May 2010

China’s Manufacturing Expanded at Slower Pace in May as Growth Moderates

by on May 31, 2010

By Bloomberg News June 1 (Bloomberg) — Chinese manufacturing expanded at a slower pace in May, adding to signs that growth may moderate in the world’s third-biggest economy. The Purchasing Managers’ Index fell to 53.9 from 55.7 in April, seasonally adjusted, the Federation of Logistics and Purchasing said in an e-mailed statement today. That was less than the median 54.5 estimate in a Bloomberg News survey of 18 economists. Readings above 50 indicate an expansion. A government crackdown on property speculation is cooling the economy by damping sales and construction, while Europe’s sovereign-debt crisis could exacerbate a slowdown by cutting export demand. China may delay raising benchmark interest rates or letting the yuan appreciate against the dollar even after the economy grew 11.9 percent in the first quarter. The economic “slowdown may be exacerbated by euro-area weakness and recent measures from Beijing to rein in the property market,” said Brian Jackson , a Hong Kong-based strategist at Royal Bank of Canada. “The fall in the headline PMI shown in the May surveys might be an early sign of a slowdown, but China still faces overheating risks in many parts of the economy.” Asian stocks fell, extending the MSCI Asia Pacific Index’s biggest monthly drop since October 2008. China’s Shanghai Composite Index lost 0.16 percent to 2587.924 at 10:49 a.m. local time. Premier Wen Jiabao said yesterday in Tokyo that the world needs to guard against the possibility of a second economic slump. China will continue its proactive fiscal policy to consolidate its recovery, Finance Minister Xie Xuren said May 28. Growth Peak Comparable indicators in manufacturing around the world in May are forecast to indicate global output growth has peaked. Australia manufacturing growth slowed in May and economists say reports due today in the U.S. will show manufacturing cooled while activity in Europe was unchanged. The central bank has kept the key one-year lending rate at 5.31 percent and the deposit rate at 2.25 percent since December 2008 after cuts to counter the financial crisis. The yuan is trading at about 6.83 per dollar under a policy in place since July 2008 to aid exporters. The Shanghai Composite Index fell 9.7 percent in May, the biggest monthly decline since August, on concern the European debt crisis is worsening and the government will step up property measures. The benchmark has declined more than 20 percent this year. In contrast with investors’ pessimism, Capital Economics Ltd. said this week that the Chinese economy is “gliding to a soft landing.” Relatively Fast “The economy may continue to maintain relatively fast growth, but the growth rate may slow,” Zhang Liqun , a researcher at the State Council’s Development and Research Center, said in the statement from the logistics federation. “The May PMI may be an indication that the economic rebound is stabilizing.” An output index fell to 58.2 from 59.1 in April, today’s report showed. The new-order index slid to 54.8 from 59.3 and an export-order index dropped to 53.8 from 54.5. The input-price index decreased to 58.9 from 72.6. While year-on-year economic indicators for May are likely to show slower growth, “all this is telling us is that it is now a year since China’s stimulus started to be felt,” said Mark Williams , a London-based economist for the firm. Economic momentum “remains strong.” Williams also said that the official PMI normally falls in May, “a sign that the seasonal adjustment applied is not particularly effective.” Nomura Holdings Inc. and Bank of America-Merrill Lynch expressed similar views ahead of today’s data. Textiles, Automobiles The manufacturing index, released by the logistics federation and the Beijing-based National Bureau of Statistics, covers more than 730 companies in 20 industries, including energy, metallurgy, textiles, automobiles and electronics. A separate China manufacturing index, released by HSBC Holdings Plc and Markit Economics, fell to 52.7 in May, the lowest since June 2009. HSBC’s survey, covering more than 400 manufacturing companies, is weighted more toward smaller, privately owned business than the government’s PMI, according to the bank. “The overheating risk is likely to ease as tightening measures　filter through,” Qu Hongbin , chief China economist at HSBC, said in today’s release. “We see robust economic growth without double-dip risks not least because of massive existing infrastructure investment and resilient private consumption.” Trimming Stimulus Chinese policy makers are trimming stimulus this year after the $1.4 trillion lending binge that revived growth in 2009. Officials are targeting a 22 reduction in new loans and have sold bills and raised banks’ reserve requirements to suck money out of the financial system. Restraining inflation expectations and keeping housing affordable are two of the government’s key goals after urban property prices jumped a record 12.8 percent in April from a year earlier. Wuhan Iron & Steel Group , the nation’s third- biggest steelmaker, said May 26 that demand for steel is declining, partly because of curbs on property loans. — Sophie Leung , Li Yanping . Editors: Lily Nonomiya , Cherian Thomas To contact the reporter on this story: Sophie Leung in Hong Kong at sleung59@bloomberg.net Yanping Li in Beijing at yli16@bloomberg.net

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China’s Manufacturing Expanded at Slower Pace in May as Growth Moderates

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China’s Manufacturing Expanded at Slower Pace in May as Growth Moderates

by on May 31, 2010

By Bloomberg News June 1 (Bloomberg) — Chinese manufacturing expanded at a slower pace in May, adding to signs that growth may moderate in the world’s third-biggest economy. The Purchasing Managers’ Index fell to 53.9 from 55.7 in April, seasonally adjusted, the Federation of Logistics and Purchasing said in an e-mailed statement today. That was less than the median 54.5 estimate in a Bloomberg News survey of 18 economists. Readings above 50 indicate an expansion. A government crackdown on property speculation is cooling the economy by damping sales and construction, while Europe’s sovereign-debt crisis could exacerbate a slowdown by cutting export demand. China may delay raising benchmark interest rates or letting the yuan appreciate against the dollar even after the economy grew 11.9 percent in the first quarter. The economic “slowdown may be exacerbated by euro-area weakness and recent measures from Beijing to rein in the property market,” said Brian Jackson , a Hong Kong-based strategist at Royal Bank of Canada. “The fall in the headline PMI shown in the May surveys might be an early sign of a slowdown, but China still faces overheating risks in many parts of the economy.” Asian stocks fell, extending the MSCI Asia Pacific Index’s biggest monthly drop since October 2008. China’s Shanghai Composite Index lost 0.16 percent to 2587.924 at 10:49 a.m. local time. Premier Wen Jiabao said yesterday in Tokyo that the world needs to guard against the possibility of a second economic slump. China will continue its proactive fiscal policy to consolidate its recovery, Finance Minister Xie Xuren said May 28. Growth Peak Comparable indicators in manufacturing around the world in May are forecast to indicate global output growth has peaked. Australia manufacturing growth slowed in May and economists say reports due today in the U.S. will show manufacturing cooled while activity in Europe was unchanged. The central bank has kept the key one-year lending rate at 5.31 percent and the deposit rate at 2.25 percent since December 2008 after cuts to counter the financial crisis. The yuan is trading at about 6.83 per dollar under a policy in place since July 2008 to aid exporters. The Shanghai Composite Index fell 9.7 percent in May, the biggest monthly decline since August, on concern the European debt crisis is worsening and the government will step up property measures. The benchmark has declined more than 20 percent this year. In contrast with investors’ pessimism, Capital Economics Ltd. said this week that the Chinese economy is “gliding to a soft landing.” Relatively Fast “The economy may continue to maintain relatively fast growth, but the growth rate may slow,” Zhang Liqun , a researcher at the State Council’s Development and Research Center, said in the statement from the logistics federation. “The May PMI may be an indication that the economic rebound is stabilizing.” An output index fell to 58.2 from 59.1 in April, today’s report showed. The new-order index slid to 54.8 from 59.3 and an export-order index dropped to 53.8 from 54.5. The input-price index decreased to 58.9 from 72.6. While year-on-year economic indicators for May are likely to show slower growth, “all this is telling us is that it is now a year since China’s stimulus started to be felt,” said Mark Williams , a London-based economist for the firm. Economic momentum “remains strong.” Williams also said that the official PMI normally falls in May, “a sign that the seasonal adjustment applied is not particularly effective.” Nomura Holdings Inc. and Bank of America-Merrill Lynch expressed similar views ahead of today’s data. Textiles, Automobiles The manufacturing index, released by the logistics federation and the Beijing-based National Bureau of Statistics, covers more than 730 companies in 20 industries, including energy, metallurgy, textiles, automobiles and electronics. A separate China manufacturing index, released by HSBC Holdings Plc and Markit Economics, fell to 52.7 in May, the lowest since June 2009. HSBC’s survey, covering more than 400 manufacturing companies, is weighted more toward smaller, privately owned business than the government’s PMI, according to the bank. “The overheating risk is likely to ease as tightening measures　filter through,” Qu Hongbin , chief China economist at HSBC, said in today’s release. “We see robust economic growth without double-dip risks not least because of massive existing infrastructure investment and resilient private consumption.” Trimming Stimulus Chinese policy makers are trimming stimulus this year after the $1.4 trillion lending binge that revived growth in 2009. Officials are targeting a 22 reduction in new loans and have sold bills and raised banks’ reserve requirements to suck money out of the financial system. Restraining inflation expectations and keeping housing affordable are two of the government’s key goals after urban property prices jumped a record 12.8 percent in April from a year earlier. Wuhan Iron & Steel Group , the nation’s third- biggest steelmaker, said May 26 that demand for steel is declining, partly because of curbs on property loans. — Sophie Leung , Li Yanping . Editors: Lily Nonomiya , Cherian Thomas To contact the reporter on this story: Sophie Leung in Hong Kong at sleung59@bloomberg.net Yanping Li in Beijing at yli16@bloomberg.net

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China’s Manufacturing Expanded at Slower Pace in May as Growth Moderates

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Hatoyama to Consider Future Amid Pressure to Quit Over Japan Base Backlash

May 31, 2010

By Takashi Hirokawa and Sachiko Sakamaki June 1 (Bloomberg) — Prime Minister Yukio Hatoyama said he will consider his political future and do “what’s best for the people of Japan” after polls showed four in five voters want him to step down six weeks before mid-term elections. “This new administration will continue to take action in a way that’s appropriate,” Hatoyama said today at his office in Tokyo when asked whether he would step down. Japanese stocks fell partly on concerns of political instability. The prime minister’s popularity has plummeted since his Democratic Party of Japan ’s landslide August victory, with voters disenchanted over campaign finance scandals and his vacillating over where to move a U.S. military base. Transport Minister Seiji Maehara today said criticism of Hatoyama “was inevitable” and the election outlook “is tough.” “Hatoyama has totally screwed things up,” said Gerald Curtis , a professor of Japanese politics at Columbia University in New York. “Clearly, the party sees a disaster looming.” Japan’s Nikkei 225 Stock Average fell 0.7 percent to 9,700.91 at 1:27 p.m. in Tokyo. The yen traded at 91.02 per dollar from 91.27 late yesterday in New York, where it slipped as low as 91.62. Japan’s currency was also at 111.63 per euro, from 112.31 yesterday. Party’s Future Hatoyama, 63, will meet later with Ichiro Ozawa , the DPJ’s secretary-general and top campaign strategist, to discuss the party’s future before July elections for the Diet’s upper house. The DPJ-led coalition’s majority was cut when the Social Democratic Party left two days ago, having refused to endorse a deal with the U.S. to relocate a Marine base in Okinawa. Should Hatoyama step down before the elections, likely candidates to replace him include Finance Minister Naoto Kan , National Strategy Minister Yoshito Sengoku and Foreign Minister Katsuya Okada , Curtis said. Hatoyama’s term as party leader expires in September. Kan, who is also deputy premier, said today “there’s no change” in his desire for Hatoyama to stay on. Hatoyama unseated the Liberal Democratic Party , which governed almost without interruption for more than 50 years, beginning a new chapter in Japanese democracy. Buffeted by economic stagnation and surging welfare costs, the LDP’s last three prime ministers each served for only one year, a trend Hatoyama is in danger of continuing. Voter, Party Discontent Three polls released yesterday showed Hatoyama’s approval rating at or below 20 percent and six in 10 voters think he should quit. Sentiment for him to step down is growing within the party, especially among lawmakers up for re-election, DPJ legislator Yoshimitsu Takashima told reporters yesterday. “These voices are increasingly overwhelming,” he said. Half of the 242 upper-house seats are at stake in the July balloting. The DPJ and its other junior partner, the People’s New Party , have 122 legislators, and losing that majority could slow Hatoyama’s legislative goals of increasing social welfare spending while aiming to cut the world’s largest public debt . Hatoyama last night vowed to stay in his post after a meeting with Ozawa and Azuma Koshiishi, head of the Democrats’ upper house members. “I intend to work hard for the people of this country,” Hatoyama said yesterday. Asked if he would continue as premier, he replied: “Of course,” while adding that “I understand I’ve caused trouble” within the party. Okinawa Base The Social Democrats left the coalition after Hatoyama fired leader Mizuho Fukushima from the Cabinet for refusing to endorse last week’s accord with the U.S. to relocate the Futenma Marine Air Base within Okinawa. Hatoyama has apologized for breaking a campaign pledge to transfer the facility off of Okinawa in line with local sentiment. The controversy over Futenma and campaign finance scandals involving both Ozawa and Hatoyama have overshadowed reports showing the world’s second-largest economy is rebounding. Gross domestic product grew at the fastest pace in three quarters in January through March, and the Organization for Economic Cooperation and Development raised this year’s growth forecast for Japan last week to e percent from 1.8 percent. Hatoyama’s approval rating fell to 19 percent from 24 percent last month, according to a Yomiuri newspaper poll published yesterday. Taro Aso , Hatoyama’s predecessor, had an approval rating of around 14 percent just before his party lost in last year’s lower-house elections. To contact the reporters on this story: Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net ; Sachiko Sakamaki in Tokyo at Ssakamaki1@bloomberg.net

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Hatoyama to Consider Future Amid Pressure to Quit Over Japan Base Backlash

May 31, 2010

By Takashi Hirokawa and Sachiko Sakamaki June 1 (Bloomberg) — Prime Minister Yukio Hatoyama said he will consider his political future and do “what’s best for the people of Japan” after polls showed four in five voters want him to step down six weeks before mid-term elections. “This new administration will continue to take action in a way that’s appropriate,” Hatoyama said today at his office in Tokyo when asked whether he would step down. Japanese stocks fell partly on concerns of political instability. The prime minister’s popularity has plummeted since his Democratic Party of Japan ’s landslide August victory, with voters disenchanted over campaign finance scandals and his vacillating over where to move a U.S. military base. Transport Minister Seiji Maehara today said criticism of Hatoyama “was inevitable” and the election outlook “is tough.” “Hatoyama has totally screwed things up,” said Gerald Curtis , a professor of Japanese politics at Columbia University in New York. “Clearly, the party sees a disaster looming.” Japan’s Nikkei 225 Stock Average fell 0.7 percent to 9,700.91 at 1:27 p.m. in Tokyo. The yen traded at 91.02 per dollar from 91.27 late yesterday in New York, where it slipped as low as 91.62. Japan’s currency was also at 111.63 per euro, from 112.31 yesterday. Party’s Future Hatoyama, 63, will meet later with Ichiro Ozawa , the DPJ’s secretary-general and top campaign strategist, to discuss the party’s future before July elections for the Diet’s upper house. The DPJ-led coalition’s majority was cut when the Social Democratic Party left two days ago, having refused to endorse a deal with the U.S. to relocate a Marine base in Okinawa. Should Hatoyama step down before the elections, likely candidates to replace him include Finance Minister Naoto Kan , National Strategy Minister Yoshito Sengoku and Foreign Minister Katsuya Okada , Curtis said. Hatoyama’s term as party leader expires in September. Kan, who is also deputy premier, said today “there’s no change” in his desire for Hatoyama to stay on. Hatoyama unseated the Liberal Democratic Party , which governed almost without interruption for more than 50 years, beginning a new chapter in Japanese democracy. Buffeted by economic stagnation and surging welfare costs, the LDP’s last three prime ministers each served for only one year, a trend Hatoyama is in danger of continuing. Voter, Party Discontent Three polls released yesterday showed Hatoyama’s approval rating at or below 20 percent and six in 10 voters think he should quit. Sentiment for him to step down is growing within the party, especially among lawmakers up for re-election, DPJ legislator Yoshimitsu Takashima told reporters yesterday. “These voices are increasingly overwhelming,” he said. Half of the 242 upper-house seats are at stake in the July balloting. The DPJ and its other junior partner, the People’s New Party , have 122 legislators, and losing that majority could slow Hatoyama’s legislative goals of increasing social welfare spending while aiming to cut the world’s largest public debt . Hatoyama last night vowed to stay in his post after a meeting with Ozawa and Azuma Koshiishi, head of the Democrats’ upper house members. “I intend to work hard for the people of this country,” Hatoyama said yesterday. Asked if he would continue as premier, he replied: “Of course,” while adding that “I understand I’ve caused trouble” within the party. Okinawa Base The Social Democrats left the coalition after Hatoyama fired leader Mizuho Fukushima from the Cabinet for refusing to endorse last week’s accord with the U.S. to relocate the Futenma Marine Air Base within Okinawa. Hatoyama has apologized for breaking a campaign pledge to transfer the facility off of Okinawa in line with local sentiment. The controversy over Futenma and campaign finance scandals involving both Ozawa and Hatoyama have overshadowed reports showing the world’s second-largest economy is rebounding. Gross domestic product grew at the fastest pace in three quarters in January through March, and the Organization for Economic Cooperation and Development raised this year’s growth forecast for Japan last week to e percent from 1.8 percent. Hatoyama’s approval rating fell to 19 percent from 24 percent last month, according to a Yomiuri newspaper poll published yesterday. Taro Aso , Hatoyama’s predecessor, had an approval rating of around 14 percent just before his party lost in last year’s lower-house elections. To contact the reporters on this story: Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net ; Sachiko Sakamaki in Tokyo at Ssakamaki1@bloomberg.net

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Asian Stock Index Set to Drop a Further 14%, CLSA Says Technical Analysis

