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EU Races to Ready Emergency Fund, Fight Off `Wolfpack’ Before Asia Opens

May 9, 2010

By James G. Neuger and Meera Louis May 9 (Bloomberg) — European Union finance ministers pledged to stop a sovereign debt crisis from shattering confidence in the euro as they held an emergency summit to hammer out a lending mechanism for deficit-stricken nations. Jolted into action by last week’s slide in the currency to a 14-month low and soaring bond yields in Portugal and Spain, leaders of the 16 euro nations agreed on the backstop yesterday and told ministers to get it ready before Asian markets open. “We are going to defend the euro,” Spanish Economy Minister Elena Salgado told reporters as she arrived to chair today’s Brussels meeting. “We think we have a duty for more stability for our currency. We will do whatever is necessary.” Europe’s failure to contain Greece’s fiscal crisis triggered a 4.3 percent drop in the euro last week, the biggest weekly decline since the aftermath of Lehman Brothers Holdings Inc.’s collapse. It prompted the U.S. and Asia to urge broader steps to prevent a debt crisis from pitching the world back into a recession. “In the night, when the markets are opening, we cannot afford a disappointment,” said Finance Minister Anders Borg of Sweden, one of 11 EU nations not in the euro. “We now see herd behavior in the markets that are really pack behavior, wolfpack behavior.” European officials declined to disclose the size of the stabilization fund, to be made up of money borrowed by the EU’s central authorities with guarantees by national governments. The meeting was scheduled to start 3 p.m., followed by a briefing three hours later. Some officials said talks could last longer. Alternative Plans “There is some discussion about what the solution will be,” Dutch Finance Minister Jan Kees de Jager said. “There are several alternatives at the moment.” Separately, European Central Bank council members were slated to hold a teleconference today. “Europe is getting its act together,” said Chris Rupkey , chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Time will tell if this statement is enough to satisfy the European bond market vigilantes.” Government officials said they won’t push the independent ECB to, for example, buy government bonds. President Jean-Claude Trichet accelerated the market selloff on May 6 by rejecting that measure. Trichet is in Basel, Switzerland, today for a scheduled meeting of central bankers from the Group of 10 nations. Vice President Lucas Papademos is attending the Brussels talks. Stiffest Test With the euro facing the stiffest test since its debut in 1999, the weekend turned into a crisis-management exercise to restore faith in the currency and prevent a European debt crisis from cascading around the world. The purpose is to “decide on a mechanism that enables us to assure the stability of the euro, stability in the zone and, beyond that, stability in financial markets,” French Finance Minister Christine Lagarde said. The euro slid to $1.2715 from $1.3293 in the past week, and is down 15 percent since late November. European stocks sank the most in 18 months, with the Stoxx Europe 600 Index tumbling 8.8 percent to 237.18. The extra yield that investors demand to hold Greek, Portuguese and Spanish debt instead of benchmark German bonds rose to euro-era highs. The premium on 10-year government bonds jumped as high as 973 basis points for Greece, 354 basis points for Portugal and 173 basis points for Spain. Strong Response Europe came under pressure from Japan and North America on a hastily-arranged conference call of G-7 finance chiefs on May 7. “We hope to see a strong, early policy response in Europe,” Canadian Finance Minister Jim Flaherty , who chaired the call, told reporters in Ottawa. Britain, the EU’s third-largest economy, won’t contribute to a fund to shore up euro countries, though it backs efforts to restore stability, Chancellor of the Exchequer Alistair Darling said. “When it comes to supporting the euro, that is for the euro group countries,” Darling told Sky News. “We need to show again today that by acting together we can stabilize the situation.” At the leaders’ summit in Brussels, German Chancellor Angela Merkel stepped up German calls for a closer monitoring of government finances and more rigorous enforcement of the deficit-limitation rules, originally drafted by Germany in the 1990s. Europe will send “a very clear signal against those who want to speculate against the euro,” Merkel said. EU Limits The vow to push budget shortfalls below the euro’s 3 percent limit echoes promises that have been regularly broken ever since governments in 1999 set a three-year deadline for achieving balanced budgets. The euro region’s overall deficit is forecast at 6.6 percent of gross domestic product in 2010 and 6.1 percent in 2011. Plans for a European credit-rating authority are already under consideration at the European Commission, the bloc’s Brussels-based executive agency. It also is investigating whether ratings companies such as Standard & Poor’s wield too much power over investors’ perceptions of governments. Asked whether steps to stem speculation against government bonds would include restrictions on short sales or credit default swaps, European Commission President Jose Barroso said “some of the points you have mentioned will be contemplated.” The political leadership of the $12 trillion economy yesterday also signed off on a 110 billion-euro ($140 billion) aid package for Greece negotiated by finance ministers last week. So far nine governments have cleared the way for funds to be sent to Athens. To contact the reporter on this story: James G. Neuger in Brussels at jneuger@bloomberg.net

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Euro Value Slides – And Europe Is Faced With Mounting Debt Crisis

May 6, 2010

LONDON — The euro slid further amid fears that Greece’s debt crisis would spread across the continent after a ratings agency warned Thursday that contagion could hit banks in weaker countries. Spain saw its borrowing costs rise ominously at a debt auction, and markets looked for some form of extra help from the European Central Bank. Credit ratings agency Moody’s Investor Service said the banking systems in Portugal, Italy, Spain, Ireland and Britain could all be hurt by a widening debt crisis. With Spain seeing its borrowing costs jump in its latest bond issue – a clear sign of market fear, since investors demand higher rates from borrowers they see as riskier – Europe remained delicately poised at a juncture. Moody’s said much depended on bailout loans agreed for Greece, and whether markets believed they would be decisive in keeping the country away from bankruptcy. Greece faces a May 19 repayment date and the loan money is expected to get there after approval by national parliaments, but its longer term prospects are less certain. “A key factor determining whether contagion risk continues in this case will be the market’s view of the likely success or otherwise of the recently agreed International Monetary Fund and European Union support package for Greece,” Moody’s said. That bailout offers the debt-ridden country euro110 billion ($142 billion) in loans over three years from the IMF and the other 15 countries that use the euro. Greek lawmakers were to vote Thursday on austerity measures required by the rescue, and the bill was widely expected to pass despite violent protests that culminated in three deaths Wednesday when protesters torched a bank. Parliament in Germany, where the bailout is unpopular, is expected to vote Friday and Chancellor Angela Merkel’s governing coalition appeared to have the votes to pass it, with even opposition politicians signaling support. The euro, which would take a severe blow in case of a government default, sagged 0.7 percent to $1.2739. It was as high as $1.51 late last year before the Greek crisis worsened. Against that sort of backdrop, and after months of delay in which Greece’s debt crisis threatened to spiral out of control, European leaders have been stressing their willingness to act in support of their 11-year-old project in sharing a currency. Merkel and French President Nicolas Sarkozy said in a letter published in daily Le Monde that they were “fully committed to preserve the solidity, stability and unity of the euro zone.” They said Europe must take “all measures necessary” to ensure such a Greek-style crisis doesn’t happen again. In the short-term, however, experts believe that the immediate task of containing the crisis depends on the bailout and whatever new policies the European Central Bank adopts Thursday. After the ECB announced, as widely expected, that it had left interest rates at a record low, analysts are waiting for comments from President Jean-Claude Trichet at a press conference. They are keen to see whether the bank decides to take bolder steps, such as buying government bonds to prop up debt markets and banks. It has already dropped the ratings requirement for banks to use Greek bonds to get short-term central bank credits, key support for Greece and the banking system in case Greece’s credit is downgraded further. “No doubt that today’s ECB meeting will be centered on Greece and the growing contagion effect that is taking place in the euro sovereign bond market,” said analyst at Credit Agricole CIB. They do not expect the bank to announce bond purchases “but Trichet’s responses to questions at the press conference will be examined even closer than usual.” An improvement in market sentiment will be needed if borrowing costs are to be kept in check – Spain’s latest 5-year bonds were issued at an interest rate of 3.58 percent, up from 2.84 percent in the last auction as recently as March. Moody’s warning on contagion came only a day after it put Portugal on watch for a possible downgrade of its sovereign debt and a week after rival Standard & Poor’s downgraded Greece’s government bonds to junk status. Moody’s said the banking systems of Portugal, Italy, Spain, Ireland and Britain all face challenges of different types, but warned that “contagion risk could dilute these differences and impose very real, common threats on all of them.” The banking systems of Portugal and Italy, like that of Greece, were not hit too hard by the global financial crisis, but their huge public debt load remains a threat. Banks in Spain, Ireland and the U.K. were more exposed to the credit crunch and have weakened their countries’ finances significantly over the past year, the agency said.

