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Nazi-Looted Corot Painting of Woman to Be Auctioned by Sotheby’s in June

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Health-Care Overhaul Faces Parliamentary Hurdle in Senate, Republicans Say

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Germany’s Schaeuble Raises Specter of Euro Expulsion for Delinquent States

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Religare Hires Ex-UBS Banker Kandiah, Plans to Recruit 80 More Bankers

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Yellen Said to Be Obamas Pick for Fed Vice Chairman Position

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Inflation Eroding China Deposits Feeds Asset Pressure

By Jason Kelly and Lauren Coleman-Lochner March 12 (Bloomberg) — Private-equity firms looking to buy retail and consumer companies said they’re now able to finance deals and pay reasonable prices after the credit crisis and global recession triggered a buyout slump. “It feels like it’s a little bit of Goldilocks now,” Alex Pellegrini , a New York-based partner with Apax Partners LLP, said yesterday. “It feels just right.” Buyout managers are getting back to business after the global credit crisis that began in 2007 froze them out of buying companies or selling what they owned. About $12.9 billion worth of private-equity deals have been announced in the past three months, compared with $2.5 billion in the same period a year earlier, according to data compiled by Bloomberg. “The last couple months would suggest that people are getting active again,” said John Howard , chief executive officer of New York-based Irving Place Capital Management LP, noting his firm hasn’t made a retail investment in four years. “We’re seeing more real opportunities.” Financing from Wall Street banks is returning for some deals after financial institutions suffered losses of $1.7 trillion since the onset of the credit crisis. Howard said deals require investors to contribute more of their own cash and less borrowed money, which means he and other managers are most interested in targets they think will boost sales and profits. U.S. comparable-stores sales climbed 4.1 percent in February, topping the 3 percent growth estimate by researcher Retail Metrics. It was the sixth-straight monthly gain and the biggest in more than two years. ‘Quality Companies’ A stabilizing economy is helping broaden the number of potential targets beyond distressed companies that had no choice but to sell during the recession, said David Oddi , a co-founder of New York-based Goode Partners LLC. “Over the past couple years, the best businesses have had the luxury of sitting on the sidelines,” Oddi said. “What we’re seeing now is more of the quality companies return to the market.” The private-equity executives spoke yesterday on a panel moderated by Les Berglass , founder of executive-search firm Berglass + Associates, at Bloomberg’s headquarters in New York. Thomas H. Lee Partners LP agreed last month to buy CKE Restaurants Inc., the owner of Carl’s Jr. and Hardee’s fast-food chains, for about $619 million cash and assuming about $309 million in debt. CVC Capital Partners agreed to buy the retail unit of PT Matahari Putra Prima for 7.2 trillion rupiah ($772 million) in January. Carlyle Group, the world’s second-biggest private-equity company, is among the firms looking beyond the U.S. for deals, said Sandra Horbach , who runs the Washington-based firm’s consumer and retail group from New York. Dunkin’ Donuts “There are certainly some countries today that have more robust growth than we’re seeing here in the United States,” Horbach said, noting the firm’s purchase of Brazilian tour operator CVC Brasil Operadora e Agencia de Viagens SA this year. Carlyle also is poised to take advantage of stabilized capital markets to sell some of its investments, Horbach said. The firm is among the owners of Dunkin’ Brands, the operator of the Dunkin’ Donuts and Baskin Robbins chains, which is a likely candidate for an initial public offering, Horbach said. “That’s a company that we know will go public at a very attractive valuation and it’s just a question of timing,” she said. Buyout-backed companies including Dollar General Corp. , owned by KKR & Co., have successfully gone public. Shares of the Goodlettsville, Tennessee-based discount retailer have gained almost 20 percent since they were sold in an IPO in November. Strategic Acquirers Private-equity firms may more often reap profits from consumer-focused investments by selling them to other investors or to larger companies, so-called strategic acquirers, rather than selling them to the public, Horbach said. Shifting out of a defensive mode into a mindset of growing, and eventually selling companies, has private-equity owners looking to hire top executives. Berglass, the executive-search executive, said his business has increased 50 percent since last June. It’s a signal that things are picking up, he said. “Every time the economy has dipped, we find ourselves the first ones coming back,” Berglass said. To contact the reporters on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net ; Jason Kelly in New York at jkelly14@bloomberg.net

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Retail Buyouts Return in `Goldilocks’ Market After Credit Freeze Thawed

By Heather Walsh March 12 (Bloomberg) — BHP Billiton Plc , Anglo American Plc and Xstrata Plc are shipping coal 10,000 miles to China from their Cerrejon mine in Colombia for the first time this year because of surging demand and rising prices in Asia. Cerrejon, the world’s largest open-pit mine of coal for export, started sending coal shipments through the Panama Canal to China after prices became “much better” than those in Europe, Leon Teicher, the venture’s chief executive officer, said in an interview. Cerrejon may also make its first sales to India this year, he said. China’s accelerating economic growth is stoking demand for coal to fuel power plants and steel mills. Prices 45 percent higher than in Europe make it worthwhile to transport the fuel to ports that are twice as far as European harbors such as Rotterdam. China’s coal imports tripled last year to 126.6 million metric tons, according to the China General Administration of Customs. “There is a transition,” Teicher said in a March 10 interview in Bogota. “Prices in the Pacific are much higher than they have ever been relative to Europe.” Thermal coal used by power utilities climbed 22 percent over the 12 month through March 5 to $107.7 in Qinhuangdao, a port in northeastern China, from $88 a year earlier, according to data from McCloskey Group Ltd. The price was 45 percent higher than the $74.4 per ton for coal delivered to northwestern Europe. Chinese Growth China will be a net importer of coal this year even as its own production climbs, Teicher said. The Asian nation’s gross domestic product expanded 10.7 percent last quarter, the fastest since 2007. Last week, central bank Governor Zhou Xiaochuan said policies aimed at stimulating the economy must end “sooner or later.” “I don’t believe that China is a bubble,” Teicher said. “China has arrived.” Production at Cerrejon , located on the northeastern edge of Colombia, will rise to 31 million to 32 million tons of coal this year, after falling last year as demand waned in Europe, he said. BHP, Anglo American and Xstrata each own a third of the mine. Annual output capacity may be expanded to 40 million tons at a cost of $800 million to $1 billion once “the market will take that expansion,” Teicher said. “Right now is not yet the time.” Last year, Cerrejon sold most of its coal to Europe, the U.S. and Latin America. Demand in Asia will help maintain the price of the fuel and may lead to gains, he said. To contact the reporter on this story: Heather Walsh in Bogota at hlwalsh@bloomberg.net .

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BHP, Anglo, Xstrata Bypass Europe on 10,000-Mile Coal Route to China Ports

By Jack Kaskey and William McQuillen March 12 (Bloomberg) — Monsanto Co. , facing antitrust probes into its genetically modified seeds, may benefit from previous court rulings in which intellectual property rights trumped competition concerns, antitrust lawyers say. The Department of Justice and seven state attorneys general are investigating whether the world’s largest seed company is using gene licenses to keep competing technologies off the market. At issue is how the St. Louis-based company sells and licenses its patented trait that allows farmers to kill weeds with Roundup herbicide while leaving crops unharmed. The company’s Roundup Ready gene was in 93 percent of U.S. soybeans last year. “Justice is clearly trying every way it can to see whether Monsanto is exceeding its rights under the patent,” said James Weiss , a Washington-based attorney at K&L Gates LLP who helped defend Microsoft Corp. against a federal antitrust probe. “At the end of the day, they may not be able to do much with it because of the scope of those patents. In almost all the cases, the courts come out on the side of intellectual property.” Yet Monsanto’s seeds are so ubiquitous that they have become like AT&T’s telephone lines before the company’s 1984 breakup or Microsoft Corp.’s Windows operating system in the 1990s, said James P. Denvir , an attorney who represents rival seedmaker DuPont Co. and led the government’s AT&T case. “Both cases involve what I think of as a classic platform monopoly,” Denvir said. “It’s a facility that competitors need access to, to compete against the monopolist.” Monsanto and DuPont, which are suing each other over a biotech seed license, both hired former Justice Department lawyers who have handled high-profile cases. ‘Revolutionizing the Marketplace’ Monsanto’s attorney, Dan Webb , defended Microsoft in 2002 against government antitrust claims. A former U.S. Attorney in Chicago, he also prosecuted Admiral John Poindexter in the Iran- Contra affair. Webb credits Monsanto with “revolutionizing the agriculture marketplace” and said antitrust claims such as those in DuPont’s suit aren’t an uncommon response to patent infringement cases such as Monsanto’s. “The perception among farmers is that DuPont’s complaints about exclusivity are without merit,” said Webb, a Chicago- based Winston & Strawn LLP partner. Denvir, who represents DuPont, said farmers are among the victims. “Clearly, we are too,” he said. “The bigger harm, the more important harm, is to farmers in denying them the best seeds they can get at the lowest possible prices.” Legal Monopoly While patents provide some protection from antitrust claims, giving a company a legal monopoly for a specified time, patent rights can be abused, DuPont lawyers and others said. “The question becomes whether or not somebody in that position has engaged in some bad acts that either got it in that position or are designed to maintain that position or to extend that position to other markets,” said Charles “Rick” Rule, a lawyer at Cadwalader Wickersham & Taft LLP who ran the Justice Department’s antitrust unit under President Ronald Reagan . The Justice Department and Department of Agriculture will hold a workshop on competition in agricultural markets, including biotech seeds, today in Ankeny, Iowa. Christine Varney , who heads the antitrust division now, has signaled she’ll be more aggressive than the Bush administration, Rule said. The department probably is looking at whether Monsanto’s licensing restrictions on seeds have a legitimate business justification, said Rule, who occasionally advises Monsanto and isn’t working with Webb on the antitrust case. Potential for Abuse “When you have that sort of monopoly power, it can lead to abuse, which is what we’ve been experiencing over the past several years,” said Thomas L. Sager , DuPont’s general counsel. Wilmington, Delaware-based DuPont claims Monsanto protects its lead in biotech seeds, including the Roundup Ready seeds sold since 1996, by controlling whether competitors can add their own genetics. Monsanto also has begun switching seedmakers and growers from Roundup Ready soybeans to the newer Roundup Ready 2 Yield version in advance of the original’s patent expiration in 2014. DuPont says Monsanto is using incentives and penalties to switch the industry to the new product in a way that unlawfully extends the Roundup Ready monopoly. ‘Level Playing Field’ “This is about trying to obtain a level playing field so innovators can introduce combinations of choices to the farmer that increase yield and of course feed the world,” Sager said. At least seven states are investigating many of the same claims, as well as whether Monsanto illegally offered rebates to distributors who limit sales of competing seed, according to one person involved in the probe who asked not to be named because he isn’t authorized to discuss it. 3M Co.’s use of rebates to induce retailers to buy more transparent tape and curtail purchases from a smaller supplier was ruled anticompetitive by the U.S. Circuit Court of Appeals in 2003. Monsanto has amended its practices to address some criticisms. The company will help the introduction of generic Roundup Ready soybeans by maintaining foreign import approvals during the transition, a process that will be followed for off- patent biotech seeds in the future, Chief Executive Officer Hugh Grant said in a January interview. Monsanto last year stopped giving rebates to dealers who limited competing seeds’ sales, said Kelli Powers , a spokeswoman. AT&T, Microsoft Parallels DuPont filed its federal antitrust case last year after Monsanto sued to block its rival from adding the Roundup Ready trait to seeds already modified to tolerate Roundup weed killer. “Trait development has been stunted by the inability to get access to the Roundup Ready platform,” Denvir, an attorney with Boies Schiller & Flexner LLP, said in an interview in his Washington office. The firm was founded by David Boies , who led the government’s successful antitrust suit against Microsoft. Roundup Ready is “licensed so broadly that if you want to offer any trait, it has to be somehow combined with that trait.” While Monsanto has promised to allow generic versions of its products to emerge, Denvir said he is unconvinced that will happen without government intervention. Monsanto got its lead in seed biotechnology because it invested in research long before DuPont and other competitors, said Webb, Monsanto’s counsel. The company spent $6 billion on seed research in the 10 years through 2008 and $1 billion a year since then, said Powers, the company spokeswoman. Among the cases relevant to the claims against Monsanto is a 2004 Supreme Court decision that Verizon Communications Inc. and other phone companies didn’t break laws by doing too little to encourage competition, said Rule, the former antitrust division head. Xerox Ruling A Federal Circuit Court of Appeals ruling in February 2000 that Xerox Corp. can’t be sued for using patents to establish or entrench a monopoly also may apply to the Monsanto disputes, he said. The cases reflect how U.S. courts have given intellectual property owners leeway to control licensing to make the property more valuable, encourage the owner to widely license the technology and support further investment, he said. Greg Neppl , with Foley & Lardner, agreed that intellectual property rights often trump antitrust concerns. “The patent concerns are well protected in the law,” said Neppl. “Where the patent rights are clear, the antitrust issues are secondary. The antitrust concerns must respect the patent owner.” Monsanto persuaded U.S. District Judge Richard Webber in September to separate the licensing case from DuPont’s antitrust counterclaim. The seedmaker won an additional incremental victory in January when Webber ruled that DuPont violated the companies’ licensing agreement by combining Monsanto’s Roundup- tolerance gene with a DuPont gene that does the same thing. Counterclaim ‘Clutter’ Patent infringement is “a fair and proper case,” Webb said. “Monsanto will have its day in court and it will not be cluttered with the antitrust counterclaim.” Monsanto shares climbed 50 cents to $71.61 yesterday, paring the decrease since DuPont filed its antitrust case in mid-June to 15 percent. DuPont has climbed 42 percent in the same period. Justice Department probes typically move in tandem with related civil litigation because plaintiffs share information with the government, Neppl said. “The antitrust division today is more willing to look at assertions” of anticompetitive behavior, Rule said. “This is something they have a right to look at. Once they get into an investigation, they are pretty good at making up their own mind.” The case is Monsanto Co. v. E.I. DuPont de Nemours & Co., 09cv686, U.S. District Court, Eastern District of Missouri (St. Louis). To contact the reporters on this story: Jack Kaskey in New York at jkaskey@bloomberg.net ; William McQuillen in Washington at bmcquillen@bloomberg.net .