May 31, 2010

By Shiyin Chen June 1 (Bloomberg) — An index of Asian stocks outside of Japan may retreat at least 14 percent after forming a “double top” pattern, CLSA Asia-Pacific Markets said. A slump in the MSCI Asia excluding Japan Index below the support level of 435 last week triggered a so-called topping pattern that may send the gauge down to around 360 to 370, close to the 50 percent retracement level of the advance between 2008 and 2010, analysts Laurence Balanco and Tiara Fontanilla said in a report today. Still, the analysts have a target of about 390, given the “considerable support” offered by a “congestion zone” of around 395 to 405. That forecast represents a 14 percent decline for the MSCI Asia ex-Japan index, which fell 0.6 percent to 452.16 as of 10:20 a.m. in Singapore. The measure peaked at 508.88 on April 15, before tumbling as much as 16 percent to a low on May 25 amid concern that the worsening European sovereign-debt crisis will derail the global economic recovery. “Recent price action has strengthened the case for our shakeout roadmap for the regional benchmark,” the analysts wrote. The 395 to 405 zone “is our minimum downside target for this corrective phase,” they also said. The MSCI index’s retreat may unfold in three waves, with the slump between the April high and its May low marking the first leg, according to the report. The gauge may rebound to the 460 to 480 range before dropping to around 390, the analysts also wrote. Once the “double top” pattern is played out, the index may form at least one more wave up to set a new rally high, the analysts said. This may occur sometime between August and October, according to the report. To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net

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Asian Stock Index Set to Drop a Further 14%, CLSA Says Technical Analysis

May 31, 2010

By Shiyin Chen June 1 (Bloomberg) — An index of Asian stocks outside of Japan may retreat at least 14 percent after forming a “double top” pattern, CLSA Asia-Pacific Markets said. A slump in the MSCI Asia excluding Japan Index below the support level of 435 last week triggered a so-called topping pattern that may send the gauge down to around 360 to 370, close to the 50 percent retracement level of the advance between 2008 and 2010, analysts Laurence Balanco and Tiara Fontanilla said in a report today. Still, the analysts have a target of about 390, given the “considerable support” offered by a “congestion zone” of around 395 to 405. That forecast represents a 14 percent decline for the MSCI Asia ex-Japan index, which fell 0.6 percent to 452.16 as of 10:20 a.m. in Singapore. The measure peaked at 508.88 on April 15, before tumbling as much as 16 percent to a low on May 25 amid concern that the worsening European sovereign-debt crisis will derail the global economic recovery. “Recent price action has strengthened the case for our shakeout roadmap for the regional benchmark,” the analysts wrote. The 395 to 405 zone “is our minimum downside target for this corrective phase,” they also said. The MSCI index’s retreat may unfold in three waves, with the slump between the April high and its May low marking the first leg, according to the report. The gauge may rebound to the 460 to 480 range before dropping to around 390, the analysts also wrote. Once the “double top” pattern is played out, the index may form at least one more wave up to set a new rally high, the analysts said. This may occur sometime between August and October, according to the report. To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net

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Commodities’ Biggest Collapse Since Lehman Fell Signals Bear Market Ahead

May 31, 2010

By Millie Munshi and Elizabeth Campbell

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Commodities’ Biggest Collapse Since Lehman Fell Signals Bear Market Ahead

May 31, 2010

By Millie Munshi and Elizabeth Campbell

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Honda’s China Plants Stay Shuttered as Parts Workers Reject Pay Increase

May 31, 2010

By Bloomberg News June 1 (Bloomberg) — Honda Motor Co. ’s car production in China will remain halted at least until tomorrow as some striking workers at a parts plant in the country rejected a proposed pay increase. Honda, Japan’s second-largest automaker, is still negotiating with employees and a return to full production will depend on those talks, said Akemi Ando , a spokeswoman for the Tokyo-based company. The carmaker may be losing production of as many as 3,000 vehicles a day in China since its four car-assembly factories in the world’s biggest automobile market shut last week, according to analyst estimates. The maker of Accord and Civic cars closed the plants after workers at a parts unit walked out, the first time a strike has stopped Honda ’s local auto production. “My guess is that it will take less than a week to get production back at full capacity once the strike is resolved,” said Tianshu Xin , managing director at IHS Global Insight in Shanghai. Honda will likely add shifts to make up the lost production, he said. Honda fell 0.5 percent to 2,756 yen as of 10:56 a.m. in Tokyo trading, while the benchmark Nikkei 225 Stock Average dropped 0.8 percent. The automaker shut two plants in Guangzhou, Guangdong province, on May 24 and factories in Guangzhou and Wuhan, Hubei province, on May 26 after workers making transmissions and engine parts at Honda Auto Parts Manufacturing Co. in Foshan, Guangdong, went on strike May 17. Rising Labor Costs Fewer than 100 of the parts factory’s 1,900 workers rejected the carmaker’s offer of a 24 percent pay increase to 1,910 yuan ($280 dollars) a month, said Takayuki Fujii, a Beijing-based spokesman for Honda. The employees had demanded between 2,000 yuan and 2,500 yuan. The local government and the government-affiliated union are in negotiations with the workers, Fujii said. The strike is a sign that automakers can expect rising labor costs in China, according to Yasuhiro Matsumoto , an analyst at Shinsei Securities Co. in Tokyo. Trade unions and employers appear to be reporting a growing number of work stoppages in China, although there are no official numbers, according to the International Labor Organization in Beijing. “Demands for workers’ rights, including better pay, and political awareness are rising,” said Kiyoshi Kasahara, a professor at Tokyo’s Rikkyo University who studies industrial relations in China. “I expect to see more labor troubles because of labor scarcity.” Scuffles Scuffles broke out between workers and staff from the government-backed trade union at Honda’s component factory yesterday, according to the South China Morning Post. Local police were called in to break up the fights and some workers were sent to hospital for treatment, the Chinese-language newspaper Ming Pao Daily News said. Honda produces about 3,000 vehicles a day in China, according to Koji Endo , a Tokyo-based analyst at Advanced Research Japan. The affected factories, joint ventures between Honda and its Chinese partners, make models including the Accord sedan and Civic compact and have combined annual capacity of 650,000 units. Restarting the assembly plants may take one to two days once full production resumes at the parts factory, Honda’s Fujii said. A line at the parts plant making manual transmissions reopened yesterday, Honda said. China Sales China accounted for 17 percent of Honda’s global sales last year, and the brand ranked fifth in China by unit sales in April, according to J.D. Power & Associates. Honda may increase China sales 9 percent to 630,000 vehicles this year, Chief Executive Officer Takanobu Ito said last month. Honda plans to raise production capacity in China by 28 percent to 830,000 vehicles a year by the second half of 2012 and introduce two new models as car demand grows in the country, Ito said in Guangzhou on May 25. Auto sales in China may rise 17 percent to 16 million this year and annual demand may climb to more than 30 million, according to an official at the State Information Center. For Related News and Information: Auto statistics: ATSL Top transport stories: TRNT Stories on Japanese automakers: TNI JAPAN AUT Most-read auto stories in the past week: MNI AUT 1W

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China’s Manufacturing Expands at Slower Pace as Economic Growth Moderates

May 31, 2010

By Bloomberg News June 1 (Bloomberg) — Chinese manufacturing expanded at a slower pace in May, adding to signs that growth may moderate in the world’s third-biggest economy. The Purchasing Managers’ Index fell to 53.9 from 55.7 in April, seasonally adjusted, the Federation of Logistics and Purchasing said in an e-mailed statement today. That was less than the median 54.5 estimate in a Bloomberg News survey of 18 economists. Readings above 50 indicate an expansion. A government crackdown on property speculation is cooling the economy by damping sales and construction, while Europe’s sovereign-debt crisis could exacerbate a slowdown by cutting export demand. China may delay raising benchmark interest rates or letting the yuan appreciate against the dollar even after the economy grew 11.9 percent in the first quarter. The economic “slowdown may be exacerbated by euro-area weakness and recent measures from Beijing to rein in the property market,” said Brian Jackson , a Hong Kong-based strategist at Royal Bank of Canada. “The fall in the headline PMI shown in the May surveys might be an early sign of a slowdown, but China still faces overheating risks in many parts of the economy.” Asian stocks fell, extending the MSCI Asia Pacific Index’s biggest monthly drop since October 2008. China’s Shanghai Composite Index lost 0.16 percent to 2587.924 at 10:49 a.m. local time. Premier Wen Jiabao said yesterday in Tokyo that the world needs to guard against the possibility of a second economic slump. China will continue its proactive fiscal policy to consolidate its recovery, Finance Minister Xie Xuren said May 28. Growth Peak Comparable indicators in manufacturing around the world in May are forecast to indicate global output growth has peaked. Australia manufacturing growth slowed in May and economists say reports due today in the U.S. will show manufacturing cooled while activity in Europe was unchanged. The central bank has kept the key one-year lending rate at 5.31 percent and the deposit rate at 2.25 percent since December 2008 after cuts to counter the financial crisis. The yuan is trading at about 6.83 per dollar under a policy in place since July 2008 to aid exporters. The Shanghai Composite Index fell 9.7 percent in May, the biggest monthly decline since August, on concern the European debt crisis is worsening and the government will step up property measures. The benchmark has declined more than 20 percent this year. In contrast with investors’ pessimism, Capital Economics Ltd. said this week that the Chinese economy is “gliding to a soft landing.” Relatively Fast “The economy may continue to maintain relatively fast growth, but the growth rate may slow,” Zhang Liqun , a researcher at the State Council’s Development and Research Center, said in the statement from the logistics federation. “The May PMI may be an indication that the economic rebound is stabilizing.” An output index fell to 58.2 from 59.1 in April, today’s report showed. The new-order index slid to 54.8 from 59.3 and an export-order index dropped to 53.8 from 54.5. The input-price index decreased to 58.9 from 72.6. While year-on-year economic indicators for May are likely to show slower growth, “all this is telling us is that it is now a year since China’s stimulus started to be felt,” said Mark Williams , a London-based economist for the firm. Economic momentum “remains strong.” Williams also said that the official PMI normally falls in May, “a sign that the seasonal adjustment applied is not particularly effective.” Nomura Holdings Inc. and Bank of America-Merrill Lynch expressed similar views ahead of today’s data. Textiles, Automobiles The manufacturing index, released by the logistics federation and the Beijing-based National Bureau of Statistics, covers more than 730 companies in 20 industries, including energy, metallurgy, textiles, automobiles and electronics. A separate China manufacturing index, released by HSBC Holdings Plc and Markit Economics, fell to 52.7 in May, the lowest since June 2009. HSBC’s survey, covering more than 400 manufacturing companies, is weighted more toward smaller, privately owned business than the government’s PMI, according to the bank. “The overheating risk is likely to ease as tightening measures　filter through,” Qu Hongbin , chief China economist at HSBC, said in today’s release. “We see robust economic growth without double-dip risks not least because of massive existing infrastructure investment and resilient private consumption.” Trimming Stimulus Chinese policy makers are trimming stimulus this year after the $1.4 trillion lending binge that revived growth in 2009. Officials are targeting a 22 reduction in new loans and have sold bills and raised banks’ reserve requirements to suck money out of the financial system. Restraining inflation expectations and keeping housing affordable are two of the government’s key goals after urban property prices jumped a record 12.8 percent in April from a year earlier. Wuhan Iron & Steel Group , the nation’s third- biggest steelmaker, said May 26 that demand for steel is declining, partly because of curbs on property loans. — Sophie Leung , Li Yanping . Editors: Lily Nonomiya , Cherian Thomas To contact the reporter on this story: Sophie Leung in Hong Kong at sleung59@bloomberg.net Yanping Li in Beijing at yli16@bloomberg.net

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Asia Stocks Drop as China Manufacturing Growth Slows Euro, Ringgit Weaken

May 31, 2010

By Linus Chua and Saeromi Shin June 1 (Bloomberg) — Asian stocks fell, extending the biggest monthly decline since October 2008, and emerging-market currencies weakened after Chinese manufacturing growth slowed more than estimated. The euro dropped after consumer confidence in the region declined. The MSCI Asia Pacific Index fell 0.8 percent to 112.53 as of 1:55 p.m. in Tokyo, and Standard & Poor’s 500 Index futures lost 0.6 percent. The Malaysian ringgit and copper declined, while the euro weakened against the yen and the dollar. Chinese manufacturing expanded at slower pace in May, raising concern imports by the world’s fastest-growing major economy is easing. The European Commission said yesterday its gauge of executive and consumer sentiment in the 16 nations using the euro fell last month, while a separate report today may show the unemployment rate increased in Italy. “There seems to be a worry that China’s strong economic expansion may be held back, and that may affect countries that depend heavily on China’s demand,” said Lim Chang Gue , a fund manager at Samsung Asset Management in Seoul, which manages $30 billion. “Also, if economic figures in troubled European countries turn out to be clearly deteriorating, that could add anxiety to the markets.” Three stocks fell for every one that rose on the MSCI Asia Pacific Index. The measure lost 9.8 percent in May, the biggest monthly drop since the collapse of Lehman Brothers Holdings Inc. more than 18 months ago. China’s Manufacturing China’s Purchasing Managers’ Index fell to 53.9 from 55.7 in April, seasonally adjusted, the Federation of Logistics and Purchasing said, less than the median 54.5 estimate in a Bloomberg News survey of 18 economists. Japan’s Nikkei 225 Stock Average declined 0.7 percent on concern the nation’s political instability may slow the economic recovery, while South Korea’s Kospi index lost 0.9 percent as the country’s inflation accelerated in May. Australia’s S&P/ASX 200 Index dropped 0.7 percent. Toyota Motor Corp., which gets 71 percent of its revenue outside Japan, lost 0.8 percent. Sony Corp. , which gets 69 percent of its sales outside Japan, dropped 1.5 percent. A stronger yen reduces the value of overseas sales at Japanese companies when repatriated. Prime Minister Yukio Hatoyama said he will consider his political future and do “what’s best for the people of Japan” after polls showed four in five voters want him to step down six weeks before mid-term elections. Hitachi Hitachi Ltd. slumped 4 percent. President Hiroaki Nakanishi said the “financial confusion in Europe is affecting various parts of our business,” the Financial Times reported, citing an interview. Utilities gained after Goldman Sachs Group Inc. upgraded its recommendation on Japan’s power industry to “neutral” from “cautious,” saying current valuations are “reasonable.” Tokyo Electric Power Co. jumped 4.4 percent after Goldman Sachs boosted its rating to “buy” from “neutral.” The Malaysian ringgit weakened 0.6 percent to 3.2810 per dollar, the most in a week, following the manufacturing report from China, the nation’s biggest overseas market. The South Korean won slid 0.9 percent to 1,212.75 per dollar. “This could be the first sign of China feeling the slowdown in Europe,” said Wan Suhaimi Saidi , an economist at Kenanga Investment Bank Bhd. in Kuala Lumpur. “You can’t expect super-strong currency appreciation in the second half.” The euro weakened against 10 of 16 major counterparts, extending its longest monthly decline against the dollar in 10 years, after the index of executive and consumer sentiment in the nations sharing the euro tumbled. Australia’s dollar was little changed after the Reserve Bank left its benchmark interest rate at 4.5 percent. The currency bought 83.9 U.S. cents from 83.65 cents before the statement and 84.59 cents yesterday in New York. Euro, Aussie The euro fell to as low as $1.2245 in Tokyo from $1.2306 yesterday in New York. The common currency declined to as weak as 111.33 yen from 112.31 yen. The Aussie dollar sank as much as 0.9 percent to 83.84 U.S. cents. Joblessness in Italy, Europe’s fourth-biggest economy , grew to a seasonally adjusted 8.9 percent in April from 8.8 percent the previous month, according to a Bloomberg News survey of economists before Istat releases the data today. Copper tumbled as metals extended their decline on the reports from China, the world’s biggest metals consumer. Copper for three-month delivery fell 2.1 percent to $6,795 a metric ton. The cost of insuring Asia-Pacific bonds from non-payment rose, according to traders of credit-default swaps. The Markit iTraxx Japan index increased 7 basis points to 144 basis points, according to Morgan Stanley prices, and the Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan rose 9 basis points to 144, according to Royal Bank of Scotland Group Plc. To contact the reporters on this story: Linus Chua at lchua@bloomberg.net ; Saeromi Shin in Seoul at sshin15@bloomberg.net .

