May 2010

Bear Market Risks Increase to 40%, Scottish Widows Manager Says

May 28, 2010
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BP Credibility Questions Grow as U.S. Lawmakers Press Gulf Spill Inquiry

May 28, 2010
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Bernanke `Extended Period’ Resolve May Be Eroded as Delinquencies Decline

May 28, 2010
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HSBC’s Chairman Stephen Green Will Stay at Least Until 2011 Annual Meeting

May 28, 2010
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Volkswagen Appoints Neumann to Run Chinese Division, Vahland to Lead Skoda

May 28, 2010
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IBM’s Palmisano Likely to Cede CEO Post Next Year for Historic Succession

May 28, 2010
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Bond Sales Fall to Least in Decade, Yields Soar: Credit Markets

May 28, 2010
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Ford Said to Plan End of Neglected Mercury After Seven Decades

May 28, 2010

By Keith Naughton May 28 (Bloomberg) — Ford Motor Co. is preparing to wind down the Mercury line, created in 1939 by Edsel Ford , after sales plunged 74 percent since 2000, said two people familiar with the plan. The automaker’s top executives are preparing a proposal to kill Mercury to be presented to directors in July, said the people, who asked not to be indentified revealing internal discussions. Mercury, losing two of four models next year, will be starved of products and promotion, the people said. Chief Executive Officer Alan Mulally emphasized the automaker’s namesake brand as he revived the only major U.S. automaker to avoid bankruptcy. The timing of Mercury’s demise depends on how fast executives can convince the brand’s dealers, who also sell Lincoln models, to close or merge with Ford showrooms, they said. “Mercury is a forgotten brand,” said John Wolkonowicz , an auto analyst with IHS Global Insight in Lexington, Massachusetts. “Many Americans probably already think it has been discontinued. Mercury was too similar to Ford from the very beginning.” Mulally also is unloading Ford’s European luxury brands, after the automaker failed to achieve a goal to have them generate one-third of automotive profits. Ford in March agreed to sell Volvo to China’s Zhejiang Geely Holding Co. It sold off Jaguar, Land Rover and Aston Martin in the last three years. “We continue to evaluate all of our models and brands,” Mulally told reporters in Washington, D.C., yesterday. “We have no change in our position about Ford or Lincoln or Mercury.” Detroit’s Departed Mercury would join Pontiac, Saturn, Oldsmobile and Plymouth among the departed Detroit brands of the 21st century. Sales will end within four years, one of the people estimated. General Motors Co., as part of its U.S.-backed reorganization last year, sold or closed four of its eight brands sold domestically. Edsel Ford, son of founder Henry Ford , established Mercury during the Great Depression as a mid-priced alternative to mainstream Ford and upscale Lincoln. Edsel’s great grand- daughter, Elena Ford , now the automaker’s director of global marketing, initially opposed discontinuing Mercury, which she was in charge of promoting prior to 2002, the people said. Doing away with Mercury is supported by Ford Executive Chairman Bill Ford and other members of the founding family, who have 40 percent voting control of the automaker through a special class of stock, the people said. With Mercury accounting for 1.9 percent of Ford’s global sales in the first quarter , the family has decided ending it is best for the business, the people said. ‘End of an Era’ “Edsel Ford is revered in the family and Mercury was his creation,” said Wolkonowicz, a former Ford product planner. “This is the end of an era.” Bill and Elena Ford declined to comment, said Mark Truby , a Ford spokesman. “Our plans regarding Mercury have not changed,” he said. “Like any good business, we constantly assess our business portfolio. If things change, we will let you know.” Mercury sales peaked in 1978 at 579,498, when it had the slogan “At the Sign of the Cat.” Deliveries fell 84 percent to 92,299 last year. As the U.S. auto market recovers, Mercury’s sales are up 23 percent this year through April, less than Ford Motor’s overall gain of 33 percent, according to researcher Autodata Corp. of Woodcliff Lake, New Jersey. Mercury had 0.9 percent of the U.S. market through April, unchanged from 2009. “We’ll miss Mercury because there was still a market for it, albeit small,” said Stephen Amabile, a Lincoln Mercury dealer in Springfield, Pennsylvania. “The brand has been starved for product. It’s no secret that the company just wants to polish the Ford oval and rebuild Lincoln.” Focus on Ford Mulally, since arriving from Boeing Co. in September 2006, put a priority on improving quality and expanding the offerings of the Ford brand to lessen its dependence on pickups and sport- utility vehicles. He ended three years of losses at the Dearborn, Michigan-based automaker by earning $2.7 billion last year and has said 2010 will be “solidly profitable.” Ford rose 60 cents, or 5.3 percent, to $11.99 at 4 p.m. in composite trading on the New York Stock Exchange. The shares have risen 20 percent this year. As Mulally focused on the namesake brand, Mercury withered, the people said. Ford’s ad spending on Mercury fell 88 percent from 2005 through 2009, according to researcher Kantar Media of New York. Last year, Ford stopped selling the Mercury Sable, a sibling to the Taurus. The Mountaineer, Mercury’s version of the Explorer, is to go away next year as Ford rolls out a new version of the SUV. Since Mulally’s arrival, Ford stopped giving Mercury exclusive features and technology, the people said. That made Mercury less distinctive than comparable Fords, which tend to be priced lower. ‘On the Cheap’ “The reason Mercury failed throughout its existence is because Ford never wanted to spend any money on it,” Wolkonowicz said. “Ford always wanted to do it on the cheap and the results were what you’d expect.” Mercury’s top-selling model is the Milan , a sibling of the Ford Fusion , with sales up 53 percent this year. Mercury also sells its own version of the Ford Escape SUV, known as the Mariner, which has had a 22 percent sales gain through April. Ford is scheduled to replace those models in 2012 and 2013 and could drop the Mercury versions, Wolkonowicz said. Mercury’s second best-selling model, the Grand Marquis, is being retired next year as Ford stops producing a trio of large, rear-wheel drive sedans that also includes the Lincoln Town Car and Ford Crown Victoria. Mulally has emphasized more fuel- efficient models, such as the Fiesta and Focus small cars Ford is introducing this year in the United States. Neither has a Mercury counterpart. Oldest Buyers “The Grand Marquis has the oldest buyer demographics in the industry with an average age of 70,” Wolkonowicz said. “There are still members of the Depression generation who will miss Mercury.” The brand’s cultural heyday came in the 1950s, when hot- rodders favored its engines, which were larger and faster than those found in Ford models, Wolkonowicz said. James Dean drove a Mercury in the 1955 movie “Rebel Without a Cause.” Along with Lincoln, Mercury sponsored “The Ed Sullivan Show” on CBS in the 1950s and 1960s. Detective Steve McGarrett, played by actor Jack Lord , drove a black Marquis in the “Hawaii Five-0” TV series on CBS in the 1970s. As Mercury’s sales plunged, so too have its profits, Wolkonowicz said. With one-quarter of the sales it had a decade ago, it’s hard to rationalize the line’s continued existence, he said. “I’m not surprised to see Mercury go because they don’t sell enough of them,” Wolkonowicz said. “It’s been a case of benign neglect for years.” To contact the reporter on this story: Keith Naughton in Southfield, Michigan, at Knaughton3@bloomberg.net

