mechanism to dismantle firms whose failure threatens the financial system, and strengthen oversight of derivatives and hedge funds. Reduced Oversight Dodd’s bill would also strip the Fed of oversight of about 5,000 banks across the U.S. and focus its role on supervising about 36 large firms with assets of more than $50 billion. Dodd has called the Fed’s record on bank supervision “abysmal” and has said its reduced role would it allow it to focus on monetary policy. Bernanke has said that supervising a larger number of banks allows the Fed to keep its finger on the pulse of the economy, helping its interest rate decisions. At the same time, Fed Governor Daniel Tarullo is leading an internal revamping of Fed supervision. If confirmed by the Senate, Yellen, Diamond and Raskin would give the Fed a full seven-member complement of governors for the first time since April 2006. President George W. Bush tried to fill the slots with three nominees in 2007: Elizabeth Duke was approved in 2008, while Larry Klane and Randall Kroszner were blocked by Senate Democrats. Obama appointed Tarullo in January 2009. The timing of the announcement fits Yellen’s schedule: She was in Washington attending the FOMC’s meeting this week. The central bank’s policy panel yesterday restated its intention to keep the benchmark interest rate near zero for an “extended period.” While Yellen doesn’t have an FOMC vote this year, all 12 regional-bank presidents participate at each meeting. To contact the reporters on this story: Hans Nichols in Washington at hnichols2@bloomberg.net ; Scott Lanman in Washington at slanman@bloomberg.net

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BASF First-Quarter Profit Beats Estimates as Demand for Plastics Recovers

April 28, 2010

By Cornelius Rahn and Richard Weiss April 29 (Bloomberg) — BASF SE, the world’s biggest chemical company, said profit more than doubled in the first quarter, boosted by recovering demand for plastics and products used in the automotive and electronics industries. Net profit increased to 1.03 billion euros ($1.4 billion) from 726 million euros, the Ludwigshafen, Germany-based company said in a statement today. Analysts surveyed by Bloomberg predicted 899 million euros. Sales also topped estimates. Carmakers and other chemical users are rebuilding inventories depleted during the financial crisis and BASF is forecasting higher sales in 2010 and a significant increase in earnings for 2010. BASF has advanced 6.7 percent this year, for a market value of more than 42 billion euros. Dow Chemical Co. shares have climbed 15 percent. Sales totaled 15.5 billion euros, beating the 14.37 billion euros predicted by analysts. Earnings before interest and tax was 1.8 billion euros. The German chemical maker matched rivals who also surprised analysts. Dow reported profit that topped estimates yesterday, driven by higher sales of commodity plastics such as polyethylene. DuPont Co., the third-biggest U.S. chemical maker, more than doubled first-quarter profit and raised its 2010 earnings forecast. BASF also benefited from a rising oil price. Crude Oil futures averaged $79.26 in the quarter ended March 31, compared to $44.35 in the quarter last year, according to Bloomberg data. Chief Executive Officer Juergen Hambrecht plans to cut at least 1 billion euros in costs by 2012. The worst chemical industry slump for 35 years prompted the 63-year-old to place more than 4,000 employees in Germany on shorter hours to trim expenses by shuttering plants. In addition, the merger of Ciba Specialty Chemicals into BASF should generate annual savings of 450 million euros by 2012 through the elimination of as many as 3,800 jobs. Possible Purchase The CEO may now be preparing his next major purchase. BASF is preparing a bid for Germany’s Cognis GmbH that may value the closely held chemical maker at about 3 billion euros, two people with knowledge of the situation said in early April. Cognis, owned by Goldman Sachs Group Inc. and Permira Advisers Ltd., is drawing bidders with its ingredients for body lotions, cleaning products and shampoos, products that are more resistant to economic cycles than those directly derived from oil and gas. A purchase by BASF would further Hambrecht’s drive to steer BASF away from commoditized chemicals. To contact the reporters on this story: Cornelius Rahn in Frankfurt at crahn2@bloomberg.net Richard Weiss in Frankfurt at rweiss5@bloomberg.net .

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Euro Slide Leaves U.S. CEOs Wringing Hands With Profit Forecasts at Risk