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Greeks Riot Over Debt Crisis, Try To Storm Parliament, Get Tear Gassed

May 5, 2010

ATHENS, Greece — Rioting over harsh austerity measures left three people dead in a torched Athens bank and clouds of tear gas drifting past parliament, in an outburst of anger that underlined the long and difficult struggle Greece faces to stick with painful cutbacks that come with an international bailout. The deaths were the first during a protest in Greece in nearly 20 years. Fear that the bailout won’t stop the debt crisis from spreading to other financially troubled EU countries like Portugal and Spain intensified amid the violence Wednesday, as credit ratings agency Moody’s put Portugal on watch for a possible downgrade. The euro sank, dipping below $1.29 for the first time in over a year, on fears of crisis contagion and concerns that political upheaval might keep Greece from keeping its end of the bailout bargain. Greece faces a May 19 due date on debt it says it can’t repay without the help. The new government cutbacks, which slash salaries and pensions for civil servants and hike consumer taxes, are being imposed as condition of getting a euro110 billion ($142.16 billion) package of rescue loans from the International Monetary Fund and the other 15 European Union countries that use the euro as their currency. Many Greeks realize some cutbacks are necessary to pull their country, which has a massive debt of euro300 billion ($387.72 billion), back from the brink of default, and reaction until now had been relatively muted by Greece’s volatile standards. But with people beginning to feel the pain of austerity measures, anger boiled over. Although violent demonstrations are commonplace in Greece, they usually takes the form of set-piece clashes between anarchist youths and police and rarely lead to serious injuries. The deaths shocked public opinion and could affect future demonstrations. Economists say Greeks face years of living with less to even have a chance to avoid national bankruptcy. An estimated 100,000 people took to the streets during a nationwide general strike that grounded flights, shut all services and pulled news broadcasts off the air. Hundreds of demonstrators – including far right wing supporters – broke away from the marches and tried to storm parliament, shouting “thieves, traitors.” At the opposite end of the political spectrum, groups of anarchists hurled Molotov cocktails and ripped-up paving stones at buildings and police, who responded with barrages of tear gas. Three bank workers – a man and two women all aged between 32 and 36 – died of smoke inhalation after demonstrators torched their bank, trapping them. As their colleagues sobbed in the street, four others were rescued from a balcony. A senior fire department official said demonstrators prevented firefighters from reaching the burning building. “Several crucial minutes were lost,” the official said on condition of anonymity pending an official announcement. “If we had intervened earlier, the loss of life could have been prevented.” Fifteen civilians and 29 police were injured in what Civil Protection Minister Michalis Chrisohoides called “a black day for democracy.” Twelve people were arrested in Athens and another two in the northern city of Thessaloniki, which also saw clashes between police and demonstrators. “I have difficulty in finding the words to express my distress and outrage,” President Karolos Papoulias said. “The big challenge we face is to maintain social cohesion and peace. Our country came to the brink of the abyss. It is our collective responsibility to ensure that we don’t step over the edge.” Prime Minister George Papandreou insisted that his Socialist government had no choice but to implement harsh austerity measures. “A demonstration is one thing and murder is quite another,” he said in Parliament during a session to discuss the spending cuts. Lawmakers held a minute of silence for the dead. “There was only one other solution – for the country to default, taking the citizenry with it. And that would not have affected the rich, it would have affected workers and pensioners,” Papandreou said. “That was a real possibility, however nightmarish.” In Brussels, EU officials desperately tried to calm market fears that Greece’s debt crisis was spreading, insisting it was a “unique case” combining profligacy and tampered accounts. EU President Herman Van Rompuy insisted the growing debt problems in Spain and Portugal had “absolutely nothing to do with the situation in Greece.” “Greece is a unique and particular case in the EU” because of its “precarious debt dynamics” and because it “has cheated with its statistics for years and years,” EU Commissioner Olli Rehn said. German Chancellor Angela Merkel urged lawmakers on Wednesday to speedily approve their country’s share of the loans to Greece. As Europe’s largest economy, Germany will provide euro8.4 billion ($10.8 billion) in 2010 and up to euro14 billion ($18.1 billion) more over 2011 and 2012, according to the plan. “Nothing less than the future of Europe, and with that the future of Germany in Europe, is at stake,” Merkel told lawmakers. “We are at a fork in the road.” Merkel’s government had insisted that Greece agree to new austerity measures before Germany committed to financial assistance – a stance that drew criticism of foot-dragging. Merkel had appeared to want to delay action until after a local vote in Germany this Sunday, but ratings agency Standard and Poor downgraded Greek bonds to junk status last week, deepening the crisis. The shocks from Greece have shaken world markets and raised questions about whether the rally in stocks since they hit bottom in March 2009 can continue. David Joy, chief market strategist for Columbia Management, a U.S. manager of $341 billion in stocks, bonds, cash and other investments, warned against complacency over the U.S. economic recovery and said this week’s events in Greece and Europe “should serve as a reminder that the ramifications of the financial crisis are still being felt.” “Most of these lingering problems relate to the fact that excessive amounts of debt have been accumulated prior to the financial crisis. It’s going to take time for these to be worked through,” he said. The outcome is a flight to safety, in which the dollar rises and money leaves riskier and economically more sensitive assets such as stocks and commodities. Even with the bailout, some economists think Greece could eventually default on or restructure its debts because economic growth is expected to be poor over the next several years, hurting government revenue. Some also fear the austerity measures insisted upon by the EU and IMF could make prospects for growth even worse in the name of paying down debt. The new austerity measures are to be voted on in Parliament Thursday. The Socialists hold a comfortable majority and the bill is expected to pass. ___ Associated Press writers Derek Nicholas Paphitis, Derek Gatopoulos and APTN crews in Athens, Greg Keller in Paris, Raf Casert and Emma Vandore in Brussels and Mark Jewell in Boston contributed.

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Greece Gets $146 Billion Rescue in EU, IMF Package