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Spyker In Talks to Build Version of 1950s Saab Model

May 28, 2010

By Ola Kinnander May 28 (Bloomberg) — Spyker Cars NV , Saab Automobile’s owner, is in talks with automakers to share technology and an underbody for a new car based on a 1950s Saab model, Chief Executive Officer Victor Muller said in an interview. “Discussions are already ongoing,” Muller said in a telephone interview yesterday on his way from Gothenburg, Sweden, to Saab’s plant in Trollhaettan. “That will be on my plate for the next 100 days.” The new small car would be tear-drop shaped, inspired by the Saab 92 model that was in production between 1949 and 1956, he said, declining to say with whom he’s been negotiating. Spyker, the Dutch maker of supercars, bought Saab in February from General Motors Co., completing a 14-month effort by GM to either unload the company or close it down. Saab, which begins selling the new 9-5 model May 31, has spent the last three months restarting production and severing the GM ties. “Saab is going to have to reignite interest in the brand, go back to its core values” of the 1980s and 1990s when it appealed to “creative” professionals such as architects, said Ian Fletcher , a European automotive analyst at IHS Global Insight in London. “Muller has to be optimistic.” Spyker rose as much as 18 cents, or 6.4 percent, to 2.93 euros and traded at that price as of 9:54 a.m. in Amsterdam. The stock is up 37 percent this year. Sales Target Saab aims to sell between 50,000 and 55,000 cars this year, of which 17,000 would be the new 9-5, Muller said. Next year Saab targets sales of 100,000 cars, including 40,000 9-5s and about 10,000 9-4X, a midsize crossover SUV to be built at a GM plant in Mexico starting in April 2011, he said. Spyker is seeking a partnership as carmakers begin to work with one another to lower development costs. Renault SA and Daimler AG agreed last month to share car designs and engines while Daimler’s Mercedes-Benz has a deal to purchase components together with Bayerische Motoren Werke AG . “It’s like musical chairs in the car industry,” Muller said. “Everybody is sharing everything with everyone.” Spyker , after considering the U.K. and Sweden, is leaning towards moving its stock listing to Stockholm from Amsterdam, Muller said, explaining just a fraction of its business remains in the Netherlands. “I’m very optimistic about it,” Muller said of the Stockholm listing. “99.5 percent of our business is Swedish, is Saab, and we do feel that a listing in Amsterdam clearly is no longer logical in any way, shape or form.” Saab aims to reach an agreement with a Chinese distributor within a couple months, he said, denying media reports this week that Saab and Beijing Automotive Industry Holding Co. have reached a distribution deal. To contact the reporters on this story: Ola Kinnander in Stockholm at okinnander@bloomberg.net .

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Chatty Farmers Help Suzuki India Salesmen as GM Enters Cities