April 28, 2010

By Rachel Layne and Carol Wolf April 29 (Bloomberg) — United Technologies Corp. finance chief Greg Hayes sets aside some wiggle room in his profit forecast every year for swings in the euro. By March, half his safety net had already evaporated. The maker of Otis elevators and Pratt & Whitney jet engines, which gets about a quarter of its sales from Europe, started 2010 assuming a $1.48 euro exchange rate. Hayes cut it to $1.37 last month as concern mounted that Greece would default on its debt. This week, the euro dropped below $1.32 for the first time since April 2009. “It’s one of those things that you can’t control,” Hayes said in an interview April 23. “In fact, I think our stock is actually down the last couple of days because of this Greece crisis.” Terex Corp., DuPont Co. , McDonald’s Corp. and Johnson & Johnson also said in the past two weeks that the euro’s slide is affecting profit or may hold back growth. The 8.2 percent decline in the currency so far this year makes U.S. exports more expensive and lowers overseas sales when euros are translated to dollars, threatening a potential rebound in revenue and a lift to the economy. Analysts, who have cut their second-quarter forecast for Europe’s common currency every month this year, expect it to trade at $1.35 in June and $1.32 by December. The euro will weaken to $1.30 by the first quarter of 2011, according to the median of economists’ estimates compiled by Bloomberg. ‘Hand-Wringing’ “U.S. CEOs are going to be doing a lot of hand-wringing over the next couple of quarters,” said Thomas Laming , a money manager with Scout Investment Advisors in Kansas City, Missouri, which manages $10 billion in assets. “There is going to be an impact on U.S. multinationals. It may cause some companies to miss the earnings estimates that are out there.” DuPont, the third-biggest U.S. chemical maker, is expecting the euro to average $1.34 this year, Chief Financial Officer Nicholas Fanandakis said. Currency exchange added 10 cents to per-share earnings in the Wilmington, Delaware-based company’s first quarter, and that may deteriorate to as little as 5 cents for the year, he said. “As the dollar strengthens, for us it is a headwind,” Fanandakis said this week in a telephone interview. More Expensive Goods McDonald’s recorded a 5 cent benefit to earnings per share in the first quarter. That was at the low end of a 5 cent to 6 cent forecast the company gave in January because of the strengthening U.S. dollar against the euro and the pound. Currency fluctuations will hurt earnings in the second half of the year, based on current exchange rates and McDonald’s business outlook, Chief Financial Officer Peter Bensen said on an April 21 conference call with analysts. For the year, the company still anticipates exchange rates will add to earnings, he said. Bensen said his outlook could change. “We recognize this estimate becomes outdated within days,” Bensen said. McDonald’s, based in Oak Brook, Illinois, got about 40 percent of its $5.61 billion in revenue from Europe in the first quarter. Lizzie Roscoe, a spokeswoman for McDonald’s, declined to comment beyond Bensen’s statements. “McDonald’s sells more hamburgers overseas than they do in the U.S.,” Marc Chandler , global head of currency strategy at Brown Brothers Harriman & Co. in New York, said in a April 27 phone interview. “That will have a notable impact, especially when you couple that with the fact that the euro has been falling for the better part of six months.” Air Conditioners, Helicopters At Hartford, Connecticut-based United Technologies , Hayes had a “contingency plan” — a cushion in his forecast — of $250 million because he was concerned about the euro. In March, he told investors he cut it in half, to $125 million, with the euro at a rate of $1.35. He says that by controlling costs he can still make the profit forecast — for $4.50 to $4.65 a share this year — if the euro were to drop to $1.25. Because most of its goods, which also include Carrier air conditioners and Sikorsky helicopters, are made or assembled in the countries where they are sold, the unknown is the quarterly reconciliation to translate sales back to dollars. “The dollar ought to weaken over time versus the euro just because of the deficit spending we have in the U.S.,” Hayes said in the interview, barring a financial meltdown in Portugal, Ireland, Greece and Spain. “So the view long-term is bearish on the dollar. The problem is, on a quarter-to-quarter basis, it gets bumped around a little.” Spain had its credit rating lowered one step to AA by Standard & Poor’s yesterday as Greece’s debt crisis spread through the euro region. The ratings company cut its rankings on Portugal and Greece earlier this week as European policy makers pushed to speed distribution of emergency aid. Smaller Benefit Johnson & Johnson, the world’s biggest health-products company, said last week its sales growth for 2010 would have a positive currency benefit of about 1 percent based on where the euro is now, below its previous projection. The company said a weaker euro was the primary reason for its lower forecast. The New Brunswick, New Jersey-based company also reduced its annual earnings forecast to as much as $4.90 a share, adjusted for some items, from a January projection of as much as $4.95. Bill Price , a spokesman for Johnson & Johnson, declined to comment beyond last week’s predictions. Terex, the maker of heavy-duty trucks and cranes, has a forecast for revenue to rise to about $5 billion this year from $4.04 billion last year, when 38 percent of sales came from Western Europe. “Our net sales outlook will be slightly reduced due to lower anticipated benefits coming from currency translation,” Chief Executive Officer Ronald DeFeo said during a conference call April 22. DeFeo wasn’t available for an interview. Net sales at Terex fell 3.1 percent to $935.9 million in the first quarter, the Westport, Connecticut-based company said in a statement April 21. The decline was 17 percent excluding about $56 million from the favorable impact of foreign currency rate changes and sales from a port equipment business. “For right now, on a year-over-year basis, the euro is about flat,” Scout Investment’s Laming said. “Earnings reports for this quarter and next won’t be hugely impacted. The real impact will show up in the third and fourth quarters.” To contact the reporters on this story: Rachel Layne in Boston at rlayne@bloomberg.net ; Carol Wolf in Washington at cwolf@bloomberg.net

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Naphtha Margin Narrows to Gasoline on China Manufacturing: Energy Markets

April 28, 2010

By Ann Koh April 29 (Bloomberg) — The gap between the price of naphtha and gasoline in Asia is narrowing for a fourth straight week, the longest stretch since November, as China’s manufacturing economy strengthens. The premium for gasoline in Asia relative to naphtha fell 35 percent to $7.95 a barrel ($68 a ton) yesterday from this year’s high of $12.15 on April 5, according to data compiled by Bloomberg. China exported a net 594,379 metric tons of gasoline in March, or a 650-foot tanker full every other day, customs data show. Net naphtha imports jumped 27 percent to 110,331 tons. The reforming margin that measures the difference between the two commodities reflects increased demand for chemicals used in everything from plastic pipes to shopping bags. China has been a naphtha importer for nine consecutive months, the longest stretch since at least 2004, customs data show. At the same time, gasoline exports show how the nation built too many refineries, even with car sales at a record high. “Naphtha demand so far this year has been much stronger, Chinese demand has been a huge driver,” said Alex Yap, a consultant at Hawaii-based Facts Global Energy in Singapore. The reforming margin may decline to an average of $7.80 a barrel in the third quarter, he said. A narrower reforming margin could prompt Asia’s refiners to switch to naphtha from gasoline, amid concern that the summer driving season in the Northern Hemisphere may be muted. Gasoline consumption peaks from late May to early September. U.S. Consumption U.S. demand dropped to the lowest level in 10 weeks with pump prices the highest since October 2008, MasterCard Inc. said April 27. Motorists bought an average 9.21 million barrels of gasoline a day in the week ended April 23, the second-biggest payments network company said. That was the lowest level since Feb. 12. “I’d be interested to see the driving season,” said Clarence Chu , a trader with options dealer Hudson Capital Energy in Singapore. “Gasoline demand in the U.S. is still kind of weak.” Inventories in the U.S. fell 1.24 million barrels to 223.7 million, a Department of Energy report showed. They were forecast to increase 900,000, according to the median of 20 responses in a Bloomberg survey. Driving Demand China’s passenger car sales rose 63 percent in March as government stimulus policies helped spur demand for vehicles in the world’s biggest auto market. Sales of cars, multi-purpose vehicles and sport-utility vehicles rose to 1.26 million units, China Association of Automobile Manufacturers said April 9. First-quarter sales jumped 76 percent to 3.52 million units, the group said. China’s economy grew 11.9 percent in the first quarter, the fastest pace in almost three years, on property investment, recovering exports of manufactured goods and the government’s stimulus program. Full-year growth will be 10.1 percent, according to the median estimate of economists surveyed April 15. Rising energy consumption in China may not be enough to absorb the 31.5 million tons of refining capacity that’s expected to be added this year, China National Petroleum Corp. said in February. China plans to open at least one new refinery in 2010. Last year, China’s gasoline production gained 13 percent to 71.9 million tons as the country overtook the U.S. as the world’s largest vehicle market, China Mainland Marketing Research Co., which compiles data for the government, said on Jan. 21. To contact the reporter on this story: Ann Koh in Singapore at akoh15@bloomberg.net .