May 3, 2010

By Gabi Thesing and Flavia Krause-Jackson May 3 (Bloomberg) — Euro-region ministers agreed to a 110 billion-euro ($146 billion) rescue package for Greece to prevent a default and stop the worst crisis in the currency’s 11-year history from spreading through the rest of the bloc. The first payment will be made before Greece’s next bond redemption on May 19, said Jean-Claude Juncker after chairing a meeting of euro-region finance ministers in Brussels yesterday. The 16-nation bloc will pay 80 billion euros at a rate of around 5 percent and the International Monetary Fund contributes the rest. Greece agreed to budget measures worth 13 percent of gross domestic product. “It’s an ambitious program, it’s austere but it’s absolutely necessary,” Juncker told reporters. European Central Bank President Jean-Claude Trichet , speaking at the same press conference, said Greece’s plan will “help to restore confidence and safeguard financial stability in the euro area.” Policy makers agreed to the unprecedented bailout after investors’ concerns about a potential Greek default sparked a rout in Portuguese and Spanish bonds last week and sent stock markets tumbling. At stake is the future of the euro 11 years after its creators left control of fiscal policy in national capitals. Collateral Rules The ECB, which was part of the bailout talks, said today it would accept all Greek government debt as collateral when lending to banks, indefinitely suspending minimum credit-rating thresholds. Further cuts in its credit rating could have left Greek bonds barred from ECB lending after Standard & Poor’s downgraded its debt to junk status on April 27. The extra yield that investors demand to hold Greek debt over German bunds narrowed 30 basis points to 564 basis points today, after surging to 826 basis points on April 28, the highest since before the start of the euro in 1999. The Portuguese spread narrowed 4 basis points to 209 after jumping to the most since at least 1997 last week and the premium on Spain was little changed at 101 basis points. The euro snapped three days of gains and declined to $1.322 from $1.3294 on April 30. The single currency has lost 10 percent in the past six months on concern the Greek crisis would spread and fell to a 12-month low of $1.3115 on April 28, EU Summit European Union leaders will meet on May 7 to discuss the pace of parliamentary approval of the Greek loans. Germany plans to debate the plan on the same day. “The EU can afford to bail-out Greece and even Portugal, but it cannot afford bailing out Spain,” said Andrew Bosomworth , Munich-based head of portfolio management at Pacific Investment Management Co., which oversees the world’s largest mutual fund from Newport Beach, California. “Therefore a lot is resting on getting Greece right.” Germany will provide 28 percent of the euro region’s overall contribution. In return for rescue funds, Greece agreed to measures that the ADEDY civil servants union called “savage.” Greece will cut wages and freeze pensions for three years as well as increase the main sales tax to 23 percent from 21 percent. Progress will be monitored quarterly, the Greek government said. “It is not an easy day,” said Finance Minister George Papaconstantinou in Brussels. “It’s not going to be easy for Greek citizens. But it’s absolutely clear that the Greek government is prepared to do what it needs to do.” Three-Year Lifeline The financial lifeline lasts three years and forces Greece to cut its budget deficit below the European Union’s limit of 3 percent of gross domestic product by the end of 2014, a year later than originally planned. The shortfall was 13.6 percent last year, the second-biggest in the region after Ireland. Greece now expects its economy to shrink 4 percent this year and 2.6 percent before returning to growth in 2012. The package will also set up a “financial stabilization” fund to help banks with potential bad loans stemming from the austerity measures. Ten billion of the total rescue package will be earmarked for the fund, said EU Monetary Affairs Commissioner Olli Rehn . Policy makers are trying to ringfence the Greek crisis after yields surged across the euro region’s periphery on concern Spain, Portugal and Ireland will also struggle to cut their deficits. S&P followed its decision to cut Greece’s credit rating to junk on April 27 with downgrades on Portugal and Spain. ‘Special Case’ Rehn indicated that the Greek bailout plan can’t be seen as a blueprint for other euro nations as Greece is a “special case” because of the way previous governments fudged its deficit statistics. At 11.2 percent of GDP, Spain’s budget deficit was the third-highest in the euro region last year and Portugal’s was the fourth-biggest at 9.4 percent. Asked about contagion risks, Austrian Finance Minister Josef Proell said yesterday’s agreement “will send a clear signal to the markets that Europe is able” to handle the crisis and “minimize the risk” of it spreading. The Greek bailout marks an end to nearly three months of debate among EU leaders on whether and how to rescue a euro region nation teetering on the brink of default. German Chancellor Angela Merkel has been reluctant to put taxpayers’ funds at risk as her government faces a regional election in North Rhine-Westphalia on May 9. Popular Opposition Fifty-six percent of Germans oppose giving Greece aid, calling such support “wrong,” Bild am Sonntag reported, citing an Emnid survey. Germany hopes to secure parliament’s approval for the plan by May 7. Merkel yesterday said she was right to demand IMF involvement in the fund over the objections of her European peers. “Three months ago it would have been unthinkable that Greece would accept such tough conditions,” she said in Bonn. Greek Prime Minister George Papandreou is likely to face his own difficulties. The austerity plan has sparked opposition in Athens, with the federation of civil servants calling a 48- hour strike starting May 4. “They won’t manage to enforce these measures,” said Pavlos Nikolaou , 39, who runs a mini-market in Athens. ‘I don’t think this will be the end of measures, they’ll have to announce more next year. Cutting salaries is also not what’s going to solve Greece’s problems.” “Implementation will now be investors’ foremost concern in the coming months, and Greece will have to work hard to rebuild its reputation and regain market confidence,” said Annunziata. “It will be an uphill struggle.” To contact the reporters on this story: Flavia Krause-Jackson at fjackson@bloomberg.net Gabi Thesing in London at gthesing@bloomberg.net ;

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Greece Gets $146 Billion Rescue on EU, IMF Austerity Package

May 2, 2010

By Gabi Thesing and Flavia Krause-Jackson May 3 (Bloomberg) — Euro-region ministers agreed to a 110 billion-euro ($146 billion) rescue package for Greece to prevent a default and stop the worst crisis in the currency’s 11-year history from spreading through the rest of the bloc. The first payment will be made before Greece’s next bond redemption on May 19, said Jean-Claude Juncker after chairing a meeting of euro-region finance ministers in Brussels yesterday. The 16-nation bloc will pay 80 billion euros at a rate of around 5 percent and the International Monetary Fund contributes the rest. Greece agreed to budget measures worth 13 percent of gross domestic product. “It’s an ambitious program, it’s austere but it’s absolutely necessary,” Juncker told reporters. European Central Bank President Jean-Claude Trichet , speaking at the same press conference, said Greece’s plan will “help to restore confidence and safeguard financial stability in the euro area.” Policy makers agreed to the unprecedented bailout after investors’ concerns about a potential Greek default sparked a rout in Portuguese and Spanish bonds last week and sent stock markets tumbling. At stake is the future of the euro 11 years after its creators left control of fiscal policy in national capitals. Interest Rate The extra yield that investors demand to hold Greek debt over German bunds surged to 826 basis points on April 28 after Standard & Poor’s cut its rating to junk. It eased to 594 points on April 30 as signs of an agreement emerged. The Portuguese spread jumped to the most since at least 1997 last week and the premium on Spain climbed to the highest since March 2009. The euro, which fell to a 12-month low of $1.3115 on April 28, strengthened to $1.3294 two days later. European Union leaders will meet on May 7 to discuss the pace of parliamentary approval of the Greek loans. Germany plans to debate the plan on the same day. “The EU can afford to bail-out Greece and even Portugal, but it cannot afford bailing out Spain,” said Andrew Bosomworth , Munich-based head of portfolio management at Pacific Investment Management Co., which oversees the world’s largest mutual fund from Newport Beach, California. “Therefore a lot is resting on getting Greece right.” Germany will provide 28 percent of the euro region’s overall contribution. ‘Not an Easy Day’ In return for rescue funds, Greece agreed to measures that the ADEDY civil servants union called “savage.” Greece will cut wages and freeze pensions for three years as well as increase the main sales tax to 23 percent from 21 percent. Progress will be monitored quarterly, the Greek government said. “It is not an easy day,” said Finance Minister George Papaconstantinou in Brussels. “It’s not going to be easy for Greek citizens. But it’s absolutely clear that the Greek government is prepared to do what it needs to do.” The financial lifeline lasts three years and forces Greece to cut its budget deficit below the European Union’s limit of 3 percent of gross domestic product by the end of 2014, a year later than originally planned. The shortfall was 13.6 percent last year, the second-biggest in the region after Ireland. Greece now expects its economy to shrink 4 percent this year and 2.6 percent before returning to growth in 2012. The package will also set up a “financial stabilization” fund to help banks with potential bad loans stemming from the austerity measures. Ten billion of the total rescue package will be earmarked for the fund, said EU Monetary Affairs Commissioner Olli Rehn . Ringfence Policy makers are trying to ringfence the Greek crisis after yields surged across the euro region’s periphery on concern Spain, Portugal and Ireland will also struggle to cut their deficits. S&P followed its decision to cut Greece’s credit rating to junk on April 27 with downgrades on Portugal and Spain. Rehn indicated that the Greek bailout plan can’t be seen as a blueprint for other euro nations as Greece is a “special case” because of the way previous governments fudged its deficit statistics. At 11.2 percent of GDP, Spain’s budget deficit was the third-highest in the euro region last year and Portugal’s was the fourth-biggest at 9.4 percent. Asked about contagion risks, Austrian Finance Minister Josef Proell said yesterday’s agreement “will send a clear signal to the markets that Europe is able” to handle the crisis and “minimize the risk” of it spreading. Debate The Greek bailout marks an end to nearly three months of debate among EU leaders on whether and how to rescue a euro region nation teetering on the brink of default. German Chancellor Angela Merkel has been reluctant to put taxpayers’ funds at risk as her government faces a regional election in North Rhine-Westphalia on May 9. Fifty-six percent of Germans oppose giving Greece aid, calling such support “wrong,” Bild am Sonntag reported, citing an Emnid survey. Germany hopes to secure parliament’s approval for the plan by May 7. Merkel yesterday said she was right to demand IMF involvement in the fund over the objections of her European peers. “Three months ago it would have been unthinkable that Greece would accept such tough conditions,” she said in Bonn. Austerity Greek Prime Minister George Papandreou is likely to face his own difficulties. The austerity plan has sparked opposition in Athens, with the federation of civil servants calling a 48- hour strike starting May 4. “They won’t manage to enforce these measures,” said Pavlos Nikolaou , 39, who runs a mini-market in Athens. ‘I don’t think this will be the end of measures, they’ll have to announce more next year. Cutting salaries is also not what’s going to solve Greece’s problems.” “Implementation will now be investors’ foremost concern in the coming months, and Greece will have to work hard to rebuild its reputation and regain market confidence,” said Annunziata. “It will be an uphill struggle.” To contact the reporters on this story: Flavia Krause-Jackson at fjackson@bloomberg.net Gabi Thesing in London at gthesing@bloomberg.net ;

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Euro Drops to One-Year Low Against Dollar as S&P Cuts Spain’s Debt Rating