May 28, 2010

By Vipin V. Nair May 28 (Bloomberg) — Maruti Suzuki India Ltd. salesman Ram Krishna Upadhyaya goes to a farmers’ market three times a week to find out who has had a good crop and can afford a new car. “Many people think that the rich only live in cities, but there are lots of people with enough money to buy a car in villages,” Upadhyaya, 33, said in Mankapur, 400 miles southeast of New Delhi. “Also, there’s no competition to sell a car in rural areas.” India’s largest carmaker more than doubled rural sales last year as Upadhyaya and 4,000 other agents used a personal touch in villages where televisions and newspapers are a rarity. The Suzuki Motor Corp. unit has built a network targeting India’s at least 700 million rural residents as General Motors Co. , Volkswagen AG and Tata Motors Ltd. challenge its grip on cities. “It’s a huge competitive advantage for Maruti,” said Juergen Maier , who helps manage 1.1 billion euros ($1.4 billion) of assets, including Indian stocks, at Raiffeisen Capital Management in Vienna. “Rural markets are difficult to enter as you need the volumes to attract dealers, so it will take some time for new players to get there.” India’s nationwide auto sales increased 25 percent to 1.53 million in the year ended March, with New Delhi-based Maruti accounting for half the market. Sales may reach 3 million units by 2015, according to the government. No Ties Maruti increased the proportion of sales it got from rural areas to 16.5 percent in the year ended March from 3.5 percent two years earlier by reaching out to villagers who hadn’t previously considered owning a car, said Mayank Pareek , managing executive officer in charge of marketing and sales. About half of India’s more than 600,000 villages didn’t have all-weather roads as recently as five years ago, he said. “We found that many people in villages don’t feel comfortable going to an air-conditioned showroom and talking to a salesman wearing a tie,” he said. “We have seen only the tip of the iceberg” in terms of rural sales. Maruti fell 1.1 percent to 1,225.20 rupees at the close of trading in Mumbai today. The stock has declined 21 percent this year. Prime Minister Manmohan Singh is boosting spending on agriculture and rural infrastructure under the “ Build India ” campaign, designed to create jobs and improve living standards. In China, government efforts including vehicle subsidies helped rural auto sales growth outpace urban areas for the first time last year, according to the nation’s commerce ministry. China passed the U.S. as the world’s largest auto market in 2009. Market Tent Maruti has 812 dealers across India, who can operate more than one outlet. Upadhyaya runs a small showroom near Mankapur and also displays cars under a tent each week at the farmers’ market. He sells about 10 cars a month, he said by phone. Sugarcane farmer Karta Ram Paswan bought an air-conditioned Maruti Alto hatchback, costing from 269,713 rupees ($5,700), after Upadhyaya invited him to view cars at the market and helped arrange financing. “I know the salesman quite well and he has promised to look after any problems,” Paswan, 25, said by phone. “I’ve never heard of Volkswagen or General Motors.” Maruti faces rising competition, including from Tata , which is working through 100,000 advance orders for the 123,360 rupee Nano, the world’s cheapest car. Other automakers are also pushing into rural markets amid increasing competition in Mumbai, New Delhi and other cities. GM, Volkswagen GM plans to have 300 dealerships and a similar number of service outlets in India by the end of the year, up from around 200, said Karl Slym , the head of its local operations. The company expects to open 60 percent of new dealers in towns of 500,000 people or less, he said. Particularly in small towns, the carmaker wants dealers who are “connected locally,” he said. Volkswagen, which has 43 dealerships in India now, aims to have 120 by 2012. It began selling the Polo, which costs 434,000 rupees in New Delhi, earlier this year. The carmaker will decide whether to move into rural areas after meeting demand in cities, it said in reply to Bloomberg News questions. Ford Motor Co. has invested $950 million in a factory in Chennai and introduced the 350,000 rupee Figo this year. It also opened 28 facilities in 24 cities on a single day in February. It aims to have 200 dealerships and service stations by end of the year, from 164 in 97 cities now. “Other manufacturers are playing catch up,” said John Bonnell , Asia-Pacific director of forecasting at JD Power & Associates. Maruti is “in a strong position and will do well over time.” To contact the reporter on this story: Vipin V. Nair in Mumbai at Vnair12@bloomberg.net .

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Portugal Telecom in Talks on Possible Bid for Vivo

May 28, 2010

By Serena Saitto and Fabiola Moura May 28 (Bloomberg) — Portugal Telecom SA , escalating a battle for Brazilian wireless operator Vivo Participacoes SA , is in talks with investors from the Middle East and Asia as it weighs a possible offer for Telefonica SA’s stake. “I can tell you for sure that there are people interested from the Middle East and from Asia,” said Jose Maria Espirito Santo Ricciardi, an executive of Banco Espirito Santo SA , Portugal Telecom’s second-biggest shareholder . He declined to name any of the investors. Either Portugal Telecom buys Telefonica out of Vivo or the Portuguese operator needs to find another company in Brazil, Ricciardi, chief executive officer of Banco Espirito Santo’s investment banking unit, said in an interview at Bloomberg’s headquarters in New York yesterday. Brazil, whose economy analysts forecast will grow by the most in more than two decades this year, has South America’s largest mobile-phone market. Telefonica, Spain’s biggest phone company , prompted a fight for control of Vivo with an unsolicited 5.7 billion-euro ($7 billion) offer this month to buy Portugal Telecom’s stake. The Portuguese company rejected the offer. Both companies declined to comment today on remarks from Ricciardi. What appear to be “irreconcilable differences” probably will lead Portugal Telecom and Telefonica to end their partnership, said Peter Lyons , a telecom analyst at New York-based brokerage Oscar Gruss & Son Inc. ‘Bad Marriage’ “It is like a bad marriage,” he said. “These situations can continue to plod along for years, and they have done already for many years, and could go on for more years but the pressure is building within the shareholder structure of each company to come to some kind of resolution.” The preferred shares of Sao Paulo-based Vivo rose 2 percent to 51.20 reais yesterday, its highest closing price since February. The voting Vivo shares surged 7.4 percent to 74.10 reais. Portugal Telecom slipped 0.8 percent to 8.348 euros as of 10:30 a.m. in Lisbon while Telefonica rose 0.7 percent to 15.71 euros in Madrid. Portugal Telecom, based in Lisbon, also is exploring ways to end its partnership with Telefonica in Portugal, Ricciardi, said in the interview. Telefonica of Madrid is Portugal Telecom’s largest shareholder with a 10 percent stake. “Status quo is not an option anymore, everything is possible,” Ricciardi said. “The only solution that I see on this is to find a way for Portugal Telecom and Telefonica to have important investments in Brazil that are not in the same company.” Brazil’s economy may grow 6.5 percent this year after shrinking in 2009, according to central bank survey of about 100 economists published this week. ‘Strategic’ Holding “For us it’s key to stay in Brazil and price is not the issue,” Ricciardi said. His comments echoed those of Portugal Prime Minister Jose Socrates , who said in Sao Paulo yesterday that Portugal Telecom’s stake in Vivo is “strategic.” The government holds Portugal Telecom veto powers, which are being challenged by the European Commission. Telefonica and Portugal Telecom each own 50 percent of Brasilcel NV, an unlisted company that controls about 60 percent of Vivo. America Movil SAB, the Latin American wireless carrier controlled by Carlos Slim , owns Claro, Brazil’s second-biggest mobile-phone company after Vivo. Brazil’s third-largest wireless carrier is Tim Participacoes SA , which is two-thirds owned by Telecom Italia SpA, Italy’s biggest phone company. Tele Norte Leste Participacoes SA , known as Oi, is Brazil’s fourth-biggest wireless carrier and its biggest land-line company. It’s controlled by a group of Brazilian investors. Oi Option Portugal Telecom is more likely to find another way to stay in Brazil without buying Telefonica’s stake in Vivo, said Lyons, at Oscar Gruss. “Vivo will likely remain at the end of the day with Telefonica and Portugal Telecom would probably find a better fit in another vehicle in Brazil with such as, at some level of ownership, in Oi,” Lyons said. “That alternative makes more sense than Portugal Telecom buying Telefonica out of Vivo.” Telefonica Chairman Cesar Alierta first publicly expressed an interest in taking control of Vivo in 2006. Telefonica, whose $4 billion bid last year for Brazil’s GVT (Holding) SA was topped by France’s Vivendi SA’s $4.18 billion offer, needs to revive its Brazilian operations and wants to merge Vivo with Telecomunicacoes de Sao Paulo SA , or Telesp, the Spanish company’s fixed-line unit in Brazil. Portugal Telecom Chief Executive Officer Zeinal Bava said in an interview in New York this week that the Telefonica offer was “opportunistic” while analysts with ING Grope NV and Sanford C Bernstein suggested Telefonica should raise its offer to 7.5 billion euros “The current valuation Telefonica is putting on the Vivo asset, we think it’s low, we think it’s opportunistic, clearly taking advantage of the fact that southern Europe is having one of its worst crises for the last three decades,” Bava said in the interview. To contact the reporters on this story: Serena Saitto in New York at ssaitto@bloomberg.net . Fabiola Moura in New York at fdemoura@bloomberg.net ;