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Monsanto May Have Antitrust Edge as Protecting Patents Trumps Competition

By Simon Clark March 12 (Bloomberg) — When money needs to talk in London, it’s the lord mayor who speaks. Nick Anstee , the 682nd mayor of the U.K. capital’s financial district, is battling politicians from all parties who blame the bankers and brokers he represents for wrecking the country’s economy. Taxpayers assumed more than 800 billion pounds ($1.2 trillion) of liabilities to bail out financial firms, and an election must be held by June. “The taxpayer doesn’t understand how critical the financial services industry is to them,” Anstee, 51, said in an interview at his 252-year-old Mansion House residence opposite the Bank of England. “This absolutely overwhelming tide of negative attitudes has been brought about in taxpayers’ minds.” City of London chiefs have championed trade and challenged politicians for centuries. They befriended William the Conqueror, helped overthrow King Charles I and one backed U.S. founding father George Washington. Yet the top lobbyist for Britain’s financial services industry isn’t well-known in the square mile he presides over and where 6,000 companies operate. The lord mayor is an “invisible power” who Britons don’t recognize as the representative of the banks they bailed out, said London Metropolitan University politics lecturer Maurice Glasman . He’s campaigning to merge Anstee’s government with that of Greater London Authority Mayor Boris Johnson , which was started in 2000 to represent the capital’s 7.5 million people. ‘The Invisibles’ “The bailout made the invisibles visible in a really disturbing way,” said Glasman, 49, walking in front of the City’s six century-old Guildhall a few streets away from Mansion House. “This is the invisible heart of an invisible City that protects invisible earnings.” Financial services, once known as “invisibles” in the U.K. because loans, insurance and trading can’t be seen in the way manufactured goods like cars can, are a vital source of investment, tax and employment, Anstee said. “That’s what I’m promoting and that’s what I’m defending,” Anstee said in his Georgian palace, which is decorated with paintings by Dutch masters and plasterwork of cornucopias spilling coins and fruit. In 1968, the Bank of England started the Committee on Invisible Exports to promote finance. It was renamed British Invisibles, and is now International Financial Services London . ‘Unique Platform’ Lord mayors travel with the rank of cabinet minister and host annual dinners for the prime minister and chancellor. Their speeches to the U.K. premier from 2003 to 2009 called for low taxes, limits to regulation and easier visa requirements for foreigners. The first lord mayor was named in 1189. The lord mayor has a “unique platform” to influence politics, said Bob Wigley , the former chairman of Merrill Lynch & Co.’s European unit. Wigley led a review of the City’s competitiveness as a financial center for Mayor Johnson. Guests at the City banquet in Mansion House on Sept. 22 dined on smoked fish and filet of beef and Madeira syrup. They drank Chablis and Chateau Moulin a Vent wines and toasted Britain’s financial services industry as well as the queen. Barclays Plc Chairman Marcus Agius , former Lloyds Banking Group Plc Chairman Victor Blank , BT Group Plc Chairman Michael Rake and Financial Services Authority Chairman Adair Turner were on the table plan. Yet in a spot poll of 25 people passing Mansion House on March 10, 19 didn’t know the lord mayor lived there. None could name him. ‘Golden Age’ In his 2007 speech to the lord mayor at Mansion House, then Chancellor Gordon Brown pledged “a competitive tax regime” and heralded “a new golden age” for the City. “Britain needs more of the vigor, the ingenuity, the aspiration that you demonstrate daily,” he said. In September, Brown, now prime minister, attacked the “bankrupt ideology” of free market “fundamentalism” at his party’s conference. In October, opposition Conservative leader David Cameron said he won’t cut the 50 percent rate of income tax for top earners so “the rich will pay their share.” The City defends free markets whenever possible. Anstee disagrees with a so-called “Robin Hood tax” on financial transactions that film director Richard Curtis and U.K. non- profits including Oxfam want to fund anti-poverty projects. At Guildhall, Stuart Fraser , chairman of the City’s policy and resources committee, rejects labor unions’ criticism that overseas takeovers of companies like chocolate maker Cadbury Plc by Kraft Foods Inc. cause job losses. “We believe in the Cadbury example,” Fraser said. “The whole City is based on that.” ‘Friendly’ Tax Anstee wants politicians to provide “business-friendly” tax and regulation, defend British companies in the European Union, improve transport networks such as airports, cut the budget deficit and boost investment in research and development. At a March 1 dinner, Anstee asked all political parties to endorse policies that promote financial services, which employ 1 million and accounted for 10.1 percent of gross domestic product and 27.5 percent of corporate taxes in 2007, according to the government and accounting firm PricewaterhouseCoopers LLP. “It’s counter-productive to compete with each other to think of ways to punish the City,” Anstee told Business Secretary Peter Mandelson and 350 guests in Mansion House’s Great Egyptian Hall. “I am challenging each of Britain’s political parties to commit publicly to growth.” Dragons Supporting the City is politically difficult, Mandelson said. His Labour Party government last year imposed a one-time levy on bankers’ bonuses. “People who are losing their own jobs find it jarring when many in the City are reported as having had a good year,” Mandelson said. As head of the City of London Corporation, the area around St. Paul’s Cathedral whose boundary is marked by dragon motifs and statues, lord mayors lead a local police force and travel 90 days a year to promote financial services. Anstee has visited the U.S., Dubai and Saudi Arabia and will travel to South Africa, India, China, Russia and other countries. Anstee, a City resident and marathon runner, trained as an accountant and is a director of law firm SJ Berwin LLP . He lives at Mansion House with his wife for the duration of his one-year term, and speaks to about 10,000 people a month. “Nick is being outspoken at a time when the City desperately needs a positive voice,” said Wigley, who is now chairman of yellow pages publisher Yell Group Plc. “You can’t realistically expect any serious senior politician to be standing on a pro-City platform at the forthcoming election after the financial crisis.” Baltic Exchange The City’s focus on money has led to its local population dwindling to 9,000, while about 320,000 workers arrive each weekday. Uniquely in the U.K., companies as well as individuals vote for City representatives. From the Baltic Exchange for shipping to the Lloyd’s of London insurance market and the London Metal Exchange, the legacy of centuries of global British trade and finance lives on in the City, championed by the lord mayor. “The City of London has definitely represented the interests of money over a very long time,” said Glasman, standing in the square built over the gladiatorial amphitheater of London’s Roman founders. “I want to make the ancient City the center of all London so all citizens are represented here.” Glasman is a member of London Citizens, a non-profit whose campaign to raise the minimum wage for London workers was adopted by Barclays and other companies. His 1996 book, “Unnecessary Suffering,” criticizes excessive market reforms in eastern Europe after the collapse of communism there. In history, some challengers to the City did so at their peril. King Charles I failed to get the City to expand its boundaries to include new populations. He was beheaded in 1649. More than three centuries later, the challenge to explain and justify the City’s focus on capitalism remains. “One of the biggest risks following the banking crisis is the development of an unhealthy attitude towards business and open markets in general,” Mandelson told Anstee at Mansion House. “I realize talking about trust probably sounds rich coming from a politician. Let’s just say: I feel your pain.” To contact the reporter on this story: Simon Clark in London at sclark4@bloomberg.net

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`Invisible Power’ of London Money Exposed as Lord Mayor Fights Politicians