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Asia Stocks Drop as China Manufacturing Growth Slows Euro, Ringgit Weaken

May 31, 2010

By Linus Chua and Saeromi Shin June 1 (Bloomberg) — Asian stocks fell, extending the biggest monthly decline since October 2008, and emerging-market currencies weakened after Chinese manufacturing growth slowed more than estimated. The euro dropped after consumer confidence in the region declined. The MSCI Asia Pacific Index fell 0.8 percent to 112.53 as of 1:55 p.m. in Tokyo, and Standard & Poor’s 500 Index futures lost 0.6 percent. The Malaysian ringgit and copper declined, while the euro weakened against the yen and the dollar. Chinese manufacturing expanded at slower pace in May, raising concern imports by the world’s fastest-growing major economy is easing. The European Commission said yesterday its gauge of executive and consumer sentiment in the 16 nations using the euro fell last month, while a separate report today may show the unemployment rate increased in Italy. “There seems to be a worry that China’s strong economic expansion may be held back, and that may affect countries that depend heavily on China’s demand,” said Lim Chang Gue , a fund manager at Samsung Asset Management in Seoul, which manages $30 billion. “Also, if economic figures in troubled European countries turn out to be clearly deteriorating, that could add anxiety to the markets.” Three stocks fell for every one that rose on the MSCI Asia Pacific Index. The measure lost 9.8 percent in May, the biggest monthly drop since the collapse of Lehman Brothers Holdings Inc. more than 18 months ago. China’s Manufacturing China’s Purchasing Managers’ Index fell to 53.9 from 55.7 in April, seasonally adjusted, the Federation of Logistics and Purchasing said, less than the median 54.5 estimate in a Bloomberg News survey of 18 economists. Japan’s Nikkei 225 Stock Average declined 0.7 percent on concern the nation’s political instability may slow the economic recovery, while South Korea’s Kospi index lost 0.9 percent as the country’s inflation accelerated in May. Australia’s S&P/ASX 200 Index dropped 0.7 percent. Toyota Motor Corp., which gets 71 percent of its revenue outside Japan, lost 0.8 percent. Sony Corp. , which gets 69 percent of its sales outside Japan, dropped 1.5 percent. A stronger yen reduces the value of overseas sales at Japanese companies when repatriated. Prime Minister Yukio Hatoyama said he will consider his political future and do “what’s best for the people of Japan” after polls showed four in five voters want him to step down six weeks before mid-term elections. Hitachi Hitachi Ltd. slumped 4 percent. President Hiroaki Nakanishi said the “financial confusion in Europe is affecting various parts of our business,” the Financial Times reported, citing an interview. Utilities gained after Goldman Sachs Group Inc. upgraded its recommendation on Japan’s power industry to “neutral” from “cautious,” saying current valuations are “reasonable.” Tokyo Electric Power Co. jumped 4.4 percent after Goldman Sachs boosted its rating to “buy” from “neutral.” The Malaysian ringgit weakened 0.6 percent to 3.2810 per dollar, the most in a week, following the manufacturing report from China, the nation’s biggest overseas market. The South Korean won slid 0.9 percent to 1,212.75 per dollar. “This could be the first sign of China feeling the slowdown in Europe,” said Wan Suhaimi Saidi , an economist at Kenanga Investment Bank Bhd. in Kuala Lumpur. “You can’t expect super-strong currency appreciation in the second half.” The euro weakened against 10 of 16 major counterparts, extending its longest monthly decline against the dollar in 10 years, after the index of executive and consumer sentiment in the nations sharing the euro tumbled. Australia’s dollar was little changed after the Reserve Bank left its benchmark interest rate at 4.5 percent. The currency bought 83.9 U.S. cents from 83.65 cents before the statement and 84.59 cents yesterday in New York. Euro, Aussie The euro fell to as low as $1.2245 in Tokyo from $1.2306 yesterday in New York. The common currency declined to as weak as 111.33 yen from 112.31 yen. The Aussie dollar sank as much as 0.9 percent to 83.84 U.S. cents. Joblessness in Italy, Europe’s fourth-biggest economy , grew to a seasonally adjusted 8.9 percent in April from 8.8 percent the previous month, according to a Bloomberg News survey of economists before Istat releases the data today. Copper tumbled as metals extended their decline on the reports from China, the world’s biggest metals consumer. Copper for three-month delivery fell 2.1 percent to $6,795 a metric ton. The cost of insuring Asia-Pacific bonds from non-payment rose, according to traders of credit-default swaps. The Markit iTraxx Japan index increased 7 basis points to 144 basis points, according to Morgan Stanley prices, and the Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan rose 9 basis points to 144, according to Royal Bank of Scotland Group Plc. To contact the reporters on this story: Linus Chua at lchua@bloomberg.net ; Saeromi Shin in Seoul at sshin15@bloomberg.net .

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Gulf Oil Spill: Holder To Tour Coast, Meet With State AGs, Federal Prosecutors

May 31, 2010

WASHINGTON — Attorney General Eric Holder plans to visit the Gulf Coast to see areas affected by the oil spill and meet with state attorneys general and U.S. prosecutors. The Justice Department says Holder will visit the region Tuesday. He is scheduled to receive a Coast Guard tour, then meet with the attorneys general of Louisiana, Alabama and Mississippi and several U.S. attorneys. Several senators have asked the Justice Department to determine whether criminal or civil laws were broken in the spill. BP PLC’s attempts to stanch the gushing oil have failed. BP may try again on Wednesday.

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Gulf Oil Spill: Holder To Tour Coast, Meet With State AGs, Federal Prosecutors

May 31, 2010

WASHINGTON — Attorney General Eric Holder plans to visit the Gulf Coast to see areas affected by the oil spill and meet with state attorneys general and U.S. prosecutors. The Justice Department says Holder will visit the region Tuesday. He is scheduled to receive a Coast Guard tour, then meet with the attorneys general of Louisiana, Alabama and Mississippi and several U.S. attorneys. Several senators have asked the Justice Department to determine whether criminal or civil laws were broken in the spill. BP PLC’s attempts to stanch the gushing oil have failed. BP may try again on Wednesday.

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Video: Kotecha Says Euro at `Fair Value’ Against U.S. Dollar: Video

May 31, 2010

June 1 (Bloomberg) — Mitul Kotecha, head of global currency strategy at Credit Agricole CIB, talks with Bloomberg’s Rishaad Salamat about his forecast for the euro. Kotecha, speaking from Hong Kong, also discusses a proposal that central banks set up a permanent arrangement for foreign-currency swaps to help address the type of funding shortages that emerged during the global financial crisis, and the outlook for the won and yuan. (Source: Bloomberg)

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Video: Kotecha Says Euro at `Fair Value’ Against U.S. Dollar: Video

May 31, 2010

June 1 (Bloomberg) — Mitul Kotecha, head of global currency strategy at Credit Agricole CIB, talks with Bloomberg’s Rishaad Salamat about his forecast for the euro. Kotecha, speaking from Hong Kong, also discusses a proposal that central banks set up a permanent arrangement for foreign-currency swaps to help address the type of funding shortages that emerged during the global financial crisis, and the outlook for the won and yuan. (Source: Bloomberg)

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Lease Up/Lease Down (May 30 – June 5): HP Laying Off 9,000, Hiring 6,000

May 31, 2010

Editor’s Note: This week, I will be attending the NAREE Conference in Austin, TX, to accept an award for last year’s special report, Landlords Offer Major Perks in Uncertain Market. As a result, Lease Up and Lease Down have been condensed, and will…

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Video: Hatoyama to Assess Future in Meeting With DPJ’s Ozawa: Video

May 31, 2010

June 1 (Bloomberg) — Bloomberg’s Mike Firn reports on Japanese Prime Minister Yukio Hatoyama’s plan to discuss the future of the Democratic Party of Japan with Ichiro Ozawa, the DPJ’s No. 2 official. The prime minister’s popularity has plummeted since his party’s landslide August victory, with voters disenchanted over campaign finance scandals and his vacillating over where to move a U.S. military base. Three polls released yesterday showed his approval rating at or below 20 percent and six in 10 voters think he should quit. Bloomberg’s Rishaad Salamat also speaks. (Source: Bloomberg)

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Video: Hatoyama to Assess Future in Meeting With DPJ’s Ozawa: Video

May 31, 2010

June 1 (Bloomberg) — Bloomberg’s Mike Firn reports on Japanese Prime Minister Yukio Hatoyama’s plan to discuss the future of the Democratic Party of Japan with Ichiro Ozawa, the DPJ’s No. 2 official. The prime minister’s popularity has plummeted since his party’s landslide August victory, with voters disenchanted over campaign finance scandals and his vacillating over where to move a U.S. military base. Three polls released yesterday showed his approval rating at or below 20 percent and six in 10 voters think he should quit. Bloomberg’s Rishaad Salamat also speaks. (Source: Bloomberg)

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Brazil, India, China May Be Overheating, Roubini Says

May 31, 2010

By Andre Soliani and Matthew Bristow May 31 (Bloomberg) — Nouriel Roubini, the New York University professor who predicted the global financial crisis before markets peaked, said the Brazilian, Chinese and Indian economies may be overheating and developing asset bubbles. The outlook for Brazil’s economy is “very positive,” though the debt crisis in the euro zone countries and a slow “u-shaped” recovery globally could dent the country’s growth, Roubini said today at an event in Sao Paulo. “In Brazil, like in many other emerging market economies, there is now evidence of overheating of the economy,” Roubini said. “Expected and actual inflation is starting to rise, and that implies that over the next few quarters there has to be a tightening of monetary policy, gradually but progressively, in order to make sure that inflation expectations remain anchored.” Roubini, 52, recommended that Brazilian policy makers take steps to limit the appreciation of the real, including the “judicious” use of capital controls. The currency has gained 8.2 percent against the dollar over the past 12 months, the best performer among 16 major currencies tracked by Bloomberg. The stronger real has made the country’s exports more expensive in dollar terms, and the economy could also be hit by a fall in commodity prices, which are likely to decline over the next 6 months to 12 months because of a possible double-dip recession in Europe and a U.S. slowdown, Roubini said. Housing Bubble 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. In October 2008, he said he still saw “significant downside risks to equity markets.” The Standard & Poor’s 500 Index fell by almost half over the next five months. The euro zone economies are likely to stagnate this year, and Greece is growing closer to insolvency and may be forced to restructure its debt, Roubini added. Euro-area ministers agreed on May 2 to provide 110 billion euros ($135 billion) of aid to Greece as the country struggled to control a deficit that reached 13.6 percent of GDP last year, more than four times the EU limit. When that failed to stop the euro’s slide, the EU and International Monetary Fund offered a financial lifeline of almost $1 trillion to member states. Europe’s currency has dropped 14 percent against the dollar this year, the biggest loss among its 16 most-active counterparts, according to data compiled by Bloomberg. It traded at $1.2308 as of 5:58 p.m. in New York. Chinese Growth Chinese economic growth may slow to an annual rate of 7 percent to 8 percent by the end of the year or early 2011, Roubini said today in Sao Paulo. U.S. economic growth may slow to less than 2 percent in the second half of the year, Roubini said. China’s challenge is to boost domestic demand to sustain an economic expansion that has been based so far on investments and exports, he said. Brazil and India are in a “better shape” than China regarding the strength of domestic demand, Roubini said. Emerging markets can grow between 5 percent and 8 percent during the global economic recovery compared to between 2 percent and 3 percent for rich nations, he said. He didn’t provide further details about his growth outlook for India or China. China’s economic growth accelerated to the fastest pace in almost three years in the first quarter, rising 11.9 percent from a year earlier. India’s GDP rose 8.6 percent in the three months ending March 31 from a year earlier, following a revised 6.5 percent gain in the previous quarter, the statistics office in New Dehli said today. Brazil’s GDP may have expanded 8.5 percent on an annual basis in the first quarter, according the median estimate in a Bloomberg survey of five analysts. If maintained throughout the year, that would be the fastest growth rate in two decades. Brazil reports first quarter GDP on June 8. The professor, who is also chairman and co-founder of Roubini Global Economics LLC in New York, failed to predict the market rebound that sent shares across the globe soaring last year. The S&P 500 Index surged 80 percent from a March 2009 low to a peak in April this year. To contact the reporter on this story: Andre Soliani in Brasilia at asoliani@bloomberg.net ; Matthew Bristow in Bogota at mbristow5@bloomberg.net

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Hatoyama to Discuss Future With Ozawa as Support Slumps Over Base Backlash

May 31, 2010

By Takashi Hirokawa June 1 (Bloomberg) — Prime Minister Yukio Hatoyama said he will do “what’s best for the people of Japan” and consider his political future in the face of plunging approval ratings six weeks before parliamentary elections. “The important thing is the livelihoods of the people,” Hatoyama said today at his office in Tokyo when asked whether he would step down. “This new administration will continue to take action in a way that’s appropriate.” The prime minister’s popularity has plummeted since his Democratic Party of Japan ’s landslide August victory, with voters disenchanted over campaign finance scandals and his vacillating over where to move a U.S. military base. Three polls released yesterday showed his approval rating at or below 20 percent and six in 10 voters think he should quit. Hatoyama will meet later with Ichiro Ozawa , the DPJ’s No. 2 official, to discuss the party’s future before July elections for the Diet’s upper house. The DPJ-led coalition’s majority in the chamber was cut when the Social Democratic Party left two days ago, having refused to endorse a deal with the U.S. to relocate a Marine base in Okinawa. “Hatoyama has totally screwed things up,” said Gerald Curtis , professor of Japanese politics at Columbia University in New York. “Clearly, the party sees a disaster looming.” DPJ Voices ‘Overwhelming’ Sentiment for Hatoyama to step down is growing within the party, especially among upper-house lawmakers up for re-election, DPJ legislator Yoshimitsu Takashima told reporters yesterday. “These voices are increasingly overwhelming,” he said. Hatoyama last night vowed to stay in his post after a meeting with Ozawa and Azuma Koshiishi, head of the Democrats’ upper house members. “I intend to work hard for the people of this country,” Hatoyama said yesterday. Asked if he would continue as premier, Hatoyama replied: “Of course,” while adding that “I understand I’ve caused trouble” within the party. Japanese stocks fell on concerns political turmoil will slow the domestic recovery, with the Nikkei 225 Stock Average down 0.8 percent to 9,692.02 at 9:07 a.m. in Tokyo. Half of the 242 upper-house seats are at stake in the July balloting. The DPJ and its other junior partner, the People’s New Party , have 122 legislators, and losing that majority could slow Hatoyama’s legislative goals of increasing social welfare spending while aiming to cut the world’s largest public debt. To contact the reporter on this story: Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net

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Malaysia May Sell $1 Billion in Debt by Sept. 30 After Islamic Bond Offer

May 31, 2010

By Manirajan Ramasamy and Soraya Permatasari June 1 (Bloomberg) — Malaysia plans to raise about $1 billion from a sale of conventional bonds by Sept. 30, after drawing bids for more than five times the amount of Islamic debt it offered last week, a finance ministry official said. The government will probably sell the securities before it presents the annual budget at the end of that month, said the official, who declined to be named because the discussions are private. It may hire the same banks, including CIMB Group Holdings Bhd. and HSBC Holdings Plc, to arrange the sale, he said. To contact the reporter on this story: Soraya Permatasari in Kuala Lumpur at soraya@bloomberg.net

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National Australia Gets More Time to Gain Regulator’s Approval on Axa Asia

May 31, 2010

By Angus Whitley June 1 (Bloomberg) — National Australia Bank Ltd. , the country’s biggest business lender, won more time to overcome regulatory opposition to the company’s A$13.3 billion ($11.3 billion) takeover of Axa Asia Pacific Holdings Ltd. National Australia Bank, Paris-based bidding partner Axa SA, and Axa Asia Pacific will extend their agreement until July 15, National Australia Bank said in a statement today. Any of the three companies can end it if the deal remains blocked after that date, the bank said. National Australia Bank is in talks with potential buyers of Axa Asia Pacific’s North investment platform to gain approval from the Australian Competition and Consumer Commission, people familiar with the matter said last week. The regulator, which blocked the takeover in April, has said competition would be hurt if the Melbourne-based bank controlled the North unit. “NAB continues to pursue its options in relation to the ACCC objections to the proposal,” the lender said in the statement. In a separate announcement, Axa Asia Pacific said that “NAB is currently in discussions with the ACCC to determine whether the ACCC’s concerns can be addressed.” National Australia Bank is in talks with asset manager IOOF Holdings Ltd. and Tower Australia Group Ltd. to sell the North platform, an Internet portal offering investment and pension products, the Australian newspaper reported today. National Australia Bank said on Dec. 17 it had agreed to buy Axa Asia Pacific with Axa SA, the French insurer that owns 54 percent of Axa Asia Pacific. Under the plan, the bank would keep the Australian and New Zealand divisions and sell eight Asian units to Axa SA. Rival suitor AMP Ltd. has said the regulator’s stance will determine whether it makes a fresh bid for Axa Asia Pacific after its initial offer last year was rejected by the company’s board. To contact the reporter on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net

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Asian Stocks Fall on Japanese Political Concern Toyota Motor, Sony Slump

May 31, 2010

By Masaki Kondo and Satoshi Kawano June 1 (Bloomberg) — Asian stocks fell, extending the MSCI Asia Pacific Index’s biggest monthly drop since October 2008, as speculation over the future of Japanese Prime Minister Yukio Hatoyama dragged the country’s equities lower. Toyota Motor Corp., Japan’s largest automaker, sank 1.4 percent. Sony Corp. , which gets 69 percent of its sales outside Japan, dropped 1.5 percent as a stronger yen threatened to hurt the value of overseas revenue. Tokyo Electric Power Co. led gains among utilities after Goldman Sachs Group Inc. upgraded the stock. The MSCI Asia Pacific Index declined 0.4 percent to 113.04 as of 10:20 a.m. in Tokyo, with more than two stocks gaining for each that fell. Japan’s Nikkei 225 Stock Average lost 0.8 percent before a meeting between Hatoyama and Ichiro Ozawa , secretary-general of the ruling party, to discuss the party’s future. “Political turmoil may make some investors refrain from buying stocks,” said Toshiyuki Kanayama , a market analyst at Tokyo-based Monex Inc. “There’s also risk in selling stocks, considering the earnings recovery and relatively low valuations.” Chinese equities may be active after a purchasing managers’ index showed the country’s manufacturing industry expanded at a slower pace in May. Australia’s S&P/ASX 200 Index dropped 0.8 percent. The Kospi Index slumped 0.4 percent in Seoul. Exporters in Japan declined as the yen strengthened to 111.59 per euro today from 112.59 at the 3 p.m. close of stock trading in Tokyo yesterday, while appreciating to 90.99 per dollar from 91.52. A stronger yen reduces the value of overseas sales at Japanese companies when repatriated. Japanese stocks fell after Hatoyama pledged appropriate action in the face of plunging approval ratings. Three polls released on May 30 showed Prime Minister Hatoyama’s rating at or below 20 percent and six in 10 voters think he should quit. Yahoo Japan Corp. and Murata Manufacturing Co. gained after brokerages raised their investment ratings. To contact the reporters for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net ; Satoshi Kawano in Tokyo at skawano1@bloomberg.net .