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Asian Currencies Gain, Bond Risk Drops After Fed Pledges to Keep Rates Low

April 28, 2010

By Clyde Russell and Wes Goodman April 29 (Bloomberg) — Asian currencies and metals gained and the cost to insure against bond losses declined as the Federal Reserve pledged to keep U.S. interest rates low. the yen advanced as concern Europe’s deficit crisis is widening damped demand for higher-yielding currencies. South Korea’s won rose 0.3 percent to 1,115.20 per dollar and the Malaysian ringgit advanced 0.5 percent. About 15 stocks rose fell for every 14 that fell on the MSCI Asia Pacific excluding Japan Index , which was little changed at 423.73 at 2 p.m. Hong Kong time. Standard & Poor’s 500 Index futures were 0.2 percent lower. Copper advanced 0.9 percent. The International Monetary Fund said in a report today that Asia’s economy will expand 7.1 percent this year and next on demand for manufactured goods and commodities. Fed policy makers restated their intention to keep interest rates near zero for an extended period, and European leaders met to stop Greece’s debt crisis from infecting the rest of the region. “We expect China and the other countries in emerging Asia to continue to outpace growth in the overall global economy,” fund managers including Tomoya Masanao at Pacific Investment Management Co. wrote in a report. Pimco, which runs the largest mutual fund , recommended the currencies of China, South Korea and Singapore. Japan’s currency rose against 12 of its 16 major counterparts after a credit downgrade of Spain yesterday prompted Germany to call for faster efforts to rescue Greece, whose rating was reduced to junk this week. New Zealand’s dollar fell as central bank Governor Alan Bollard indicated he may raise interest rates at a slower pace than in previous cycles. Kiwi Slumps The yen traded at 93.96 per dollar in London from 94.03 in New York yesterday. It reached 94.36 on April 26, the lowest level since April 6. Japan’s currency was at 124.37 against the euro from 124.32. The dollar fetched $1.3236 per euro from $1.3221, and climbed to $1.5166 versus the pound from $1.5209. New Zealand’s dollar weakened the most of the major currencies, sliding 0.5 percent to 71.71 U.S. cents and losing 0.6 percent to 67.37 yen. “Lingering fears of a further deterioration in the European sovereign debt crisis may weigh on risk sentiment,” said Mike Jones , a currency strategist at Bank of New Zealand Ltd. in Wellington. “Against this backdrop, ‘safe-haven’ currencies such as the dollar and the yen may extend their recent gains.” The won strengthened after a Bank of Korea survey showed manufacturers are the most upbeat they’ve been in seven years. The central bank said an index measuring expectations for the month ahead climbed to 107, the highest level since 2002. Merkel Pledge The cost of protecting Asian and Australian bonds from default declined after German Chancellor Angela Merkel pledged to step up efforts to overcome the Greek fiscal crisis, saying in Berlin yesterday that it’s “clear negotiations between the Greek government, the European Commission and the IMF need to be sped up.” The Markit iTraxx Australia index of credit-default swaps dropped 8 basis points to 90.5 basis points in Sydney, the risk benchmark’s biggest decline since Nov. 30, according to Westpac Banking Corp. The Markit iTraxx Asia index of 50 investment- grade borrowers outside Japan fell 6 basis points to 104.5, Royal Bank of Scotland Group Plc prices show. Japan’s markets are closed for a holiday. China’s Shanghai Composite Index gained 0.4 percent. South Korea’s Kospi index sank 0.3 percent and Australia’s S&P/ASX 200 Index dropped 0.8 percent. Suning Appliance Co. , China’s biggest electronics retailer by market value, climbed 2.6 percent to 11.27 yuan in Shenzhen, south China, after saying first-quarter profit increased 86 percent from a year earlier. ANZ Shares Drop China Merchants Bank Co. gained 1.7 percent to 14.05 yuan in Shanghai after first-quarter profit rose 40 percent. Australia & New Zealand Banking Group Ltd. sank 2.6 percent to A$24.21 in Sydney as its chief executive officer voiced concern over Europe’s debt. Separately, ANZ Bank said fiscal first-half profit jumped 36 percent as lending income grew and charges for bad loans fell. Smith confirmed ANZ is considering buying a 51 percent stake in Korea Exchange Bank. “Concern surrounding European sovereign debt is limiting gains,” said Tim Schroeders , who helps manage about $1.1 billion at Pengana Capital Ltd. in Melbourne. “Investors are grappling with the sustainability of improved earnings and the impact on long-term stock valuations.” Copper for three-month delivery in London traded 0.9 percent higher at $7,465 a ton on the Fed’s rate pledge. The futures climbed for the first time in three days. Jobs Improving “The labor market is beginning to improve,” the Federal Open Market Committee said in a statement yesterday in Washington, after last month saying it was “stabilizing.” Officials also said growth in household spending has “picked up recently.” “Brighter economic growth prospects and widening interest rate differentials with advanced economies are likely to attract more capital” to Asia, the IMF said in its report. “Policy makers will need to be attentive to safeguarding the macro economy and financial system against the build-up of imbalances in local asset and housing markets .” Corn gained 0.5 percent to $3.65 a bushel, rising for a second day, after China bought more than 100,000 metric tons from U.S. exporters for the first time since 2001. Crude oil traded above $83 a barrel in New York after gaining 1 percent yesterday after a government report showed U.S. refineries operating at the highest level in almost two years, bolstering optimism fuel demand will recover in the world’s largest user. To contact the reporters for this story: Clyde Russell in Beijing at crussell7@bloomberg.net ; Wes Goodman in Singapore at wgoodman@bloomberg.net .

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Euro Sales Accelerate as UBS Sees $1.20, Morgan Stanley Ponders `Breakup’

April 28, 2010

By Bo Nielsen and Liz Capo McCormick

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Oracle Expands Financial Services Management Team

April 28, 2010

Industry Veteran Frank Brienzi Joins Oracle’s Financial Services Global Business Unit

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Merkel Vows Faster Greek Aid as Spain Shows Contagion