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Arcandor’s Karstadt Gets Three Bids Close to Deadline

May 28, 2010

By Holger Elfes May 28 (Bloomberg) — Karstadt, the insolvent German department-store chain, received three binding bids from investors before today’s deadline. The offers came from private equity company Triton, investment firm Berggruen Holdings Ltd. and the Highstreet partnership, which owns most of Karstadt’s real estate, said Thomas Schulz , spokesman for administrator Klaus Hubert Goerg , in an interview today. Goerg began talks in February with potential buyers of Karstadt , which employs 25,000 people. He may extend the deadline beyond today as the company’s creditors didn’t have enough time to study the offers before they were due to meet at 11 a.m. today in Essen, where Karstadt is based, Schulz said. Triton said in an e-mailed statement that it will immediately invest 100 million euros ($124 million) if it buys Karstadt, followed by a further 400 million euros in the next five years. The investment firm also said it wants “market- conform rents” and performance-linked wages for workers. Spokespeople for Highstreet and Berggruen confirmed the offers, while declining to discuss details. Schulz also declined to provide any details of the bids. Two were received late yesterday and one this morning, he said. Shares Gain Arcandor AG , the insolvent parent of Karstadt, formed Highstreet in 2006, selling a majority holding to Goldman Sachs Group Inc.’s Whitehall real estate funds for 3.7 billion euros. Two years ago, the retailer sold its 49 percent stake in Highstreet for 800 million euros to a group formed by Pirelli & C. Real Estate SpA , Generali Real Estate Fund SA, Deutsche Bank AG’s RREEF Real Estate and Borletti Group. Arcandor shares rose 6 percent to 23 cents in Frankfurt trading today. The stock has almost doubled in value this week, giving the company a market value of 58.2 million euros. “The shares are rising on speculation that some remaining assets still have a value,” said Christoph Schlienkamp , an analyst at Bankhaus Lampe in Dusseldorf. “No money from a possible Karstadt sale will go to Arcandor.” Some Karstadt bidders have asked workers for wage cuts and landlords for lower rents. The Ver.di labor union has said it opposes pay cuts beyond those workers had already agreed on. To contact the reporter on this story: Holger Elfes in Dusseldorf, Germany, at helfes@bloomberg.net .

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Libor for Dollars Snaps 13-Day Advance as Banks Less Wary of Lending Cash

May 28, 2010

By Keith Jenkins May 28 (Bloomberg) — The rate banks say they pay for three-month loans in dollars fell, snapping 13 days of gains, as financial institutions became less wary of lending cash. The London interbank offered rate , or Libor, for such loans slipped to 0.536 percent today, from 0.538 percent yesterday, according to data from the British Bankers’ Association. The last time if declined was on May 10. The dollar Libor-OIS spread, a gauge of banks’ reluctance to lend, also dropped. “Tensions have definitely eased and that usually indicates that Libor will come down,” said David Keeble , head of fixed- income strategy at Credit Agricole Corporate and Investment Bank in London. “The Libor-OIS spread has also narrowed, which allays some of the fears over the availability of dollars to European institutions.” Central banks are offering more cash to reduce tensions in money markets that caused Libor to more than double this year as the European sovereign debt crisis deepened. The European Union announced an almost $1 trillion backstop to aid its most indebted members on May 10. The same day, the Federal Reserve reopened dollar currency swaps with major central banks to alleviate funding pressures among euro-region lenders. “There is not a universal shortage of dollars because the Fed’s balance sheet now amounts to $2.4 trillion instead of around $930 billion in mid-2008,” Keeble said. “The blockage is due mainly to European institutions finding it hard to get dollars.” Libor-OIS Spread The dollar Libor-OIS spread narrowed to 30.6 basis points from 30.7 basis points. The spread, which compares three-month dollar Libor and the overnight indexed swap rate, surged to 364 basis points, or 3.64 percentage points, after the collapse of Lehman Brothers Holdings Inc. in September 2008. Three-month Libor is a benchmark for about $360 trillion of financial products worldwide, ranging from mortgages to student loans. Rates are determined by groups of banks in a daily survey by the BBA before 11 a.m. in London. Members provide estimates on how much it would cost to borrow in 10 currencies for periods ranging from a day to a year. Royal Bank of Scotland Group Plc contributed the highest dollar Libor rate today, at 0.60 percent. Rabobank NA and Deutsche Bank AG gave the lowest, at 0.49 percent. The BBA strips out the four highest and lowest rates received, calculating the average of the middle eight. The three-month rate for euros , or euro Libor, slipped to 0.634 percent today, from 0.635 percent yesterday. The three- month euro interbank offered rate, or Euribor, was unchanged today at 0.699 percent, according to the European Banking Federation. That matches the highest level since Jan. 5. To contact the reporter on this story: Keith Jenkins in London at kjenkins3@bloomberg.net