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China’s Manufacturing Growth Slowed More Than Economists’ Estimates in May

May 31, 2010

By Bloomberg News June 1 (Bloomberg) — Chinese manufacturing expanded at a slower pace in May, adding to signs that growth may moderate in the world’s third-biggest economy. The Purchasing Managers’ Index fell to 53.9 from 55.7 in April, seasonally adjusted, the Federation of Logistics and Purchasing said in an e-mailed statement today. That was less than the median 54.5 estimate in a Bloomberg News survey of 18 economists. Readings above 50 indicate an expansion. A government crackdown on property speculation is cooling the economy by damping sales and construction, while Europe’s sovereign-debt crisis could exacerbate a slowdown by cutting demand for exports. China’s policy makers may delay raising benchmark interest rates or letting the yuan appreciate against the dollar even after the economy grew 11.9 percent in the first quarter. The “chances of further policy tightening are fading as a result of events in Europe and a still unfolding correction in the property market,” Ben Simpfendorfer , a Hong Kong-based economist at Royal Bank of Scotland, said before today’s data. He forecasts rates to stay unchanged this year and the yuan’s peg to the dollar to remain until at least the end of the third quarter. Premier Wen Jiabao said yesterday in Tokyo that the world needs to guard against the possibility of a second economic slump. China will continue its proactive fiscal policy to consolidate its recovery, Finance Minister Xie Xuren said May 28. Aid Exporters The central bank has kept the key one-year lending rate at 5.31 percent and the deposit rate at 2.25 percent since December 2008 after cuts to counter the financial crisis. The yuan is trading at about 6.83 per dollar under a policy in place since July 2008 to aid exporters. The Shanghai Composite Index fell 9.7 percent in May, the biggest monthly decline since August, on concern the European debt crisis is worsening and the government will step up property measures. The benchmark has declined more than 20 percent this year. In contrast with investors’ pessimism, Capital Economics Ltd. said this week that the Chinese economy is “gliding to a soft landing.” While year-on-year economic indicators for May are likely to show slower growth, “all this is telling us is that it is now a year since China’s stimulus started to be felt,” said Mark Williams , a London-based economist for the firm. Economic momentum “remains strong.” Seasonal Adjustment Williams also said that the official PMI normally falls in May, “a sign that the seasonal adjustment applied is not particularly effective.” Nomura Holdings Inc. and Bank of America-Merrill Lynch expressed similar views ahead of today’s data. The manufacturing index, released by the logistics federation and the Beijing-based National Bureau of Statistics, covers more than 730 companies in 20 industries, including energy, metallurgy, textiles, automobiles and electronics. Chinese policy makers are trimming stimulus this year after the $1.4 trillion lending binge that revived growth in 2009. Officials are targeting a 22 reduction in new loans and have sold bills and raised banks’ reserve requirements to suck money out of the financial system. Restraining inflation expectations and keeping housing affordable are two of the government’s key goals after urban property prices jumped a record 12.8 percent in April from a year earlier. Wuhan Iron & Steel Group , the nation’s third- biggest steelmaker, said May 26 that demand for steel is declining, partly because of curbs on property loans. — Sophie Leung , Li Yanping . Editors: Paul Panckhurst , Lily Nonomiya To contact the reporter on this story: Sophie Leung in Hong Kong at sleung59@bloomberg.net Yanping Li in Beijing at yli16@bloomberg.net

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Video: Hong Kong’s Property Developers Face New Marketing Rules: Video

May 31, 2010

June 1 (Bloomberg) — Bloomberg’s Paul Gordon reports on Hong Kong government efforts to cool its property market and clamp down on marketing practices it has criticized as deceptive. Hong Kong’s home prices have jumped 41 percent since the end of 2008. The government pledged May 12 to keep boosting land supply as it tries to ease concerns a real estate bubble is forming. Bloomberg’s Susan Li also speaks. (Source: Bloomberg)

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Video: Hong Kong’s Property Developers Face New Marketing Rules: Video

May 31, 2010

June 1 (Bloomberg) — Bloomberg’s Paul Gordon reports on Hong Kong government efforts to cool its property market and clamp down on marketing practices it has criticized as deceptive. Hong Kong’s home prices have jumped 41 percent since the end of 2008. The government pledged May 12 to keep boosting land supply as it tries to ease concerns a real estate bubble is forming. Bloomberg’s Susan Li also speaks. (Source: Bloomberg)

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Video: Bartrop Sees New Tax Impacting Australian Mining Stocks: Video

May 31, 2010

June 1 (Bloomberg) — Stephen Bartrop, managing director at LimeStreet Capital, talks with Bloomberg’s Susan Li about how Australia’s proposed resources profit tax may affect the nation’s mining industry. Borrowing costs may rise as much as 3.5 percent for mining companies whose creditworthiness is weakened as a result of Australia’s proposed 40 percent profits tax, the Australian Financial Review reported, citing bank analysis obtained by the newspaper. Smaller companies, which borrow against future cash flows, are expected to be hit hardest, the Review said. (Source: Bloomberg)

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Video: Bartrop Sees New Tax Impacting Australian Mining Stocks: Video

May 31, 2010

June 1 (Bloomberg) — Stephen Bartrop, managing director at LimeStreet Capital, talks with Bloomberg’s Susan Li about how Australia’s proposed resources profit tax may affect the nation’s mining industry. Borrowing costs may rise as much as 3.5 percent for mining companies whose creditworthiness is weakened as a result of Australia’s proposed 40 percent profits tax, the Australian Financial Review reported, citing bank analysis obtained by the newspaper. Smaller companies, which borrow against future cash flows, are expected to be hit hardest, the Review said. (Source: Bloomberg)

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Feds: Nicholas Smirnow, Global Ponzi Scheme Head, Warned Clients To Avoid Obvious Ponzi Schemes

May 31, 2010

EAST ST. LOUIS, Ill. — A Canadian national who the U.S. government says swindled $70 million from 40,000 investors on six continents carried out the same kind of Ponzi scheme the one-time bank robber mocked on his website, federal investigators allege. Nicholas Smirnow warned clients of his online business, “Pathway to Prosperity,” to stay away from high-yield investment programs that often boast of unrealistic returns for little or no risk. Yet a federal criminal complaint alleges that he promised “outlandish” return rates – investigators say anywhere from 546 percent to 17,000 percent – with no explanation of his methodology or his identity. Smirnow, 53, also hid an extensive criminal past that included convictions for burglary and drug trafficking in Canada, according to the documents. “He warned: ‘the bigger the return on offer, the louder the warning bells should sound,’” the complaint, dated Friday and obtained Monday by The Associated Press, alleged. “Investors, however, did not heed the ‘warning bells’ of Smirnow’s ridiculous claims of unrealistic rates of return and instead invested by the thousands.” Smirnow, who prosecutors believe lives in the Philippines though his whereabouts Monday were unclear, was charged with conspiracy and securities, mail and wire fraud. Some of the charges carry up to 20 years in prison and $250,000 in fines. Interpol, the Paris-based international police intelligence-sharing association, declined to disclose Monday whether it was involved and deferred questions to Filipino authorities. The case is being handled by the U.S. Attorney for southern Illinois in part because the assigned prosecutor has expertise in such investment cases. Smirnow’s alleged swindle also claimed victims in half of the 38 counties making up that jurisdiction’s turf. Smirnow lured investors despite keeping his identity hidden, suggesting through his online enterprise – also known as “P-2-P” and “P-2-P Network” – that other securities pitchmen did not share his “strong moral foundation,” according to the complaint. He said keeping his identity masked protected his safety and ensured his program’s success. His website created “the false appearance that he was a sophisticated and legitimate international financier,” the court documents said. His aliases included Nicoloy Smirnow, Alexander Judizcev, Nicholas Kachura and Jeff Prozorowiczm. Smirnow never let on that he was a lookout during a Canadian bank robbery in 2000 and was sentenced to four years in prison, according to the complaint and newspaper accounts. At the time, he was a construction worker contracted to do sewer work, the Sarnia Observer in Ontario has reported. Smirnow also has convictions, some dating to 1979, of burglary, drug trafficking and possessing stolen property in Canada, the complaint said. He told an employee that he was involved in a double homicide in Ontario and had organized crime ties there, according to an affidavit written by Jacob Gholson, a U.S. Postal Inspection Service inspector who investigated Smirnow’s alleged scheme leading to Friday’s charges. The affidavit was filed with the federal complaint. Using investors’ funds, Smirnow at one point bought a $315,000 house in Ontario, Gholson wrote. Prosecutors believe Smirnow concocted the scheme in 2007, initially running it out of his rental home Baysville, Ontario. By the time it unraveled last year, it had attracted victims from every U.S. state except Maine and Vermont, the U.S. government says. Smirnow’s investors were offered their choice of seven-, 15-, 30- and 60-day plans with varying rates of return, offering the average person investment opportunities generally only available to the very rich, prosecutors said. Some of Smirnow’s earliest clients made substantial returns, but most investors lost everything, authorities said. The complaint concluded: “Pathway to Prosperity was a massive Ponzi scheme.”

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Video: Honda to Raise Pay for Striking Workers at China Factory: Video

May 31, 2010

June 1 (Bloomberg) — Bloomberg’s Mike Firn reports on Honda Motor Co.’s decision to raise workers’ monthly wages after a parts factory strike shut down almost all Chinese production. The workers will receive a 24 percent pay increase to 1,910 yuan ($280 dollars) per month, the Tokyo-based company said in a faxed statement today. Most workers have accepted the offer, while talks continue with those who are unsatisfied, Honda said. Bloomberg’s Susan Li also speaks. (Source: Bloomberg)

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Video: Honda to Raise Pay for Striking Workers at China Factory: Video

May 31, 2010

June 1 (Bloomberg) — Bloomberg’s Mike Firn reports on Honda Motor Co.’s decision to raise workers’ monthly wages after a parts factory strike shut down almost all Chinese production. The workers will receive a 24 percent pay increase to 1,910 yuan ($280 dollars) per month, the Tokyo-based company said in a faxed statement today. Most workers have accepted the offer, while talks continue with those who are unsatisfied, Honda said. Bloomberg’s Susan Li also speaks. (Source: Bloomberg)

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Gulf Oil Spill: Schumer Calls For Repeal Of Liability Limits

May 31, 2010

NEW YORK — U.S. Sen. Charles Schumer says he will introduce a bill to repeal a law that could allow the owner of the oil drilling rig that sank in the Gulf of Mexico to limit its liability for the disaster to $27 million. Schumer called it “outrageous” that the company could “get away with paying mere pennies of the total cost of clean-up” of the massive oil spill in the Gulf. Schumer says he will introduce the legislation Tuesday. Transocean Ltd., which owned the Deepwater Horizon rig, requested the limit in federal court under the 1851 Shipowner’s Limitation of Liability Act. The company, based in Switzerland, says it requested the limit to have all the lawsuits filed against it aggregated in one court. Transocean has argued the limit will not affect any claims related to cleanup costs.

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Subbarao Risks `Falling Behind’ on Rates After India’s Growth Accelerates

May 31, 2010

By Unni Krishnan and Kartik Goyal June 1 (Bloomberg) — India’s central bank needs to be less wary of the fallout of Europe’s debt crisis and raise interest rates to curb inflation stoked by growth, economists said. Asia’s biggest economy after Japan and China expanded 8.6 percent last quarter from 6.5 percent in the previous three months, India’s statistics office said in New Delhi yesterday. The acceleration in growth came even as consumer spending slowed, a drag that may lift in coming months, according to HSBC Group Plc economist Frederic Neumann. The Reserve Bank of India said last month it will be “cautious” in tightening the monetary policy even as the country’s consumer-price inflation rate is the highest among Group of 20 nations. India’s stance, in the face of risks to growth posed by Europe’s sovereign-debt crisis, may be echoed across the Asia Pacific this week as central banks from Australia to the Philippines set interest rates. “If India’s central bank pays too much attention to Europe and waits for clarity, then it risks falling behind the curve,” said Ramya Suryanarayanan, an economist at DBS Bank Ltd. in Singapore. “It is important that interest rates are normalized.” She expects a quarter-percentage point increase in rates by the end of June. The Mumbai-based Reserve Bank has raised interest rates twice since mid-March by a quarter-percentage point each time. Consumer Prices The bank’s benchmark reverse-repurchase rate is 3.75 percent while the consumer-price inflation rate for industrial workers touched about 13 percent in April. Prices paid by farm workers are close to 15 percent, hurting the purchasing power of the 650 million people who live in India’s countryside. In contrast, consumer prices are running at 2.9 percent in Australia, 3.9 percent in Indonesia and 4.4 percent in the Philippines. The Reserve Bank of Australia may leave the overnight cash rate target at 4.5 percent today, according to a Bloomberg News survey. Bank Indonesia will probably maintain its benchmark rate on June 4 and borrowing costs in Philippines may be kept unchanged on June 3, separate surveys showed. “The euro jitters may have left policy makers across the world in a more accommodative mood, but in India tightening is now needed to avoid a hard landing later on,” HSBC’s Neumann said. “They should add some urgency to the tightening cycle.” Benchmark 10-year Indian government bond yields rose 17 basis points last week, the biggest increase in more than a month, as traders increased bets Governor Duvvuri Subbarao will boost rates. The yield closed at 7.56 percent yesterday. The rupee lost 4.3 percent against the U.S. dollar last month and the Sensitive Index declined 3.5 percent in the period. Consumption As growth accelerated last quarter, consumption by individuals and companies increased 2.6 percent, the weakest pace in eight years, data from the statistics office showed. “This, presumably, reflects in part soaring food prices, which eroded real disposable incomes and made shoppers generally more cautious,” the Hong Kong-based Neumann said. “With agriculture prices now easing, we expect consumption to get a real kick over the coming quarter, helped, too, by rising incomes as a tightening labor market spurs wage growth.” Rains in this year’s June-September monsoon season will be “normal,” the weather office forecast in April, boosting prospects for agriculture and rural incomes. Salaries are increasing in urban areas as well with companies including Tata Consultancy Services Ltd., India’s biggest exporter of software services, boosting employees’ pay. Tata Consultancy said in April it plans to spend about $200 million on wage increases this year. The central bank acknowledges that consumer demand is strengthening, making inflation a “visible” concern, Subir Gokarn , who is in charge of monetary policy at the Reserve Bank, said in an interview in Warsaw on May 26. Still, he said the “pace and magnitude” of monetary policy actions will be conditioned by global developments. To contact the reporters on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net .

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Subbarao Risks `Falling Behind’ on Rates After India’s Growth Accelerates

May 31, 2010

By Unni Krishnan and Kartik Goyal June 1 (Bloomberg) — India’s central bank needs to be less wary of the fallout of Europe’s debt crisis and raise interest rates to curb inflation stoked by growth, economists said. Asia’s biggest economy after Japan and China expanded 8.6 percent last quarter from 6.5 percent in the previous three months, India’s statistics office said in New Delhi yesterday. The acceleration in growth came even as consumer spending slowed, a drag that may lift in coming months, according to HSBC Group Plc economist Frederic Neumann. The Reserve Bank of India said last month it will be “cautious” in tightening the monetary policy even as the country’s consumer-price inflation rate is the highest among Group of 20 nations. India’s stance, in the face of risks to growth posed by Europe’s sovereign-debt crisis, may be echoed across the Asia Pacific this week as central banks from Australia to the Philippines set interest rates. “If India’s central bank pays too much attention to Europe and waits for clarity, then it risks falling behind the curve,” said Ramya Suryanarayanan, an economist at DBS Bank Ltd. in Singapore. “It is important that interest rates are normalized.” She expects a quarter-percentage point increase in rates by the end of June. The Mumbai-based Reserve Bank has raised interest rates twice since mid-March by a quarter-percentage point each time. Consumer Prices The bank’s benchmark reverse-repurchase rate is 3.75 percent while the consumer-price inflation rate for industrial workers touched about 13 percent in April. Prices paid by farm workers are close to 15 percent, hurting the purchasing power of the 650 million people who live in India’s countryside. In contrast, consumer prices are running at 2.9 percent in Australia, 3.9 percent in Indonesia and 4.4 percent in the Philippines. The Reserve Bank of Australia may leave the overnight cash rate target at 4.5 percent today, according to a Bloomberg News survey. Bank Indonesia will probably maintain its benchmark rate on June 4 and borrowing costs in Philippines may be kept unchanged on June 3, separate surveys showed. “The euro jitters may have left policy makers across the world in a more accommodative mood, but in India tightening is now needed to avoid a hard landing later on,” HSBC’s Neumann said. “They should add some urgency to the tightening cycle.” Benchmark 10-year Indian government bond yields rose 17 basis points last week, the biggest increase in more than a month, as traders increased bets Governor Duvvuri Subbarao will boost rates. The yield closed at 7.56 percent yesterday. The rupee lost 4.3 percent against the U.S. dollar last month and the Sensitive Index declined 3.5 percent in the period. Consumption As growth accelerated last quarter, consumption by individuals and companies increased 2.6 percent, the weakest pace in eight years, data from the statistics office showed. “This, presumably, reflects in part soaring food prices, which eroded real disposable incomes and made shoppers generally more cautious,” the Hong Kong-based Neumann said. “With agriculture prices now easing, we expect consumption to get a real kick over the coming quarter, helped, too, by rising incomes as a tightening labor market spurs wage growth.” Rains in this year’s June-September monsoon season will be “normal,” the weather office forecast in April, boosting prospects for agriculture and rural incomes. Salaries are increasing in urban areas as well with companies including Tata Consultancy Services Ltd., India’s biggest exporter of software services, boosting employees’ pay. Tata Consultancy said in April it plans to spend about $200 million on wage increases this year. The central bank acknowledges that consumer demand is strengthening, making inflation a “visible” concern, Subir Gokarn , who is in charge of monetary policy at the Reserve Bank, said in an interview in Warsaw on May 26. Still, he said the “pace and magnitude” of monetary policy actions will be conditioned by global developments. To contact the reporters on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net .