April 28, 2010

By Ben Levisohn April 28 (Bloomberg) — The euro dropped to a one-year low against the dollar as Standard & Poor’s cut the debt rating of Spain in a sign the deficit crisis is spreading. “There’s a tremendous amount of uncertainty at the moment,” said Sebastien Galy , a currency strategist at BNP Paribas SA in New York. “The euro should break below $1.30.” European Central Bank Jean-Claude Trichet said at a press conference the stability of the “euro zone is impacted” by the crisis and Germany’s Chancellor Angela Merkel told reporters the nation accepts its responsibility to support the euro. The euro fell 0.2 percent to $1.3146 at 11:41 a.m. in New York, from $1.3175 yesterday, after touching $1.3129, the lowest level since April 2009. The euro advanced 0.5 percent to 123.48 yen, from 122.88. The dollar appreciated 0.8 percent to 94.02 yen, from 93.26. International Monetary Fund Managing Director Dominique Strauss-Kahn told German lawmakers Greece may need as much as 120 billion euros ($158 billion), Green Party spokesman Michael Schroeren said today. That’s almost three times the 45 billion euro value of the aid package initially proposed. Germany may be able to make a final decision on aid for Greece as soon as May 7, when the upper house of parliament mamy approve a support package, Finance Minister Wolfgang Schaeuble said. Spain’s credit rating was cut to AA from AA+ by Standard & Poor’s Ratings Services. The outlook is negative, S&P said. To contact the reporter on this story: Ben Levisohn in New York at blevisohn@bloomberg.net

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Stocks, Euro Plunge as Treasuries Gain on Greece, Portugal Debt

April 27, 2010

By Michael P. Regan April 27 (Bloomberg) — Stocks tumbled, with the Standard & Poor’s 500 Index falling the most since February, and the dollar and Treasuries rose as credit-rating downgrades of Greece and Portugal fueled concern debt-laden nations are moving closer to default. Greek, Portuguese and Irish bonds sank. The S&P 500 lost 2.3 percent at 4 p.m. in New York. The Stoxx Europe 600 Index slid 3.1 percent, the most since November, and the euro dropped below $1.32 for the first time since April 2009. Yields on 10-year Treasuries tumbled 12 basis points to 3.68 percent. Greek two-year note yields jumped to a record of almost 19 percent and Portugal’s jumped to 5.7 percent as credit-default swaps on Europe debt surged to the highest ever. Oil sank 2.1 percent, while gold rallied 0.7 percent. S&P lowered Greek debt to junk and Portugal was cut two steps as contagion from Greece’s debt crisis spreads through the euro region. The downgrades come as German officials insist Greece must outline further steps to cut its budget deficit before they will endorse the release of funds from a 45 billion euro ($60 billion) rescue package. Financial shares led U.S. stocks lower as the Senate’s interrogation of Goldman Sachs Group Inc. executives spurred concern of tighter regulation. “It’s the fear that Greece or Portugal may affect other areas of Europe and derail this economic recovery,” said Burt White , chief investment officer at LPL Financial in Boston, which oversees $379 billion. “There’s now a perception that we might see Greece or Portugal failing. If that happens, we may see more headwinds.” Goldman Hearings The ratings downgrades for Greece and Portugal were a one- two punch for securities markets distracted by the congressional testimony of Goldman Sachs executives in Washington. U.S. trading volume slipped while Fabrice Tourre , an executive director at the New York-based firm, read a prepared statement on his role marketing a collateralized debt obligation, then surged after the headlines on Greece were released. U.S. senators probed the bank’s mortgage business with Senator Carl Levin asked why it sold a set of investments the lender had itself labeled “shitty.” “What’s punctuating the downside of the market is the tense exchange between the Goldman Sachs executives and Carl Levin and other legislators,” said Matthew Kaufler , a money manager at Federated Clover Investment Advisors in Rochester, New York, which manages $3 billion. “From Wall Street’s perspective, the timing couldn’t be worse because it raises the specter of financial reform being pushed through with perhaps sharper teeth than it otherwise would have had.” Goldman Rises Goldman Sachs shares rose 0.7 percent, posting the only gain among 79 companies in the S&P 500 Financial Index. Goldman Sachs has still lost 17 percent since the Securities and Exchange Commission sued the company for fraud on April 16. “The damage is already built into the stock price,” said Jason Weisberg , director of institutional trading at Seaport Securities Corp. on the floor of the New York Stock Exchange. “Their ability to make money is unprecedented and if the rules change they’ll figure out a new way to do it.” Greece’s benchmark ASE equity index tumbled 6 percent to a one-year low. The market in Athens closed before S&P cut the nation’s rating. Portugal’s PSI-20 Index slumped 5.4 percent, the most since October 2008, and Ireland’s ISEQ Overall Index declined 4.5 percent, the biggest decline since October 2009. Spain’s IBEX 35 fell 4.2 percent. Yields on 10-year Portuguese bonds jumped 48 basis points to 5.69 percent and Irish 10-year yields surged 19 basis points to 5.10 percent. Debt Insurance Credit-default swaps on European sovereign debt surged to records. Contracts tied to Greek government bonds climbed 111 basis points to 821, according to CMA DataVision. Portugal rose 54 basis points to 365. The International Monetary Fund last week raised its forecast for global growth this year while cautioning that a failure to contain soaring public debt may have “severe” consequences for the world economy. Global economic expansion may hit 4.2 percent in 2010, the fastest rate since 2007, the Washington-based fund estimated. “Fiscal fragilities” pose the biggest threat to meeting the forecast, the IMF said April 22. The S&P 500 retreated from a 19-month high for a second day as growing concern over European debt overshadowed better-than- estimated earnings and consumer confidence. The Chicago Board Options Exchange Volatility Index, the benchmark index for U.S. stock options known as the VIX, surged as much as 33 percent, the most intraday since October 2008. Winning Streak Today’s sell-off follows eight straight weeks of gains for the Dow Jones Industrial Average , the longest streak since 2004, and a 9.2 percent rally in the S&P 500 through April 23 that gave the index the largest advance among the world’s 15 biggest markets. The S&P 500’s valuation of 18.2 times earnings in the past 12 months matches its average over the last decade. The dollar rose against all 16 major counterparts except the yen as investors fled riskier assets. The euro sank to a one-year low of $1.3166 against. S&P lowered Greece’s credit rating to BB+ from BBB+ and warned that bondholders could recover as little as 30 percent of their initial investment if the country restructures its debt. The downgraded marked the first time a euro member has lost investment grade rating since the currency’s 1999 debut. S&P also reduced Portugal by two steps to A- from A+. Greece said today’s downgrade of its rating by S&P doesn’t reflect the “real facts” of the economy, according to an e- mail from the country’s finance ministry this evening. ‘Sustainable’ Plan German Chancellor Angela Merkel said yesterday she won’t release funds to help Greece shore up its finances until the nation has a “sustainable” plan to reduce its budget deficit. Germany’s Economy Minister Rainer Bruederle said Greece needs to present a plan to overcome its debt crisis as soon as possible. “I think it’s directly related to Germany’s indecisiveness and whether they’re going to participate in the bailout,” said Matthew DiFilippo , director of research at Stewart Capital Advisors LLC in Indiana, Pennsylvania, which manages $1 billion. “If Germany doesn’t stand behind Greece, are they going to stand behind Portugal? Greece isn’t significant enough contributor to the EU overall in terms of GDP but it’s maybe just an implication of how this all plays out in other countries like Portugal and Ireland.” Basic resources stocks posted the largest losses among 19 industry groups in the Stoxx 600, losing 4.8 percent as a group. BHP Billiton Ltd. , the world’s biggest mining company, fell 4.2 percent in London. Antofagasta Plc, which owns copper mines in Chile, retreated 3.7 percent. Banco Popular Espanol SA declined 6.1 percent in Madrid after the Spanish lender said first- quarter profit slipped. Emerging Markets The MSCI Emerging Markets Index fell for the first time in three days, tumbling 1.9 percent. Brazil’s Bovespa index sank 3.4 percent, the most in almost three months, and the real fell the most in three weeks versus the U.S. dollar. The Shanghai Composite Index slid 2.1 percent to the lowest level since October. China Vanke Co. dropped to a 13- month low after predicting “rapid” house-price gains will end as the government curbs real-estate loans. China may use capital requirements for developers as a policy tool to restrain the property market, Ba Shusong , deputy director general of the State Council’s Development Research Center, told Shanghai Securities News in an interview. To contact the reporter for this story: Michael P. Regan in New York at mregan12@bloomberg.net .