April 28, 2010

By Andrew Davis and Emma Ross-Thomas April 28 (Bloomberg) — German Chancellor Angela Merkel and the International Monetary Fund pledged to step up efforts to overcome the Greek fiscal crisis as Standard & Poor’s downgraded Spain and investors sold bonds in Europe’s most indebted nations. “It’s completely clear that the negotiations between the Greek government, the European Commission and the IMF need to be sped up now,” Merkel said in Berlin today. Flanked by IMF Managing Director Dominique Strauss-Kahn , she said the “stability of the euro zone” was at stake if a 45 billion-euro ($59 billion) loan package for Greece can’t be delivered fast. A failure by policy makers to match such talk with action has fanned concern that the crisis will spread beyond Greece. Merkel has delayed German approval of loans in the face of voters’ opposition and S&P today cut Spain’s credit rating, a day after it dropped Greece to junk status and downgraded Portugal. The euro fell to the lowest in a year. “The hesitant and haphazard reaction of euro-zone policymakers to Greece’s predicament underscores the dangers of contagion,” said Marco Annunziata , chief economist at UniCredit Group in London. “The euro-zone has taken over six months to react and is allowing uncertainty to persist. This does not bode well for their ability to react quickly should a second flashpoint burst.” Need for Action Speaking in Berlin, European Central Bank President Jean- Claude Trichet said the stability of the “euro zone is impacted” by the delays in delivering the Greek aid, “underscoring the need for action.” Strauss-Kahn told reporters that “every day that is lost is a day where a situation is getting worse and worse.” European stocks and bonds rallied earlier after a German lawmaker stoked speculation that Greece would get as much as 120 billion euros from the EU and the IMF, only for the Spanish downgrade to dash that optimism. The euro dropped 0.2 percent to $1.3143 and Spain’s IBEX 35 Index plunged 3 percent to 10,167 points, the lowest in two months. The yields on Spanish, Greek, Portuguese and Italian 10- year bonds rose. Spain had its credit rating cut one step by Standard & Poor’s to AA, putting it on a par with Slovenia. S&P said in a statement that the outlook on Spain is negative, reflecting the chance of a possible further downgrade if the “ budgetary position underperforms to a greater extent than we currently anticipate.” Spain was last cut by S&P in January 2009. Sovereign World “If you are in a situation where every single country in the peripheries is downgraded, and this is allowed to continue, then obviously the risk is that the contagion will carry on spreading,” said David Owen , chief European Financial Economist at Jefferies International Ltd. The premium on Greek bonds surpassed 8 percentage points at one point today. The extra yield that investors demand to hold Portuguese 10-year bonds over bunds rose 59 basis points to 277 points yesterday, the most since 1997, before slipping 1 point today. The spread on Spanish debt increased to the most in more than a year yesterday before dropping 2 basis points today. The German delay on approving Greek aid exacerbated the crisis this week. While Green Party lawmaker Juergen Trittin quoted Strauss-Kahn as telling German deputies it may be as much as 120 billion euros, the IMF chief later declined to publicly say how much aid Greece will require. Germany may make a final aid decision on May 7 when the upper house of parliament could approve its share of the package, German Finance Minister Wolfgang Schaeuble said at the Berlin press conference. Aid Package Contagion from the Greek crisis is “threatening the stability of the financial system,” Organization for Economic Cooperation and Development Secretary General Angel Gurria said in an interview with Bloomberg Television in Berlin today. “This is like Ebola. When you realize you have it you have to cut your leg off in order to survive.” As Greece waits for its euro-region partners to disburse funds, the European Union hasn’t announced concrete plans to help other nations should aid be needed. Negotiations on the conditions to be attached to Greece’s aid package continued today in Athens and Trichet said he expected them to be concluded by the weekend. The crisis has highlighted the absence of a common fiscal policy to cement Europe’s monetary union, frustrating Trichet’s efforts to promote a “common destiny” for its 16 members. Greece’s budget deficit amounted to 13.6 percent of gross domestic product last year, the second-highest in the euro region after Ireland and four times Germany’s shortfall. Ireland’s shortfall was 14.3 percent and Spain’s 11.2 percent. German Opposition Aid to Greece faces opposition in Germany, where state elections are due in North Rhine-Westphalia on May 9. Almost 60 percent of Germans don’t want to help Greece, Die Welt newspaper reported, citing a survey of 1,009 people. International concern is also growing. The Greek situation is “of great concern” to President Barack Obama , White House spokesman Bill Burton said today. Canadian Finance Minister Jim Flaherty told reporters in Ottawa that the crisis is a “significant concern” and that support needs to be provided “sooner rather than later.” To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

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Greece Turning Viral Sparks Search for EU Solutions

April 28, 2010

By Simon Kennedy April 29 (Bloomberg) — European policy makers may need to stump up as much as 600 billion euros ($794 billion) in aid or buy government bonds if they are to stamp out the region’s spreading fiscal crisis, said economists at JPMorgan Chase & Co. and Royal Bank of Scotland Group Plc. With Greece’s budget turmoil infecting markets from Rome to Madrid, economists are urging German Chancellor Angela Merkel , European Central Bank President Jean-Claude Trichet and other officials to come up with unprecedented measures. Other steps could see governments guaranteeing bonds and the ECB abandoning collateral rules or reviving unlimited lending to banks, the economists said. Bonds and stocks plunged across Europe in the past week as Merkel’s government delayed approving a rescue plan for Greece and Standard & Poor’s downgraded Greece, Portugal and Spain. As OECD head Angel Gurria likens the crisis to the Ebola virus, Europe may need to come up with a plan equivalent to the $700 billion Troubled Asset Relief Program deployed by the U.S. after the collapse of Lehman Brothers Holdings Inc. “It is perhaps time to think of policy options of the last resort in the current sovereign crisis,” said David Mackie , chief European economist at JPMorgan in London. “It may now be time for the euro area to do something much more dramatic in order to prevent the stress from creating another broad-based financial crisis which pushes the region back into recession.” Virus Spread The extra yield that investors demand to hold Portuguese 10-year bonds this week reached the most since 1997 and the spread on Spanish debt increased to the most in a year. The gap on the bonds of Italy, the euro region’s third-largest economy, reached the highest since July. The premium on Greek bonds surpassed 8 percentage points yesterday. “This is like Ebola,” Organization for Economic Cooperation and Development Secretary General Gurria told Bloomberg Television yesterday. “It’s threatening the stability of the financial system.” The World Health Organization calls Ebola “one of the most virulent viral diseases known to humankind.” The first stage of an enhanced rescue would be for the euro area and International Monetary Fund to boost the size of the Greek lifeline package from the 45 billion euros initially discussed for the first year, said Erik Nielsen , chief European economist at Goldman Sachs Group Inc. Speed Talks between the European Union, the IMF and the Greek government are likely focused on assistance in the first year of between 55 billion euros and 75 billion euros with an announcement by early next week, Nielsen said April 27. That would ensure Greece doesn’t have to access the market for the next year or so, he said. IMF Managing Director Dominique Strauss-Kahn told German lawmakers yesterday that Greece may need a total of as much 120 billion euros, Green Party lawmaker Juergen Trittin said. Trichet emphasized the importance of quickly handing out funds if talks in Athens by Greek, EU and IMF official conclude this weekend. “The rapidity of the decision is absolutely essential,” he told reporters. Merkel said aid talks “need to be speeded up now.” Within three hours of the officials speaking in Berlin, S&P announced it had cut Spain’s credit rating to AA, putting it on par with Slovenia. The previous day, S&P reduced Greece’s rating to junk and pared Portugal’s by two steps to A- from A+. Greek Junk A Greek agreement may not be enough to end a crisis that’s ricocheting through all euro-region markets and governments may have to come up with a blanket plan for the bloc as a whole, said Mackie. He calculates that in a worst-case contagion scenario, supporting Spain, Portugal and Ireland and Greece may require aid worth 8 percent of the gross domestic product of the rest of the region. That’s equivalent to about 600 billion euros. “This is a big number, but the region has the fiscal capacity to backstop both banks and these countries,” said Mackie. Governments also could guarantee each other’s debt for a limited period such as three years, an “attractive form of support because no money is needed up front,” he said. The ECB may also have a role to play even if the crisis has its roots in fiscal policy. With Greek debt now rated as junk by S&P, the Frankfurt-based central bank may need to dilute its collateral rules again so as it can keep accepting the country’s bonds when making loans, said economists led by Juergen Michels at Citigroup Inc. ‘Nuclear Option’ Under current rules, Greek bonds will be ineligible at money-market operations if Fitch Ratings and Moody’s Investors Service cut them to junk as well. “The collateral rules may have to be changed soon again in order to maintain the eligibility of Greek bonds ,” Michels’ team said in a note to clients yesterday. The central bank could eventually start accepting all government debt regardless of its rating and revive last year’s policy of lending unlimited amounts for periods up to a year so as to support the region’s banks, said Jacques Cailloux , chief European economist at Royal Bank of Scotland Group Plc. What Cailloux calls the “nuclear option” of the ECB purchasing government bonds is also attracting attention among economists. While the ECB is prohibited from buying assets directly from authorities, it can do so on the secondary market. “We need 300 billion euros of purchases and then the problem goes away overnight,” said James Nixon , co-chief European economist at Societe Generale SA. ‘Extremely Unrealistic’ Obstacles to a sweeping bailout package abound. The EU’s structure means no one elected politician is responsible for ensuring Greece’s survival and Trichet, the only major official solely responsible for the euro, has no authority to disburse taxpayers’ funds. In Germany, Merkel has delayed approving the release of funds for Greece in the face of voter opposition and an election in North Rhine-Westphalia in May 9. German politicians and central bankers may also oppose government bond purchases by the ECB as that would run counter to the country’s tradition of fiscal conservatism since World War II. That option is “extremely unrealistic,” said Marco Annunziata , chief economist at UniCredit Group in London. It “would be seen, correctly, as direct monetary financing of excessive fiscal deficits. German opposition to such a move would be even stronger than to fiscal bailout operations.” ‘Growing Risk’ There is even a “growing risk that the euro-zone breaks up” as indebted nations are forced to retrench and political tensions mount, said Jennifer McKeown , an economist at Capital Economics Ltd. in London. European policy makers continue to play down speculation of contagion, with ECB Executive Board member Juergen Stark saying yesterday that Greece should be seen as a “unique case.” Leaders will wait until around May 10 before meeting again to discuss Greece, EU President Herman Van Rompuy said yesterday in Tokyo. He also said there was “no question” of Greece restructuring its debt. Some economists are optimistic that market turmoil will ultimately force politicians and central bankers to do what’s necessary to rescue the euro region. Eric Kraus , a strategist at Otkritie Financial Co. in Moscow, said he’s buying Greek bonds on the bet policy makers will eventually strike back. “Sooner or later those morons in Brussels and Berlin will realize that they are playing with fire, have already been burned, and will have to stop feeding the flames,” said Kraus, who works at a brokerage part-owned by Russia’s second-biggest bank. “Then we should see a very nice bounce.” To contact the reporters on this story: Simon Kennedy in Paris at skennedy4@bloomberg.net