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BASF Taps Finance Chief Bock for Top Job as Next Chemical Takeover Beckons

May 31, 2010

By Richard Weiss and Antonio Ligi June 1 (Bloomberg) — BASF SE’s choice of Kurt Bock as the next chief executive officer of the world’s largest chemical maker underscores a focus on acquisitions as the company prepares to clinch its next transaction this month. Bock, a company veteran of more than two decades, will succeed Juergen Hambrecht in May 2011, BASF said yesterday. Martin Brudermueller , 49, will become his deputy. Bock, 51, was the only candidate presented to the supervisory board, said a member of the panel who voted on the appointment. “The entire chemical industry is and remains driven by M&A, and somebody who already has a lot of experience with it is certainly well regarded as CEO,” said Lutz Grueten , an analyst at Kepler Capital Markets in Frankfurt. “The times when the classic chemist should lead the company are over.” Bock and Hambrecht, who assumed their posts in 2003, loosened BASF’s reliance on bulk chemicals with about $16 billion in acquisitions to gain specialty products including catalytic-converters and construction chemicals. BASF is preparing an offer for Cognis GmbH, people with knowledge of the plan said in April, in what is set to be one of Hambrecht’s last deals and the biggest in the industry so far this year. Price Discipline Bock helped BASF earn a reputation for price discipline with acquisitions, said Jochen Schlachter , a credit analyst at UniCredit in Munich. BASF may bid about 3 billion euros ($3.7 billion) for Cognis, the Monheim, Germany-based maker of ingredients for cosmetics, according to the people, who spoke on condition of anonymity because the talks are private. BASF is unlikely to announce its bid for Cognis before next week, two other people close to the talks said yesterday. “BASF made sizeable acquisitions under Bock and built a good track record,” Schlachter said. “They are rather conservative and not known to overpay.” BASF shares have more than doubled in value since May 2003, when Bock was appointed CFO, until the end of last month, outpacing the 18-member Bloomberg European Chemical Company Index. Under the stewardship of Hambrecht and Bock, annual sales swelled to 50.69 billion euros in 2009 from 33.36 billion euros. Net income rose to 1.41 billion euros from 910 million euros. Bock worked about five of his past 12 years at BASF in the U.S., with the remainder at the company’s Ludwigshafen headquarters. Besides the finance department, he leads the North American operations as well as the catalysts division. Bock, who is married with three children, still lives in the U.S. Apart from a six-year stint from 1992 at Robert Bosch GmbH , Bock spent his entire career at BASF after joining the company in 1985. No Outsider By tapping an insider, BASF deviated from the path chosen by German competitor Bayer AG. The maker of Aspirin in September appointed Marijn Dekkers , the former head of Thermo Fischer Scientific Inc., as CEO. BASF’s supervisory board will consider a successor to Bock early next year, it said today. “There is no reason for a major overhaul, so there was no reason to bring in an outsider,” said Tim Albrecht , a fund manager who manages 1 billion euros in equities at Frankfurt- based DWS Investment GmbH. “The company has performed very solidly in the past.” BASF’s is the second executive reshuffle to be announced in a month among the companies listed on the DAX 30 benchmark Index. ThyssenKrupp AG, Germany’s largest steelmaker, on May 4 appointed Siemens AG divisional head Heinrich Hiesinger as CEO to succeed Ekkehard Schulz . Engelhard, Ciba Acquisitions that Bock has helped engineer include catalytic-converter maker Engelhard Corp. for about $5 billion, and Degussa AG construction chemicals business for 2.2 billion euros, both in 2006. The company agreed to pay 3.45 billion Swiss francs ($3 billion) for Ciba Holding AG on Sept. 15, 2008, the same day Lehman Brothers Holdings Inc. filed for bankruptcy. Assets for disposal include the styrenics business, a low- margin subsidiary that BASF has agreed to exit. Bock helped steer BASF through the global economic slump that followed Lehman’s demise. BASF reported a loss in that year’s fourth quarter, and reduced its 2009 dividend for the first time in 16 years. The company also cut capacity at more than 200 production sites, and placed 4,000 employees in Germany on shorter hours. The measures helped return BASF to profit, which reached 1.03 billion in the first quarter of 2010. Unlike Hambrecht, a trained chemist, Bock has an education in management and finance. He studied business administration in Muenster and Cologne in Germany as well as at Pennsylvania State University. He also holds a doctorate in economics from the University of Bonn, according to BASF’s website. ‘Verbund’ Production “I don’t have the deep, scientific knowledge, and a finance person has a bit of different perspective from the science person or a production guy,” Chemical Week cited Bock as saying in an interview last week. Still, the CFO is “heavily involved” in corporate strategy, he told the trade publication. Founded in 1865 as Badische Anilin & Soda Fabrik to produce coal tar dyes, BASF grew into the world’s largest chemical company, with 103,632 employees globally as of March 31. The company spearheaded the so-called Verbund production principle that aims to integrate operations at major facilities to save resources and energy and cut back on logistics costs. BASF operates Verbund sites at its Ludwigshafen headquarters, as well as at sites in Antwerp, Belgium, in Geismar, Louisiana, and Freeport, Texas, as well as two Asian Verbund sites in Kuantan, Malaysia, and Nanjing, China. “Bock will not have to re-invent BASF, but Hambrecht set the bar pretty high,” said Juergen Meyer , who holds 1.8 million BASF shares in his SEB Aktienfonds, the maximum the fund is allowed to own. “It will be a challenge to repeat the success of the past 20 years.” To contact the reporter on this story: Richard Weiss in Frankfurt at rweiss5@bloomberg.net and Antonio Ligi in Zurich at aligi@bloomberg.net

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BASF Taps Finance Chief Bock for Top Job as Next Chemical Takeover Beckons

May 31, 2010

By Richard Weiss and Antonio Ligi June 1 (Bloomberg) — BASF SE’s choice of Kurt Bock as the next chief executive officer of the world’s largest chemical maker underscores a focus on acquisitions as the company prepares to clinch its next transaction this month. Bock, a company veteran of more than two decades, will succeed Juergen Hambrecht in May 2011, BASF said yesterday. Martin Brudermueller , 49, will become his deputy. Bock, 51, was the only candidate presented to the supervisory board, said a member of the panel who voted on the appointment. “The entire chemical industry is and remains driven by M&A, and somebody who already has a lot of experience with it is certainly well regarded as CEO,” said Lutz Grueten , an analyst at Kepler Capital Markets in Frankfurt. “The times when the classic chemist should lead the company are over.” Bock and Hambrecht, who assumed their posts in 2003, loosened BASF’s reliance on bulk chemicals with about $16 billion in acquisitions to gain specialty products including catalytic-converters and construction chemicals. BASF is preparing an offer for Cognis GmbH, people with knowledge of the plan said in April, in what is set to be one of Hambrecht’s last deals and the biggest in the industry so far this year. Price Discipline Bock helped BASF earn a reputation for price discipline with acquisitions, said Jochen Schlachter , a credit analyst at UniCredit in Munich. BASF may bid about 3 billion euros ($3.7 billion) for Cognis, the Monheim, Germany-based maker of ingredients for cosmetics, according to the people, who spoke on condition of anonymity because the talks are private. BASF is unlikely to announce its bid for Cognis before next week, two other people close to the talks said yesterday. “BASF made sizeable acquisitions under Bock and built a good track record,” Schlachter said. “They are rather conservative and not known to overpay.” BASF shares have more than doubled in value since May 2003, when Bock was appointed CFO, until the end of last month, outpacing the 18-member Bloomberg European Chemical Company Index. Under the stewardship of Hambrecht and Bock, annual sales swelled to 50.69 billion euros in 2009 from 33.36 billion euros. Net income rose to 1.41 billion euros from 910 million euros. Bock worked about five of his past 12 years at BASF in the U.S., with the remainder at the company’s Ludwigshafen headquarters. Besides the finance department, he leads the North American operations as well as the catalysts division. Bock, who is married with three children, still lives in the U.S. Apart from a six-year stint from 1992 at Robert Bosch GmbH , Bock spent his entire career at BASF after joining the company in 1985. No Outsider By tapping an insider, BASF deviated from the path chosen by German competitor Bayer AG. The maker of Aspirin in September appointed Marijn Dekkers , the former head of Thermo Fischer Scientific Inc., as CEO. BASF’s supervisory board will consider a successor to Bock early next year, it said today. “There is no reason for a major overhaul, so there was no reason to bring in an outsider,” said Tim Albrecht , a fund manager who manages 1 billion euros in equities at Frankfurt- based DWS Investment GmbH. “The company has performed very solidly in the past.” BASF’s is the second executive reshuffle to be announced in a month among the companies listed on the DAX 30 benchmark Index. ThyssenKrupp AG, Germany’s largest steelmaker, on May 4 appointed Siemens AG divisional head Heinrich Hiesinger as CEO to succeed Ekkehard Schulz . Engelhard, Ciba Acquisitions that Bock has helped engineer include catalytic-converter maker Engelhard Corp. for about $5 billion, and Degussa AG construction chemicals business for 2.2 billion euros, both in 2006. The company agreed to pay 3.45 billion Swiss francs ($3 billion) for Ciba Holding AG on Sept. 15, 2008, the same day Lehman Brothers Holdings Inc. filed for bankruptcy. Assets for disposal include the styrenics business, a low- margin subsidiary that BASF has agreed to exit. Bock helped steer BASF through the global economic slump that followed Lehman’s demise. BASF reported a loss in that year’s fourth quarter, and reduced its 2009 dividend for the first time in 16 years. The company also cut capacity at more than 200 production sites, and placed 4,000 employees in Germany on shorter hours. The measures helped return BASF to profit, which reached 1.03 billion in the first quarter of 2010. Unlike Hambrecht, a trained chemist, Bock has an education in management and finance. He studied business administration in Muenster and Cologne in Germany as well as at Pennsylvania State University. He also holds a doctorate in economics from the University of Bonn, according to BASF’s website. ‘Verbund’ Production “I don’t have the deep, scientific knowledge, and a finance person has a bit of different perspective from the science person or a production guy,” Chemical Week cited Bock as saying in an interview last week. Still, the CFO is “heavily involved” in corporate strategy, he told the trade publication. Founded in 1865 as Badische Anilin & Soda Fabrik to produce coal tar dyes, BASF grew into the world’s largest chemical company, with 103,632 employees globally as of March 31. The company spearheaded the so-called Verbund production principle that aims to integrate operations at major facilities to save resources and energy and cut back on logistics costs. BASF operates Verbund sites at its Ludwigshafen headquarters, as well as at sites in Antwerp, Belgium, in Geismar, Louisiana, and Freeport, Texas, as well as two Asian Verbund sites in Kuantan, Malaysia, and Nanjing, China. “Bock will not have to re-invent BASF, but Hambrecht set the bar pretty high,” said Juergen Meyer , who holds 1.8 million BASF shares in his SEB Aktienfonds, the maximum the fund is allowed to own. “It will be a challenge to repeat the success of the past 20 years.” To contact the reporter on this story: Richard Weiss in Frankfurt at rweiss5@bloomberg.net and Antonio Ligi in Zurich at aligi@bloomberg.net

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Israeli Raid on Ship Adds to Pressure for Easing Gaza Controls

May 31, 2010

By Jonathan Ferziger and Calev Ben-David June 1 (Bloomberg) — Israel’s raid on a flotilla of ships bringing aid to the Gaza Strip, which left nine dead, has increased pressure for an end to the country’s control of the coastal enclave’s borders. British Foreign Secretary William Hague yesterday issued a statement calling on Israel to “allow unfettered access” to Gaza, while European Union foreign policy chief Catherine Ashton urged the “unconditional opening of crossings” into Gaza. Israel, which is facing international criticism over the boat deaths, says it needs to control Gaza’s borders or else Hamas will smuggle in material to make rockets and attack its territory. Palestinians, backed by the United Nations and human rights groups, say the restrictions on food imports and construction materials have created a humanitarian crisis. Blockading Gaza “is turning into a human rights and public relations disaster” for Israel, said Martin Indyk , director of foreign policy at the Brookings Institution in Washington and a former U.S. ambassador to Israel. “Israel needs to find a better way.” Israel said its soldiers were attacked with knives and clubs after boarding a vessel and seven soldiers were wounded, including by gunfire after activists aboard the ship managed to grab Israeli firearms. The clash was in international waters, said the Free Gaza Movement, which organized the flotilla. ‘Freedom Flotilla’ The six ships in the “Freedom Flotilla” came from Sweden, Greece and Turkey on a mission aimed at breaking Israel’s blockade of Gaza that organizers pledged would be nonviolent. Israel had warned it wouldn’t let the ships reach Gaza and called the mission a propaganda trick aimed at making it look bad. Several of the dead were from Turkey, which said relations with Israel may suffer irreparable harm. Israel committed “murder” and violated international law when it intercepted the ships, Turkish Foreign Minister Ahmet Davutoglu told an emergency meeting of the United Nations Security Council. French President Nicolas Sarkozy said Israel had used “disproportionate” force. German Chancellor Angela Merkel said she had spoken by phone with Israeli Prime Minister Benjamin Netanyahu and Turkish Prime Minister Recep Tayyip Erdogan and called for “a comprehensive investigation.” Netanyahu cut short a trip to Canada to return to Israel, canceling a meeting scheduled in Washington with President Barack Obama . ‘Hamas Terrorist Base’ “Gaza has become a Hamas terrorist base, backed by Iran, firing thousands of rockets at Israel, and has amassed tens of thousands more to fire at our cities, our towns, our children,” Netanyahu said yesterday during a visit to Ottawa. “Our policy is this: We try to let all humanitarian goods into Gaza after they have undergone our security checks.” Obama expressed “deep regret at the loss of life” and said it was important to learn “all the facts and circumstances around this morning’s tragic events as soon as possible,” according to a statement from the White House. Israeli stocks fell the most in four days. The benchmark TA-25 Index lost 1.6 percent, the biggest drop since May 25, to 1,082.74 at the close in Tel Aviv. The shekel fell as much as 1.5 percent to 3.8729 to the dollar and traded at 3.8652 at 5:14 p.m. yesterday. Aboard the ships were more than 500 people, including European members of parliament and Swedish author Henning Mankell , according to the Free Gaza Movement. Israeli Navy ships have intercepted three previous efforts by the Free Gaza Movement, formed in 2008 to deliver aid to the territory by sea. Attacked With Knives An Israeli military official, speaking on condition of anonymity, told reporters that soldiers boarded the ships after approaching on three military helicopters and several commando boats at about 4 a.m., according to a pool report provided by the Associated Press. One of the commandos, also speaking on condition of anonymity, said after descending from one of the helicopters on a rope, he was immediately attacked by a group of passengers with metal sticks and knives, the pool report said. The commando said activists grabbed soldiers, stripped them of their helmets and equipment, and threw them from the top deck to the lower deck, the report said. Saeb Erakat , the Palestinian Authority’s chief peace negotiator, called the incident a “war crime” and said the international community must take “swift and appropriate action.” Three-Week War Israel has restricted entry of people and goods into Gaza since the territory was taken over by Hamas in 2007, allowing in a limited range of supplies including food, clothing and medicine. Hamas is considered a terrorist organization by Israel, the U.S. and the European Union. Israel fought a three-week war in Gaza starting in December 2008 that it said was meant to stop Hamas and other militant groups from firing rockets into its territory. Some 330 rockets have been fired from Gaza into Israel since the end of the operation, killing one foreign worker last March, the army said. Israeli bombing and ground operations during the war destroyed thousands of houses across Gaza, and Israel’s restrictions on construction materials have prevented Palestinians from being able to rebuild. The army says Hamas has used materials such as cement and iron pipes to build rockets and bunkers. “The area is ruled by Hamas, a terror organization that is arming itself all the time with weaponry and rockets intended to hurt Israel,” Israeli Defense Minister Ehud Barak said at a news conference yesterday in Tel Aviv. Indyk said one way Israel could solve its “dilemma” was a “cease-fire deal in which Hamas commits to preventing violent attacks from Gaza and stopping all smuggling into Gaza in return for Israel opening the passages with international monitors.” To contact the reporter on this story: Jonathan Ferziger in Tel Aviv at jferziger@bloomberg.net ; Calev Ben-David in Jerusalem at cbendavid@bloomberg.net

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Israeli Raid on Ship Adds to Pressure for Easing Gaza Controls

May 31, 2010

By Jonathan Ferziger and Calev Ben-David June 1 (Bloomberg) — Israel’s raid on a flotilla of ships bringing aid to the Gaza Strip, which left nine dead, has increased pressure for an end to the country’s control of the coastal enclave’s borders. British Foreign Secretary William Hague yesterday issued a statement calling on Israel to “allow unfettered access” to Gaza, while European Union foreign policy chief Catherine Ashton urged the “unconditional opening of crossings” into Gaza. Israel, which is facing international criticism over the boat deaths, says it needs to control Gaza’s borders or else Hamas will smuggle in material to make rockets and attack its territory. Palestinians, backed by the United Nations and human rights groups, say the restrictions on food imports and construction materials have created a humanitarian crisis. Blockading Gaza “is turning into a human rights and public relations disaster” for Israel, said Martin Indyk , director of foreign policy at the Brookings Institution in Washington and a former U.S. ambassador to Israel. “Israel needs to find a better way.” Israel said its soldiers were attacked with knives and clubs after boarding a vessel and seven soldiers were wounded, including by gunfire after activists aboard the ship managed to grab Israeli firearms. The clash was in international waters, said the Free Gaza Movement, which organized the flotilla. ‘Freedom Flotilla’ The six ships in the “Freedom Flotilla” came from Sweden, Greece and Turkey on a mission aimed at breaking Israel’s blockade of Gaza that organizers pledged would be nonviolent. Israel had warned it wouldn’t let the ships reach Gaza and called the mission a propaganda trick aimed at making it look bad. Several of the dead were from Turkey, which said relations with Israel may suffer irreparable harm. Israel committed “murder” and violated international law when it intercepted the ships, Turkish Foreign Minister Ahmet Davutoglu told an emergency meeting of the United Nations Security Council. French President Nicolas Sarkozy said Israel had used “disproportionate” force. German Chancellor Angela Merkel said she had spoken by phone with Israeli Prime Minister Benjamin Netanyahu and Turkish Prime Minister Recep Tayyip Erdogan and called for “a comprehensive investigation.” Netanyahu cut short a trip to Canada to return to Israel, canceling a meeting scheduled in Washington with President Barack Obama . ‘Hamas Terrorist Base’ “Gaza has become a Hamas terrorist base, backed by Iran, firing thousands of rockets at Israel, and has amassed tens of thousands more to fire at our cities, our towns, our children,” Netanyahu said yesterday during a visit to Ottawa. “Our policy is this: We try to let all humanitarian goods into Gaza after they have undergone our security checks.” Obama expressed “deep regret at the loss of life” and said it was important to learn “all the facts and circumstances around this morning’s tragic events as soon as possible,” according to a statement from the White House. Israeli stocks fell the most in four days. The benchmark TA-25 Index lost 1.6 percent, the biggest drop since May 25, to 1,082.74 at the close in Tel Aviv. The shekel fell as much as 1.5 percent to 3.8729 to the dollar and traded at 3.8652 at 5:14 p.m. yesterday. Aboard the ships were more than 500 people, including European members of parliament and Swedish author Henning Mankell , according to the Free Gaza Movement. Israeli Navy ships have intercepted three previous efforts by the Free Gaza Movement, formed in 2008 to deliver aid to the territory by sea. Attacked With Knives An Israeli military official, speaking on condition of anonymity, told reporters that soldiers boarded the ships after approaching on three military helicopters and several commando boats at about 4 a.m., according to a pool report provided by the Associated Press. One of the commandos, also speaking on condition of anonymity, said after descending from one of the helicopters on a rope, he was immediately attacked by a group of passengers with metal sticks and knives, the pool report said. The commando said activists grabbed soldiers, stripped them of their helmets and equipment, and threw them from the top deck to the lower deck, the report said. Saeb Erakat , the Palestinian Authority’s chief peace negotiator, called the incident a “war crime” and said the international community must take “swift and appropriate action.” Three-Week War Israel has restricted entry of people and goods into Gaza since the territory was taken over by Hamas in 2007, allowing in a limited range of supplies including food, clothing and medicine. Hamas is considered a terrorist organization by Israel, the U.S. and the European Union. Israel fought a three-week war in Gaza starting in December 2008 that it said was meant to stop Hamas and other militant groups from firing rockets into its territory. Some 330 rockets have been fired from Gaza into Israel since the end of the operation, killing one foreign worker last March, the army said. Israeli bombing and ground operations during the war destroyed thousands of houses across Gaza, and Israel’s restrictions on construction materials have prevented Palestinians from being able to rebuild. The army says Hamas has used materials such as cement and iron pipes to build rockets and bunkers. “The area is ruled by Hamas, a terror organization that is arming itself all the time with weaponry and rockets intended to hurt Israel,” Israeli Defense Minister Ehud Barak said at a news conference yesterday in Tel Aviv. Indyk said one way Israel could solve its “dilemma” was a “cease-fire deal in which Hamas commits to preventing violent attacks from Gaza and stopping all smuggling into Gaza in return for Israel opening the passages with international monitors.” To contact the reporter on this story: Jonathan Ferziger in Tel Aviv at jferziger@bloomberg.net ; Calev Ben-David in Jerusalem at cbendavid@bloomberg.net