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Consumer Spending in U.S. Unexpectedly Stalls as Americans Rebuild Savings

May 28, 2010

By Timothy R. Homan May 28 (Bloomberg) — Consumer spending in the U.S. unexpectedly stalled in April as Americans used growing wages to rebuild savings. The pause in purchases compared with a 0.3 percent increase projected by the median forecast of economists surveyed by Bloomberg News and followed a 0.6 percent gain in March, Commerce Department figures showed today in Washington. Incomes climbed 0.4 percent for a second month, and the savings rate rose for the first time in four months. Increasing wages will probably help mitigate the damage from the financial turmoil caused by the European debt crisis, sustaining the U.S. economic recovery. Profits at retailers from Target Corp. to Gap Inc. are beating estimates, and hiring is picking up, giving Americans the means to boost both spending and savings in coming months. “Any improvement in spending or support to spending has to come from gains in the labor market,” Julia Coronado, a senior U.S. economist at BNP Paribas in New York, said before the report. “We are still in a pretty moderate recovery.” Stock-index futures trimmed earlier gains after the report. The contract on the Standard & Poor’s 500 Index rose 0.2 percent to 1,103.3 at 8:32 a.m. in New York. Treasury securities rose, pushing the yield on the benchmark 10-year note down to 3.31 percent from 3.36 percent late yesterday. Gain Projected The median estimate was based on 77 economists surveyed. Projections ranged from a decline of 0.1 percent to a gain of 0.6 percent. The median estimate of economists surveyed called for a 0.4 percent advance in incomes. Wages and salaries in April rose 0.4 percent after climbing 0.3 percent in March. The savings rate climbed to 3.6 percent last month, the highest level since January, from 3.1 percent in March as incomes increased and purchases cooled. Today’s report showed inflation was little changed. The inflation gauge tied to spending patterns increased 2 percent from April 2009, the same as in the 12 months ended in March. The Fed’s preferred price measure, which excludes food and fuel, rose 0.1 percent in April and was up 1.2 percent from a year earlier. Adjusted for inflation, spending was also unchanged, the first time without an increase since September. Retailer Profits Target, the second-largest U.S. discount retailer, this month said it posted first-quarter earnings that beat analysts’ projections. Chief Executive Officer Gregg Steinhafel cited a better-than-expected economic environment that boosted sales of profitable items such as clothes. The economy grew at a 3 percent annual rate in the first quarter, after expanding at a 5.6 percent pace in the last three months of 2009, figures from the Commerce Department showed yesterday. Consumer spending accelerated to a 3.5 percent pace, from 1.6 percent in the fourth quarter of last year. The labor market is likely to determine the pace of spending in coming months. Employers have increased payrolls in five of the past six months, culminating in a 290,000 gain in April that was the biggest gain in four years, according to figures from the Labor Department. Employment probably increased again this month, and the unemployment rate likely fell to 9.8 percent, according to the median estimates of economists surveyed before a Labor Department report due June 4. To contact the reporter on this story: Timothy R Homan in Washington at thoman1@bloomberg.net

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Video: Spain’s Savings Banks Face Consolidation or Insolvency

May 28, 2010

May 28 (Bloomberg) — Bloomberg’s David Tweed reports from Madrid about the financial position of Spanish savings banks. The so-called cajas helped fuel Spain’s housing boom, accounting for about 50 percent of loans, and since the property crash triggered by the country’s worst recession in 60 years the lenders have been under pressure to merge. The Bank of Spain seized CajaSur on May 22 after the bank lost almost 600 million euros ($742 million) in 2009.

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David Isenberg: Aegis’ Charm Offensive in Iraq