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Thai Soldier’s Death in Clash With Protesters Raises Tensions in Bangkok

April 28, 2010

By Daniel Ten Kate and Supunnabul Suwannakij April 29 (Bloomberg) — Thai security forces stopped anti- government protesters from rallying north of the capital in clashes that killed one soldier, raising tensions in a seven- week standoff that has paralyzed Bangkok’s commercial center. One soldier was shot dead and another injured in the skirmish, police official Worapong Chiewprecha said in a televised briefing last night. Seventeen protesters were also wounded after authorities opened fire to prevent a convoy of about 5,000 people from traveling to a fresh-food market north of Bangkok, he said. The incident may add pressure on Prime Minister Abhisit Vejjajiva to scatter demonstrators who have disrupted businesses and irked residents by occupying a business district since April 3. The country’s worst political violence in 18 years has now killed 27 people this month. “The situation has been aggravated to the point where the government has to do something, either disperse them or negotiate,” said Somjai Phagaphasvivat , a lecturer at Bangkok’s Thammasat University. “The protesters are on the defensive and they know the cost of resistance is getting higher every day.” Thailand’s SET index fell 1.6 percent as overseas investors posted their biggest net selling in five months, making it Asia’s second-worst performer in April after the benchmark in Shanghai. Thai stocks have risen 2 percent for the year compared with a 4.1 percent gain for the MSCI Asia Pacific Index . Bag of Grenades Security forces arrested 14 protesters and found a bag with 62 M-79 grenades left by another demonstrator who escaped, Anon Jarayapan, an air force commander, said in a televised broadcast. The clash showed the government’s aim “to control any law-breaking,” spokesman Panitan Wattanayagorn told reporters. A grenade attack last week on an elevated train line station next to the protest site left one person dead, and 25 died in an army crackdown on April 10. The government and protesters blame each other for the casualties. Soldiers carrying rifles were stationed yesterday on Silom and Sukhumvit roads, Bangkok business arteries that connect with the cordoned-off protest site. Water cannon trucks and riot police are also positioned in the area. Protest leader Nattawut Saikuar said fellow troops shot the soldier who died yesterday, citing reports from CNN and BBC. Three demonstrators were wounded with real bullets, he said. Live Rounds The army is investigating the cause of the soldier’s death, spokesman Sansern Kaewkamnerd told reporters. Troops used fake bullets and live rounds, he said. “Soldiers and policemen have flesh and blood,” he said. “When protesters use weapons against them, they have to protect themselves.” The protesters mostly back fugitive ex-leader Thaksin Shinawatra , who was ousted in a 2006 coup. They say Abhisit’s rule is illegitimate because his party finished second in the last election and took power in a parliamentary vote after a court disbanded the ruling pro-Thaksin party for election fraud. The demonstrators, concerned about a military offensive after yesterday’s clashes, poured gasoline over one of the barricades of bamboo sticks and tires erected around their protest site, an area roughly the size of New York’s Central Park. Protesters manning the makeshift walls aimed slingshots at people taking photographs. Abhisit has asserted the right to complete his term, which expires at the end of next year. He has called for political talks that include all parties and said the government will fight “terrorists” who hide among the demonstrators. Thaksin has seen parties linked to him win the past four elections on heavy support from rural northern areas. Abhisit’s Democrat party hasn’t won a nationwide vote since 1992. To contact the reporters on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net

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Senate to Start Financial-Rules Debate as Republicans Drop Stalling Tactic

April 28, 2010

By Alison Vekshin and James Rowley

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Self-Evaluations Seen as New Source of Concern After Goldman Sachs Hearing