By Ronald Grover, Tom Lowry and Cliff Edwards March 12 (Bloomberg) — Once upon a time, not so long ago, a bunch of small companies in Silicon Valley thought the future of television was theirs. Soon, the thinking went, TV would be everywhere. Frequent fliers would tune in on laptops and vacationers on tablets from the beach. If so inclined, you’d be able to watch “Glee” on a cell phone in a tree house. The network suits and the cable guys just didn’t have the digital chops to make it happen, Bloomberg BusinessWeek reports in the March 22 issue. Fueled with venture money, tech companies with names like Boxee Inc., Roku Inc. and Sezmi Corp. pursued their dream of untethering viewers from their TV sets — and owning a piece of the advertising revenue. As the big picture comes into focus though, it looks like the cable guys are playing the lead roles, using the fees they pay content providers as leverage. Cable, satellite and telecommunication companies pay $32 billion a year, according to media research firm SNL Kagan . The alphabet soup of newbies is still waiting in the wings for a moment that might never come. What happened? Part of the answer is TV Everywhere, a service in its infancy, conjured up in strategy sessions by Jeff Bewkes and Brian Roberts , the chief executive officers of New York-based Time Warner Inc. and Philadelphia-based Comcast Corp . They took a lesson from the music labels, which looked up one day to find that Steve Jobs and Apple Inc. had taken control of their inventory. Quick Fix The cable guys came up with a quick, technologically simple fix: Viewers can watch shows for free, but only if they’re cable subscribers first. As long as you tap a subscription code into your device — any device — you can watch anything you want, whenever you want. It’s worth hitting pause here for a moment. Right now, Time Warner is offering the service in only a few markets. Comcast has rolled out a trial, or beta, version to about 80 percent of its subscribers, according to the company. There are plenty of kinks to be sorted out. As usual when it comes to show business, nothing is quite as simple as it appears. For TV Everywhere to work, the behemoths of the business must stand together and stamp out the rampaging weed called free. After all, if you can get programming for free — real free — why would you ever pay a cable bill? That’s what was worrying Time Warner’s Bewkes in the fall of 2008, say two Time Warner executives. Back then, Time Warner ran the country’s second-largest cable operator (spun off in March 2009) and was also a content provider. Bewkes had previously been in charge of the company’s HBO unit, and grew its audience to 30 million subscribers. Hulu Bewkes watched with growing alarm as Hollywood stampeded online to offer TV shows and movies for free, say two Time Warner executives. At the time, Hulu.com, a video site started as a joint venture by News Corp. and General Electric Co. ’s NBC Universal, was about a year old. ( Walt Disney Co. and Providence Equity Partners are now also co-owners.) For TV addicts, Hulu was a near miracle. Miss the latest episode of “Damages” on the FX channel? Watch Glenn Close play a conniving lawyer on Hulu a day later for free. As he watched one entertainment company after another put their TV shows and movies online for free, Bewkes began to fear that the pay TV industry would eventually find itself in the same untenable position as newspapers, say the two Time Warner executives. Wisconsin Experiment That’s when the scene shifts to Wisconsin, where HBO was running an experiment in Milwaukee and Green Bay. HBO was letting people watch its programming online as long as they could prove they were subscribers. The results of the test were unexpected: Viewers who tuned into “Big Love” on their laptops didn’t spend any less time watching HBO on their TV sets. Bewkes was buoyed by the possibility that the same model might work more widely and that his cable properties might be able to keep subscribers from gravitating elsewhere, says a Time Warner executive involved in the discussions. Bewkes told his team: “We can’t just talk about it, or play the victim. We need to build a model,” the executive recalls. The Time Warner CEO was unavailable for comment. It wasn’t the first time the cable industry had found itself in danger of being outflanked by tech-savvy rivals. In 1999, TiVo Inc. began selling a box that allowed people to record dozens of hours of TV shows on a hard drive. Steve Jobs The cable guys struck back. They figured out the technology and marketed their own digital video recorders, for which they charged subscribers an extra $10 or so a month. Next came Apple . Along with Amazon.com and others, Apple CEO Steve Jobs began renting out TV shows online. The cable companies beat back that onslaught by beefing up their video-on- demand offerings and giving subscribers free shows with a few clicks of the remote. “The cable industry has been very good at not jumping too early on a technology, and watching it play out first,” says Colin Gounden of Cambridge, Massachusetts-based Grail Research , which advises companies on new products. “They have a knack for getting the timing right.” The new attack from Silicon Valley was the most serious yet, because it threatened to permanently cut the coaxial connecting the cable companies and their subscribers. “We wake up every day and there is some new competitor out there — a Roku or a Boxee,” says Melinda Witmer , Time Warner Cable Inc. ’s programming chief. “People like to think of cable operators as monopolists, but we face a lot of competition just to keep the business we have.” TV Everywhere Technically there was nothing too complicated about Bewkes’ plan to expand the Milwaukee experiment. The new service would need a way to automatically confirm that people were paid-up subscribers. Other than that, TV Everywhere, as Bewkes called it, would mostly use existing online infrastructure and established user interfaces, according to a media executive with knowledge of the service. Far more daunting was the prospect of persuading the rest of the industry to join up. Unless most of the pay TV and content players banded together, TV Everywhere wouldn’t work; viewers could simply flock to sites that didn’t require a cable subscription. Bewkes, say two Time Warner executives, decided to float his proposal with Roberts, the chief of Comcast, the largest cable system in the U.S., with 24 million subscribers. In early 2009, Bewkes began wooing Roberts, traveling from his New York City office on Columbus Circle to Comcast’s 57-story headquarters in Philadelphia, say the executives. Las Vegas Roberts long ago took steps indicating that online video was important to the future of his company. In 2006, Comcast created an interactive media unit. The company’s first major development project was Fancast, a video site like Hulu that offered hundreds of shows free to all comers. Roberts, who declined to be interviewed for this story, had unveiled Fancast at the Consumer Electronics Show in Las Vegas in early 2008. Before long, says one Comcast executive, Roberts began thinking about a service that would offer much more content — but only to Comcast subscribers. When Bewkes came calling he didn’t have to convince Roberts of the importance of preserving the subscription model online, say executives at both companies. Roberts and Bewkes initially disagreed on one big point, say two Time Warner executives who say they can’t speak on the record because the discussions were sensitive. Roberts’ position was that subscribers should be required to go to a central site operated by their pay TV provider in order to view cable shows, according to one of the executives. ‘A Friend, Not a Foe’ Bewkes said users should be allowed to tap into any cable channel’s Web site as long as it was part of the TV Everywhere ecosystem, according to the executive. Bewkes, say the Time Warner executives, reasoned that letting individual channels keep their own sites would allow them to maintain their brands. Eventually, Roberts agreed. The Time Warner executives say Roberts and Bewkes saw the cable industry’s annual convention, held last April in Washington, D.C., as an opportunity to proselytize about TV Everywhere to the rest of the industry. During one panel discussion, Roberts told his audience that online video was “a friend, not a foe” and that for Hollywood it represented a new way to make money “in this horrific advertising environment.” Horse Barn In Hollywood, studios and cable channels were hearing a different message from the Silicon Valley companies that wanted to cut deals for their programming. Netflix Inc.’s Ted Sarandos says he pushed studio executives to give his company the latest movies for its online video service. Steve Jobs proposed a stripped-down cable service that would cost consumers $30 a month, according to several Hollywood executives. Boxee founder Avner Ronen says he traveled to Los Angeles from his base in New York so many times that the “plane knew the way.” Phil Wiser, co-founder of Sezmi , a Belmont, California- based TV subscription service, says his goal was simple: to “replace cable and satellite.” He says he flew executives from NBC Universal, Sony Corp., the Discovery Channel and others to Sezmi’s offices in a converted horse barn in Woodside, California, where he wined, dined and pitched them. Wiser says he wanted the content creators to allow Sezmi to use their movies and TV shows for an à la carte service that would give customers the freedom to pay for only what they wanted to watch. The studios declined, so he decided to borrow the industry’s subscription model. Owners of Sezmi’s $299 set-top box would receive network and cable shows for $19.99 a month, about a third the cost of a typical cable subscription. The Real World Wiser says he told the studios that he would match what cable operators were paying for shows such as “The Real World” and “Damages.” For example, Viacom’s MTV Networks, producer of “The Real World,” collects 33 cents per subscriber per month from cable companies, while the FX channel, which shows “Damages,” commands 42 cents, according SNL Kagan. Only one company initially agreed to make its content available: NBC Universal, which is already available on Hulu. Wiser says it took another 18 months to lure more content providers, including Turner Broadcasting (owned by Time Warner) and Discovery Communications. What’s more, Wiser says he had to pay the content guys more than they get from the big cable companies. When Sezmi boxes went on sale in Los Angeles in February, the service was missing ESPN, the History Channel, the Food Network, HBO and other popular channels. “Trying to do this is not for the faint of heart,” says Wiser, a former executive of Sony’s U.S. unit . “These firms see dozens of new pitches every week, so they’re skeptical.” ‘Mad Men’ Skeptical — and satisfied. The makers of movies and TV shows are attached to the billions they receive from cable companies and are understandably reluctant to engage in grand experiments with upstarts touting unproven business models. Joshua Sapan runs Rainbow Media Holdings, which controls AMC, IFC, the Sundance channel and others. He says tech companies have approached him about licensing AMC shows, and asks: “Why would I license my channel to someone and give them ‘Mad Men’ the day after it shows up on AMC?” The cable operators had the studios locked down, according to Frank Biondi, former president of the New York-based media giant Viacom Inc. “Why would [the studios] make a deal with a competitor to their largest customer and risk angering them?” he asks. In summer 2009, Bewkes and Roberts joined forces to take the TV Everywhere model out for a spin with 5,000 Comcast subscribers across the country. Those viewers were able to tap into programming provided by cable channels TNT and TBS, both owned by Time Warner. 10,000 Customers In December, Comcast rolled out a beta version of the new service, now christened Fancast XFinity TV. Time Warner Cable has a trial going with nearly 10,000 customers in Syracuse, New York, New York City and Columbus, Ohio. Verizon Communications Inc. is testing a service nationally, and DirecTV, the satellite operator, plans to as well. Comcast’s service is the furthest along, says a media executive familiar with the project. Only subscribers who pay for Comcast’s digital cable and broadband Internet are eligible. Subscribers can tune into two dozen channels, from CBS to Animal Planet, and view 19,000 full-length TV shows and movies. They can use it on as many as three PCs and get most episodes 24 hours after they first air on TV. Much of that was available on Comcast’s free site; now shows on HBO and the Discovery channel have been added to the lineup. Comcast aims to let subscribers access XFinity on their smartphones and tablets. TV Everywhere has a ways to go before the cable guys can declare victory. There’s much to figure out — how the ad model will work, devising a new ratings system with Nielsen. And then there’s the question of profits. The cable guys like them, and they’re not real comfortable with free. So chances are, down the line, the costs of the new free will probably sneak onto subscribers’ cable bills. And you know what? We’ll all keep paying. To contact the reporters on this story: Ronald Grover in Los Angeles at rgrover5@bloomberg.net ; Cliff Edwards in San Francisco at cedwards28@bloomberg.net .

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Apple, Netflix Wait in Wings While Cable’s TV Everywhere Stamps Out Free

By Khalid Qayum and Farhan Sharif March 12 (Bloomberg) — Two suicide bombings in Pakistan’s Lahore killed at least 20 people and wounded 45 others, the second attack in the city this week, police and rescue services said. Bombers targeted two cars in a convoy of army vehicles as they drove through an area where military officers are based, Chaudhry Shafeeq, a police spokesman, told reporters in Lahore. Most of those killed and injured are army members, he said. A suicide car bombing outside a Pakistan police building in the same city, Pakistan’s second largest, killed 12 people on March 8, the first attack this year on major northern cities struck repeatedly by Taliban militants in late 2009. Pakistan’s government blames the Tehrik-e-Taliban militant network based in tribal areas bordering Afghanistan for the terrorist attacks. The militants have increased bombings and gun attacks after the army launched its biggest offensive against Taliban guerrillas in October. The first explosion today occurred at 12:48 p.m. local time on a road near Lahore’s RA Bazar, according to Rescue 1122. The second blast followed seconds later, it said. Lahore is Pakistan’s cultural center and is located to the southeast of the capital, Islamabad. Since the army operation began last year, terrorists have hit major cities and towns killing at least 800 people. In a major setback for the Taliban, Pakistan says their leader, Hakimullah Mehsud, was killed by a missile fired from a U.S. drone aircraft in January. The Taliban deny Mehsud is dead. To contact the reporters on this story: Khalid Qayum in Islamabad at kqayum@bloomberg.net ;

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Twin Lahore Blasts Leave 53 People Dead, 95 Injured, Rescue Service Says

By James Rowley March 12 (Bloomberg) — Senate Republicans are sending a self-deprecating message to House Democrats to persuade them to vote against health-care legislation: Don’t trust senators. House Democratic leaders are planning to pass legislation approved in December by the Senate. Then both chambers would approve another bill that would change parts of the Senate bill that House Democrats find objectionable. Republicans are telling House Democrats they can’t rely on the Senate to approve the changes, which congressional leaders are trying to navigate through a process called budget reconciliation. That warning was underlined yesterday, when the Senate parliamentarian said President Barack Obama has to sign a health bill into law before Congress could alter it. Republicans say once Obama signs the Senate bill, Senate Democrats will have little incentive to amend it. “House Democrats will have to decide whether they want to trust the Senate to fix their political problems,” Senate Republican Leader Mitch McConnell told reporters March 9. He recalled a story about onetime House Speaker Tom Foley explaining to a young member: “The opposition, that’s the Republicans. But now the enemy, that’s the Senate.” House and Senate Democratic leaders are putting the finishing touches on the reconciliation bill. The revisions will likely include House priorities such as more generous subsidies for low-income people to purchase insurance and eliminating a gap in Medicare coverage of prescription drugs for elderly Americans. No Special Deals The bill would also scrap deals that Senate Democratic Leader Harry Reid cut with lawmakers to win votes for the Dec. 24 vote by the Senate on the health-care overhaul. A month later, Massachusetts Republican Scott Brown won a special election to fill a vacant Senate seat, denying Reid the 60-vote supermajority needed to pass final legislation that was being worked out with the House amid solid Republican opposition. So Democrats are resorting to budget reconciliation, which allows passage of legislation by simple majorities as long as it’s focused on spending and taxation. Because the tactic requires the House to act first, Republicans are trying to capitalize on the traditional distrust of the Senate by House members to persuade wavering Democrats to vote against the legislation. With the complexity and uncertainty of reconciliation, “I can see why House members might not trust the Senate to go along with this charade,” Senate Republican Whip Jon Kyl of Arizona told reporters on March 10. ‘Right to Be Skeptical’ Democrats have sought to build trust between the two chambers in a series of meetings of House and Senate leaders to discuss the final push for the legislation. “The House has a right to be skeptical” of the Senate’s ability to act on reconciliation because “they have almost 300 bills they’ve passed sitting over somewhere lost in the Senate,” Illinois Senator Dick Durbin , the No. 2 Democrat, told reporters on March 9 after a meeting in the office of House Speaker Nancy Pelosi . To assure House members the Senate will pass reconciliation, Senator Jay Rockefeller , a West Virginia Democrat, said he’d be willing to sign a letter with 50 other senators pledging to do so. “Whatever it takes,” he told reporters last night. ‘Trust Each Other’ A simple promise should suffice because “those of us who are relatively senior in health care trust each other,” Rockefeller said. If the Senate failed to pass reconciliation, then the House “would never cooperate with us again, ever,” he said. “Nancy Pelosi and Harry Reid probably wouldn’t speak for 25 years.” Republicans say rank-and-file Democrats shouldn’t trust their leaders. “What the president is doing is asking House Democrats to hold hands, jump off a cliff, and hope Harry Reid catches them,” Senator Lamar Alexander , a Tennessee Republican, told reporters. “Senator Reid’s not going to have any incentive to catch them because by the time the reconciliation bill gets to the Senate the president will have already signed the health- care bill.” The Republican strategy demonstrates “real desperation,” said Connecticut Representative Rosa DeLauro , chairman of the House Democratic Steering Committee. It won’t work because “there is going to be a bill” that she says will solidify Democratic support. New Jersey Senator Bob Menendez , chairman of the Senate Democrats’ campaign effort, said he tells Democrats not to believe that Republicans “are giving you strategic advice to save you.” He added, “The most successful thing that we can do is pass a bill” so voters will “begin to see benefits” of health-care reform. Otherwise, Republicans “win all around.” To contact the reporter on this story: James Rowley in Washington at jarowley@bloomberg.net

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Republicans Fan Distrust of Senate to Thwart Health-Care Measure in House

By Esteban Duarte March 12 (Bloomberg) — Cheyne Capital Management (U.K.) LLP, a hedge fund firm which oversees $5.5 billion, is betting on an improvement in Britain’s real estate market. Cheyne is boosting the allocation of lower-rated mortgage debt in its Queen’s Walk Investment Ltd. fund in expectation home-loan defaults will continue to decline, partner Shamez Alibhai said in an interview. Queen’s Walk invests most of its 120 million euros in mortgage-backed securities. “After strong profits from investments on triple-A residential MBS we are moving down the structures of the transactions,” Alibhai said. Queen’s Walk sold 3.4 million euros of AAA rated notes with an equivalent annual profit of 28 percent, the fund said yesterday in its fourth-quarter results. The U.K. property market is rebounding after its worst slump since the early 1990s, with Bank of England data showing mortgage approvals close to a one-year high in December. Delinquencies of more than 90 days on higher-risk, non- conforming mortgages declined to 18.6 percent in the last three months of 2009 compared with 19 percent at the end of September, according to Fitch Ratings. Cheyne is focusing its purchases on debt backed by non- conforming and buy-to-let mortgages, loans which the mortgage holder repays using rental income, Alibhai said. Queen’s Walk is also buying the mezzanine portions of bonds backed by mortgages on commercial property, he said. “Now we are buying double-A and single-A notes, usually located at the mezzanine portions of the deals, at an average price of 44 cents,” Alibhai said. The rankings are the third and sixth highest investment grades. So-called mezzanine pieces of issues sold by Northern Rock Plc, among the most liquid of mortgage-collateralized debt, rose 10 cents so far this year, compared with 1 cent for the top- rated portions, according to JPMorgan Chase & Co. Northern Rock was nationalized in 2008 after depositors withdrew funds on concern the Newcastle, England-based bank had borrowed too much using mortgages as collateral. Banks create mortgage-backed securities by pooling home loans and selling them to investors as notes with varying risk and returns. To contact the reporter on this story: Esteban Duarte in Madrid at eduarterubia@bloomberg.net