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Stocks, Euro Plunge as Treasuries Advance on European Credit-Rating Cuts

April 27, 2010

By Michael P. Regan April 27 (Bloomberg) — Stocks tumbled, with the Standard & Poor’s 500 Index falling the most since February, and the dollar and Treasuries rose as credit-rating downgrades of Greece and Portugal fueled concern debt-laden nations are moving closer to default. Greek, Portuguese and Irish bonds sank. The S&P 500 lost 2.3 percent at 4 p.m. in New York. The Stoxx Europe 600 Index slid 3.1 percent, the most since November, and the euro dropped below $1.32 for the first time since April 2009. Yields on 10-year Treasuries tumbled 12 basis points to 3.68 percent. Greek two-year note yields jumped to a record of almost 19 percent and Portugal’s jumped to 5.7 percent as credit-default swaps on Europe debt surged to the highest ever. Oil sank 2.1 percent, while gold rallied 0.7 percent. S&P lowered Greek debt to junk, while Portugal was cut two steps as contagion from Greece’s debt crisis spreads through the euro region. The downgrades come as German officials insist Greece must outline further steps to cut the region’s largest budget deficit before they will endorse the release of funds from a 45 billion euro ($60 billion) rescue package. “It’s the fear that Greece or Portugal may affect other areas of Europe and derail this economic recovery,” said Burt White , chief investment officer at LPL Financial in Boston, which oversees $379 billion. “There’s now a perception that we might see Greece or Portugal failing. If that happens, we may see more headwinds.” Goldman Hearings The ratings downgrades for Greece and Portugal were a one- two punch for securities markets distracted by the congressional testimony of Goldman Sachs Group Inc. executives in Washington. U.S. trading volume slipped while Fabrice Tourre , an executive director at the New York-based firm, read a prepared statement on his role marketing a collateralized debt obligation, then surged after the headlines on Greece were released. U.S. senators probed the bank’s mortgage business with Senator Carl Levin asked why it sold a set of investments the lender had itself labeled “shitty.” “What’s punctuating the downside of the market is the tense exchange between the Goldman Sachs executives and Carl Levin and other legislators,” said Matthew Kaufler , a money manager at Federated Clover Investment Advisors in Rochester, New York, which manages $3 billion. “From Wall Street’s perspective, the timing couldn’t be worse because it raises the specter of financial reform being pushed through with perhaps sharper teeth than it otherwise would have had.” Goldman Rallies Goldman Sachs shares rose 0.7 percent, posting the only gain among 79 companies in the S&P 500 Financial Index. Goldman Sachs has still lost 17 percent since the Securities and Exchange Commission sued the company for fraud on April 16. “The damage is already built into the stock price,” said Jason Weisberg , director of institutional trading at Seaport Securities Corp. on the floor of the New York Stock Exchange. “Their ability to make money is unprecedented and if the rules change they’ll figure out a new way to do it.” Greece’s benchmark ASE equity index tumbled 6 percent to a one-year low. The market in Athens closed before S&P cut the nation’s rating. Portugal’s PSI-20 Index slumped 5.4 percent, the most since October 2008, and Ireland’s ISEQ Overall Index declined 4.5 percent, the biggest decline since October 2009. Spain’s IBEX 35 fell 4.2 percent. Yields on 10-year Portuguese bonds jumped 48 basis points to 5.69 percent and Irish 10-year yields surged 19 basis points to 5.10 percent. Debt Insurance Credit-default swaps on European sovereign debt surged to records. Contracts tied to Greek government bonds climbed 111 basis points to 821, according to CMA DataVision. Portugal rose 54 basis points to 365. The International Monetary Fund last week raised its forecast for global growth this year while cautioning that a failure to contain soaring public debt may have “severe” consequences for the world economy. Global economic expansion may hit 4.2 percent in 2010, the fastest rate since 2007, the Washington-based fund estimated. “Fiscal fragilities” pose the biggest threat to meeting the forecast, the IMF said April 22. The S&P 500 retreated from a 19-month high for a second day as growing concern over European debt overshadowed better-than- estimated earnings and consumer confidence. The Chicago Board Options Exchange Volatility Index, the benchmark index for U.S. stock options known as the VIX, surged as much as 33 percent, the most intraday since October 2008. Winning Streak Today’s sell-off follows eight straight weeks of gains for the Dow Jones Industrial Average , the longest streak since 2004, and a 9.2 percent rally in the S&P 500 through April 23 that gave the index the largest advance among the world’s 15 biggest markets. The S&P 500’s valuation of 18.2 times earnings in the past 12 months matches its average over the last decade. The dollar rose against all 16 major counterparts except the yen as investors fled riskier assets. The euro sank to a one-year low of $1.3166 against. S&P lowered Greece’s credit rating to BB+ from BBB+ and warned that bondholders could recover as little as 30 percent of their initial investment if the country restructures its debt. The downgraded marked the first time a euro member has lost investment grade rating since the currency’s 1999 debut. S&P also reduced Portugal by two steps to A- from A+. Greece said today’s downgrade of its rating by S&P doesn’t reflect the “real facts” of the economy, according to an e- mail from the country’s finance ministry this evening. ‘Sustainable’ Plan German Chancellor Angela Merkel said yesterday she won’t release funds to help Greece shore up its finances until the nation has a “sustainable” plan to reduce its budget deficit. Germany’s Economy Minister Rainer Bruederle said Greece needs to present a plan to overcome its debt crisis as soon as possible. “I think it’s directly related to Germany’s indecisiveness and whether they’re going to participate in the bailout,” said Matthew DiFilippo , director of research at Stewart Capital Advisors LLC in Indiana, Pennsylvania, which manages $1 billion. “If Germany doesn’t stand behind Greece, are they going to stand behind Portugal? Greece isn’t significant enough contributor to the EU overall in terms of GDP but it’s maybe just an implication of how this all plays out in other countries like Portugal and Ireland.” Basic resources stocks posted the largest losses among 19 industry groups in the Stoxx 600, losing 4.8 percent as a group. BHP Billiton Ltd. , the world’s biggest mining company, fell 4.2 percent in London. Antofagasta Plc, which owns copper mines in Chile, retreated 3.7 percent. Banco Popular Espanol SA declined 6.1 percent in Madrid after the Spanish lender said first- quarter profit slipped. Emerging Markets The MSCI Emerging Markets Index fell for the first time in three days, tumbling 1.9 percent. Brazil’s Bovespa index sank 3.4 percent, the most in almost three months, and the real fell the most in three weeks versus the U.S. dollar. The Shanghai Composite Index slid 2.1 percent to the lowest level since October. China Vanke Co. dropped to a 13- month low after predicting “rapid” house-price gains will end as the government curbs real-estate loans. China may use capital requirements for developers as a policy tool to restrain the property market, Ba Shusong , deputy director general of the State Council’s Development Research Center, told Shanghai Securities News in an interview. To contact the reporter for this story: Michael P. Regan in New York at mregan12@bloomberg.net .

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Stocks Drop as Dollar, Treasuries Gain on Greece, Portugal Debt