April 28, 2010

By Katie Hoffmann April 28 (Bloomberg) — Wall Street employers, long concerned that their staff’s e-mails may be used against them, now have another thing to worry about: the self-evaluations employees fill out. At a 10-hour congressional hearing yesterday, senators pointed to Goldman Sachs Group Inc. employees’ self-evaluations, which included boasts about making “extraordinary profits” by betting against the subprime market, as proof the company misled investors into a mortgage-linked investment. The fact that self-evaluations were used against Goldman employees could keep companies from being open in their own review process, hampering feedback that makes evaluations productive, said Gary Hayes, co-founder of management consulting firm Hayes Brunswick & Partners in New York. “That’s fairly chilling,” Hayes said. “It would make many senior executives very cautious, if not guarded in what they say in evaluations. You’ll hinder the kind of dialogue that’s necessary.” Such evaluations are “a standard part of corporate America,” he said. Senators used e-mails and self-evaluations produced by Goldman, which is being sued by the U.S. Securities and Exchange Commission, to attack the firm. Goldman denies the charges. In his 2007 self-evaluation, Michael Swenson , a managing director in the structured- products group, said he earned the firm “extraordinary profits” after he recognized the subprime mortgage market was going to crumble and “aggressively capitalized” on betting against it. ‘Enormous Opportunity’ “It should not be a surprise to anyone that the 2007 year is the one I am most proud of to date,” Swenson wrote. “I can take credit for recognizing the enormous opportunity for the ABS synthetics business 2 years ago. It was clear that the market fundamentals in subprime and the highly levered nature of CDOs was going to have a very unhappy ending.” In his own self-review that year, Joshua Birnbaum , a former managing director in the same group, wrote, “I concluded that we should not only get flat, but get VERY short_Much of the plan began working by February as the market dropped 25 points and our very profitable year was under way.” Self-evaluations became popular after World War II, as corporations expanded, Hayes said. The more thorough “360” reviews — where employees are evaluated by themselves, their bosses, their peers and their subordinates — became more popular at Wall Street firms about 10 years ago, he said. Once a Year Companies need to do self-evaluations at least once a year to make sure employees and employers agree on performance and goals, said Robin Throckmorton, president of Strategic HR Inc., consulting firm in Cincinnati. Corporations could choose to do unwritten evaluations or to not keep them for official records, she said. “It may cause people to say, ‘‘Is this the kind of paper we want to keep on file?’’’ Throckmorton said. ‘‘The same with the employee — ‘Is this the kind of paper I want to have in my file should something happen?’’ Still, many companies probably want to use self-evaluations to foster communication between employee and employer, Hayes said. One purpose of self-evaluations is to document how employees perceive their own performance. ‘‘They would just narrowly report on their results against concrete goals and objectives, but you wouldn’t have any narrative about how they did or what they felt about it,’’ Hayes said. ‘‘The dialogue would be very limited.’’ To contact the reporter on this story: Katie Hoffmann in New York at khoffmann4@bloomberg.net

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Ford, GM Promote Car Loans in China as 90% of Drivers Prefer to Pay Cash

April 28, 2010

By Bloomberg News April 28 (Bloomberg) — Pi Wenhui would have bought a 249,800 yuan ($36,600) Mazda if she had gotten a loan. She couldn’t, so like 90 percent of Chinese drivers she paid cash — and bought a cheaper car. Carmakers including Ford Motor Co. , Nissan Motor Co., Beijing Automotive Industry Holding Co. and Guangzhou Automobile Group Co. are anticipating that will change as China’s government is set to introduce policies to encourage auto lending in the world’s largest car market. “We see a lot of potential in auto financing,” Joe Hinrichs , Ford’s president for the Asia-Pacific region, said in an interview at the Beijing Auto Show. Automakers estimate sales growth in China will slow to as little as 10 percent next year from as much as 20 percent this year and 46 percent in 2009. Enabling more of China’s 1.37 billion people to borrow for vehicles would have a “big stimulus impact” on sales, Xu Changming, research director at China’s State Information Center, said in Beijing on April 22. “For the next 5 to 10 years, auto financing will be the biggest thing for the industry and the most important booster,” said Yale Zhang , a Shanghai-based director at CSM Asia, an auto consulting company. U.S., India In contrast to China , 85 percent of car drivers in the U.S. take out loans and 65 percent of buyers in India borrow, according to the State Information Center, a government advisory body. The government may introduce policies to boost auto lending this year, including making it easier for car financing companies to raise capital by selling corporate bonds , the center’s Xu said. Guangzhou Auto, a partner of Honda Motor Co. and Nissan in China, plans to open an auto financing unit this quarter, General Manager Zeng Qinghong said. Beijing Auto will begin offering financing this year, President Wang Dazong said. “We’re counting on auto financing as a new way to generate growth,” Wang said in an interview in Beijing. “There is a lot of room to develop the business in China.” Zhejiang Geely Holding Group Co is also planning to start an auto credit business, Chairman Li Shufu said. Currently, auto financing companies in China mainly provide loans to dealers, 90 percent of which are independently owned, according to the China Automobile Dealers Association. GM, Toyota Ford, General Motors Co. and Toyota Motor Corp.’s local financing units provide loans to consumers as well as dealers, including those that are unable to borrow directly from banks. Chen Guangjun, general manager of the Beijing Zhong Ye Toyota dealership, said about 12 percent of his customers buy on credit. The outlet accepts applications that are ultimately handled by Toyota ’s financing unit. Honda doesn’t have a financing business in China, so dealers such as Beijing Fanlv Business & Trading Co. introduce buyers to a bank if they need loans, general manager Wen Hai said. In China, 80 percent of auto loans come from banks, while in other countries 80 percent are from auto financing companies, the State Information Center’s Xu said. “The number of people using loans will rise,” said Tao Ye, president of the company that owns Beijing Zhong Ye. “In particular, there are a lot of people who use financing to buy second cars.” The government is considering encouraging auto loans even as it targets a 22 percent reduction in overall new lending from a record $1.4 trillion last year. Earlier this month, the government announced curbs on loans for third-home purchases, increased down-payment requirements and higher mortgage rates as it stepped up efforts to prevent a bubble. Good Savers Persuading customers to take out loans may be challenging because the Chinese traditionally use cash for big-ticket purchases like cars, CSM’s Yale said. “The Chinese are very good savers,” said Robert Graziano , head of Ford’s China operations. “It will be a relatively slow process.” The cost of the credit approval process is often too high for small loans to be profitable for lenders. About 69 percent of car sales in China last year was for vehicles with engines no larger than 1.6 liters, which cost as little as 21,800 yuan. Boosting financing may also require making it easier for customers to get credit approval. Because reliable credit information on consumers is often lacking, some banks hire outside specialists to gather information about applicants, said Beijing Fanlv’s Wen. Sometimes the specialists go to the applicant’s house or workplace to gather and verify information. About half of applications are rejected, as many of them fail to provide enough information, said Zheng Xinhe, general manager of the Beijing Yinghua Lexus dealership. Once accepted, defaults are very rare, he said. ‘Totally Worn Out’ Pi, the would-be Mazda buyer, gave up trying to get credit for a Mazda6 car. To get the loan, she needed to own real estate in Beijing, which she doesn’t. If Pi, 28, wanted to use her parents’ property as security for the loan, the bank would need to pay home visits to both her and her parents to interview them, she said. She disliked the idea as her parents aren’t used to buying things on credit, she said. Pi also decided against using a friend who owns property as a guarantor, because the car would then need to be registered in her friend’s name. She didn’t qualify for a credit card suggested by the Mazda dealer. “Applying for automobile financing is way too complicated,” said Pi, who wound up paying cash for a Kia Motors Corp. Sportage sport-utility vehicle, which cost her 203,000 yuan including taxes. “I was totally worn out by the difficulties of getting a loan.” — Tian Ying , Makiko Kitamura and Stephanie Wong in Beijing. Editors: Terje Langeland , Kae Inoue To contact Bloomberg News staff for this story: Tian Ying in Beijing at +86-10-6649-7571 or ytian@bloomberg.net