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Cheyne Capital Bets on U.K. Property Rally With Lower-Rated Mortgage Debt

By Alison Vekshin and Phil Mattingly March 12 (Bloomberg) — The most ambitious attempt to overhaul U.S. financial rules since the 1930s suffered a setback as the third bipartisan push collapsed, setting the stage for wrangling that could delay a final bill for months. Senate Banking Committee Chairman Christopher Dodd , whose talks with Republican Bob Corker of Tennessee ended yesterday, now plans to introduce his own bill March 15. A lack of bipartisan backing may diminish the bill’s chances in a Senate where Republicans are needed to advance legislation. “We were already becoming increasingly pessimistic about the chances of a bill,” said Brian Gardner , an analyst at New York-based Keefe Bruyette & Woods Inc. Dodd’s announcement “just bolsters our view.” Two years after the worst financial crisis since the Great Depression, Congress has yet to approve rules to avoid a future collapse. President Barack Obama asked Congress in June for legislation to protect consumers from abusive mortgage lending practices, tighten oversight of derivatives trading and detect practices that could pose a risk to the financial system. The House passed legislation in December, adopting many Obama proposals. Dodd said yesterday he ended talks because time is running out to complete work in the Senate as lawmakers focus on re-election campaigns. Dodd said some proposals offered by Republicans will be in his bill. Dodd’s plan “puts final passage of a comprehensive financial reform bill very much in doubt before the election,” Camden Fine , president of the Independent Community Bankers of America, a Washington-based trade group, said yesterday in an e- mail. “A strong financial reform bill is possible this year, but the odds are not as good as they were.” Republican Unity Senator Richard Shelby of Alabama, the top Republican on the committee who broke off talks with Dodd in February over consumer protections, said Dodd’s chances for success depend on Republican support. “If Senator Dodd is looking for critical mass to put a bipartisan bill together, we’re willing to meet him at least halfway,” Shelby said yesterday in an interview. “I don’t believe they can push a bill through the Senate if Republicans stay together.” Shelby, Treasury Secretary Timothy Geithner and banking committee Republicans discussed the legislation yesterday. Shelby said he told Geithner he wanted to create a consumer office at the Federal Reserve with the power to write rules. Shelby said bank agencies should review those rules and sign off before they talked effect, Shelby said. Obama’s proposal for the Consumer Financial Protection Agency to police banks for lending abuses has been the biggest sticking point in Senate talks. Dodd recently backed away from Obama’s plan and embraced creating a consumer division at the Fed, provided the unit had autonomy. To contact the reporters on this story: Alison Vekshin in Washington at avekshin@bloomberg.net . Phil Mattingly in Washington at pmattingly@bloomberg.net .

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Dodd’s Quest for Financial Overhaul Set Back as Bipartisan Talks Collapse

By Charles Penty March 12 (Bloomberg) — Francisco Gonzalez , chairman of Banco Bilbao Vizcaya Argentaria SA, Spain’s second-biggest lender, has a pension worth 79.8 million euros ($109 million). That’s almost four times the pot accumulated by Stephen Green , his counterpart at HSBC Holdings Plc, Europe’s largest bank. Alfredo Saenz , chief executive officer of Banco Santander SA, has 80 million euros of pension rights, 20 times more than Deutsche Bank AG CEO Josef Ackermann . Pension awards at Spain’s biggest lenders mean top bankers receive total compensation that dwarfs the amount earned by executives at many of the companies they consider peers, an analysis of annual reports shows. Bilbao, Spain-based BBVA awarded Gonzalez 45.6 million euros over the past three years, including salary, bonus and the value of pension benefits. Green’s total was 14.8 million pounds ($22.4 million). “Pensions are absolutely a part of overall pay, and it’s up to shareholders to intervene,” said Peter Braendle , who holds BBVA and Santander shares as part of the $54 billion he helps manage at Swisscanto Asset Management in Zurich. “If these companies were owned by your family, you would never allow something like this to happen.” BBVA will face protests over the pension payments during the bank’s annual shareholders meeting today in Bilbao as a debate rages in Spain over the future of social security benefits sparked by the country’s soaring budget deficit. “It borders on the immoral,” said Sebastian Moreno, banking industry secretary in the services federation of the General Workers Union , adding that BBVA contributes 540 euros a year to the pension plans of ordinary staff. Unions plan to deliver a statement to the bank saying its remuneration policies are “socially controversial,” because it sets an example to society during times of crisis, he said. BBVA Pension Policy Gonzalez’s pension vested in October, when he turned 65. BBVA makes pension awards as part of a long-term remuneration policy that’s in line with the industry’s best practice, and executives don’t receive the money unless they stay with BBVA until they retire, a bank spokesman, who asked not to be named in line with company policy, said in an e-mailed statement. The bank has fulfilled its contractual obligations to Gonzalez and will make no further contributions to his pension, the spokesman said. “It’s compensation after 14 years of work in a bank that has always posted profits and that has not received any type of public aid,” according to the statement. Looking to the future, BBVA has reduced its pension commitments, while freezing salaries and reducing bonuses, the spokesman said. Best Practice Santander’s remuneration policy is in line with the best banking industry practices, said a Santander spokesman who also asked not to be identified, citing company policy. Both banks determine payments to executive pension plans based on a percentage of salary and bonuses. Linking pensions to bonuses may encourage risk-taking, said Cliff Weight, director of MM&K Ltd ., a London-based remuneration consultant. “You shouldn’t make the bonus pensionable,” Weight said. “It’s a very bad form of arrangement because it creates an incentive to award a large bonus in the last years of employment.” From 2007 to 2009, Gonzalez received 5.7 million euros in salary, 10.5 million euros in variable pay, and 454,400 shares valued at 2.84 million euros, according to company documents. The cost of covering his accrued pension rights rose by 26.6 million euros to 79.8 million euros. Rivaling U.S. Compensation HSBC’s Green, 61, was paid 5.5 million pounds in the period, and the value of his pension pot increased by 8 million pounds. Michael Geoghegan , the bank’s CEO, earned 10.9 million pounds, including contributions to a personal pension. The bank said in its 2009 annual report that increases in the value of pensions shouldn’t be treated as remuneration. Ackermann, 62, has 4.1 million euros in his pension account and is entitled to a monthly pension of 29,400 euros under a prior entitlement, Christoph Blumenthal , a Deutsche Bank spokesman, said in an e-mail. He earned 15.4 million euros in salary and bonuses in 2007 and 2008, and the amount of his pension increased by 316,250 euros in that period. In the U.S., Wells Fargo & Co. CEO John Stumpf received total compensation of $47.7 million from 2007 through 2009, and his pension pot is worth $12.6 million, according to the San Francisco-based bank’s annual reports. The $21.3 million Stumpf, 56, received for 2009 is the biggest reported so far among U.S. banking chiefs. Brian Moynihan , CEO of Bank of America Corp., earned $20.1 million during the period, according to the Charlotte, North Carolina-based bank. JPMorgan Chase & Co. CEO Jamie Dimon received a $17 million bonus in 2009, as well as combined remuneration of $54 million in 2007 and 2008. ‘Out of Favor’ BBVA, which relies on retail banking businesses from Spain to the Americas for more than four-fifths of operating income, included the five banks among 18 lenders it considers peers when it reviews long-term compensation. Santander has more than 241 million euros in pension obligations to six executives, according to the bank’s 2008 remuneration committee report. Chairman Emilio Botin , 75, had a 25.6 million-euro pension. His daughter, Ana Patricia Botin , 49, a board member since the age of 28 and chairman of Banco Espanol de Credito SA, a retail bank owned by Santander, had 22 million euros in accrued benefits. “Pensions and perquisites are kind out of favor,” said Alan Johnson , founder of New York-based Johnson Associates Inc., a compensation consultant. Bankers “get base pay and bonus and when the stock does well, they should make a lot of money,” Johnson said. Pension awards like those at Spanish banks are “just too big,” he said. ‘Impossible Sums’ BBVA fell 34 percent, including reinvested dividends, over the three-year period, ranking it sixth in its peer group. Santander dropped 2.8 percent in the period, sixth-best among its peer group. The 16 banks against which Santander compares its performance for a stock awards plan include Brazil’s Itau Unibanco Holding SA, Mitsubishi UFJ Financial Group and Nordea Bank AB, as well as JPMorgan and Credit Suisse. Santander pays its top managers a pension equal to 100 percent of final salary, plus 30 percent of the mean of the last three variable pay amounts. On that basis, CEO Saenz, 67, who earned a 3.7 million-euro salary in 2009 and 15 million euros in bonus in the preceding three years, would be entitled to a 5.2 million-euro annual pension if he retired now. “They take the money out of the bank and away from shareholders, but you can’t say they earned it,” said Hans- Martin Buhlmann , president of Vereinigung Institutionelle Privatanleger, a Cologne, Germany-based shareholder proxy group that has represented the interests of investors at Santander board meetings. “It’s impossible for any human being to earn these sums from pensions from their work.” To contact the reporter for this story: Charles Penty in Madrid at cpenty@bloomberg.net

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BBVA Chairman Gonzalez’s $109 Million Pension Pot Riles Spanish Investors

By James G. Neuger March 12 (Bloomberg) — German Finance Minister Wolfgang Schaeuble called for “prohibitive” sanctions including expulsion from the euro region as the ultimate penalty for countries that repeatedly flout debt rules. At the same time as he raised the specter of the breakup of the euro currency, Schaeuble also endorsed the creation of a European monetary fund to help deficit-plagued states as long as its lending was tied to strict conditions. “Should a euro-zone member ultimately find itself unable to consolidate its budgets or restore its competitiveness, this country should, as a last resort, exit the monetary union,” Schaeuble wrote in today’s Financial Times . Schaeuble’s views on the long-taboo subject of kicking countries out of the euro may inflame the debate over what the European Union can do to help Greece overcome the bloc’s biggest budget deficit. The risk premium on Greek bonds over comparable German debt has more than doubled since November on concern that it won’t be able to finance its debt. Two-year Greek bonds opened lower today after falling yesterday on concern that public protests will sidetrack Prime Minister George Papandreou ’s bid to cut the deficit to 8.7 percent of gross domestic product in 2010 from 12.7 percent last year. The two-year yield rose 12 basis points to 4.96 percent at 10:10 a.m. Brussels time. Strikes, Protests Greece’s second general strike this year shut hospitals, airports and schools yesterday, and police skirmished with demonstrators, protesting 4.8 billion euros ($6.6 billion) in wage cuts and tax increases announced on March 3. Unemployment in Greece slipped to 10.2 percent in December from 10.6 percent the previous month, the Athens-based National Statistics Service said today. The economy shrank 2.5 percent in the fourth quarter, less than the 2.6 percent initially estimated, the country’s national statistics agency said today. While saying his proposals were not specifically geared to Greece, Schaeuble offered backing for an EU emergency lending mechanism that would reduce the risk of defaults. He opposed euro members appealing to the International Monetary Fund . “Strict conditions and a prohibitive price tag must be attached so that aid is only drawn in the case of emergencies that present a threat to the financial stability of the whole euro area,” Schaeuble wrote. Voting Ban Countries that repeatedly breach the deficit limit of 3 percent of gross domestic product should be denied EU “cohesion funds” for economic development and barred from voting on euro- region policies, Schaeuble said. Echoing Germany’s original plans for the anti-deficit “stability pact” in the 1990s, Schaeuble urged “immediate” fines on deficit violators. That call was blunted by France in the runup to the euro. In 2005 Germany teamed up with France to further soften the penalties after they both went over the deficit limit. A European version of the IMF also got the backing of Luxembourg Prime Minister Jean-Claude Juncker , who heads the panel of euro-area finance ministers and shepherded the 2005 negotiations that loosened the deficit rules. “We have a lack of an instrument to counter speculation and irrational behavior, which possibly could endanger the stability of the euro area,” Juncker said today in an interview in Bonn. While the EMF’s setup would take too long to help Greece, it wouldn’t breach EU rules against the bailout of governments, he added. To contact the reporter on this story: James G. Neuger in Brussels at jneuger@bloomberg.net

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Schaeuble Calls for Expulsion From Euro for Countries Flouting Debt Rules