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Israeli Raid on Gaza Aid Ship Increases Pressure to Relax Border Controls

May 31, 2010

By Jonathan Ferziger and Calev Ben-David June 1 (Bloomberg) — Israel’s raid on a flotilla of ships bringing aid to the Gaza Strip, which left nine dead, has increased pressure for an end to the country’s control of the coastal enclave’s borders. British Foreign Secretary William Hague yesterday issued a statement calling on Israel to “allow unfettered access” to Gaza, while European Union foreign policy chief Catherine Ashton urged the “unconditional opening of crossings” into Gaza. Israel, which is facing international criticism over the boat deaths, says it needs to control Gaza’s borders or else Hamas will smuggle in material to make rockets and attack its territory. Palestinians, backed by the United Nations and human rights groups, say the restrictions on food imports and construction materials have created a humanitarian crisis. Blockading Gaza “is turning into a human rights and public relations disaster” for Israel, said Martin Indyk , director of foreign policy at the Brookings Institution in Washington and a former U.S. ambassador to Israel. “Israel needs to find a better way.” Israel said its soldiers were attacked with knives and clubs after boarding a vessel and seven soldiers were wounded, including by gunfire after activists aboard the ship managed to grab Israeli firearms. The clash was in international waters, said the Free Gaza Movement, which organized the flotilla. ‘Freedom Flotilla’ The six ships in the “Freedom Flotilla” came from Sweden, Greece and Turkey on a mission aimed at breaking Israel’s blockade of Gaza that organizers pledged would be nonviolent. Israel had warned it wouldn’t let the ships reach Gaza and called the mission a propaganda trick aimed at making it look bad. Several of the dead were from Turkey, which said relations with Israel may suffer irreparable harm. Israel committed “murder” and violated international law when it intercepted the ships, Turkish Foreign Minister Ahmet Davutoglu told an emergency meeting of the United Nations Security Council. French President Nicolas Sarkozy said Israel had used “disproportionate” force. German Chancellor Angela Merkel said she had spoken by phone with Israeli Prime Minister Benjamin Netanyahu and Turkish Prime Minister Recep Tayyip Erdogan and called for “a comprehensive investigation.” Netanyahu cut short a trip to Canada to return to Israel, canceling a meeting scheduled in Washington with President Barack Obama . ‘Hamas Terrorist Base’ “Gaza has become a Hamas terrorist base, backed by Iran, firing thousands of rockets at Israel, and has amassed tens of thousands more to fire at our cities, our towns, our children,” Netanyahu said yesterday during a visit to Ottawa. “Our policy is this: We try to let all humanitarian goods into Gaza after they have undergone our security checks.” Obama expressed “deep regret at the loss of life” and said it was important to learn “all the facts and circumstances around this morning’s tragic events as soon as possible,” according to a statement from the White House. Israeli stocks fell the most in four days. The benchmark TA-25 Index lost 1.6 percent, the biggest drop since May 25, to 1,082.74 at the close in Tel Aviv. The shekel fell as much as 1.5 percent to 3.8729 to the dollar and traded at 3.8652 at 5:14 p.m. yesterday. Aboard the ships were more than 500 people, including European members of parliament and Swedish author Henning Mankell , according to the Free Gaza Movement. Israeli Navy ships have intercepted three previous efforts by the Free Gaza Movement, formed in 2008 to deliver aid to the territory by sea. Attacked With Knives An Israeli military official, speaking on condition of anonymity, told reporters that soldiers boarded the ships after approaching on three military helicopters and several commando boats at about 4 a.m., according to a pool report provided by the Associated Press. One of the commandos, also speaking on condition of anonymity, said after descending from one of the helicopters on a rope, he was immediately attacked by a group of passengers with metal sticks and knives, the pool report said. The commando said activists grabbed soldiers, stripped them of their helmets and equipment, and threw them from the top deck to the lower deck, the report said. Saeb Erakat , the Palestinian Authority’s chief peace negotiator, called the incident a “war crime” and said the international community must take “swift and appropriate action.” Three-Week War Israel has restricted entry of people and goods into Gaza since the territory was taken over by Hamas in 2007, allowing in a limited range of supplies including food, clothing and medicine. Hamas is considered a terrorist organization by Israel, the U.S. and the European Union. Israel fought a three-week war in Gaza starting in December 2008 that it said was meant to stop Hamas and other militant groups from firing rockets into its territory. Some 330 rockets have been fired from Gaza into Israel since the end of the operation, killing one foreign worker last March, the army said. Israeli bombing and ground operations during the war destroyed thousands of houses across Gaza, and Israel’s restrictions on construction materials have prevented Palestinians from being able to rebuild. The army says Hamas has used materials such as cement and iron pipes to build rockets and bunkers. “The area is ruled by Hamas, a terror organization that is arming itself all the time with weaponry and rockets intended to hurt Israel,” Israeli Defense Minister Ehud Barak said at a news conference yesterday in Tel Aviv. Indyk said one way Israel could solve its “dilemma” was a “cease-fire deal in which Hamas commits to preventing violent attacks from Gaza and stopping all smuggling into Gaza in return for Israel opening the passages with international monitors.” To contact the reporter on this story: Jonathan Ferziger in Tel Aviv at jferziger@bloomberg.net ; Calev Ben-David in Jerusalem at cbendavid@bloomberg.net

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Salgado’s `Nightmares’ Over as Spain Tackles Savings Banks, Labor Rules

May 31, 2010

By Emma Ross-Thomas and Paul Tobin June 1 (Bloomberg) — Spanish Finance Minister Elena Salgado ’s “worst nightmares” ended with the European Union’s $925 billion plan to backstop euro-region debt. Now, she’s focusing on overhauling the country’s savings banks and labor rules to shore up the economy. “In my worst nightmares, I was worried that we wouldn’t be able to put in place a stabilization mechanism, but we now have that,” Salgado, 61, said in an interview yesterday at the Finance Ministry in Madrid. “I don’t have nightmares anymore.” Greece’s near default pushed the yield premium on debt of high-deficit countries such as Spain to a euro-era high last month, before the May 10 announcement of the EU backstop reversed much of the declines. Now, concern that more Spanish savings banks will need bailouts and that the government may struggle to pass its budget is weighing on bonds, even after Salgado crafted the deepest budget cuts in three decades. The government is backing a series of mergers among savings banks to be completed this month. Around 20 of the regional lenders will remain at the end of the process, Salgado said. That compared with 45 before the decade-long housing boom collapsed, sparking an almost two-year recession and a surge in bad loans that has hobbled the lenders known as cajas. After the seizure on May 22 of savings bank CajaSur, which accounted for 0.6 percent of the banking industry’s assets, Salgado said no more lenders need intervention by the Bank of Spain. The cost of restructuring the savings-bank industry wouldn’t be much more than the 12 billion euros ($15 billion) that the state-backed rescue fund, known as FROB, has already raised, she said. ‘Solvent’ System “I don’t think the new FROB issuances are going to be very significant,” she said. “At the end of June we are going to have a more solvent and robust financial system.” A change of the law governing savings banks, whose managers tend to be appointed by regional governments, will allow the lenders to raise funds on capital markets. Still, the government wants to “preserve the key elements” of the mission of the savings banks which in 2008 spent more than 2 billion euros on social programs. In an attempt to bring down an unemployment rate of around 20 percent, which rises above 40 percent among young people, the Socialist government is also planning to change labor rules to bridge a divide between long-term workers with some of the best protection in Europe and the 24 percent of the workforce on temporary contracts. The plan also aims to provide more “internal flexibility” to companies and workers. Telecommunications Background “In the end, what is going to define the labor reform is whether we are capable of improving the situation in those two areas,” said Salgado, who worked in the telecommunications industry before joining Prime Minister Jose Luis Rodriguez Zapatero ’s government after his first victory in 2004. Salgado headed the telecommunications unit of real estate company Vallehermoso SA in 2003 and was a board member of Abertis Telecom, a unit of Abertis Infraestructuras SA. She has a degree in industrial engineering from the Polytechnic University and an economics degree from the Complutense University, both in Madrid. The government is trying to complete the labor-law overhauls before it seeks passage of its 2011 budget. The spending plan aims to cut the deficit to 6 percent of gross domestic product from 11.2 percent last year — the biggest two- year reduction in at least 30 years. Close Vote Last week the government, which lacks a parliamentary majority, passed Salgado’s spending cuts with a margin of just one vote, signaling it may struggle to win support for the budget. “I think we will be able to draft a budget that will allow us to find the necessary alliances,” Salgado said. In a move that may help win support from smaller parties that define themselves as left-wing, the government is looking at implementing a new tax on the wealthy. If well designed, such a move could have a “reasonable impact” on revenue, even as it wouldn’t produce as much as the 5 billion euros set to be raised by the increase in value-added tax, Salgado said. “What we want is that those people with most capacity make an extraordinary contribution during the whole period of the economic crisis and its effects, for a few years,” she said. To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

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Thai Central Bank May Delay Rate Increase as Political Chaos Hurts Economy

May 31, 2010

By Suttinee Yuvejwattana and Michael Munoz     June 1 (Bloomberg) — Thailand’s central bank may keep its benchmark interest rate at the lowest level since July 2004 after the nation’s deadliest political violence in almost two decades undermined economic growth. Bank of Thailand Governor Tarisa Watanagase will leave the one-day bond repurchase rate unchanged at 1.25 percent for a ninth meeting, according to all 11 economists surveyed by Bloomberg News. The decision is due at 2:30 p.m. in Bangkok tomorrow. Thailand has refrained from joining Malaysia, India and Australia in raising borrowing costs this year even as a rebound in exports helped the economy expand the most in 15 years last quarter. Growth will be “strongly affected” in the three months through June after weeks of anti-government protests led to riots and left more than 80 people dead, Tarisa said May 26. “While we believe the central bank is still keen to raise interest rates to a more neutral level, this will require a more stable political backdrop,” said Usara Wilaipich , an economist at Standard Chartered Plc in Bangkok. “The situation now remains fluid. The first-quarter recovery momentum is also expected to fade rapidly in the second quarter as the impact from political chaos kicked in.” Standard Chartered pushed back its forecast for a rate increase tomorrow to the fourth quarter after rioting erupted across Bangkok on May 19 as Thai security forces cleared an anti-government protest camp and forced the group’s leaders to surrender. Riots, Arson About 16 people died that day and more than 30 buildings were set alight, including the Stock Exchange of Thailand, a shopping complex owned by Central Pattana Pcl and at least eight branches of Bangkok Bank Pcl . About one third of the Southeast Asian nation was under a curfew last week even as the demonstrations ended. Southeast Asia’s largest economy after Indonesia grew 12 percent in the first three months of 2010 as exports, investment and consumption recovered after a recession last year. Still, the National Economic & Social Development Board refrained from raising its forecast for an increase of as much as 4.5 percent in gross domestic product this year after the first-quarter report, saying GDP may shrink in the second half if the political unrest can’t be resolved. Finance Minister Korn Chatikavanij said last month the economy will be “less rosy” from the second quarter onwards, and the government estimates the unrest may cost Thailand as much as 145 billion baht ($4.46 billion) and reduce growth by 1.1 percentage points. Inflation Benign Inflation has stayed below 4 percent in Thailand, where Toyota Motor Corp. and General Motors Co. have factories, giving the central bank room to keep borrowing costs low. Consumer prices rose 3 percent from a year earlier in April after climbing 3.4 percent in March, while core inflation , which excludes fresh food and fuel prices, rose 0.5 percent. The central bank forecasts inflation will accelerate to as much as 4.8 percent this year on rising oil prices and a recovering economy. Core inflation, which it uses to guide policy, may average as much as 2 percent this year, the Bank of Thailand said in April. Prime Minister Abhisit Vejjajiva vowed on May 21 to “rebuild the house” through a reconciliation plan that includes addressing economic disparities and rewriting political rules. The government plans to spend about a third of its 2.07 trillion baht budget next year on measures to narrow a divide between rich and poor that fueled the protests, Abhisit said May 26. “Protests have ended for now, but political conflicts remain,” Standard Chartered’s Usara said. “This political backdrop clouds Thailand’s economic outlook for the months ahead.” To contact the reporters on this story: Suttinee Yuvejwattana in Bangkok at Suttinee1@bloomberg.net Michael J. Munoz in Hong Kong at mjmunoz@bloomberg.net

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Paulson Drops 6.9% as Hedge Funds Post Biggest Monthly Losses Since Lehman

May 31, 2010

By Katherine Burton and Saijel Kishan June 1 (Bloomberg) — John Paulson , Louis Bacon and Andreas Halvorsen navigated the global market turmoil of 2008 with little or no damage. They weren’t as successful last month as the Dow Jones Industrial average had its worst May since 1940. Hedge funds lost an average of 2.7 percent through May 27, according to the HFRX Global Hedge Fund Index , as the sovereign debt crisis in Europe triggered declines in stocks, the euro and commodities, and the gap in yields between U.S. short-term and long-term debt narrowed. It was the biggest decline since November 2008, when hedge funds lost 3 percent in the wake of Lehman Brothers Holdings Inc.’s bankruptcy two months earlier. Almost every strategy lost money in May, according to Hedge Fund Research Inc. in Chicago, as the Dow index of 30 big stocks sank 7.6 percent including dividends amid speculation that Greece’s debt problems would spread to nations such as Spain and Portugal. Some of the best-known funds saw their gains for this year erased. “Attempting to manage risk in an environment where everything that could go wrong does go wrong seems like a fruitless endeavor,” said Brad Balter , who runs Balter Capital Management LLC, a Boston firm that invests in hedge funds for clients. “The only defense that seems to work in months like these is being in cash.” Paulson’s Advantage fund dropped 6.9 percent through May 21, dragging it to a year-to-date loss of 3.3 percent, according to investors with knowledge of the results, who asked not to be named because the information is private. Halvorsen’s Viking Global fund fell 3.4 percent in the same span and 2.9 percent for the year. Bacon’s Moore Global declined 7.7 percent as of May 20 and 4.8 percent in 2010, investors said. 2008 Performance Representatives of Paulson & Co., Viking Global Investors LP and Moore Capital Management LLC, the New York-based firms that oversee the funds, declined to comment. Paulson, Halvorsen and Bacon have among the best long-term returns in the industry, each with average gains of 20 percent or more since they started. Paulson Advantage fund climbed 25 percent in 2008 while the S&P 500 slumped 37 percent including dividends, its largest setback since the Great Depression. Viking rose 0.1 percent that year and Moore Global slid 4.6 percent, offering investors the type of bear-market shelter they look for in hedge funds. Many of the wagers that hedge funds put on to protect against falling markets didn’t work, Balter said. Their bets on falling stocks didn’t make enough money to counter losses in shares the managers expected to climb. Commodities retreated 8.2 percent in May, as measured by the UBS Bloomberg CMCI Index. Traders who positioned themselves for the U.S. yield curve to steepen, a sign of expected economic growth, suffered losses when the difference between payouts on two-year and 10-year Treasury notes narrowed instead. The spread shrank from 269 basis points at the end of April to 252 on May 28. A basis point is one-hundredth of a percent. SAC, Citadel SAC Capital Advisors LLC, the hedge-fund firm run by Steven Cohen in Stamford, Connecticut, with about $12 billion under management, lost 2.9 percent last month through May 21 with its SAC Capital International fund, trimming this year’s gain to about 4 percent, according to people familiar with the firm. Citadel Investment Group LLC, the $12 billion hedge-fund firm run by Ken Griffin , lost about 2 percent with its biggest funds last month through May 21, said people familiar with the Chicago firm. The funds soared as much as 62 percent last year as markets rebounded after losing as much as 55 percent in 2008. Brevan Howard Asset Management LLP in London, Europe’s largest hedge-fund firm, lost 0.1 percent for the month through May 21 with its Brevan Howard Fund Ltd., leaving it with a decline of 0.3 percent this year, according to an investor. Caxton Gains Some funds made money last month. Caxton Associates LLC, the New York-based firm founded by Bruce Kovner , rose 1 percent through May 21 with its largest fund as currency trades paid off, an investor said. The fund is up 4.5 percent for the year. Autonomy Capital Research LLP, based in London, climbed 0.7 percent through May 21 and about 12.5 percent for the year, according to people with knowledge of the fund. Robert Gibbins , manager for the $1.5 billion firm, said his trades were based on the forecast that global economies won’t improve until currencies are better aligned, and in particular Chinese officials agree to let the yuan strengthen, he said. “That people were looking for new highs on equities didn’t make sense to us,” Gibbins said in a telephone interview. Before last month, the S&P 500 had soared 80 percent from its 12-year low in March 2009, including dividends. Volatility Surge Gibbins said his profitable trades included wagers that the S&P 500 would fall and that interest rates in a number of countries would slide. BAM Capital LLC, a $300 million hedge-fund firm in New York that bets on price volatility, returned 7.7 percent last month through May 21 with its main BAM Opportunity Fund LP, bringing its gain for the year to 8.2 percent, according to an investor. The VIX , an index measuring volatility, jumped about 45 percent last month. Spokesmen for SAC, Citadel, Brevan Howard, Caxton and BAM Capital declined to comment. The price swings in May haven’t changed managers’ views on whether global economies are rebounding or shrinking. “Managers who are positive are still positive, and negative managers are still negative,” said Charles Krusen, head of Krusen Capital Management LLC, a New York-based firm that invests in hedge funds for clients. To contact the reporters on this story: Katherine Burton in New York at kburton@bloomberg.net ; Saijel Kishan in New York at skishan@bloomberg.net .