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Goldman Crossed Ethical Lines in Selling CDOs It Bet Against, Levin Says

April 28, 2010

By Gregory Mott and Peter Cook April 28 (Bloomberg) — Goldman Sachs Group Inc. crossed ethical lines in selling collateralized debt obligations to clients while standing to gain from their losses, said Senator Carl Levin, the Michigan Democrat who leads the Senate’s Permanent Subcommitte on Investigations. Levin, who questioned Goldman Sachs executives during a hearing in Washington yesterday, said the regulatory reform bill being weighed in the Senate will address conflicts where companies have undisclosed interest in betting against clients. He made the comments today in a Bloomberg Television interview. To contact the reporter on this story: Gregory Mott in Washington at gmott1@bloomberg.net

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BlackRock Joins Blackstone in Loan Frenzy as Libor Rises: Credit Markets

April 28, 2010

By Kristen Haunss April 29 (Bloomberg) — BlackRock Inc., the world’s largest asset manager, and Blackstone Group LP’s GSO Capital Partners LP are forming mutual funds to invest in loans as the London interbank offered rate rises to the highest level since August. The firms have joined Goldman Sachs Group Inc. in announcing funds investing in leveraged loans pegged to short- term interest rates. Investors poured more than $2.5 billion into bank loan mutual-funds in March and the first three weeks of April, more than triple the amount for March and April last year, according to Lipper FMI data. The Federal Reserve will likely raise its target rate for overnight loans between banks to 0.75 percent by the end of this year, up from 0.25 percent, according to the median estimate of 67 analysts surveyed by Bloomberg. The S&P/LSTA U.S. Leveraged Loan 100 Index has returned 5.68 percent this year, building on last year’s record 52 percent as lending continues to open up. New money “will provide financing, which will help” mergers and acquisitions, said Tom Ewald , a New York-based money manager who runs the Invesco Floating Rate Fund at Invesco Ltd., which has about $11 billion of leveraged-loans under management. “That is a positive for all markets and the economy.” Leveraged loans total $91.6 billion this year, more than four times the amount underwritten in the same period of 2009, according to data compiled by Bloomberg. The interest charge on leveraged loans is typically tied to Libor and as rates rise, the overall coupon increases. Three-month Libor reached 0.338 percent yesterday, the highest since Aug. 28, and up from a low of 0.249 percent on Feb. 4, according to Bloomberg data. ‘Natural Hedges’ “This is one asset class that should perform well when short-term rates start to rise,” said Jeff Bakalar , co-head of the senior loan group at ING Investment Management. “It is one of a few natural hedges available to retail investors.” Elsewhere in credit markets, the extra yield investors demand to own company debt instead of Treasuries rose 2 basis points to 149 basis points, or 1.49 percentage points, down from 176 at the end of 2009, Bank of America Merrill Lynch’s Global Broad Market Corporate Index shows. Average yields rose 5.4 basis points to 3.95 percent. Ratings downgrades in Spain, Greece and Portugal led companies to pull European bond sales. Casino Guichard-Perrachon SA , the biggest supermarket owner in Paris, withdrew initial yield guidance for its sale of 8 1/2- year euro-denominated notes for about a week, while U.K. rail and bus operator National Express Group Plc postponed its debut offering indefinitely, according to people familiar with the transactions. Sovereign Crisis “Concerns around Greece have spilled over into credit and brought issuance to next to nothing,” said Jeroen van den Broek , head of developed markets credit strategy at ING Groep NV in Amsterdam. Greece’s credit rating was slashed three steps to BB+ by Standard & Poor’s April 27, the first time a euro member has lost its investment-grade ranking. The agency downgraded Portugal two notches to A-, four steps above junk, the same day and yesterday cut Spain one level to AA, the third-highest rating. The cost of insuring the three countries’ debt fell from the record levels reached two days ago, as German Chancellor Angela Merkel and the International Monetary Fund pledged to step up efforts to overcome Greece’s fiscal crisis. Bondholder Protection Credit-default swaps on Greece dropped 74 basis points to 750, while contracts on Portugal declined 62 basis points to 321, according to CMA DataVision prices. Swaps on Spain fell 20 basis points to 189. In London, the Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 2 basis points to 98, according to Markit Group Ltd. The index typically rises as investor confidence deteriorates and falls as it improves. In the U.S., the Markit CDX North America Investment Grade Index, declined 4.6 basis points to a mid-price of 94 basis points. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan fell 6 basis points to 104.5, Royal Bank of Scotland Group Plc prices show. Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt. Dubai International Dubai International Capital LLC got backing for a $685 million debt refinancing, boosting efforts to keep its Almatis alumina-making unit. JPMorgan Chase & Co. and Bank of America Merrill Lynch are preparing final term sheets and underwritten commitments for $350 million of senior secured notes and a $50 million revolving credit, Dubai International said in a letter yesterday to the company’s senior lenders. Blackstone’s GSO has agreed to arrange $185 million of senior subordinated securities and plans to manage the sale of another $100 million of senior secured debt for Frankfurt-based Almatis, the company said. Dubai International is challenging a plan by Oaktree Capital Management LLC, the biggest of Almatis’s senior lenders, to seize control of the German unit, which violated loan terms last year. The extra yield investors demand to own developing nations’ sovereign bonds over U.S. Treasuries declined 0.07 percentage point to 2.56 percentage points, according to JPMorgan’s EMBI+ Index. Argentine bonds climbed a day after regulators in Italy, home to about a third of the $20 billion in defaulted bonds held out of a 2005 settlement, approved the South American nation’s plans to restructure the debt. Jumbo-Mortgage Bonds Wall Street banks began taking bets on pools of jumbo- mortgage bonds as trading started yesterday on four new credit- default-swaps indexes. The PrimeX jumbo-mortgage bond indexes, administered by Markit, are similar to the ABX indexes tied to subprime debt that began in early 2006. Two of the PrimeX indexes are tied to fixed-rate loans and two track adjustable-rate mortgages. GSO is marketing a floating-rate fund, the firm’s first product for retail investors, in which 80 percent of its managed assets are senior loans rated below investment grade, according a prospectus filed with the Securities and Exchange Commission on March 8. Heather Lucania , a Blackstone spokeswoman, declined to comment. Investors are moving into loan retail funds partly out of caution that interest rates will rise, said Scott Page , money manager at Eaton Vance Corp. and group head overseeing $18 billion of loans. “People are scratching their heads and doing some ‘What ifs’ about rising interest rates,” he said. ‘Normal Liquidity’ BlackRock’s fund will most likely invest 80 percent of its assets in a mix of senior secured floating-rate loans and debt, second lien or other subordinated or unsecured floating-rate loans and fixed-rate loans, or debt in which the fund has entered into a derivatives contract to convert them into floating-rate payments, according to an April 14 regulatory filing. Goldman Sachs Asset Management LP has also filed a prospectus to be the investment adviser on a new loan mutual fund. Lauren Trengrove , a BlackRock spokeswoman, and Melissa Daly , of Goldman Sachs, declined to comment. New funds will “bring normal liquidity back to the market,” said ING’s Bakalar, whose group has more than $10 billion of loans under management, with about 25 percent of that in mutual funds. That will create demand for new loans from issuers that are strategic or private-equity driven, he said. “We’ll likely see more LBO and more M&A activity take place as a result.” To contact the reporter on this story: Kristen Haunss in New York at khaunss@bloomberg.net