By Daniel Tilles and Mark Gilbert March 12 (Bloomberg) — Stocks rose as commodity companies and banks drove the MSCI Emerging Markets Index to its fifth week of gains. Gold led commodities higher, while the yen weakened. The emerging-markets gauge rose 0.4 percent at 10:50 a.m. in London, heading for its longest winning streak since May. Futures on the S&P 500 added 0.2 percent, after the benchmark index for U.S. equities yesterday hit a 17-month high, while the MSCI World Index climbed 0.6 percent. The yen fell against 11 of its 16 most-traded counterparts. Gold rose for a second day and nickel climbed for the first time in five days. Emerging-market and high-yield bond funds each took in more than $1 billion in the week to March 10, according to EPFR Global, a Cambridge, Massachusetts-based research company. European industrial output rose the most in more than two decades in January, signaling the recovery may be strengthening. Japanese Finance Minister Naoto Kan said intervention is an “option” when “markets move too abruptly.” “This is a continuation of the improvement in risk appetite,” said Henrik Degrer , a fund manager at Svenska Handelsbanken in Stockholm, which oversees $36 billion. “The Greek issue seems to be contained, so now we can shift again to the macro-economic data, which is looking fairly good.” Sasol, Cnooc South Africa’s Sasol Ltd. and Cnooc Ltd. of China climbed, driving the MSCI emerging index higher. The Micex index in Russia, the world’s largest energy supplier, advanced 0.9 percent for the first gain in four days. The ruble strengthened 0.6 percent against the dollar, heading for its biggest weekly rise this year. The MSCI World Index of 23 developed nations’ stocks rose 0.3 percent, while the Stoxx Europe 600 Index advanced 0.3 percent. Volkswagen AG, Europe’s biggest carmaker, climbed 2.7 percent in Frankfurt on speculation yesterday’s announcement of a convertible-bond sale reduces the likelihood of a rights offer. The MSCI Asia Pacific Index advanced 0.4 percent as Japan’s Nikkei 225 climbed 0.8 percent. Nissan Motor Co. , which gets about 77 percent of its revenue outside Japan, increased 2.4 percent. U.S. futures gained before a Commerce Department report at 8:30 a.m. in Washington that may show retail sales fell in February as blizzards kept Americans away from auto dealers and limited shopping at malls. Purchases dropped 0.2 percent after rising 0.5 percent in January, according to the median estimate of 77 economists surveyed by Bloomberg News. Confidence, Inventories A report from Reuters/University of Michigan, due at 9:55 a.m., may show the group’s preliminary consumer sentiment index for March rose to 74 from 73.6 last month. A Commerce Department report at 10 a.m. may show business inventories increased 0.1 percent in January. The yen weakened to 124.18 per euro, from 123.82. The pound strengthened 0.5 percent to $1.5139 after U.K. house prices increased in February at the fastest pace in more than seven years. The Swiss franc strengthened to 1.4589 per euro, from 1.4617 yesterday, even after the central bank said yesterday it would act to stem “an excessive appreciation” against the euro. The Dollar Index declined 0.5 percent to 79.922, paring its gain for the year to 2.7 percent. “The Bank of Japan is sensitive to the dangers of deflation, after the yen appreciated in the current cycle, and is looking at intervention, along with the Swiss National Bank,” said Henrik Gullberg , a currency strategist at Deutsche Bank AG in London. Gold, Oil Gold for immediate delivery gained 0.7 percent to $1,116.90 an ounce in London and silver added 0.7 percent to $17.295 an ounce. Nickel for delivery in three months advanced 1.6 percent to $21,625 a metric ton, taking its gain this year to 17 percent, the most of any of the main metals traded on the London Metal Exchange. Crude oil rose 0.3 percent to $82.35 a barrel in New York, before a meeting of the Organization of Petroleum Exporting Countries next week. The yield on the 10-year Greek bond, the country’s new benchmark, fell 1 basis point to 6.34 percent, while the two- year note yield advanced 10 basis points to 5.12 percent. The yield premium investors demand to hold the 10-year security over German bunds declined 4 basis points to 311 basis points. The cost of protecting against a default on Greek government bonds rose, with credit-default swaps climbing 5 basis points to 307, according to CMA DataVision prices. To contact the reporter for this story: Daniel Tilles in London at dtilles@bloomberg.net

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Stocks Rise, Led by Emerging Market Banks, Miners; Gold Gains, Yen Weakens

Malaysia accounts for 50% of 2009’s Sukuk sales

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Malaysia accounts for 50% of 2009’s Sukuk sales

Obama blasts China over currency, economic policies

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Obama blasts China over currency, economic policies

Europe Ahead: Industrial Production to Show Improvement amid Debt Concerns in the Euro Zone

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Europe Ahead: Industrial Production to Show Improvement amid Debt Concerns in the Euro Zone

Japan’s Daihatsu recalls thousands of vehicles

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Japan’s Daihatsu recalls thousands of vehicles

Majors consolidating after yesterday’s gain

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Majors consolidating after yesterday’s gain

Malaysia accounts for half of global Sukuk sales

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Malaysia accounts for half of global Sukuk sales

Retail sales in New Zealand rose more than forecasts in January

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Retail sales in New Zealand rose more than forecasts in January

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JPMorgan, Citigroup Helped Cause Lehman Collapse, Report Says

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JPMorgan, Citigroup Helped Cause Lehman Collapse, Report Says

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Health-Care Bills Passage Faces New Hurdle, Republicans Say

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Health-Care Bills Passage Faces New Hurdle, Republicans Say

By Brian Faler March 12 (Bloomberg) — In 1972, when he was trying to spur the economy to win re-election, President Richard Nixon ’s Defense Department bought a two-year supply of toilet paper. Nixon was participating in what economists call the political business cycle, election-year efforts by politicians to prod the economy before voters go to the polls. Almost 40 years later, Democrats are debating proposals aimed at cutting the nation’s 9.7 percent unemployment rate in time for the November congressional elections. Among them: tax breaks for companies to hire, infrastructure spending and expanding jobless benefits. Congress can do relatively little by then to reduce unemployment and the jobs talk has more to do with politics than economics, said Nariman Behravesh , chief economist at the Lexington, Massachusetts-based forecasting firm IHS Global Insight. “This is very much a question of Democrats being able to at least go out there, as they run for re-election, and say, ‘I voted for this,’” Behravesh said. “They can say, ‘We did something,’ but the reality of the effect on the economy is going to be minimal.” Even a $150 billion jobs bill approved in December by the House, he said, will only reduce unemployment by two-tenths of a percent, “three-tenths if we’re lucky.” ‘Grave’ Danger The issue threatens big losses for Democrats, likely to face voters with the second-highest Election Day unemployment rate in a half century. Charlie Cook , who publishes the independent Cook Political Report in Washington, said last month that Democrats are in “grave” danger of losing their House majority and could lose seven of the 59 seats they control in the Senate. Lawmakers are pushing a series of jobs bills, including an $18 billion plan offering companies a payroll tax break. The Senate this week approved plans to spend $100 billion to extend unemployment benefits and send aid to state governments to help prevent layoffs of public-service employees. Democrats said they don’t know how much more they will spend on job creation because it’s hard to predict what can pass the Senate, as illustrated earlier this month when Senator Jim Bunning , a Kentucky Republican, held up an extension of unemployment benefits. Senate Vote      “We’re all constrained by the votes in the Senate: you need 60 votes to go to the bathroom over there,” said Representative James McGovern , a Massachusetts Democrat. Facing continued questions from Republicans over whether last year’s $862 billion stimulus package was effective, Democrats are reluctant to estimate how many jobs any new measures would produce. “Hopefully, a good number,” said Senator Charles Schumer , a New York Democrat. “This is not just a game of statistics — these are individual people and any people that we can try to get back to work, so much the better.” No one in recent history went to greater lengths to prime the economy before an election than Nixon, historians said. In the run-up to the 1972 election, when unemployment reached as high as 6.1 percent , the Republican incumbent imposed wage and price controls, leaned on the Federal Reserve to cut interest rates, increased Social Security benefits and urged federal agencies to spend down their budgets, which led to the Pentagon’s toilet-paper stockpile. Order to Spend      “He lashed all the departments to spend as much as they could in the first six months of the year,” said Allen Matusow , a historian at Rice University in Houston and author of ‘Nixon’s Economy: Booms, Busts, Dollars and Votes.” “The economy tortured him for years, but in the year it really counted, everything worked.” The task facing Democrats this year is tougher. The Fed has already slashed rates, the unemployment rate is higher, and the deficit , estimated to reach a record $1.5 trillion this year, is deeper. In addition, stimulus spending takes time to take effect. Just one-third of the package approved in February 2009 was spent by the end of last year. The U.S. may add as many as 300,000 jobs in March, the most in four years, David Greenlaw , chief fixed-income economist at Morgan Stanley in New York, said in a Bloomberg Radio interview. Over a longer period, though, the jobless rate may move higher as the economy improves and discouraged workers, no longer counted in the labor force, begin searching again for work, said Mark Zandi , chief economist of Moody’s Economy.com . Bigger Measure      Zandi, who backs additional stimulus spending to prevent the economy from tipping back into recession, said he would want a jobs bill totaling about $200 billion. Even that wouldn’t trim the unemployment rate by more than a half-percentage point, he said. “I don’t think there’s any way to get it down below nine by Election Day,” he said. Lawmakers are at odds over how to boost the economy. Many House Democrats said the payroll-tax idea is likely to win approval less because it would create jobs than because it was able to win bipartisan support in the Senate. “It’s important for us to look like we’re doing something,” said Representative Lloyd Doggett , a Texas Democrat. “But we need to be thoughtful about whether the proposals we have will make any difference.” To contact the reporter on this story: Brian Faler  in Washington at bfaler@bloomberg.net .

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Democrats’ Election-Year Jobs Push Recalls Nixon’s ‘72 Toilet-Paper Gambit

By Jeran Wittenstein and Tiffany Kary March 12 (Bloomberg) — Lyondell Chemical Co. plans to borrow $3.25 billion to repay some existing debt after it emerges from bankruptcy protection. The chemical maker, based in Houston, plans to sell senior secured bonds and borrow through a senior term loan, according to a statement distributed by PRNewswire. It also plans to raise $2.8 billion in a rights offering. Lyondell said March 8 that its plan to reorganize by repaying its $8 billion bankruptcy loan and giving an equity stake in the new company to lenders is a better deal for creditors than a $14.5 billion purchase offer by India-based Reliance Industries Ltd. U.S. Bankruptcy Court Judge Robert Gerber in Manhattan yesterday approved Lyondell’s reorganization terms valuing the company at $15.2 billion over the objections of a group of lenders. Gerber said Lyondell’s disclosure statement has enough information about how the company is valued, paving the way to the company’s planned April 30 exit from bankruptcy. Gerber also approved a settlement among unsecured creditors and senior lenders over Lyondell’s $22 billion buyout in 2007. The group of lenders, who said the company was being undervalued, said backers of the rights offering — Access Industries Holdings LLC, Apollo Management LP and Ares Corporate Opportunities Fund III — could benefit from an artificially low valuation by getting stock at a discount. Bank lenders would also benefit from a low valuation because they could be overpaid on their claims, and management would get stock at a lower price too, lawyers for the group said in court documents. Bridge Loans Lyondell characterized the objectors as a small group that held only about $250 million, or 2.6 percent, of the bridge loans. David Harpole , a Lyondell spokesman, didn’t immediately return a voicemail message seeking comment after regular business hours yesterday. The proceeds from the sale of the notes, together with the loan and a new European securitization facility, will be used to repay debts including the chemical maker’s debtor-in-possession loan and an existing European securitization facility. The case is In re Lyondell Chemical Co., 09-10023, U.S. Bankruptcy Court, Southern District of New York (Manhattan). To contact the reporters on this story: Jeran Wittenstein at jwittenstei1@bloomberg.net ; Tiffany Kary in New York at tkary@bloomberg.net .

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Lyondell Will Pursue $3.25 Billion of Debt Financing After Bankruptcy Exit

By Scott Hamilton March 12 (Bloomberg) — U.K. house prices increased in February at the fastest pace in more than seven years, research group Acadametrics Ltd. said. The average cost of a home in England and Wales was 222,008 pounds ($334,033), up 1.9 percent from January in the biggest advance since September 2002, Acadametrics founder David Thorpe said in a telephone interview. Values are still 4 percent below their February 2008 peak, the group said in an estimate released by e-mail today. The measurement is at odds with other housing data that show values fell last month and is likely to be revised down, Thorpe said. Some property market indicators show Britain’s housing recovery lost momentum this year after the looming general election, an increase in transaction tax and colder- than-average winter weather deterred buyers. “The numbers at the moment are very volatile because of low transactions,” Thorpe said. “When more transactions come through we would expect this 1.9 percent to drop.” Transactions in January plunged 52 percent from December to 36,000, an 11-month low, the research group said. Acadametrics uses methodology employed by the U.S. S&P/Case-Shiller price index, combining initial housing transaction data from the U.K. Land Registry and results from other price measures to produce an estimate for the most recent month . That number is then revised in following months. The gauge was formerly called the Financial Times House Price Index. To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net .