April 27, 2010

By Michael P. Regan April 27 (Bloomberg) — Stocks tumbled, with the benchmark European index sinking the most since November, and the dollar and Treasuries rose as credit-rating downgrades of Greece and Portugal fueled concern debt-laden nations are moving closer to default. Greek, Portuguese and Irish bonds sank. Gold rose. The Stoxx Europe 600 Index slid 3.1 percent, while the Standard & Poor’s 500 Index lost 1.8 percent at 2:59 p.m. in New York. Oil sank 1.6 percent, while copper lost 4.4 percent and aluminum plunged 7 percent. Ten-year Treasury yields tumbled 11 basis points to 3.7 percent, while the Dollar Index rallied 0.8 percent to 82.129. The yield on Greece’s two-year note jumped to a record of almost 19 percent and Portugal’s jumped to 5.7 percent, as credit-default swaps on European sovereign debt surged to the highest ever. S&P lowered Greek debt to junk, while Portugal was cut two steps as contagion from Greece’s debt crisis spreads through the euro region. The downgrades come as German officials insist Greece must outline further steps to cut the region’s largest budget deficit before they will endorse the release of funds from a 45 billion euro ($60 billion) rescue package. “It’s the fear that Greece or Portugal may affect other areas of Europe and derail this economic recovery,” said Burt White , chief investment officer at LPL Financial in Boston, which oversees $379 billion. “There’s now a perception that we might see Greece or Portugal failing. If that happens, we may see more headwinds.” Goldman Hearings The ratings downgrades for Greece and Portugal provided a one-two punch for securities markets distracted by the congressional testimony of Goldman Sachs Group Inc. executives in Washington. U.S. trading volume slipped while Fabrice Tourre , an executive director at the New York-based firm, read a prepared statement on his role marketing a collateralized debt obligation, then surged after the headlines on Greece were released. U.S. senators probed the bank’s mortgage business with Senator Carl Levin asked why it sold a set of investments the lender had itself labeled “shitty.” “What’s punctuating the downside of the market is the tense exchange between the Goldman Sachs executives and Carl Levin and other legislators,” said Matthew Kaufler , a portfolio manager at Federated Clover Investment Advisors in Rochester, New York, which manages $3 billion. “From Wall Street’s perspective, the timing couldn’t be worse because it raises the specter of financial reform being pushed through with perhaps sharper teeth than it otherwise would have had.” ‘Fiscal Fragilities’ Greece’s benchmark ASE equity index tumbled 6 percent to a one-year low. The market in Athens closed before S&P cut the nation’s rating. Portugal’s PSI-20 Index slumped 5.4 percent, the most since October 2008, and Ireland’s ISEQ Overall Index declined 4.5 percent, the biggest decline since October 2009. Spain’s IBEX 35 fell 4.2 percent. Yields on 10-year Portuguese bonds jumped 48 basis points to 5.67 percent and Irish 10-year yields surged 19 basis points to 5.1 percent. Credit-default swaps on European sovereign debt surged to records. Contracts tied to Greek government bonds climbed 111 basis points to 821, according to CMA DataVision. Portugal rose 54 basis points to 365.     The International Monetary Fund last week raised its forecast for global growth this year while cautioning that a failure to contain soaring public debt may have “severe” consequences for the world economy. Global economic expansion may hit 4.2 percent in 2010, the fastest rate since 2007, the Washington-based fund estimated. “Fiscal fragilities” pose the biggest threat to meeting the forecast, the IMF said April 22. VIX Surges The S&P 500 retreated from a 19-month high for a second day as growing concern over European debt overshadowed better-than- estimated earnings and consumer confidence. The Chicago Board Options Exchange Volatility Index, the benchmark index for U.S. stock options known as the VIX, rallied as much as 22 percent to 21.25. JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. lost at least 2.3 percent each as financial companies contributed the most to the decline in the S&P 500. Goldman Sachs had the only gain among the 79 financial companies in the S&P 500, rising 1 percent, as executives testified to the Senate about its mortgage-securities business.     “The damage is already built in to the stock price,” said Jason Weisberg , director of institutional trading at Seaport Securities Corp. on the floor of the New York Stock Exchange. “Their ability to make money is unprecedented and if the rules change they’ll figure out a new way to do it.” U.S. Valuations Today’s sell-off follows eight straight weeks of gains for the Dow Jones Industrial Average , the longest streak since 2004, and a 9.2 percent rally in the S&P 500 through April 23 that gave the index the largest advance among the world’s 15 biggest markets. The S&P 500’s valuation of 18.2 times earnings in the past 12 months matches its average over the last decade, while the multiple of 14.7 times forecast profits would represent the lowest ratio since the early 1990s. The dollar rose against all 16 major counterparts except the yen as investors fled riskier assets. The euro sank to an almost one-year low of $1.3225 against the dollar. Yields on two-year Treasury notes fell the most since March 2009, losing as much as 12 basis points to 0.93 percent. Credit Ratings S&P lowered Greece’s credit rating to BB+ from BBB+ and warned that bondholders could recover as little as 30 percent of their initial investment if the country restructures its debt. The downgraded marked the first time a euro member has lost investment grade rating since the currency’s 1999 debut. S&P also reduced Portugal by two steps to A- from A+. Greece said today’s downgrade of its sovereign rating by S&P does not reflect the “real facts” of the economy, according to an e-mail from the country’s finance ministry this evening. German Chancellor Angela Merkel said yesterday she won’t release funds to help Greece shore up its finances until the nation has a “sustainable” plan to reduce its budget deficit. Germany’s Economy Minister Rainer Bruederle said Greece needs to present a plan to overcome its debt crisis as soon as possible. “I think it’s directly related to Germany’s indecisiveness and whether they’re going to participate in the bailout,” said Matthew DiFilippo , director of research at Stewart Capital Advisors LLC in Indiana, Pennsylvania, which manages $1 billion. “If Germany doesn’t stand behind Greece, are they going to stand behind Portugal? Greece isn’t significant enough contributor to the EU overall in terms of GDP but it’s maybe just an implication of how this all plays out in other countries like Portugal and Ireland.” Commodity Producers Basic resources stocks posted the largest losses among 19 industry groups in the Stoxx 600, losing 4.8 percent as a group. BHP Billiton Ltd. , the world’s biggest mining company, fell 4.2 percent in London. Antofagasta Plc, which owns copper mines in Chile, retreated 3.7 percent. Banco Popular Espanol SA declined 6.1 percent in Madrid after the Spanish lender said first- quarter profit slipped. The MSCI Emerging Markets Index fell for the first time in three days, tumbling 1.6 percent. Brazil’s Bovespa index sank 2.5 percent, the most in almost three months, and the real fell the most in three weeks. Emerging-market bonds plunged the most in 13 months. The 1 percent retreat in JPMorgan Chase & Co.’s EMBI+ Index of developing-nation debt sent the extra yield investors demand to own the securities over U.S. Treasuries up 19 basis points to 2.62 percentage points, the highest since March 22. China Housing The Shanghai Composite Index slid 2.1 percent to the lowest level since October. China Vanke Co. dropped to a 13-month low after predicting “rapid” house-price gains will end as the government curbs real-estate loans. China may use capital requirements for developers as a policy tool to restrain the property market, Ba Shusong , deputy director general of the State Council’s Development Research Center, told Shanghai Securities News in an interview. Crude oil for June delivery fell $1.38 to $82.82 a barrel, the biggest drop since February, in New York. Copper retreated the most in 10 months, losing 4.4 percent to $3.393 a pound. Aluminum sank 7 percent in London, where and nickel, tin and zinc dropped more than 3 percent. To contact the reporter for this story: Michael P. Regan in New York at mregan12@bloomberg.net .

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Greece Asks EU, IMF to Activate Bailout Deal That May Test Euro Stability