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Russian IPOs Fail to Lure China’s Skeptics as Deripaska Seeks More Sales

May 31, 2010

By Yuriy Humber and Hanny Wan June 1 (Bloomberg) — Billionaire Oleg Deripaska , who listed his United Co. Rusal in Hong Kong this year, says the city is Russia’s best chance to tap into Asian economic growth. Investors, who have watched debt-laden Rusal slump, are yet to be persuaded. “Hong Kong is the gateway to Asia,” Deripaska said in an interview at Hong Kong’s Conrad Hotel. “I focus more and more on Asia because I believe we can do better business in Asia than in struggling economies” such as the U.K. The challenge for the Russian companies seeking to follow Deripaska to Hong Kong will be to show Asian investors why they should care, at a time when initial public offerings worldwide struggle. Funds from RCM Asia Pacific Ltd. to Samsung Investment Trust say Russian IPOs don’t fit with their Asia-focused investment strategy. “Those companies can list here, but who wants to buy them?” said Pauline Dan , Hong Kong-based chief investment officer at Samsung Investment, which oversees about $78 billion. “Our focus is on Hong Kong, China. It’s not as if China doesn’t have resources itself.” That ambivalence may frustrate hopes by Russian companies to avoid European market turmoil by entering Asia, where wealth is accumulating faster than anywhere else, said Chris Weafer , chief strategist at UralSib Financial Corp. Many of them see Hong Kong as an “easy” alternative to London or New York, with regard to its liquidity and trading rules, as they seek to raise $100 billion over five years to repay debt and grow, he said. Faltering Markets Hong Kong, which raised the most IPO funds of any bourse in 2009 according to World Federation of Exchanges data, has not been immune to canceled share sales this year as sovereign-debt concerns in Europe roil global stocks. The MSCI World Index has fallen about 13 percent since its April 15 high. Aluminum maker Rusal has dropped about 31 percent since its $2.24 billion IPO in January, while the benchmark Hang Seng Index fell 1.3 percent. At least 20 companies around the world postponed or withdrew IPOs in May, including three from Russia: Deripaska’s Strikeforce Mining & Resources Plc had sought a listing in Hong Kong, sugar producer OAO Rusagro planned a sale in Moscow and fertilizer maker OAO UralChem had targeted London. Rusal’s IPO, Russia’s first in Hong Kong, relied on support from outside Asia. Vnesheconombank , Russia’s state-run bank, took 30 percent of the offering, and two more of the five cornerstone buyers were U.S. funds, including Paulson & Co. “Is Russia on the radar? Honestly? No,” said Ben Collett , head of equities for Louis Capital Markets brokerage in Hong Kong. “If you want to trade Russia then you’re in Europe.” China Fit Danny Yan , a fund manager at Taifook Asset Management Ltd. in Hong Kong, said unless a Russian company can show how a “significant” part of its business is related to China, he won’t buy it. Wariness among Chinese investors may scupper plans for some of the 40 Russian companies that have met with the Hong Kong exchange or enquired about a listing, according to figures from Igor Vdovin, a member of Russian business lobby RSPP. “Hong Kong is ambitious in trying to attract listings from companies that are domiciled elsewhere, but our view so far is that this is not a natural fit,” said Mark Konyn , chief executive officer of RCM Asia Pacific, which oversees $11 billion. Among the Russian companies with “Asian credentials” are the energy and metals exporters such as state-run oil producer OAO Rosneft , gas-export monopoly OAO Gazprom and OAO GMK Norilsk Nickel , UralSib’s Weafer said. Rosneft, Norilsk Rosneft signed a 20-year supply contract with China last year, while Norilsk sold 30 percent of its nickel to the nation and to India. Rusal plans to boost Asian sales to 30 percent of the total this year from 20 percent in 2009. Rusal set its IPO price on Jan. 22, three days after the Hang Seng began a three-week, 10 percent decline. Rusal fell 11 percent on its first trading day, Jan. 27, a “reasonable” move given global market volatility, Deripaska said that day. “It was priced toward the very top of the institutional demand curve before the market turned,” said Elena Khisamova , head of equity capital markets at VTB Capital, one of Rusal’s IPO managers. Still, Rusal’s sale was “a huge help in creating the path for future listings” from Russia, she said. Deripaska, 42, might have struggled to list Rusal in London, where Russian stocks are traditionally brokered, because the U.K. may have insisted on stricter regulation for the debt- saddled company, Weafer said. Deripaska said in April 2008 he would pick a location based on the most “comfortable solution.” Pay Down Debt Rusal completed Russia’s biggest debt restructuring in corporate history in December, agreeing with more than 70 creditors to extend repayments of about $14 billion over seven years. Net debt shrank to $12 billion as of March 31 as the company used the IPO proceeds to repay lenders. Taking into account the debt and Rusal’s $6 billion loss in 2008, the Hong Kong exchange enforced a minimum trading lot of 24,000 shares when the company went public. That put the stock beyond the reach of retail investors, the city’s most active traders, and Rusal isn’t included in any stock index, said Louis Capital’s Collett. Rusal’s subsequent share slump may have hurt other Russian companies hoping to draw Asian investors, said Alisher Djumanov , CEO of Beijing-based Eurasia Capital. “In Hong Kong, IPOs are associated with big gains,” Djumanov said. “Chinese investors kind of assume that if you invest in IPOs you can expect, at least in the beginning, some positive performance.” Last year, IPOs in the city achieved an average first-day gain of 15 percent, according to data compiled by Bloomberg. Perception Vs. Fundamentals The success of Russian IPOs in Hong Kong will depend as much on perception as fundamentals, Collett said. Samsung Investment, for one, didn’t feel “comfortable” with Rusal’s management during the IPO marketing, fund manager Dan said. “The perception of oligarchs here is bad,” Collett said. “The only thing that people know of Rusal is debt and question marks over Deripaska. They don’t know what those question marks are.” Deripaska, a nuclear physics graduate, became director of a Siberian aluminum smelter in 1994, aged 26. At the time, several groups vied for control of the industry, including with contract killings, which gave rise to the name of the “aluminum wars.” At the Siberian plant, Deripaska was supported by Trans- World Group, a trader part-owned by Uzbekistan-born entrepreneur Michael Cherney, who since 2008 has pursued legal claims for part of Deripaska’s aluminum fortune. Planned Listings Even after Rusal’s share decline and the delay of the Strikeforce listing, Deripaska still seeks more IPOs for his EN+ Group, the holding company for his Rusal stake and power utility OAO EuroSibEnergo. Hong Kong is a “priority” location for EN+ assets because of their geographical proximity to China, EN+ spokeswoman Elena Rollins said. Chinese investors need time to “gain understanding” of Russian companies, said Yonghao Pu, UBS Wealth Management’s chief investment strategist for the Asia Pacific region. That may take as long as 10 to 15 years because Russian companies need to build relationships in Asia, Eurasia Capital’s Djumanov said. Khisamova of VTB Capital disagrees. “When we brought first Russian companies to London for equity-raising 5 to 10 years ago, we got the same type of questions,” Khisamova said. “After three, maybe five deals, London became very familiar with Russia and a platform of choice” for the nation’s companies. To contact the reporters on this story: Yuriy Humber in Moscow at yhumber@bloomberg.net ; Hanny Wan in Hong Kong at hwan3@bloomberg.net .

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Russian IPOs Fail to Lure China’s Skeptics as Deripaska Seeks More Sales

May 31, 2010

By Yuriy Humber and Hanny Wan June 1 (Bloomberg) — Billionaire Oleg Deripaska , who listed his United Co. Rusal in Hong Kong this year, says the city is Russia’s best chance to tap into Asian economic growth. Investors, who have watched debt-laden Rusal slump, are yet to be persuaded. “Hong Kong is the gateway to Asia,” Deripaska said in an interview at Hong Kong’s Conrad Hotel. “I focus more and more on Asia because I believe we can do better business in Asia than in struggling economies” such as the U.K. The challenge for the Russian companies seeking to follow Deripaska to Hong Kong will be to show Asian investors why they should care, at a time when initial public offerings worldwide struggle. Funds from RCM Asia Pacific Ltd. to Samsung Investment Trust say Russian IPOs don’t fit with their Asia-focused investment strategy. “Those companies can list here, but who wants to buy them?” said Pauline Dan , Hong Kong-based chief investment officer at Samsung Investment, which oversees about $78 billion. “Our focus is on Hong Kong, China. It’s not as if China doesn’t have resources itself.” That ambivalence may frustrate hopes by Russian companies to avoid European market turmoil by entering Asia, where wealth is accumulating faster than anywhere else, said Chris Weafer , chief strategist at UralSib Financial Corp. Many of them see Hong Kong as an “easy” alternative to London or New York, with regard to its liquidity and trading rules, as they seek to raise $100 billion over five years to repay debt and grow, he said. Faltering Markets Hong Kong, which raised the most IPO funds of any bourse in 2009 according to World Federation of Exchanges data, has not been immune to canceled share sales this year as sovereign-debt concerns in Europe roil global stocks. The MSCI World Index has fallen about 13 percent since its April 15 high. Aluminum maker Rusal has dropped about 31 percent since its $2.24 billion IPO in January, while the benchmark Hang Seng Index fell 1.3 percent. At least 20 companies around the world postponed or withdrew IPOs in May, including three from Russia: Deripaska’s Strikeforce Mining & Resources Plc had sought a listing in Hong Kong, sugar producer OAO Rusagro planned a sale in Moscow and fertilizer maker OAO UralChem had targeted London. Rusal’s IPO, Russia’s first in Hong Kong, relied on support from outside Asia. Vnesheconombank , Russia’s state-run bank, took 30 percent of the offering, and two more of the five cornerstone buyers were U.S. funds, including Paulson & Co. “Is Russia on the radar? Honestly? No,” said Ben Collett , head of equities for Louis Capital Markets brokerage in Hong Kong. “If you want to trade Russia then you’re in Europe.” China Fit Danny Yan , a fund manager at Taifook Asset Management Ltd. in Hong Kong, said unless a Russian company can show how a “significant” part of its business is related to China, he won’t buy it. Wariness among Chinese investors may scupper plans for some of the 40 Russian companies that have met with the Hong Kong exchange or enquired about a listing, according to figures from Igor Vdovin, a member of Russian business lobby RSPP. “Hong Kong is ambitious in trying to attract listings from companies that are domiciled elsewhere, but our view so far is that this is not a natural fit,” said Mark Konyn , chief executive officer of RCM Asia Pacific, which oversees $11 billion. Among the Russian companies with “Asian credentials” are the energy and metals exporters such as state-run oil producer OAO Rosneft , gas-export monopoly OAO Gazprom and OAO GMK Norilsk Nickel , UralSib’s Weafer said. Rosneft, Norilsk Rosneft signed a 20-year supply contract with China last year, while Norilsk sold 30 percent of its nickel to the nation and to India. Rusal plans to boost Asian sales to 30 percent of the total this year from 20 percent in 2009. Rusal set its IPO price on Jan. 22, three days after the Hang Seng began a three-week, 10 percent decline. Rusal fell 11 percent on its first trading day, Jan. 27, a “reasonable” move given global market volatility, Deripaska said that day. “It was priced toward the very top of the institutional demand curve before the market turned,” said Elena Khisamova , head of equity capital markets at VTB Capital, one of Rusal’s IPO managers. Still, Rusal’s sale was “a huge help in creating the path for future listings” from Russia, she said. Deripaska, 42, might have struggled to list Rusal in London, where Russian stocks are traditionally brokered, because the U.K. may have insisted on stricter regulation for the debt- saddled company, Weafer said. Deripaska said in April 2008 he would pick a location based on the most “comfortable solution.” Pay Down Debt Rusal completed Russia’s biggest debt restructuring in corporate history in December, agreeing with more than 70 creditors to extend repayments of about $14 billion over seven years. Net debt shrank to $12 billion as of March 31 as the company used the IPO proceeds to repay lenders. Taking into account the debt and Rusal’s $6 billion loss in 2008, the Hong Kong exchange enforced a minimum trading lot of 24,000 shares when the company went public. That put the stock beyond the reach of retail investors, the city’s most active traders, and Rusal isn’t included in any stock index, said Louis Capital’s Collett. Rusal’s subsequent share slump may have hurt other Russian companies hoping to draw Asian investors, said Alisher Djumanov , CEO of Beijing-based Eurasia Capital. “In Hong Kong, IPOs are associated with big gains,” Djumanov said. “Chinese investors kind of assume that if you invest in IPOs you can expect, at least in the beginning, some positive performance.” Last year, IPOs in the city achieved an average first-day gain of 15 percent, according to data compiled by Bloomberg. Perception Vs. Fundamentals The success of Russian IPOs in Hong Kong will depend as much on perception as fundamentals, Collett said. Samsung Investment, for one, didn’t feel “comfortable” with Rusal’s management during the IPO marketing, fund manager Dan said. “The perception of oligarchs here is bad,” Collett said. “The only thing that people know of Rusal is debt and question marks over Deripaska. They don’t know what those question marks are.” Deripaska, a nuclear physics graduate, became director of a Siberian aluminum smelter in 1994, aged 26. At the time, several groups vied for control of the industry, including with contract killings, which gave rise to the name of the “aluminum wars.” At the Siberian plant, Deripaska was supported by Trans- World Group, a trader part-owned by Uzbekistan-born entrepreneur Michael Cherney, who since 2008 has pursued legal claims for part of Deripaska’s aluminum fortune. Planned Listings Even after Rusal’s share decline and the delay of the Strikeforce listing, Deripaska still seeks more IPOs for his EN+ Group, the holding company for his Rusal stake and power utility OAO EuroSibEnergo. Hong Kong is a “priority” location for EN+ assets because of their geographical proximity to China, EN+ spokeswoman Elena Rollins said. Chinese investors need time to “gain understanding” of Russian companies, said Yonghao Pu, UBS Wealth Management’s chief investment strategist for the Asia Pacific region. That may take as long as 10 to 15 years because Russian companies need to build relationships in Asia, Eurasia Capital’s Djumanov said. Khisamova of VTB Capital disagrees. “When we brought first Russian companies to London for equity-raising 5 to 10 years ago, we got the same type of questions,” Khisamova said. “After three, maybe five deals, London became very familiar with Russia and a platform of choice” for the nation’s companies. To contact the reporters on this story: Yuriy Humber in Moscow at yhumber@bloomberg.net ; Hanny Wan in Hong Kong at hwan3@bloomberg.net .