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U.K. House Prices Rose in February by Most Since 2002, Acadametrics Says

By Hugh Son March 12 (Bloomberg) — American International Group Inc. ’s effort to reach its commitment of $45 million in bonus concessions are focusing on former employees who have refused to accept reduced payouts, said people with knowledge of the talks. The insurer mailed questionnaires this month to ex-workers at the Financial Products unit asking whether they’d earned income after leaving AIG, said the people, who declined to be identified because the negotiations are private. Under the program, compensation earned by former AIG staff in 2009 from another employer would lower payouts to be delivered next week from the New York-based company, the people said. AIG is seeking to satisfy U.S. paymaster Kenneth Feinberg ’s demands that derivatives staff return the full amount they pledged to give back after a March 2009 backlash against the awards. The employees, who worked in the unit blamed for losses that pushed AIG to the brink of collapse in September 2008, agreed to about $39 million in cuts as of Jan. 29. The bailed- out insurer said the awards were necessary to retain staff critical to unwinding trades. “AIG owes the taxpayer a huge amount of money and we want to make sure that my compensation practices take into account the need for AIG to thrive,” Feinberg, the Obama administration special master on executive pay, said in a Dec. 11 interview with Bloomberg Television. More than 95 percent of about 200 current Financial Products workers agreed to bonus cuts of 10 percent, one of the people said. Most of about 60 former workers refused to make concessions and responded that they didn’t earn income after leaving AIG, the person said. ‘Remains Committed’ The former employees, who were asked to take a 20 percent reduction, are due to receive bonuses by March 15 under the retention agreement, the person said. If AIG doesn’t reach its goal, it may be prohibited from raising salaries of top-earning employees under Feinberg’s jurisdiction, Treasury has indicated to the insurer. AIG “remains committed to reaching the target and we’re confident we will,” said Mark Herr , a spokesman for the insurer, in a statement. The firm said last month that it was overhauling its incentive system to reward employees for performance. The backlash against AIG compensation peaked a year ago with President Barack Obama criticizing the awards. To contact the reporters on this story: Hugh Son in New York at hson1@bloomberg.net ;

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AIG Said to Query Bonus Holdouts in Push for $45 Million of Concessions

By David Scheer and Joshua Gallu March 12 (Bloomberg) — Lehman Brothers Holdings Inc. used off-balance-sheet transactions to downplay its leverage in late 2007 and 2008, deceiving shareholders about its ability to withstand losses, a bankruptcy examiner’s report said. Then-Chief Executive Officer Richard Fuld was “at least grossly negligent” for letting Lehman file financial reports in which a key gauge of strength was “reverse-engineered” through transactions known as Repo 105s, bankruptcy examiner Anton Valukas said in a report yesterday. Lehman auditor Ernst & Young LLP could be accused of “professional malpractice,” he said. “The balance sheet manipulation was intentional, for deceptive appearances, had a material impact on Lehman’s net leverage ratio” and caused financial reports to be misleading, Valukas wrote of the New York-based company. Higher leverage undermines a firm’s capacity to absorb financial shock. Lehman filed the biggest bankruptcy in U.S. history in September 2008 after mounting losses on mortgage-backed securities spooked investors and creditors. The Wall Street investment bank’s failure helped trigger a freeze of global credit markets, forcing the U.S. government to provide $700 billion in bailout funds. Fuld didn’t know what the Repo 105 transactions were, his lawyer, Patricia Hynes of Allen & Overy LP in New York, said in a statement. He “didn’t structure or negotiate them,” she said. “Nor was he aware of the accounting treatment.” Concern Among Workers The transactions increased just before the end of financial reporting periods, temporarily moving $49 billion to $50 billion of assets off the balance sheet at the end of the first and second quarters of 2008, according to the report. Many employees expressed concern that Lehman was alone among its peers in using such methods, Valukas said. Ernst & Young last audited Lehman for the fiscal year ending Nov. 30, 2007, the accounting firm said in a statement yesterday. “Our opinion indicated that Lehman’s financial statements for that year were fairly presented in accordance with Generally Accepted Accounting Principles,” the firm said. “We remain of that view.” The leverage ratios that were reported in Lehman’s management discussion and analysis “were the responsibility of management, not the auditor,” Ernst & Young said. “They are not part of the audited financial statements.” Valukas, appointed by a federal court in Manhattan last year to probe Lehman’s demise, doesn’t have prosecutorial authority. Instead, the report outlines what claims creditors may bring to recoup losses. Archstone-Smith Trust In its final year, Lehman also overvalued some real-estate holdings, including a stake in U.S. apartment developer Archstone-Smith Trust, Valukas said. Lehman and Tishman Speyer Properties LP completed a joint acquisition of Archstone for $22 billion, including debt, in October 2007. In the first three quarters of 2008, Lehman’s valuations for an equity holding in Archstone “were unreasonable,” the examiner wrote. In the second quarter of 2008, for example, the stake may have been overvalued by as much as $450 million. As Wall Street’s mortgage losses mounted in 2007, banks struggled to win back investor confidence. By at least January 2008, Fuld had become focused on net leverage and reducing Lehman’s balance sheet, Valukas’s report shows. Failing to do so could lead to a ratings downgrade, inflicting “an immediate, tangible monetary impact” on Lehman, the report said. The bank, which had been using the repos since 2001, ramped them up in mid-2007, breaching internal limits, the report shows. Lehman’s former president, Herbert “Bart” McDade , commented on them in an April 2008 e-mail exchange, after he was asked whether he knew about their effect on the balance sheet, Valukas said. “I am very aware,” McDade wrote back. “It is another drug we r on.” Repo Presentation Fuld received a presentation referencing Repo 105s in March 2008, and McDade recalled discussing the transactions with the CEO in June of that year, according to the report. “Fuld knew about the accounting of Repo 105,” McDade said in an interview with Valukas on Jan. 28 this year. “At no time did Lehman’s senior financial officers, legal counsel or Ernst & Young raise any concerns about the use of Repo 105 with Mr. Fuld, who throughout his career faithfully and diligently worked in the interests of Lehman and its stakeholders,” Hynes wrote in her statement. The transactions were done in accordance with an internal accounting policy and supported by legal opinions, she said. In a repo agreement, one party temporarily transfers a security to another as collateral for short-term cash. A Repo 105 transaction requires extra collateral, making it a more costly form of borrowing. Lehman accounted for the Repo 105s as “sales,” as opposed to financing transactions, Valukas said. The bankruptcy case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). To contact the reporters on this story: David Scheer in New York at dscheer@bloomberg.net .

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Lehman Misled Investors on Leverage, Fuld Was `Negligent,’ Examiner Says

By Darren Boey and Masaki Kondo March 12 (Bloomberg) — Japanese stocks gained and the yen weakened on speculation the central bank will add more funds to its financial system. Emerging-market currencies strengthened as rising confidence in Greece’s ability to pay its debt shored up demand for riskier assets. The Nikkei 225 Stock Average climbed 0.7 percent to 10,741.85 as of 1:45 p.m. in Tokyo. The MSCI Asia Pacific Index rose 0.2 percent. The yen weakened against 15 of 16 major counterparts. It dropped to 124.14 per euro in Tokyo from 123.82 in New York yesterday, the weakest since Feb. 23. Malaysia’s ringgit advanced 0.2 percent to the strongest in 19 months. The Bank of Japan may seek to expand a 10 trillion-yen ($110 billion) fund that provides loans to banks in a March 16- 17 policy meeting, according to two central bank officials who spoke on condition of anonymity. Finance Minister Naoto Kan said in parliament today foreign-exchange intervention is an option. Emerging-market and high-yield bond funds each took in more than $1 billion in the week to March 10, EPFR Global said yesterday. “I would think highly of any additional easing by the BOJ to preempt the yen’s appreciation,” said Hiroshi Morikawa , a senior strategist at MU Investments Co., which manages the equivalent of $14 billion in Tokyo. “The economy is improving, so investors aren’t bearish.” Japan’s Topix advanced 0.5 percent. Hong Kong’s Hang Seng Index lost 0.1 percent. The Philippine Stock Exchange Index sank 1.7 percent after the central bank pared a lending program for banks yesterday and said it will consider doing more to reduce cash in the economy. Shares of automakers in Japan gained on speculation government policies will weaken the yen, boosting the value of overseas income converted into the country’s currency. Nissan Motor Co. , which gets 57 percent of its revenue in North America and Europe, climbed 2.4 percent to 764 yen. Honda Motor Co. advanced 0.9 percent to 3,300 yen. Foreign Investors The yen traded at 90.66 per dollar from 90.51 in New York yesterday. It fell to 90.82 on March 10, the lowest level since Feb. 23. Finance Minister Kan told the Diet he’s “aware” that currency intervention is an option if markets move too abruptly. “Expectations remain strong especially among foreign investors that the BOJ will do more easing,” said Daisaku Ueno , president in Tokyo at Gaitame.Com Research Institute Ltd., a unit of Japan’s largest currency margin company. “Some foreign investors seem to be using the expectations in order to make yen-sell positions.” Health-care companies rose the most among the MSCI Asia Pacific Index’s 10 industry groups on speculation proposed changes to the U.S. health system will be harder to pass. Takeda Pharmaceutical Co. , Asia’s biggest drugmaker, increased 1.6 percent to 4,140 in Tokyo, the second-biggest boost to the MSCI index. North America accounts for 34 percent of the company’s sales. Growing Confidence Speculation over the passage of the health-care system changes helped the Standard & Poor’s 500 Index rise 0.4 percent yesterday. Futures on the S&P 500 fell less than 0.1 percent. Emerging-market currencies gained as improved confidence in Greece’s ability to pay its debt shored up demand for riskier assets. Emerging-market and high-yield bond funds each took in more than $1 billion in the week to March 10, EPFR Global said yesterday, the strongest net inflows since the company started publishing weekly data on the sectors a decade ago. Malaysia’s ringgit advanced 0.4 percent to 3.307 per dollar, reaching the strongest level in 19 months. The Taiwan dollar strengthened 0.2 percent to NT$31.77 per dollar. Overseas investors bought $711 million more Korean shares than they sold in the last four days, taking net purchases for the month to $1.4 billion. The risk premium investors demand to buy Greece’s debt over comparable German bonds has narrowed from an 11-year high on Jan. 28. Riskier Assets “It’s a global story with the improvement in European sovereigns translating into stronger demand for emerging-market assets,” said Sebastien Barbe , head of emerging-markets research at Credit Agricole CIB in Hong Kong. The yield on the 10-year German bund touched 3.2 percent yesterday, the highest level since Feb. 23, after reaching 3.11 percent two days ago, a signal investors are seeking riskier assets as Greece tackles its debt woes. Greece has a budget shortfall that, at 12.7 percent of gross domestic product, was the European Union’s largest in 2009. The cost of protecting corporate bonds from default fell in Australia and Japan today. The Markit iTraxx Japan index fell 1.5 basis points to 120.5 basis points, according to Morgan Stanley prices. That’s the lowest since Jan. 12. The Markit iTraxx Australia index fell 1 basis point to 81 basis points, according to Australia & New Zealand Banking Group Ltd. Oil, Copper Crude oil traded above $82 a barrel in New York after the Organization of Petroleum Exporting Countries said it’s set to increase shipments at the end of the month on strong demand from China, the world’s second-biggest energy user. Oil for April delivery gained 0.1 percent to $82.22 a barrel in electronic trading on the New York Mercantile Exchange at 9:52 a.m. Sydney time. Yesterday, the contract rose 2 cents to $82.11. Futures have risen 0.9 percent this week, after last week’s 2.3 percent increase. Copper for three-month delivery dropped 0.5 percent to $7,429 a metric ton. Chile’s state-owned company Codelco, the world’s biggest producer, said output was normal after a series of tremors shook central Chile yesterday. To contact the reporter for this story: Darren Boey at dboey@bloomberg.net ; Masaki Kondo in Tokyo at mkondo3@bloomberg.net .

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Yen Weakens, Japan Stocks Gain on Central Bank Speculation; Ringgit Rises

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Brian Pitman, Former Lloyd’s Bank Chairman and Adviser to Branson, Dies

By Viola Gienger March 12 (Bloomberg) — Defense Secretary Robert Gates said yesterday the U.S. has enough backing from other nations to make tougher sanctions work against Iran and signaled that Saudi Arabia may try to persuade China, its biggest oil customer, to go along. The Saudis should draw on their economic clout “to say it’s important to the kingdom of Saudi Arabia” that China support a fourth round of United Nations penalties against Iran for its nuclear work, Gates told reporters traveling with him in the Persian Gulf region. “I have the sense that there is a willingness to do that,” he said in Abu Dhabi, the capital of the United Arab Emirates, where he met with Crown Prince Sheikh Mohammad Bin Zayyed al-Nahyan of Abu Dhabi, the deputy supreme commander of the U.A.E. Armed Forces. The proposed sanctions are intended to intensify pressure on Iran to back off any nuclear-arms development and engage in international talks on the issue. Gates traveled to the Persian Gulf from Afghanistan three days ago as the U.S. seeks support at the UN Security Council for tougher measures against Iran that may target shipping, banking and insurance. The Iranian government says its nuclear work has commercial rather than military aims. Revolutionary Guard Saudi Arabia and the U.A.E. welcomed the Obama administration’s emphasis on measures aimed at pressuring the Iranian regime and its Revolutionary Guard Corps rather than penalties that would hurt ordinary residents, Gates said. The aim is to focus “on the people that we think are making the decisions,” he said. The U.A.E. lies across the oil-transit chokepoint of the Strait of Hormuz from Iran, and has become one of the top buyers of U.S. weapons. The U.S. and the U.A.E., which pumps more crude oil than Venezuela, last year signed an agreement to develop a civilian atomic power program in the Emirates. Gates shed his shoes to tour the Sheikh Zayed Mosque, one of the largest in the world, with 80 white marble domes and an interior decorated with floral inlays. The mosque is named after the late president regarded as the founder of the grouping of eight emirates. “It is a beautiful site and a fitting tribute to the father of this nation, a man of great vision, tolerance, and judgment,” Gates said after his visit. In the Saudi capital Riyadh on March 10, Gates had dinner with King Abdullah and other meetings with officials including Crown Prince Sultan bin Abdelaziz al-Saud. “I felt really good about both stops,” Gates said. CIA Studies Gates said he disagreed with skeptics of sanctions on Iran, and cited Central Intelligence Agency studies on the effectiveness of such measures in cases such as Rhodesia, now Zimbabwe, and South Africa. The main factor was backing from a wide range of players and a goal they could embrace, said Gates, a former CIA director. “I think we have that kind of broad, international support,” he said. “I think the prospects of success are certainly better than a lot of other situations where sanctions have been applied.” The purpose of such measures would be “trying to persuade the Iranian government of what their own best interest is, as opposed to regime change or something like that,” Gates said. In Saudi Arabia, the Pentagon chief asked King Abdullah to urge China to sign onto sanctions. U.S. officials including Secretary of State Hillary Clinton have said a secure Persian Gulf and a stable energy supply is in China’s interests. China, Sanctions While China, the fastest-growing major economy, has balked at sanctions, it came around to support each of the last three Security Council resolutions that laid out penalties against Iran. Obama’s efforts at diplomacy with Iran and the Iranian rejection of an offer that largely mirrored its own suggestion of a solution contributed to expanding support for moving to the next step of imposing sanctions, Gates said. U.S. allies in the Persian Gulf have been moved to action because of “rising interference and covert activities throughout the region, in addition to their missile and nuclear programs,” Gates said of Iran. The U.S. has accused Iran of supporting groups such as Hamas in the Gaza Strip and Hezbollah in Lebanon. Conduit for Products Gates urged the U.A.E. to do more to cut off shipments of American products through its territory to Iran that can’t be sold directly. The U.A.E. also has cracked down on Iranian front companies seeking nuclear and weapons technology. “There has been a significant improvement,” Gates said. “I talked about the desirability of continuing to improve our cooperation in that area.” Gates pressed both Gulf nations he visited to accelerate regional cooperation on air and missile defenses and maritime surveillance in the face of Iran’s weapons development. The U.S. Air Force and the Pentagon’s regional military command for the Middle East and Central Asia have worked to accomplish coordination among the countries in recent years, Gates said. “I would describe this as a gradual process of the growing ties in the security arena,” particularly in defensive systems, Gates said. To contact the reporter on this story: Viola Gienger in Abu Dhabi at vgienger@bloomberg.net