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Most Asian Stocks Rise as China Earnings Boost Recovery Hopes; ANZ Falls

April 28, 2010

By Shani Raja April 29 (Bloomberg) — Most Asian stocks rose, led by consumer-related companies, as reports of increased earnings in China overshadowed a downgrade of Spain’s debt rating. Suning Appliance Co. climbed 3.1 percent in Shenzhen, south China, after saying first-quarter profit increased 86 percent from a year earlier. China Merchants Bank Co. gained 2.6 percent in Shanghai after first-quarter profit rose 40 percent. Australia & New Zealand Banking Group Ltd. sank 1.4 percent in Sydney as its chief executive officer voiced concern over Europe’s debt problems. Twelve stocks advanced for every 11 that fell on the MSCI Asia Pacific excluding Japan Index , which lost 0.2 percent to 423.34 as of 10:09 a.m. in Hong Kong. Japanese markets are closed today for a national holiday. China’s Shanghai Composite Index gained 0.6 percent. South Korea’s Kospi index sank 0.4 percent and Australia’s S&P/ASX 200 Index dropped 0.8 percent. “Concern surrounding European sovereign debt is limiting gains,” said Tim Schroeders , who helps manage about $1.1 billion at Pengana Capital Ltd. in Melbourne. “Investors are grappling with the sustainability of improved earnings and the impact on long-term stock valuations.” New Zealand’s NZX 50 Index was little changed. Central bank Governor Alan Bollard said he may raise the benchmark interest rate from a record low as early as June as improving global demand buoys exports and underpins an economic recovery. Futures on the Standard & Poor’s 500 Index lost 0.1 percent. The index advanced 0.7 percent yesterday, rebounding from the biggest drop since February, after profits at Dow Chemical Co., the largest U.S. chemical maker, and insulation producer Owens Corning Inc. topped average analyst forecasts. Banks led the S&P 500’s advance after the Federal Reserve said it will keep its benchmark interest rate near zero for an extended period, even as the labor market begins to improve. The gauge earlier fell as much as 0.2 percent after S&P cut Spain to AA from AA+, which followed downgrades the previous day on Greece and Portugal. “The Fed pledge to maintain low interest rates along with better than expected U.S. earnings releases should be supportive of improved investor sentiment,” said Schroeders. To contact the reporter for this story: Shani Raja in Sydney at sraja4@bloomberg.net

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CoStar Power Broker Awards Recognize Top Dealmakers in Commercial Real Estate

April 28, 2010

Successfully closing any commercial property transaction was enormously challenging in 2009, given the extreme economic conditions investors, tenants and property owners faced last year. The brokers who excelled under those conditions and achieved…

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1Q Bank Results: Potential for CRE Armageddon Fading

April 28, 2010

Although first quarter results of U.S. bank holding companies across the country are unmistakably downbeat about the short-term outlook for commercial real estate in general, and their portfolios in particular, they also hint at a growing sense that the…

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Market Bottom Proves Elusive for U.S. Warehouse Market

April 28, 2010

Although demand for U.S. warehouse and flex space continued to decline in the first quarter of this year, the declines are flattening and analysts for CoStar Group and other leading commercial real estate players agree that the national industrial leasing…

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Bids for California’s State Office Portfolio Top Estimates

April 28, 2010

The California Department of General Services (DGS) said it received more than 300 offers to purchase and lease back 11 state office properties. Multiple bids were received for the entire portfolio that totaled in excess of $2 billion. The bids were…

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Sears Looking To Profit from Extensive Real Estate Holdings

April 28, 2010

Sears Holdings Corp., the nation’s fourth largest broadline retailer with 3,900 full-line and specialty retail stores in the United States and Canada, has launched a web site to leverage its extensive real estate holdings, as well as to dispose of its…

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7 Chicago-Area Banks Closed, Redistributing $5.83 Bil. in Assets

April 28, 2010

Illinois and federal banking regulators shuffled the makeup of the Chicago banking community this past week, closing seven banks and dividing up $5.83 billion in assets among five other Chicago-area bank holding companies. The seven closed banks reported…

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Lloyd Chapman: NASA Sued for Refusing to Release Contracting Data

April 28, 2010

On Wednesday, April 28, the American Small Business League (ASBL) filed suit against NASA in Federal District Court, Northern District of California. The case was filed under the Freedom of Information Act (FOIA) after NASA refused to release subcontracting reports for contracts awarded to General Dynamics C4 Systems Incorporated. ( http://www.asbl.com/documents/complaint_GD_NASA.pdf ) The ASBL requested information from NASA on a contract awarded to General Dynamics after discovering that a contracting officer reported the award as a small business contract. Wednesday’s suit is the second lawsuit filed by the ASBL against NASA. In February of 2007, the ASBL prevailed in its first suit against NASA, forcing the agency to provide detailed information proving the agency falsified its small business contracting statistics by including contracts to a variety of Fortune 500 firms and other large businesses. Since 2003, over a dozen federal investigations have found billions of dollars a month in federal contracts earmarked for small businesses have been diverted to Fortune 500 firms and some of the largest companies in the world. The large recipients of federal small business contracts include: Lockheed Martin, Boeing, Raytheon, Northrop Grumman, Dell Computer, British Aerospace (BAE), Rolls-Royce, French giant Thales Communications, Ssangyong Corporation headquartered in South Korea, and the Italian firm Finmeccanica SpA. ( http://www.asbl.com/documents/20090825TopSmallBusinessContractors2008.pdf ) The ASBL plans to file a series of FOIA requests to NASA as a means of uncovering more federal small business contracts that were diverted to Fortune 500 firms. Specifically, the ASBL intends to uncover contracts awarded to large corporations that were coded as small business contracts by contracting officers. Section 16(d) of the Small Business Act states, “whoever misrepresents the status of any concern or person as a ‘small business concern’…to obtain for oneself or another,” any prime contract or subcontract with the government shall be subject to penalties of $500,000, 10 years in prison and/or debarment from federal contracting programs. ( http://www.sba.gov/regulations/sbaact/sbaact.html ) Attorneys for the ASBL believe federal contracting officials, and possibly even employees of prime contractors, could be held liable for penalties prescribed under section 16(d) of the Small Business Act for fraudulently misrepresenting large firms as small businesses. This issue has gone on unabated for over decade. I don’t think these abuses are going to stop until people start going to prison. -###- Please click here to watch a clip about the ASBL’s suit: http://www.youtube.com/watch?v=Yx-SyChw06I

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