May 28, 2010

My May 21 post regarding Aegis Defence winning a contract to help provide security for the 2012 Olympics in London has brought back some unpleasant memories for one person who dealt with Aegis in Iraq. I received the below email from a retired U.S. military officer involved in private security contractor oversight in Iraq. I am reprinting it as received, except for adding words in brackets to explain acronyms. 1) my understanding of the evolution of AEGIS was that they were originally hired to provide intel support along with manning of the ROCs, [Regional Operations Centers] and provide a website where PSCs [Private Security Contractors} could file route requests into the battlespace. It wasn't until later that they got into the protection of convoys and private security detachment work. 2) the one thing AEGIS had going was that they had a great PR [Public Relations] program and a compliant customer, The Corps of Engineers Gulf Region Division (GRD). I told the White House Commission on wartime contracting that their relationship was incestuous. They were totally embedded with GRD. If you walked through their workspace, you couldn’t tell if you were in an AEGIS work area or a GRD work area. The country manager at the time, a retired British Army Brig knew how to put on the charm to DCMA [Defense Contract Management Agency] . And since they were essentially the military arm of GRD… So, not surprising that their customers really like them. Again, incestuous! 3) SIGIR. [Special Inspector General for Iraq Reconstruction] They were nice people, but didn’t understand the environment. And I can’t imagine that they truly understood the contracts. I got so sick of trying to get AEGIS to make changes to the ROCOPS [Regional Operations Center Operations; click here to see website)] website and wasn’t getting any help from GRD that owned the contract, I wrote a FRAGO [Fragmentary Order - used to direct operations] directing it to be handed over to MNC-I G-3 [Multi-National Corps - Iraq. G-3 refers to military staff responsible for operations, including staff duties, exercise planning, training, operational requirements, combat development & tactical doctrine]. The COR [Contracting Officer Representative} for GRD developed a ppt laying out possible course of actions (COA). The first COA had an estimated cost of $2.8m. This sent me into orbit. I have a little background in website development and upkeep. The site had been in service for a couple of years, so not much upkeep, only help with developing the extras I wanted. So, I made a fraud, waste and abuse claim to SIGIR and request DCMA to investigate. DCMA came back to me and said that the contract(s) were so convoluted that it was impossible to figure out just how much the running of the website was costing GRD. 4) CONOC [Contractors Operations Centre;]. I had a one-page ppt that visually showed how screwed up the relationship was between the CONOC, LMCC, GRD, and AEGIS. Before Nisour Square, GRD pretty much ran the show. They owned the ROCs, they owned the website, and their LMCC (logistics movement control center) managed the convoys entering the battlespace. After Nisour Square when [Gen.] Petraeus ordered a change, ACOD [Armed Contractor Oversight Division] was established to provide oversight and the ROCs (now CONOCs) were handed over to MNC-I G-3. GRD maintained the LMCC and the website. The problem I ran into was that GRD still owned the contracts for the CONOC support. The only change was the COR duties were given to G-3. I had a major problem with the CONOC and its leadership not complying with MNF-I FRAGOs, specifically our emergency communication procedures. On one incident, I sent a very blunt note to the leadership of the CONOC, that message was forwarded to AEGIS who then forwarded to GRD. What did GRD do? Forwarded it to JCC-I [Joint Contracting Command in Iraq] who lived and worked on GRD’s compound. Go figure. 5) A little segue. Afghanistan was going to ramp up. Centcom [U.S. Central Command] wanted to use our model and implement it into Afghanistan. The difference was that they were going to contract out ACOD. Who got the contract? AEGIS. I raised a fit with both CENCOM and DoD. How could they give the oversight role to a PSC? Their answer was the AEGIS didn’t have any PSC contracts in Afghanistan, so no problem. My reply, that’s how it started in Iraq! Okay, back to Iraq. I went to both DCMA and JCC-I and said that the contract AEGIS has for the CONOCs need to be renegotiated and that another company has to run the CONOCs. Again the reasoning was that the CONOCs were part of the oversight paradigm and that meant that AEGIS could not provide oversight over themselves. How did it all come out? I dunno. I understand that CENTCOM was going to reopen the Afghanistan ACOD contract based on my issues, don’t know if they did or didn’t. The CONOC contract was supposed to be rebidded, but again, I left and that meant the issue may have been dropped. DCMA was heavily civilian. However, the leadership over the PSC contracts were military. The problem there was that the Air Force guys were on six month contracts, so there was some break in, then as soon as you had a good working relationship, they were gone. The two Air Force O5′s[rank of Lt. Col.] were good folks. However, most of their staff was civilians. Okay, so I directed a CAR (corrective action request) against the CONOC contract. DCMA sent out an investigator. She gave them a clean bill of health. Nothing wrong. I ordered a meeting with DCMA key folks to include the investigator. She had no clue what she was investigating, nor did she understand the FRAGO. You could tell that the O5 was embarrassed. AEGIS got a CAR.

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Video: Huberty Says IPad Global Success to Be `Icing on Cake’: Video

May 28, 2010

May 28 (Bloomberg) — Katy Huberty, an analyst at Morgan Stanley, talks with Bloomberg’s Deirdre Bolton about the outlook for Apple Inc.’s tablet iPad as the device goes on sale outside the U.S. today. (Source: Bloomberg)

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Les Leopold: An Open Letter to the Ten Wealthiest Financiers in America: You’re Not Worth $900,000 an Hour!