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Gates Sees Saudi Help, International Support for Tougher Sanctions on Iran

By Bradley Keoun March 12 (Bloomberg) — Citigroup Inc. Chief Executive Officer Vikram Pandit said the U.S. Treasury Department will be free to sell its 27 percent stake in the bank starting next week and that he “wouldn’t be surprised” if the government were considering a sale. “They’re free to do what they want to do,” Pandit said yesterday at an investor conference in New York. “I wouldn’t be surprised if they would actively think about something,” given where the stock is trading, he said. The Treasury got its 7.7 billion shares in the New York- based bank last September, when the department converted $25 billion of bailout money into common shares at a cost of $3.25 each. The stock rose to $4.18 in New York Stock Exchange composite trading yesterday, giving the government a 29 percent paper gain on the stake, or about $7.2 billion. A 90-day moratorium on a sale of the Treasury’s shares expires March 16, Pandit said. The Treasury, which has said it plans to sell the shares this year, is conducting a round of interviews with securities firms, including Citigroup, to decide which should manage the sale, a person with direct knowledge of the discussions said. A range of strategies are under consideration, including a managed offering of the shares or selling them over time into the market, the person said, speaking anonymously because the talks are private. An average of 1.2 billion shares have changed hands each day over the past three days, compared with a daily average so far this year of 465 million shares, data compiled by Bloomberg show. The Treasury would have to publicly register its shares before beginning to sell them on the open market, Citigroup Chief Financial Officer John Gerspach said at the conference. In December, when Citigroup sold new shares to help repay $20 billion of bailout money, the Treasury said it would hold off selling any shares for at least 90 days. The Treasury missed a chance to unload the shares for a $13 billion profit last October, when the stock price climbed as high as $5 and valued the stake at $38 billion. To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net .

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Pandit Says He `Wouldn’t Be `Surprised’ If Treasury Weighing Sale of Stake

By Chia-Peck Wong March 12 (Bloomberg) — Hong Kong’s home market may see “another good year” in 2010 as buyers remain financially sound, according to Sun Hung Kai Properties Ltd., the world’s biggest developer by market value. “We don’t see any bubbles in the market,” Victor Lui , executive director of Sun Hung Kai’s real estate arm, said at a briefing yesterday. An economic recovery in Hong Kong, near-zero interest rates on savings, 20-year low mortgage rates and record low supply spurred a 29 percent gain in overall existing home prices last year, leading the government to raise property taxes and down- payments to cool the market. “The residential market in Hong Kong is likely to see another good year both in terms of prices and volume,” Chairwoman Kwong Siu Hing said in a stock exchange statement as the developer announced underlying first-half profit that beat estimates. “Affordability, mortgage interest rates, liquidity and homebuyer confidence remain favorable,” she said. Sun Hung Kai’s shares rose 1.7 percent to HK$116.40 at 11:40 a.m. in Hong Kong, the highest in two months. The gain brings the Hong Kong-based developer’s stock to unchanged this year, compared with a 2.9 percent drop in the Hang Seng Index. Last year’s increase in home prices led the Hong Kong Monetary Authority to tell banks to price new mortgage loans above its “reference rate” amid concerns a price war may further erode their profit margins, Stanley Wong , deputy general manager at ICBC Asia Ltd., said earlier this month. No Real Intervention The HKMA, the city’s de facto central bank, set the reference levels at 0.7 of a percentage point above the one- month Hong Kong interbank offered rate and 3.1 percentage points below the prime mortgage rate when it met lenders, Wong said. So far, Hong Kong’s measures don’t represent active intervention in the market, Credit Suisse analysts led by Hong Kong-based Cusson Leung said in a March 8 report. “We believe the government will observe the market for another two to three months to gather any hard evidence before it really intervenes,” the report said. The city’s government shouldn’t enter the property market, as its last intervention led to the 1998 crash, Thomas Kwok , vice-chairman of Hong Kong-based Sun Hung Kai and Kwong’s son, told reporters at a briefing yesterday. Prices of some luxury apartments, typically defined as those bigger than 1,000 square feet (92.9 square meters) or costing more than HK$10 million ($1.29 million) each, have returned to record levels posted in 1997, John Tsang , Hong Kong’s finance secretary, said in his Feb. 24 budget speech. Rival Views Henderson Land Development Co., a Hong Kong developer controlled by billionaire Lee Shau-kee , said in October it sold a luxury apartment at a world record price of HK$88,000 on a per square foot basis. History may make Hong Kong’s leaders cautious. At the height of a bubble in 1997, the year Britain returned Hong Kong to China, the government pledged to supply 85,000 homes a year. In 1998, prices tumbled in the Asian financial crisis. Kwok’s comments pit him against rival developers such as New World Development Co., whose managing director Henry Cheng said parts of Hong Kong’s property market show signs of “overheating.” Cheng, son of billionaire Cheng Yu-tung , supports proposals to resume construction of government- subsidized housing provided not “too many” units are built, Radio Television Hong Kong reported March 8. Billionaire Vincent Lo , chairman of developer Shui On Land Ltd. , also backs the proposal, the government broadcaster said. Supply Drops Measures by the Chinese and Hong Kong governments to cool the property market “are sensible” as steps include an increase in supply, Martin Cubbon , chief executive of Swire Properties Ltd., the real estate arm of Swire Pacific Ltd., said yesterday. “We will support any moves that seek to improve transparency in prices,” Cubbon said, declining to comment further as Swire Pacific seeks to spin-off the properties unit through a share sale in Hong Kong. Completions of Hong Kong apartments fell to a record low of 7,160 last year and may double this year, the government said on March 4. For homes bigger than 100 square meters each, completions, which more than doubled in 2009 to 2,420, may fall to 1,430 this year, it said. Sun Hung Kai and Swire Pacific yesterday reported profit that beat analysts’ estimates. Sun Hung Kai said fiscal first-half underlying profit rose 44 percent to HK$6.51 billion on wider margins from real estate sales and higher rental income. The median estimate of five analysts surveyed by Bloomberg News was HK$5.55 billion. Swire Pacific , the Hong Kong office landlord and owner of 42 percent of Cathay Pacific Airways Ltd. , said 2009 underlying profit jumped 62 percent to HK$8.48 billion, as the airline returned to profit and rental income rose. That compares with the HK$7.5 billion median estimate of five analysts surveyed by Bloomberg. To contact the reporter on this story: Chia-Peck Wong in Hong Kong at cpwong@bloomberg.net .

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Hong Kong Property Prices Set for `Another Good Year,’ Sun Hung Kai Says

Federal Reserve Bank of San Francisco President Janet Yellen is President Barack Obama’s pick for vice chairman of the central bank in Washington, two people with knowledge of the selection process said. The nomination is pending completion of vetting by the Obama administration, one person said. The vice chairman gets a four-year term, subject to Senate approval, and a separate term on the Fed Board of Governors. The people spoke on condition of anonymity because the selection hasn’t yet been announced.

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Janet Yellen Tapped By Obama As Fed Vice Chairman

Federal Reserve Bank of San Francisco President Janet Yellen is President Barack Obama’s pick for vice chairman of the central bank in Washington, two people with knowledge of the selection process said. The nomination is pending completion of vetting by the Obama administration, one person said. The vice chairman gets a four-year term, subject to Senate approval, and a separate term on the Fed Board of Governors. The people spoke on condition of anonymity because the selection hasn’t yet been announced.

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Janet Yellen Tapped By Obama As Fed Vice Chairman

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Yellen Is Said to Be Obama’s Choice for Fed Vice Chairman to Replace Kohn

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Yellen Said to Be Obama Pick for Fed Vice Chairman to Replace Donald Kohn

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Quake Shakes Pineras Plan to Spur Chilean Economy

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U.S. Stocks Gain as SP 500 Rallies to Highest Level Since 2008

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U.S. Economy: Trade Deficit Unexpectedly Shrinks

By James Rupert March 12 (Bloomberg) — India, which has tripled its defense spending in a race against China’s military buildup, is having trouble converting the funding into weapons and equipment its military says are urgently needed. The government in five years has canceled two tenders for artillery guns, a contract for ammunition propellant and two helicopter tenders, together worth at least $4 billion. No contract exceeding $100 million has been awarded through competitive bidding in at least 23 years, said military analyst V.K. Kapoor . Defense Ministry spokesman Sitanshu Kar said he couldn’t immediately identify the last such deal. India’s “military capacity and preparedness are being reduced because of the inadequacy of the procurement process,” said Uday Bhaskar , director of the National Maritime Foundation , a New Delhi research institute on strategic issues. The military’s upgrading is “on hold and its obsolescence is increasing.” The cancellations have disrupted attempted weapons sales by Textron Inc.’s Bell Helicopter unit in Fort Worth, BAE Systems Plc and South Africa’s Denel Ltd. Bhaskar said they have hurt troop readiness along more than 4,200 kilometers (2,600 miles) of Himalayan frontiers , where India has fought three full-blown wars with Pakistan and one with China. India took 20 years to negotiate a 2004 contract for jet trainers, even as 157 pilots died in three decades of jet fighter crashes blamed partly on inadequate training craft. Obsolete Weapons The Defense Ministry, which wields the world’s 10th-largest military budget, has surrendered 3 percent to 9 percent of its announced budget in each of the past seven years because it couldn’t spend all the money allocated for arms, according to a January report by the New Delhi office of accounting firm KPMG and the Confederation of Indian Industry . Half of India’s weapons are obsolete, the report said. China has almost quadrupled its official defense spending since 2000 to $78 billion for fiscal 2011, 7.5 percent more than in the previous year. India will spend $32 billion on defense this year, triple its 2000 outlay and 4 percent more than in fiscal 2010. India has bought no artillery for more than 23 years, a period during which the government has sought to buy more than 1,500 155 mm guns for use mainly along the Pakistani and Chinese borders. Such guns were used to defeat Pakistan in a 1999 conflict at Kargil in Kashmir; India would have had too few had that fight grown into a full-scale war, said Kapoor, who is also a retired army lieutenant general. Howitzer Delays India’s military is adequately prepared on its borders and will benefit from an accelerating modernization program, Minister of State for Defense M.M. Pallam Raju said at a conference with defense companies in New Delhi on Feb. 16. “In the past five years we have created a faster, more transparent procurement process,” he said. That process is being tested as India’s air force conducts flight trials in the world’s biggest fighter-jet purchase in 15 years. Chicago-based Boeing Co. , Lockheed Martin Corp. and four European builders are vying under a 2007 tender to sell India 126 warplanes worth $11 billion. India is expected to sign a separate deal for 29 naval MiG- 29 fighters during this week’s visit by Russian Prime Minister Vladimir Putin . John Giese , a spokesman for Bethesda, Maryland-based Lockheed, called the fighter tender “one of the most challenging competitions in the history of fighter aviation.” Given the complexity, “the competition has been very efficient, transparent and professionally managed,” Boeing spokeswoman Mary Ann Brett said in an e-mail. European Competitors Lockheed and Boeing are competing with Paris-based Dassault Aviation SA , Stockholm-based Saab AB , European Aeronautic, Defense & Space Co. , which has headquarters in Paris and Munich, and Moscow-based OAO United Aircraft Corp . While the military says rules last amended in November let it sign a contract within 20 to 34 months, it is too early to judge their effectiveness, said Gurpal Singh, a deputy director general for the industry federation in New Delhi. The air force asked the government in 1983 to order advanced jet trainers because pilots taught mainly in subsonic jets were losing control of supersonic MiG-21 fighters that were more than three times faster. Political and bureaucratic battles under 11 prime ministers added to the delays before BAE Hawk jets were purchased. India’s main political blocs — led by the Congress Party and the Bharatiya Janata Party (BJP) — have fought over arms buying since 1987. Indian newspapers reported then that Swedish artillery builder Bofors, now a unit of London-based BAE, bribed officials to buy its guns. The scandal scuttled most of the deal and helped drive the Congress government of Prime Minister Rajiv Gandhi to defeat in 1989 elections. Reviewing Deals India was still seeking artillery in 2004 when Congress was elected, and halted bidding as it reviewed defense deals under the previous BJP administration. When police investigated Pretoria-based Denel for paying illegal commissions in winning a 2002 army order for rifles, the government blacklisted the state-owned company. Four more foreign companies were barred from defense contracts last year, after the Central Bureau of Investigation said they were being investigated on suspicion of bribery. That forced Singapore Technologies Engineering Ltd. out of the race, leaving London-based BAE as a single vendor and prompting officials to halt the tender. To contact the reporter on this story: James Rupert in New Delhi at jrupert3@bloomberg.net .