April 23, 2010

By Jonathan Stearns and Maria Petrakis April 23 (Bloomberg) — Greece called for activation of a financial lifeline of as much as 45 billion euros ($60 billion) this year in an unprecedented test of the euro’s stability and European political cohesion. The appeal for help from the European Union and International Monetary Fund follows a surge in borrowing costs to what Greek Prime Minister George Papandreou called unsustainable levels that undermine efforts to cut a budget deficit of more than four times the EU limit. Greek bonds and stocks rallied after the announcement. “There was no response from the markets, either because they didn’t believe in the political will of the EU or because they decided to go on with speculation,” Papandreou said today. “The situation threatens to demolish not only the sacrifices of the people but also the regular course of the economy. All the efforts by the Greek people are in danger of being in vain.” With national debt of almost 300 billion euros and investors demanding almost triple what they charge Germany for its 10-year bonds, Greece faces a fiscal mess that threatened to spread to Spain and Portugal, forcing the EU to set up a standby aid facility. At stake is the future of the euro 11 years after its creators gave the European Central Bank responsibility for interest rates while leaving budget policy in national capitals. Rating Cut The request came one day after the yield on the country’s benchmark two-year note topped 11 percent, approaching that of Pakistan, and Moody’s Investors Service lowered Greece’s creditworthiness by one notch to A3, saying it was considering further cuts. After Papandreou’s announcement, the 2-year yield declined 82 basis points to 9.41 percent. The euro, which has slumped 7 percent this year as Greece undermined confidence in the single currency, rose to $1,3311 today from a one-year low yesterday of $1.3261. Greece’s ASE stock index gained 1.7 percent to 1892.32. The benchmark shed almost a third of its value in the past six months as banks, the biggest holders of Greek bonds, slumped and concerns the crisis will lead to a prolonged recession hurt the market. Activating the aid and turning over economic policy to EU and IMF oversight was “a new Odyssey for Greece,” Papandreou said. “But we know the road to Ithaca and have charted the waters,” referring to the return of mythological hero Ulysses to his island home. One Roof Economists, including Harvard University Professor Martin Feldstein, have said the single currency would falter because divergent economies couldn’t fit under one monetary roof. The Greek request needs approval from all 15 other euro- area countries including Germany, where surveys have shown public opposition to aiding Greece. BlackRock Inc., the world’s largest money manager, has expressed concerns about a “backlash” from citizens in EU nations prepared to offer a lifeline. “We want to see the EU countries really get behind it and see that they’ve gelled around the idea of providing this support at the government level, at the senior policy maker level,” Curtis Arledge, chief investment officer of fixed income at BlackRock, said on April 13. “If you see the backlash, they need to get their people on board.” Discount Loans The aid facility for Greece offers as much as 30 billion euros in three-year loans from euro-area nations this year at a below-market interest rate of about 5 percent. Another 15 billion euros are available from the IMF at even lower rates, EU officials have said. Greek officials started talks on April 21 in Athens with EU and IMF officials to set conditions on the funds before the loans are disbursed. Those talks may last for at least two weeks. With Greece facing 8.5 billion euros of bonds maturing May 19 and little chance of tapping the financial markets, Papandreou’s request today could help speed distribution of the rescue funds. “We are prepared to move expeditiously on this request,” IMF Managing Director Dominique Strauss-Kahn said today in a statement. Under EU rules, governments must keep their budget deficits below 3 percent of gross domestic product. While the EU can penalize countries for breaching the limit, no nation has been sanctioned since the euro was introduced in 1999. Of the 16 euro region members, only Luxembourg and Finland had deficits within the limit last year. Deficit Revisions The government’s deficit-cutting goal became questionable yesterday after Eurostat, the EU’s statistics agency, revised up the 2009 shortfall to 13.6 percent of gross domestic product, and said it was considering a further revision to as much as 14.1 percent. The government in Athens had pledged to reduce the budget deficit by at least 4 percentage points of gross domestic product this year to 8.7 percent. When Greece first made that pledge, its starting point was a 2009 deficit of 12.7 percent. forced it now. “The aid package will buy Greece time this year,” said Colin Ellis, European economist at Daiwa Capital in London. “That’s all that it has done. Greece still faces a herculean task to show that it can get its public finances in order and reduce its deficit.” Strikes, Protests Unions have already put the government on notice that there will be more strikes if the Papandreou seeks to impose more austerity measures beyond the tax increases and wage cuts already implemented to reach the 2010 deficit goals. Civil servants held their fourth one-day strike of the year this week and other unions have regularly walked off the job since the original measures were announced, threatening to deepen the recession. Greece’s economy may contract 4 percent this year, twice as much as in 2009 and double the government’s forecast, according to Deutsche Bank AG. After a wave of domestic protests against austerity measures, the government needs to raise almost 10 billion euros by the end of May to cover maturing bonds and another 20 billion euros by the end of the year to pay debt coupons and finance the deficit. Greece failed to qualify for the euro area initially, joining two years later and only after understating its budget gap. With the euro, ECB interest rates that never exceeded 4.75 percent and EU funds to help build roads and airports, the country had economic growth of about 4 percent on an annual average basis — one of the fastest in Europe — until 2008 when Lehman Brothers Holdings Inc.’s collapse sparked a global financial crisis. German Resistance German politicians have expressed reluctance to aid Greece, citing the country’s manipulation of statistics to qualify for euro entry and an EU treaty clause that prohibits bailouts. Allies of Chancellor Angela Merkel, a Christian Democrat, criticized her for signing up to an April 11 European deal on the terms of any aid for Greece, saying she dropped an initial demand that subsidies be ruled out. “Germany buckled under the pressure — we shouldn’t kid ourselves that such loans are anything but subsidies,” Frank Schaeffler, deputy finance spokesman for Merkel’s Free Democrat junior coalition partners, said at the time. The Greek request for help also risks provoking a European fight with the IMF over control of the process, including the conditions. The rescue package covers three years and leaves open the sums of possible funding in 2011 and 2012. Compromise The aid facility marked a compromise between French demands for the euro area to play the lead role and German insistence on involving the Washington-based IMF. On March 30, in a sign of the potential for conflict over supervision, IMF Managing Director Dominique Strauss-Kahn said his organization “will define the conditionality” of any rescue package for Greece. Papandreou had called the EU-IMF aid facility a “loaded gun” that would lower borrowing costs in the market and make an actual request for support unnecessary. Investors weren’t intimidated and the rout in Greek bonds intensified after the aid package was adopted on April 11. Greek 10-year bond yields have soared more than 125 basis points since then and topped 10 percent yesterday, the highest since 1998. The yield premium that investors demand to hold Greek 10- year bonds instead of benchmark German debt widened to more than 500 basis points, the most since before the euro’s 1999 debut. To contact the reporter on this story: Jonathan Stearns in Athens at jstearns2@bloomberg.net Maria Petrakis in Athens at mpetrakis@bloomberg.net

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Goldman Sachs Stock, Board Under Pressure Amid Probe

April 19, 2010

By Christine Harper April 19 (Bloomberg) — Goldman Sachs Group Inc. ’s stock may drop and the board could come under pressure to change managers after European politicians followed a U.S. fraud suit with their own plans to scrutinize the firm, investors said. Prime Minister Gordon Brown called yesterday for the U.K. Financial Services Authority to start a probe, saying he was “shocked” at the “moral bankruptcy” indicated in the Securities and Exchange Commission suit against Goldman Sachs. Germany’s financial regulator, Bafin, asked the SEC for details on the suit, a spokesman for Chancellor Angela Merkel said. The escalating rhetoric adds urgency to efforts by Chairman and Chief Executive Officer Lloyd Blankfein and the rest of his board to stem the negative publicity. Although Goldman Sachs vowed to fight the SEC case, calling it “unfounded in law and fact,” the stock plunged 13 percent on April 16. The shares fell 1.9 percent to $157.61 at 9:47 a.m. in New York Stock Exchange trading. “The lynch-mob mentality that is prevailing right now against Goldman is such that you don’t know where this thing could go, so I think the stock is going to be under continuing pressure,” said Michael Holland , who oversees more than $4 billion as chairman of New York-based Holland & Co. “The board actually has to pay attention not only to the legal niceties of this thing but also to the franchise viability as well.” Michael Farr , president and founder of Washington-based Farr, Miller & Washington LLC, said he sold his Goldman Sachs stock on April 16 because the SEC suit brought the controversy over Wall Street’s dealings in collateralized debt obligations and credit-default swaps to a new level. ‘Investors Understand Fraud’ “Investors understand that something complicated and errant happened with CDOs and CDSs but they’re not sure entirely what, because these collateralized debt obligations and credit- default swaps are complicated and somewhat arcane,” said Farr, whose firm manages more than $700 million in assets. “But investors understand fraud, they get fraud really clearly.” Samuel Robinson , a spokesman for Goldman Sachs, declined to comment. The SEC said that in early 2007, as the U.S. housing market teetered, Goldman Sachs created and sold a CDO linked to subprime mortgages without disclosing that hedge fund Paulson & Co. helped pick the underlying securities and bet against the vehicle, known as Abacus 2007-AC1. Goldman Sachs, whose $13.4 billion profit last year was the highest ever for a Wall Street securities firm, is facing an unprecedented level of public opprobrium because of the perception that it profited from practices that led to the biggest financial crisis since the Great Depression. ‘The Bogey Man’ “Goldman Sachs will now become the bogey man for all financial ills and I think it’s a story that’s not going away, it is only likely to increase,” said Matt McCormick , an analyst at Bahl & Gaynor Inc. in Cincinnati, which manages about $2.8 billion. “If you buy it at these levels you are hoping that this is the worst of the bad news and I don’t believe that’s the case.” Steve Stelmach , an analyst at FBR Capital Markets in Arlington, Virginia, today removed Goldman from his ‘Top Picks’ list, citing the SEC suit. He still reiterated his outperform rating because of the bank’s “strong fundamentals.” “The market appears to be overly discounting the potential earnings impact from the SEC charges,” he wrote in a note to clients today. The stock’s drop implies the suit may cost the bank $2 billion before tax, twice the $1 billion the SEC says investors lost in the transaction, he wrote. ‘Answer Questions’ Of the 29 analysts that track Goldman , 22 rate the stock a buy, seven mark it a hold and none recommend investors sell, data compiled by Bloomberg show. Politicians that were forced to bail out their nations’ banks are turning on Goldman Sachs. The firm, which paid its employees $16.2 billion last year, has become a target for politicians like the U.K.’s Brown who are running in elections or who, in the U.S., are battling over new financial regulation. “It is individuals in Goldman Sachs that are going to have to answer questions,” Brown said at an event in London today. “We are determined to root out any malpractice.” The European Union is probing Goldman Sachs’s role in arranging swaps for Greece that may have masked the country’s budget deficit. Congress has also examined the company’s relationship with American International Group Inc. , which got a $182.3 billion U.S. rescue. Federal Case Assigned The SEC case against Goldman Sachs was assigned to U.S. District Judge Barbara Jones in New York who presided over the case of former WorldCom Inc. CEO Bernard Ebbers . Ebbers, who was convicted in 2005 of overseeing one of the biggest frauds in U.S. history, is serving a 25-year prison term. Goldman Sachs’s first-quarter profit, due to be published tomorrow, probably won’t help even though analysts expect earnings to rise 41 percent from a year earlier, McCormick said. “They’re going to probably come out with great earnings, at least that’s the expectation, but that is going to be quickly discounted and drowned out,” he said. Goldman Sachs’s board of directors should do its own investigation to ensure that it understands what senior management knew about the issues raised by the SEC’s complaint, said James Post , a professor of corporate governance and ethics at the Boston University School of Management. ‘How Long?’ “The board has got to be insisting on a much deeper level of internal investigation that reports only to them, not to Blankfein,” Post said. “They’ve got to be asking the question ‘how long can we continue going with Blankfein before we’ve got to clean house and put a new group of people in there?’” William W. George , a Harvard Business School professor who has served on Goldman Sachs’s board since 2002, referred a request for an interview to the company’s press office. His Twitter account, which lauded JPMorgan Chase & Co. CEO Jamie Dimon for his firm’s better-than-expected earnings on April 14, remained silent on the controversy surrounding Goldman Sachs. Boston University’s Post said he wouldn’t expect the board to take any immediate action to change the firm’s management because it would seem to contradict the defiant position the company took on April 16. “I’m pretty sure that the board at Goldman is having a bad weekend,” Post said on April 18. “They may be praying for some news out of the Vatican or a new volcano to get them off the front pages.” Management Changes? Bahl & Gaynor’s McCormick said changing senior management could add fuel to critics’ complaints instead of mollifying them. A better course, he said, would be to bring in a well- respected Wall Street veteran, even someone like billionaire Warren Buffett , to serve as a chairman or adviser to Blankfein. Buffett’s Berkshire Hathaway Inc. is already one of the largest investors in Goldman Sachs. “I could see them bringing in an outside person, somebody who is viewed by the Street as a wise sage that could come in and give an outsider’s perspective” to advise Blankfein, McCormick said. “Nobody’s going to believe Goldman is going to take care of this on their own.” To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net