May 28, 2010

Dear Messrs, Tepper, Soros, Simons, Paulson, Cohen, Icahn, Lampert, Griffin, Arnold and Falcone, It’s now estimated that about 150,000 teachers will lose their jobs next year because of the financial crisis touched off by your industry. On behalf of the 3 million young people who would have been their students, I have a proposition for you: Donate 50 percent of your 2009 earnings to keep those 150,000 teachers in their classrooms. Each of you, on average, still would net over $935 million dollars for the year (you should be able to scrape by on that) — and the money you’d forgo would ensure that 3 million kids would get an education. That the ten of you personally received $18.7 billion (not million) from your hedge fund proceeds in 2009 is quite a feat, given that it was the worst economic year since the Great Depression. You each got roughly $36 million a week — over $900,000 an hour! Meanwhile, as result of the Wall Street shenanigans you helped engineer, 29 million Americans are now without work or forced into part-time jobs. While you may not feel personally responsible for the crash, you do bear some responsibility since you are major players in the financial industry. (Funny how no one is accepting responsibility for the financial crisis.) As Leo Hindery Jr. put it, your industry is a “profit-driven, greedy, selfish institution that, with its unbridled compensation practices and current light-touch regulatory regime is, I truly believe, behind almost every major societal and economic ill that has befallen the United States since 1980.” As you know, you probably would have earned little or nothing in 2009 if the American taxpayer hadn’t bailed out the entire financial system. That $18.7 billion you collected didn’t fall from the sky. Fearing another great depression, we poured nearly $10 trillion into the financial sector in the form of loans, liquidity programs, asset guarantees and the like. Those taxpayer subsidies should have gone to enhancing the public good, not pumping up obscene levels of private gain. Instead the net result of our mammoth rescue effort is that 150,000 teachers are laid off while you collect more than $36 million a week. It’s a troubling saga of public decay: Your high-flying financial manipulations helped bring down our economy. Millions of people lost their jobs and were no longer able to pay taxes; businesses everywhere went under. And now state and local governments are going broke and slicing their budgets. Tens of thousands of teachers are losing their jobs. (Those of you who live in New Jersey are watching this play out with a vengeance, as school programs are slashed to the bone.) Meanwhile, you walk away with billions, courtesy of U.S. taxpayers. I challenge you to explain this story to your children or to anyone else who isn’t on your payroll. How can you justify making more than $900,000 an hour in an industry that is essentially responsible for the loss of 150,000 teachers? Not to pick on you, Mr. Tepper, but you led the list by earning $4 billion in 2009. That’s more than $1.9 million an hour, or $32,000 per minute. You earn more in one minute than the average entry-level teacher earns in one year! Please explain. You personally can do something about this insanity. You can prevent the further deterioration of our public educational system. You can let America know that you are willing to right a wrong. You know better than anyone else in the country how truly fortunate you are. And you know that you can easily afford to put thousands of teachers back to work, shoring up the public educational system that is at the core of our democracy. And let’s be honest, you can cough up $9 billion and still be wealthier than the pharaohs. In a saner world, we would have placed a 50 percent windfall profits tax on all financial earnings in 2009. That would have helped compensate for the massive public subsidies we provided to your industry. It would have replenished our local, state and federal coffers. But as a nation we are cowed by financial power. We simply do not have the will to challenge our distorted distribution of wealth–at least not yet. However, with the stroke of a pen, you can help rebalance the scales. In truth, I don’t expect you to rise to this challenge. I suspect that if you see this letter, you will come up with a thousand and one reasons to dismiss my request. Some of you might point out that you are already giving hundreds of millions to charities and educational institutions. Or maybe you’ll just be miffed that someone like me has the gall to make such an outrageous proposition. But it’s not me that you need to think about. You need to think about those 150,000 teachers and the 3 million kids who won’t be learning from them next year. Your wealth will have little value if the society around you crumbles. The time may come when the American people demand a modicum of financial justice and economic sanity. This would require something far beyond the current financial reform, which is basically a gift to Wall Street and your hedge funds. (After all, under this legislation, you’ll still be able to pay only 15 percent tax on your earnings, which is virtually criminal given our revenue shortfalls.) The time may come when we stop allowing financiers to earn billions while we gut our public infrastructure. I don’t know when that will be or how we’ll get there. But if you keep piling up your billions with no concern for the American people, you might just hasten the day when an angry and determined public comes knocking on your door. Better you should put our teachers back to work. No? P.S. If you employ those 150,000 teachers, I’ll donate the royalties from my latest book, The Looting of America . After all, you’re part of the reason the book keeps selling. Les Leopold is the author of The Looting of America: How Wall Street’s Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It Chelsea Green Publishing, June 2009.

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Video: Bloomberg Businessweek’s Coy on Deflation Risk in U.S.: Video

May 28, 2010

May 28 (Bloomberg) — Bloomberg Businessweek’s Peter Coy talks with Deirdre Bolton about deflation risk in the U.S. and outlook for the economy. (Source: Bloomberg)

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Video: Choudhry, Gallo Discuss Euro, Dollar as Reserve Currency

May 28, 2010

May 28 (Bloomberg) — Moorad Choudhry, a professor at London Metropolitan University, and Stephen Gallo, head of market analysis at Schneider Foreign Exchange, talk with Bloomberg’s Andrea Catherwood about the prospects for the euro and the dollar as reserve currencies.

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Video: Kronick Sees Spill Encouraging U.S. to Reduce Oil Usage

May 28, 2010

May 28 (Bloomberg) — Charlie Kronick, chief climate adviser for Greenpeace, talks with Bloomberg’s Andrea Catherwood about the reponse by BP Plc and the U.S. government to the oil spill in the Gulf of Mexico.

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Heinz sees 9.8% rise in Q4 net income

May 28, 2010

Heinz sees 9.8% rise in Q4 net income

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Venezuela to re-launch bond trading with new measures

May 28, 2010

Venezuela to re-launch bond trading with new measures

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Japan’s auto-production surges in April

May 28, 2010

Japan’s auto-production surges in April

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Japan’s unemployment climbs to 5.1% in April

May 28, 2010

Japan’s unemployment climbs to 5.1% in April

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Algeria to replace Egypt’s Ezz Steel over soccer disputes

May 28, 2010

Algeria to replace Egypt’s Ezz Steel over soccer disputes

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Video: BBA’s Knight Sees Banks Regulated by `Global Principles’

May 28, 2010

May 28 (Bloomberg) — British Bankers Association Chief Executive Officer Angela Knight talks with Bloomberg’s Andrea Catherwood about proposals for international regulation of banks.

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Video: Rogers Discusses Outlook for 2010 Hurricanes, Oil Spill: Video

May 28, 2010

May 28 (Bloomberg) — Matt Rogers, president of Commodity Weather Group, talks with Bloomberg’s Erik Schatzker about the outlook for the 2010 U.S. hurricane season. Rogers speaks from Washington. (Source: Bloomberg)

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Video: Rich Jaroslovsky Examines LogMeIn’s Ignition for IPad

May 28, 2010

May 28 (Bloomberg) — Bloomberg’s Rich Jaroslovsky reviews LogMeIn Inc.’s Ignition, an application for Apple Inc.’s iPad that allows the user to access any internet-connected computer with a small piece of host software installed. (Source: Bloomberg)

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Video: Kenney Says BP `Strong Enough’ to Withstand Oil Spill: Video

May 28, 2010

May 28 (Bloomberg) — Jason Kenney, head of oil and gas research at ING Commercial Banking, talks with Bloomberg’s Deirdre Bolton about the outlook for BP Plc in the wake of the Gulf of Mexico oil spill and the performance of BP Chief Executive Officer Tony Hayward. (Source: Bloomberg)

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Video: FT’s Lex Columnist Boland on Shell’s East Resources Buy: Video