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India’s Stalled Arms-Buying System Leaves Its Military Outgunned by China

By John Detrixhe March 11 (Bloomberg) — The cost to protect against defaults on U.S. corporate bonds increased as credit markets had to absorb a 57 percent jump in weekly company debt sales. Credit-default swaps on the Markit CDX North America Investment Grade Index Series 13, which is linked to 125 companies, rose 0.5 basis point to a mid-price of 83.5 basis points, according to broker Phoenix Partners Group. The gauge typically rises as investor confidence deteriorates and falls as it improves. Swaps on Bank of America Corp. and Citigroup Inc. advanced, according to CMA DataVision prices. Credit-default swaps are pausing after the index rallied 23.7 basis points from a high of 106.24 this year, CMA prices show. U.S. borrowers have taken advantage of cheaper credit to issue debt, leaving investors to digest sales of at least $31 billion of bonds this week, compared with $19.7 billion in the previous period, according to data compiled by Bloomberg. “You’ve had a decent amount of new-issue supply come to market the last few days,” said Rizwan Hussain , a U.S. credit strategist at Morgan Stanley in a telephone interview. The Markit index has fallen 2.1 basis points from the beginning of the year, CMA prices show. The trade deficit in the U.S. narrowed in January as imports fell for the first time in five months, indicating cooling demand, Commerce Department figures showed today in Washington. Exports decreased for the first time in nine months. “The somewhat disappointing trade data seem likely to prove a brief pause in a generally improving trend,” said David Resler , chief economist at Nomura Securities International Inc. in New York. Citigroup Rises Credit swaps on Citigroup increased 3 basis points to 171.5 basis points and those on Bank of America rose 4.5 basis points to 125 basis points, CMA prices show. A basis point is 0.01 percentage point. Citigroup Chief Executive Officer Vikram Pandit said today at an investor conference in New York that he “wouldn’t be surprised” if the government were considering a sale of its 27 percent stake in the U.S. bank. Contracts linked to First Data Corp . increased to 12.19 percentage points upfront from 10.25 percentage points yesterday, CMA prices show. That means the cost to protect $10 million of debt rose to $1.22 million initially and $500,000 annually. First Data posted a $369 million fourth-quarter loss, the Greenwood Village, Colorado-based company owned by KKR & Co. said today in a statement. Adjusted earnings before interest, taxes, depreciation and amortization were $530 million compared with $645 million during the similar period a year ago. Changing CEOs KKR also named Michael Capellas as senior adviser focusing on technology and replaced him as First Data’s chief executive officer with Joe Forehand on an interim basis. “They have a capital structure that’s going to be challenged with the weaker earnings,” said Raymond Kennedy , a money manager at Los Angeles-based Hotchkis & Wiley Capital Management LLC, which oversees about $80 million in high-yield debt. “They’re in a tough market in a tough economy.” The electronic-commerce company’s 10.55 percent payment-in- kind notes due in September 2015 fell the most ever, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. They dropped 6.8 cents on the dollar to 85.2 cents to yield 14.9 percent as of 4:15 p.m. New York time. Swaps on Devon Energy Corp. fell 3.5 basis points to 49 basis points, CMA DataVision prices show. BP Plc will pay Devon Energy $7 billion for assets in Brazil, the Gulf of Mexico and Azerbaijan. Devon’s sale is “a major advancement of its strategic repositioning initiative announced in November,” Philip Adams , a bond analyst at Gimme Credit LLC in Chicago, wrote today in a report. Credit swaps pay the buyer face value if a borrower defaults in exchange for the underlying securities or the cash equivalent. A basis point equals $1,000 annually on a contract protecting $10 million of debt for five years. To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

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Company Credit Risk Rises as Markets Absorb 57% Jump in New Debt Issues

By Jamie McGee and Andrew Frye March 12 (Bloomberg) — Warren Buffett , the billionaire chairman of Berkshire Hathaway Inc. who pays the company for postage and personal phone calls, received a $100,000 salary for a 29th straight year as he arranged a $27 billion acquisition. Berkshire’s shareholder equity, a measure of assets minus liabilities, rose 20 percent to $131.1 billion in 2009 and annual net income climbed 61 percent to $8.06 billion. Buffett received no bonus in 2009 and he doesn’t get stock options or grants, Omaha, Nebraska-based Berkshire said late yesterday in a regulatory filing . “Considering that far-more-mortal executives have been paid far more for delivering far less, the standards of comparisons would warrant a monumental increase,” said Tom Russo , partner at Gardner Russo & Gardner in Lancaster, Pennsylvania, which holds Berkshire stock. “He could say, ‘I’m worth a billion a year,’” Russo said. “That’s not Buffett.” Buffett reimbursed Berkshire $50,000 last year to cover the cost of postage stamps, phone calls and staff time used for personal tasks, the company said in the filing. Vice Chairman Charles Munger , who also made a $100,000 salary, paid $5,500. Buffett and Munger don’t use company cars or belong to clubs paid for by Berkshire. Security Costs Berkshire reported $344,490 in costs for Buffett’s personal and home security. That’s up 9.1 percent from $315,709 in 2008. Buffett, 79, completed the purchase last month of railroad Burlington Northern Santa Fe Corp. for $27 billion, the biggest acquisition of his career. He built Berkshire into a $200 billion company over four decades, transforming a failing maker of men’s suit linings into an enterprise with businesses ranging from car insurance and underwear to power plants and corporate jet leasing. Buffett is also Berkshire’s chief executive officer as well as its largest shareholder. Since 2004, Berkshire’s compensation committee has determined salaries. Prior to that, Buffett recommended his own salary to the board. “He views the shareholders of Berkshire Hathaway as partners,” said Jeff Matthews , author of “Pilgrimage to Warren Buffett’s Omaha” and founder of the hedge fund Ram Partners LP. “If you have your own skin in the game, you own the shares of stock alongside your fellow shareholders and you make them a ton of money, you will make yourself a ton of money, and that’s the proper way to do it in his mind.” Stock Gain Berkshire’s Class A shares rose about 2.7 percent in 2009, ending the year at $99,200 on the New York Stock Exchange. The stock gained another 24 percent this year through yesterday to $123,453. The shares traded at about $15 when Buffett took control in 1965. Buffett was ranked the second-richest American by Forbes magazine, behind Bill Gates, Microsoft Corp. chairman and a Berkshire board member. Buffett has pledged the majority of his Berkshire holdings to the Bill & Melinda Gates Foundation , which funds education and health initiatives, and to four family charities. The Gates donation is being made in annual installments, and will continue after Buffett’s death. Gates, 54, and other members of Berkshire’s board , were paid $2,700 to $7,000, compared with $2,700 to $6,700 in 2008. Buffett has criticized compensation of CEOs at poorly performing firms. The head of a failing company should be “destroyed himself financially,” he said on the Fox Business Network in January. “There ought to be a huge downside.” “He eats his own cooking,” Russo said. “It’s easy to talk a good game. It’s a lot harder to take 100 grand a year when he could make up any number he wants.” Buffett made $75,000 last year for his service on the board of Washington Post Co., the newspaper publisher that counts Berkshire as its biggest shareholder. He made the same amount in 2008 as a director on boards with Berkshire investments. Marc Hamburg , chief financial officer, made total compensation of $874,750, compared with $786,500 in 2008, an increase of about 11 percent. — Editors: Dan Reichl , Rick Green To contact the reporters on this story: Jamie McGee in New York at jmcgee8@bloomberg.net ; Andrew Frye in New York at afrye@bloomberg.net

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Buffett Takes $100,000 Berkshire Salary While Arranging $27 Billion Deal

By Masahiro Hidaka and Mayumi Otsuma March 12 (Bloomberg) — Japan’s central bank may seek next week to counter a contraction of its balance sheet caused by the month-end expiration of an emergency-credit program as deflation persists in the world’s second-largest economy. The Bank of Japan’s options include expanding a 10 trillion yen ($111 billion) fund providing loans to banks, according to two central bank officials who spoke on condition of anonymity. The March 16-17 policy meeting comes days before the March 31 end of an unlimited collateralized loan facility. By making some announcement about sustaining the BOJ’s 19 trillion yen balance-sheet expansion, Governor Masaaki Shirakawa may reassure investors and politicians anticipating additional liquidity. The bank may want to save broader measures for April, when officials can discuss coming household and business confidence surveys and updated economic forecasts. “The BOJ would run a bigger risk if it takes no policy action this time, even though the board members probably hope to preserve easing options as much as possible,” said Hideo Kumano , a former central bank official and now chief economist at Dai- Ichi Life Research Institute in Tokyo. The bank will likely modify the 10 trillion yen program “and try to maintain the level of ample liquidity it has provided up to now,” he said. The Japanese currency declined against the euro and dollar today on speculation the central bank will take further steps. The yen dropped to 124.06 per euro at 9:22 a.m. in Tokyo after earlier falling to the weakest level since Feb. 23. Against the dollar, the Japanese currency traded at 90.69 from 90.51. Unlimited Lending The central bank has lent 9.6 trillion yen under the three- month bank loan program that was introduced in December, close to the current limit. In the unlimited lending facility set to expire this month, there was 5.9 trillion yen outstanding as of Feb. 28. Both facilities offer three-month credit at 0.1 percent. Japan’s central bankers have overseen an 18 percent expansion of their balance sheet, to 126.8 trillion yen, since before the September 2008 Lehman Brothers Holdings Inc. collapse intensified the credit crisis. Local media reports last week that said the bank was likely to consider more measures without citing a source for the information have complicated the board’s decision, the officials said. Those reports also stoked investor expectations — the Nikkei 225 Stock Average has gained 4 percent and the yen has weakened since the reports. Plugging the hole left by the expiry of the unlimited credit program may help restrain the yen, which at around 90 per dollar hovers above companies’ break-even level of 92.90, weighing on the export-driven recovery. Insufficient Adjustment One risk is investors see a balance-sheet adjustment as insufficient, said Naka Matsuzawa , chief investment strategist at Nomura Securities Co. in Tokyo. “If the BOJ increases the 10 trillion yen program to 15 trillion yen, investors won’t take it as additional easing” because it would barely substitute for the cash under the expiring plan, Matsuzawa said. The bank needs to increase the December program by more or extend the maturity to six months to show it’s injecting more money, he said. While another option is to increase government bond purchases beyond the current 1.8 trillion yen a month, central bankers have warned at the dangers of appearing to finance the nation’s fiscal deficit. “Buying more bonds would be a very difficult option for the BOJ unless the government publishes a very convincing fiscal rehabilitation plan and disperses concerns about Japan’s fiscal discipline in markets,” said Yasunari Ueno , chief market economist at Mizuho Securities Co. in Tokyo. Further Easing Japan’s focus on the potential for further monetary easing is a contrast with major central banks around the world, which from China to India to the U.S. are withdrawing liquidity from their banking systems. Policy makers in Australia, Malaysia and Vietnam have started raising interest rates. The central bank unveiled the lending program for commercial banks in December after the yen surged to a 14-year high and government officials including Finance Minister Naoto Kan urged the bank to do more to stem deflation. BOJ officials who have spoken publicly since the last meeting have indicated they haven’t changed their views of the economy. Board members Miyako Suda and Tadao Noda said in the past week the economy will keep improving and its upside and downside risks are almost balanced. Recovery Intact Since Shirakawa and his colleagues last met, reports for January have shown the export-led recovery remains intact, backing up the central bank’s assessment that the economy is “picking up.” The unemployment rate dropped to a 10-month low of 4.9 percent and wages climbed for the first time in 20 months. At the same time, there are signs deflation may be worsening: a report yesterday showed the gross domestic product deflator , a broad gauge of prices, tumbled a record 2.8 percent last quarter. Kan said yesterday he wants to stamp out deflation as soon as this year. Last week, he reiterated his call on the central bank to target inflation of about 1 percent or higher. “The BOJ probably wants to dodge political pressure by modifying the existing facility and avoid any extraordinary steps such as inflation targets and more government bond purchases,” said Hiroaki Muto , a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “If the BOJ does something, the government can claim to the public that they influenced the move, even if it’s a cosmetic change.” To contact the reporters on this story: Masahiro Hidaka in Tokyo at mhidaka@bloomberg.net ; Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

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Japan May Cushion BOJ Balance-Sheet Contraction, `Preserve’ Easing Options