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Bond Selloff Yields `Gems’ for Tepper as T. Rowe Buys Junk Credit Markets

May 31, 2010

By Bryan Keogh and John Detrixhe June 1 (Bloomberg) — The worst month for corporate credit since markets seized up in 2008 means investors including hedge-fund manager David Tepper are seeing “gems” in everything from junk bonds to debt backed by commercial mortgages. The extra yield investors demand to own corporate bonds of all grades instead of Treasuries widened 44 basis points last month to 193 basis points, or 1.93 percentage points, Bank of America Merrill Lynch index data show. High-yield company debt lost 3.57 percent. Spreads on high- rated commercial mortgage bonds jumped 67 basis points to 306. Leveraged loan prices tumbled 3.89 percent to 89.11 cents on the dollar. “Corporates have entered this period with much stronger balance sheets and in particular I think many high-yield corporates are in a much stronger position to weather a storm,” said Dan Shackelford , a money manager who helps oversee $15 billion in fixed-income assets at T. Rowe Price Group Inc. in Baltimore. He’s “much more inclined at some point” to buy “corporate and high yield as opposed to throwing it all out and running for the hills,” he said. U.S. corporate profits rose 31 percent in the first quarter from a year earlier, the biggest gain since 1984, Commerce Department data released in Washington showed last week. Only six times in the past 60 years have earnings surged as fast, according to Barclays Capital. GDP Growth Each of those periods was followed by real gross domestic product growth of at least 3 percent the following year. The last time it happened, in 2004, the economy expanded 3.6 percent, from 2.5 percent in 2003, and yield spreads on investment- and speculative-grade corporate debt narrowed to an average of 138 basis points, from 171 basis points. “Junk bonds and credit have gotten so demolished,” said Burt White , who helps oversee $284 billion of securities as chief investment officer at LPL Financial Corp. in Boston. “You go in and pick up bargains.” White favors industrial company bonds, bank loans and high-yield debt. Sanjay Joshi , a money manager at London & Capital Group Ltd., is buying bonds of commodity and retail companies. “Measures to rebuild market confidence have been put in place,” said Joshi, who helps oversee more than $2.7 billion of assets. “We are seeing companies perform well with balance sheets healthier and a move into longer-term debt.” Last Week’s Rally Yield premiums on company bonds tightened at the end of last week as reports showed a gauge of U.S. consumer sentiment rose and purchases of new homes jumped to a two- year high. European governments including the U.K. and Portugal have pledged to slash their record budget deficits, with Greece promising to implement austerity measures equal to almost 14 percent of GDP in exchange for $1 billion in rescue funds from the European Union. That wasn’t enough to keep bonds from losing 0.45 percent on average in May, their first down month since dropping 0.57 percent in December, Bank of America Merrill Lynch indexes show. The volatility damped sales. Corporate bond issuance worldwide slowed to $66.1 billion, down from $183 billion in April and the least since December 2000, according to data compiled by Bloomberg. At least 14 companies withdrew offerings, including New York-based retailer Jones Apparel Group Inc. and theater chain operator Regal Entertainment Group. Tepper’s ‘Gems’ Tepper, who runs Short Hills, New Jersey-based Appaloosa Management LP, favors bonds backed by mortgages on everything from skyscrapers to shopping malls after yield spreads on the highest-rated debt widened by the most since February 2009, as measured by Barclays indexes. “There’s a lot of gems out there” in the commercial collateralized mortgage-backed securities market, Tepper said May 26 at the Ira Sohn Investment Research Conference in New York. He also recommended buying American International Group Inc. ’s 8.175 percent junior subordinated debt. Michael Donelan , who oversees $3.5 billion of bonds at Ryan Labs Inc., snapped up Goldman Sachs Group Inc. notes last week after shedding financial debt in early May. Corporate spreads “have really priced in a lot of bad news,” said Donelan, the firm’s director of trading and head portfolio manager based in New York. Senate Proposals Theodore Stamos , who helps oversee $70 billion of assets at Investec Asset Management Ltd., said he likes financial bonds after U.S. lawmakers “watered down” proposed regulatory changes for the industry presented to the Senate last month more than expected. “In the medium to long term, we see value in financial names which have recently underperformed,” said Stamos, a credit analyst and portfolio manager based in London. “We could see more stability in June, as we haven’t seen May’s kind of volatility since the stock market lows in March 2009.” The bond selloff last month that drove spreads wider and crimped new issues was a “deleveraging correction that has run its course” rather than a sign Europe faces a return to recession, BNP Paribas credit strategists led by Vivek Tawadey in London wrote in a May 28 report. Economic Recovery Markets rallied late last week as economic data buoyed investor confidence that the global recovery from the worst recession since the 1930s will continue, even as governments attempt to reduce spending to cut budget deficits. The Thomson Reuters/University of Michigan final May consumer sentiment index increased to 73.6 from 72.2 in April, according to a May 28 report. New-home sales in the U.S. increased 15 percent to an annual pace of 504,000 in April, the highest level since May 2008, while durable goods orders rose 2.9 percent, the biggest jump in three months, the Commerce Department said May 26. Spreads on global high-yield bonds narrowed 35 basis points to 708 basis points on May 27 to 28 as markets recovered. That’s down from a seven-month high of 743 basis points on May 25 and marks the biggest two-day drop since September, Bank of America Merrill Lynch index data show. Market ‘Thinness’ “Given the current thinness of the market, we must be cautious about drawing conclusions, but the bounce-back suggests there are investors who believe the fundamentals remain firm and will provide some support to prices,” according to Martin Fridson , the chief executive officer of Fridson Investment Advisors in New York. Credit markets were dealt fresh blows over the holiday weekend. Spain, struggling with the euro area’s third- largest budget deficit, lost its top credit grade at Fitch Ratings and the European Commission said confidence in the region’s economic outlook worsened in May, contrary to economists’ expectations. Fitch lowered Spain’s credit rating one step to AA+ from AAA after European markets closed May 28, saying that budget cuts “will materially reduce the rate of growth” of the country’s economy. An index of executive and consumer sentiment in the 16 euro nations fell to 98.4 from 100.6 in April, the commission in Brussels said yesterday. Economists had forecast a confidence reading of 100.6, based on the median of 25 estimates in a Bloomberg News survey. U.S. and U.K. markets were closed yesterday for public holidays. Credit Havens Debt investors found havens in investment-grade bonds of health care and service companies in May, which rallied 0.63 percent and 0.48 percent, compared with an average loss of 0.65 percent, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. Insurers’ bonds performed the worst, giving up 2.14 percent. High- yield bonds lost 4.01 percent. “There will be good buying opportunities to snap up bargains in the next one to three months,” said Felix Freund , a Frankfurt-based money manager at Union Investment GmbH, which oversees 160 billion euros ($198 billion) of assets. “The dust will eventually settle, and there are assets including corporate bonds that aren’t directly linked to the sovereign crisis and have sold off too much.” To contact the reporters on this story: Bryan Keogh in London at bkeogh4@bloomberg.net ; John Detrixhe in New York at jdetrixhe1@bloomberg.net

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Bond Selloff Yields `Gems’ for Tepper as T. Rowe Buys Junk Credit Markets

May 31, 2010

By Bryan Keogh and John Detrixhe June 1 (Bloomberg) — The worst month for corporate credit since markets seized up in 2008 means investors including hedge-fund manager David Tepper are seeing “gems” in everything from junk bonds to debt backed by commercial mortgages. The extra yield investors demand to own corporate bonds of all grades instead of Treasuries widened 44 basis points last month to 193 basis points, or 1.93 percentage points, Bank of America Merrill Lynch index data show. High-yield company debt lost 3.57 percent. Spreads on high- rated commercial mortgage bonds jumped 67 basis points to 306. Leveraged loan prices tumbled 3.89 percent to 89.11 cents on the dollar. “Corporates have entered this period with much stronger balance sheets and in particular I think many high-yield corporates are in a much stronger position to weather a storm,” said Dan Shackelford , a money manager who helps oversee $15 billion in fixed-income assets at T. Rowe Price Group Inc. in Baltimore. He’s “much more inclined at some point” to buy “corporate and high yield as opposed to throwing it all out and running for the hills,” he said. U.S. corporate profits rose 31 percent in the first quarter from a year earlier, the biggest gain since 1984, Commerce Department data released in Washington showed last week. Only six times in the past 60 years have earnings surged as fast, according to Barclays Capital. GDP Growth Each of those periods was followed by real gross domestic product growth of at least 3 percent the following year. The last time it happened, in 2004, the economy expanded 3.6 percent, from 2.5 percent in 2003, and yield spreads on investment- and speculative-grade corporate debt narrowed to an average of 138 basis points, from 171 basis points. “Junk bonds and credit have gotten so demolished,” said Burt White , who helps oversee $284 billion of securities as chief investment officer at LPL Financial Corp. in Boston. “You go in and pick up bargains.” White favors industrial company bonds, bank loans and high-yield debt. Sanjay Joshi , a money manager at London & Capital Group Ltd., is buying bonds of commodity and retail companies. “Measures to rebuild market confidence have been put in place,” said Joshi, who helps oversee more than $2.7 billion of assets. “We are seeing companies perform well with balance sheets healthier and a move into longer-term debt.” Last Week’s Rally Yield premiums on company bonds tightened at the end of last week as reports showed a gauge of U.S. consumer sentiment rose and purchases of new homes jumped to a two- year high. European governments including the U.K. and Portugal have pledged to slash their record budget deficits, with Greece promising to implement austerity measures equal to almost 14 percent of GDP in exchange for $1 billion in rescue funds from the European Union. That wasn’t enough to keep bonds from losing 0.45 percent on average in May, their first down month since dropping 0.57 percent in December, Bank of America Merrill Lynch indexes show. The volatility damped sales. Corporate bond issuance worldwide slowed to $66.1 billion, down from $183 billion in April and the least since December 2000, according to data compiled by Bloomberg. At least 14 companies withdrew offerings, including New York-based retailer Jones Apparel Group Inc. and theater chain operator Regal Entertainment Group. Tepper’s ‘Gems’ Tepper, who runs Short Hills, New Jersey-based Appaloosa Management LP, favors bonds backed by mortgages on everything from skyscrapers to shopping malls after yield spreads on the highest-rated debt widened by the most since February 2009, as measured by Barclays indexes. “There’s a lot of gems out there” in the commercial collateralized mortgage-backed securities market, Tepper said May 26 at the Ira Sohn Investment Research Conference in New York. He also recommended buying American International Group Inc. ’s 8.175 percent junior subordinated debt. Michael Donelan , who oversees $3.5 billion of bonds at Ryan Labs Inc., snapped up Goldman Sachs Group Inc. notes last week after shedding financial debt in early May. Corporate spreads “have really priced in a lot of bad news,” said Donelan, the firm’s director of trading and head portfolio manager based in New York. Senate Proposals Theodore Stamos , who helps oversee $70 billion of assets at Investec Asset Management Ltd., said he likes financial bonds after U.S. lawmakers “watered down” proposed regulatory changes for the industry presented to the Senate last month more than expected. “In the medium to long term, we see value in financial names which have recently underperformed,” said Stamos, a credit analyst and portfolio manager based in London. “We could see more stability in June, as we haven’t seen May’s kind of volatility since the stock market lows in March 2009.” The bond selloff last month that drove spreads wider and crimped new issues was a “deleveraging correction that has run its course” rather than a sign Europe faces a return to recession, BNP Paribas credit strategists led by Vivek Tawadey in London wrote in a May 28 report. Economic Recovery Markets rallied late last week as economic data buoyed investor confidence that the global recovery from the worst recession since the 1930s will continue, even as governments attempt to reduce spending to cut budget deficits. The Thomson Reuters/University of Michigan final May consumer sentiment index increased to 73.6 from 72.2 in April, according to a May 28 report. New-home sales in the U.S. increased 15 percent to an annual pace of 504,000 in April, the highest level since May 2008, while durable goods orders rose 2.9 percent, the biggest jump in three months, the Commerce Department said May 26. Spreads on global high-yield bonds narrowed 35 basis points to 708 basis points on May 27 to 28 as markets recovered. That’s down from a seven-month high of 743 basis points on May 25 and marks the biggest two-day drop since September, Bank of America Merrill Lynch index data show. Market ‘Thinness’ “Given the current thinness of the market, we must be cautious about drawing conclusions, but the bounce-back suggests there are investors who believe the fundamentals remain firm and will provide some support to prices,” according to Martin Fridson , the chief executive officer of Fridson Investment Advisors in New York. Credit markets were dealt fresh blows over the holiday weekend. Spain, struggling with the euro area’s third- largest budget deficit, lost its top credit grade at Fitch Ratings and the European Commission said confidence in the region’s economic outlook worsened in May, contrary to economists’ expectations. Fitch lowered Spain’s credit rating one step to AA+ from AAA after European markets closed May 28, saying that budget cuts “will materially reduce the rate of growth” of the country’s economy. An index of executive and consumer sentiment in the 16 euro nations fell to 98.4 from 100.6 in April, the commission in Brussels said yesterday. Economists had forecast a confidence reading of 100.6, based on the median of 25 estimates in a Bloomberg News survey. U.S. and U.K. markets were closed yesterday for public holidays. Credit Havens Debt investors found havens in investment-grade bonds of health care and service companies in May, which rallied 0.63 percent and 0.48 percent, compared with an average loss of 0.65 percent, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. Insurers’ bonds performed the worst, giving up 2.14 percent. High- yield bonds lost 4.01 percent. “There will be good buying opportunities to snap up bargains in the next one to three months,” said Felix Freund , a Frankfurt-based money manager at Union Investment GmbH, which oversees 160 billion euros ($198 billion) of assets. “The dust will eventually settle, and there are assets including corporate bonds that aren’t directly linked to the sovereign crisis and have sold off too much.” To contact the reporters on this story: Bryan Keogh in London at bkeogh4@bloomberg.net ; John Detrixhe in New York at jdetrixhe1@bloomberg.net

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Ed Markey Demands BP Produce Oil Plume Research, Data

May 31, 2010

WASHINGTON — A congressman is questioning BP CEO Tony Hayward’s claim that the oil company has not found evidence of underwater oil plumes. Scientists have reported plumes as long as 22 miles. Rep. Edward Markey, D-Mass., said BP in this instance means “Blind to Plumes.” He sent a letter to Hayward Monday asking for documents to back up his claims. Markey, chairman of a House Energy and Commerce Committee environmental panel, said it is vital that the government and researchers have unfettered access to all relevant data or analysis concerning underwater plumes. He also called on BP to offer “complete transparency” on its video feeds from the company’s underwater operations, calling any delay or other obstacle unacceptable.

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Ed Markey Demands BP Produce Oil Plume Research, Data

May 31, 2010

WASHINGTON — A congressman is questioning BP CEO Tony Hayward’s claim that the oil company has not found evidence of underwater oil plumes. Scientists have reported plumes as long as 22 miles. Rep. Edward Markey, D-Mass., said BP in this instance means “Blind to Plumes.” He sent a letter to Hayward Monday asking for documents to back up his claims. Markey, chairman of a House Energy and Commerce Committee environmental panel, said it is vital that the government and researchers have unfettered access to all relevant data or analysis concerning underwater plumes. He also called on BP to offer “complete transparency” on its video feeds from the company’s underwater operations, calling any delay or other obstacle unacceptable.

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Gulf Oil Spill: Massive Underwater Plumes Spell Disaster, Scientists Say

May 31, 2010

NEW ORLEANS — Independent scientists and government officials say there’s a disaster we can’t see in the Gulf of Mexico’s mysterious depths, the ruin of a world inhabited by enormous sperm whales and tiny, invisible plankton. Researchers have said they have found at least two massive underwater plumes of what appears to be oil, each hundreds of feet deep and stretching for miles. Yet the chief executive of BP PLC – which has for weeks downplayed everything from the amount of oil spewing into the Gulf to the environmental impact – said there is “no evidence” that huge amounts of oil are suspended undersea. BP CEO Tony Hayward said the oil naturally gravitates to the surface – and any oil below was just making its way up. However, researchers say the disaster in waters where light doesn’t shine through could ripple across the food chain. “Every fish and invertebrate contacting the oil is probably dying. I have no doubt about that,” said Prosanta Chakrabarty, a Louisiana State University fish biologist. On the surface, a 24-hour camera fixed on the spewing, blown-out well and the images of dead, oil-soaked birds have been evidence of the calamity. At least 20 million gallons of oil and possibly 43 million gallons have spilled since the Deepwater Horizon drilling rig exploded and sank in April. That has far eclipsed the 11 million gallons released during the Exxon Valdez spill off Alaska’s coast in 1989. But there is no camera to capture what happens in the rest of the vast Gulf, which sprawls across 600,000 square miles and reaches more than 14,000 feet at its deepest point. Every night, the denizens of the deep make forays to shallower depths to eat – and be eaten by – other fish, according to marine scientists who describe it as the largest migration on earth. In turn, several species closest to the surface – including red snapper, shrimp and menhaden – help drive the Gulf Coast fishing industry. Others such as marlin, cobia and yellowfin tuna sit atop the food chain and are chased by the Gulf’s charter fishing fleet. Many of those species are now in their annual spawning seasons. Eggs exposed to oil would quickly perish. Those that survived to hatch could starve if the plankton at the base of the food chain suffer. Larger fish are more resilient, but not immune to the toxic effects of oil. The Gulf’s largest spill was in 1979, when the Ixtoc I platform off Mexico’s Yucatan peninsula blew up and released 140 million gallons of oil. But that was in relatively shallow waters – about 160 feet deep – and much of the oil stayed on the surface where it broke down and became less toxic by the time it reached the Texas coast. But last week, a team from the University of South Florida reported a plume was headed toward the continental shelf off the Alabama coastline, waters thick with fish and other marine life. The researchers said oil in the plumes had dissolved into the water, possibly a result of chemical dispersants used to break up the spill. That makes it more dangerous to fish larvae and creatures that are filter feeders. Responding to Hayward’s assertion, one researcher noted that scientists from several different universities have come to similar conclusions about the plumes after doing separate testing. No major fish kills have been reported, but federal officials said the impacts could take years to unfold. “This is just a giant experiment going on and we’re trying to understand scientifically what this means,” said Roger Helm, a senior official with the U.S. Fish and Wildlife Service. In 2009, LSU’s Chakrabarty discovered two new species of bottom-dwelling pancake batfish about 30 miles off the Louisiana coastline – right in line with the pathway of the spill caused when the Deepwater Horizon burned and sank April 24. By the time an article in the Journal of Fish Biology detailing the discovery appears in the August edition, Chakrabarty said, the two species – which pull themselves along the seafloor with feet-like fins – could be gone or in serious decline. “There are species out there that haven’t been described, and they’re going to disappear,” he said. Recent discoveries of endangered sea turtles soaked in oil and 22 dolphins found dead in the spill zone only hint at the scope of a potential calamity that could last years and unravel the Gulf’s food web. Concerns about damage to the fishery already is turning away potential customers for charter boat captains such as Troy Wetzel of Venice. To get to waters unaffected by the spill, Wetzel said he would have to take his boat 100 miles or more into the Gulf – jacking up his fuel costs to where only the wealthiest clients could afford to go fishing. Significant amounts of crude oil seep naturally from thousands of small rifts in the Gulf’s floor – as much as two Exxon Valdez spills every year, according to a 2000 report from government and academic researchers. Microbes that live in the water break down the oil. The number of microbes that grow in response to the more concentrated BP spill could tip that system out of balance, LSU oceanographer Mark Benfield said. Too many microbes in the sea could suck oxygen from the water, creating an uninhabitable hypoxic area, or “dead zone.” Preliminary evidence of increased hypoxia in the Gulf was seen during an early May cruise aboard the R/V Pelican, carrying researchers from the University of Georgia, the University of Mississippi and the University of Southern Mississippi. An estimated 910,000 gallons of dispersants – enough to fill more than 100 tanker trucks – are contributing a new toxin to the mix. Containing petroleum distillates and propylene glycol, the dispersants’ effects on marine life are still unknown. What is known is that by breaking down oil into smaller droplets, dispersants reduce the oil’s buoyancy, slowing or stalling the crude’s rise to the surface and making it harder to track the spill. Dispersing the oil lower into the water column protects beaches, but also keeps it in cooler waters where oil does not break down as fast. That could prolong the oil’s potential to poison fish, said Larry McKinney, director of the Harte Research Institute at Texas A&M University-Corpus Christi. “There’s a school of thought that says we’ve made it worse because of the dispersants,” he said. ___ Associated Press writer Jason Dearen contributed to this report from San Francisco.

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