May 28, 2010

May 28 (Bloomberg) — Vincent Boland of the Financial Times’ Lex commentary team talks with Bloomberg’s Deirdre Bolton about Royal Dutch Shell Plc’s agreement to buy most of closely-held East Resources Inc. for $4.7 billion in cash, expanding its holdings of U.S. shale gas deposits. (Source: Bloomberg)

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Video: Financial Adviser Starr Charged With $30 Million Fraud: Video

May 28, 2010

May 28 (Bloomberg) — Kenneth Ira Starr, a New York investment adviser who has represented actors including Sylvester Stallone and Wesley Snipes, was arrested yesterday in New York and accused of fraud in what federal prosecutors said was a $30 million scheme that involved socialites, celebrities and athletes. Bloomberg’s Erik Schatzker reports. (Source: Bloomberg)

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Video: Toys `R’ Us Seeks to Raise $800 Million in Share Sale: Video

May 28, 2010

May 28 (Bloomberg) — Toys “R” Us Inc., the retailer bought by buyout firms KKR & Co.and Bain Capital Partners LLC in 2005, filed for an initial public offering of as much as $800 million in shares. The largest U.S. toy store chain disclosed the plan in a U.S. regulatory filing. Bloomberg’s Jon Erlichman reports. (Source: Bloomberg)

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Simon Johnson: Is The SEC Still Working For Wall Street?

May 28, 2010

A version of this story appeared on The Baseline Scenario . The Securities and Exchange Commission (SEC) under Mary Shapiro is trying to escape a difficult legacy – over the past two decades, the once proud agency was effectively captured by the very Wall Street firms it was supposed to regulate. The SEC’s case against Goldman Sachs may mark a return to a more effective role; certainly bringing a case against Goldman took some guts.

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Video: Power Struggle at Deutsche Bank; Cuomo Previews Plans: Video

May 28, 2010

May 28 (Bloomberg) — Bloomberg’s Deirdre Bolton reports on major newsmakers in today’s Movers & Shakers. (Source: Bloomberg)

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Video: Carcelle Says Louis Vuitton Aided by Euro’s Decline

May 28, 2010

May 28 (Bloomberg) — Yves Carcelle, chief executive officer of Louis Vuitton, talks with Bloomberg’s Andrea Catherwood about the brand’s new London store and sales strategy.

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Video: Vines Sees `American Invasion’ of London’s Dining Scene

May 28, 2010

May 28 (Bloomberg) — Bloomberg food critic Richard Vines talks with Andrea Catherwood about the rise in American-style eateries opening in London. Vines also discusses his visit to Bar Boulud in London’s Knightsbridge and interviews Wally Ganzi, the co-owner of the Palm Restaurant Group about his plan to open a string of steak houses in the city.

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War Bill Approved as Afghan Conflict Tops Iraq in Cost, Troops

May 28, 2010
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War Bill Approved as Afghan Conflict Tops Iraq in Cost, Troops

May 28, 2010
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War Bill Approved as Afghan Conflict Tops Iraq in Cost, Troops

May 28, 2010
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War Bill Approved as Afghan Conflict Tops Iraq in Cost, Troops

May 28, 2010
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Obama Faces `No-Win’ Dilemma in Taking Ownership of Oil Spill

May 28, 2010
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Obama Faces `No-Win’ Dilemma in Taking Ownership of Oil Spill

May 28, 2010
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Obama Faces `No-Win’ Dilemma in Taking Ownership of Oil Spill

May 28, 2010
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Obama Faces `No-Win’ Dilemma in Taking Ownership of Oil Spill

May 28, 2010
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Prudential in Talks With AIG to Change Terms of Offer

May 28, 2010
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Prudential in Talks With AIG to Change Terms of Offer

May 28, 2010
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Prudential in Talks With AIG to Change Terms of Offer

May 28, 2010
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Prudential in Talks With AIG to Change Terms of Offer

May 28, 2010
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Gazprom, Arctic Partners Said to See Former Yukos Gas Field Peak in Decade

May 28, 2010

By Stephen Bierman May 28 (Bloomberg) — Eni SpA ’s Arctic gas venture with OAO Gazprom , the country’s natural-gas export monopoly, and Enel SpA plans to almost triple output in a decade from initial volumes as Russia allows domestic gas and electricity prices to rise. Production should reach 25 billion cubic meters to 30 billion cubic meters a year (542,000 barrels of oil equivalent a day) in 2020 and remain at that level, said an executive with one of the partners of the Gazprom-led project, declining to be identified because he isn’t authorized to talk to the media. Eni and Enel bought the gas assets and a stake in Gazprom Neft , the Russian gas company’s oil arm, for $5.8 billion at state-run Yukos liquidation auctions in 2007, the only foreign companies to win lots. Former Yukos shareholders said the state expropriated its assets after laying more than $30 billion of tax claims against once was Russia’s biggest oil exporter. The venture, called SeverEnergia, plans to start output next year, reaching an initial level of 150,000 barrels a day of oil equivalent within two years, according to Eni and Enel. Gazprom’s press service declined to confirm the planned output volume while the venture continues exploration. SeverEnergia’s main increase in output will come after 2017 when a gas glut in Europe eases, the person said. The venture plans to drill 36 wells in total, he said. Gazprom completed payment on March 31 of $1.6 billion for a 51 percent stake in the venture. That reduced Eni’s holding to 29.4 percent and Enel’s to 19.6 percent. Gazprom paid $4.1 billion to Eni last year for the 20 percent of Gazprom Neft. Enel wants to use its share of gas from the project to supply its Russian utility, OAO Enel OGK-5 , as the government plans to deregulate electricity prices from next year. The Italian companies are also seeking to benefit from Russian plans to raise domestic gas prices to the equivalent of European prices minus transit costs by 2014. To contact the reporter on this story: Stephen Bierman in Moscow sbierman1@bloomberg.net .

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