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Stocks in U.S. Fluctuate as Citigroup Earnings Offset Goldman Sachs Probes

April 19, 2010

By Rita Nazareth April 19 (Bloomberg) — U.S. stocks drifted between gains and losses as better-than-estimated results at Citigroup Inc. offset concern that widening probes of Goldman Sachs Group Inc. will hurt bank earnings. Citigroup jumped 6 percent after profit more than doubled as costs for bad loans decreased. Goldman Sachs lost 1.1 percent as Germany and the U.K. signaled probes of the most profitable firm in Wall Street history after the U.S. Securities and Exchange Commission sued the company for fraud related to collateralized debt obligations. MEMC Electronic Materials Inc. led technology stocks lower after analysts at Hapoalim Securities advised selling the shares. The S&P 500 slipped 0.1 percent to 1,191.06 as of 10:58 a.m. in New York. The Dow Jones Industrial Average increased 5.82 points, or 0.1 percent, to 11,024,48. “People are looking for some bargains after Friday’s selloff,” said Burt White , chief investment officer at LPL Financial in Boston, which oversees $379 billion. “Citigroup came out with decent earnings. The leading indicators figure was higher than expected. There are lots of good things economically speaking. And there’s also a perception that the Goldman situation will not imply systemic risk.” The S&P 500 tumbled 1.6 percent on April 16, the most since Feb. 4, after the SEC’s suit against Goldman Sachs spurred concern fallout from the financial crisis isn’t over. Equities were bolstered earlier today as the Conference Board said the index of U.S. leading indicators rose in March by the most in 10 months, beating expectations. ‘Punch in the Gut’ “You get a punch in the gut with these Goldman Sachs issues,” said Don Wordell , who oversees the RidgeWorth Mid-Cap Value Equity Fund, which has beaten 97 percent of its peers during the past five years. “It brings investors back to reality. There’s a tremendous amount of skepticism.” Citigroup rallied 6 percent to $4.83 after posting its fourth profit in five quarters, beating analysts’ estimates. First-quarter net income of $4.43 billion followed a loss of $7.58 billion in the fourth quarter and a profit of $1.59 billion in the first three months of 2009, New York-based Citigroup said. Adjusted per-share earnings were 14 cents. Analysts in a Bloomberg survey estimated the company would break even. Goldman Probe Goldman Sachs sank 13 percent on April 16, its biggest plunge in more than a year, after the SEC sued the bank and one of its vice presidents. The regulator said the bank created and sold CDOs tied to subprime mortgages in early 2007, as the U.S. housing market faltered, without disclosing that hedge fund Paulson & Co. helped pick the underlying securities and bet against them. Goldman Sachs said the claims are “completely unfounded.” Paulson wasn’t accused of wrongdoing. Goldman Sachs shares slipped 1.1 percent to $159 today. U.K. Prime Minister Gordon Brown yesterday called for the Financial Services Authority to start their own inquiry into Goldman Sachs, saying he was “shocked” at the “moral bankruptcy” indicated in the suit. Germany’s financial regulator, Bafin, asked the SEC for details on the suit, a spokesman for Chancellor Angela Merkel said. The S&P 500 last week fell 0.2 percent, halting the longest streak of gains in a year. The 1.6 percent retreat in the S&P 500 on April 16 erased gains earlier in the week spurred by better-than-estimated earnings results at companies from Intel Corp. to CSX Corp. and JPMorgan Chase & Co. Financial Companies Profits for financial companies in the S&P 500 are projected to have increased by 120 percent in the first quarter, according to analyst estimates compiled by Bloomberg. That’s the second-most among 10 industries behind commodities companies, whose earnings are expected to rise 144 percent, and follows a doubling of net income in the fourth quarter. Since the S&P 500 began its 76 percent climb from a 12-year low in March 2009, its biggest retreats have come during the periods in which companies report quarterly results. The index slipped 5.6 percent starting 12 days after New York-Based Alcoa Inc. reported results that topped estimates Oct. 7, and began an 8.1 percent decrease three months later after the biggest U.S. aluminum maker missed projections. Both declines were erased and stocks rose to the bull market’s highest levels after more than 72 percent of profit reports exceeded predictions. CME, Sprint CME Group Inc. gained 3.3 percent to $322.40. The world’s largest futures market may rise if U.S. legislation now being considered prompts institutions to hedge more of their portfolios and exchange volume increases, Barron’s reported. Sprint Nextel Corp. advanced 3.7 percent to $4.23. The third-largest U.S. wireless-service provider was raised to “outperform” from “market perform” at Wells Fargo & Co. American Capital Ltd. climbed 5.6 percent to $5.63. The investment firm said it’s selling 43.7 million shares to hedge fund Paulson & Co. as part of an equity offering that’s aimed to raise money for investment and debt repayment. To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

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Merkel Undermines Bunds as Premium to Treasuries Fades on Greek About-Face

April 19, 2010

By Paul Dobson and Anchalee Worrachate April 19 (Bloomberg) — Chancellor Angela Merkel’s about- face on bailing out Greece is turning German bonds into a losing bet after beating Treasuries the past 18 months. Yields on 10-year bunds rose as much as 0.24 percentage point relative to similar-maturity Treasuries since April 5 and BlackRock Inc., the world’s largest money manager, said it no longer pays to own the debt amid Europe’s fiscal crisis. Ignis Asset Management added to a bet that bunds would lag behind U.S. debt after the $61 billion rescue was announced April 11. “The bund rally is over,” said Stuart Thomson , a money manager at Ignis in Glasgow, Scotland, who helps oversee more than $100 billion. “Greece ultimately has to default and bund yields will have to rise as Germany funds the Greek rescue over the next two to three years.” After returning three times more than Treasuries since Sept. 15, 2008, as investors favored the debt of nations with the lowest budget deficits, sentiment toward bunds is turning on speculation the aid package may be the first step in a unified fiscal policy. Europe’s “game of fiscal chicken” promises to make governments less determined to cut deficits, according to BNP Paribas SA, France’s biggest bank. Credit-Default Swaps German credit risk may rise should the nation get saddled with increasing financial burdens from debt-laden neighbors, said Louis Gargour , the chief investment officer at LNG Capital LLP, a London-based hedge fund he co-founded after leaving RAB Capital Plc in 2006. The EU said last week Portugal must do more to tackle a deficit that was 9.4 percent of gross domestic product in 2009. Greece’s deficit is 12.9 percent. The cost of protecting Portugal’s debt from losses has risen 263 percent the past six months, the most in the world and more than the 258 percent for Greece, credit-default swap data compiled by Bloomberg show. The cost of five-year swaps on Greek was 436.2 basis points as of 4:20 p.m. on April 16, according to CMA DataVision prices, compared with a record 444 on April 8. German swaps were at 34.1 basis points, the highest since March 2. Contracts on Portugal were up 14 basis points at 193.6. “Greece is the tip of the iceberg,” said Gargour. “The more people scratch beneath the surface, the more they’ll find countries in the same situation as Greece, which means the more they’ll have to tap on the resources of Germany and their resources are not limitless. You’re migrating payments to the riskier countries from the stable ones and reducing the stable ones’ credit quality.” ‘Competitiveness Imbalances’ The cost “is going to be high and very similar to what happened with eastern Germany,” Gargour said. The 10-year German bond yield rose to as much as 9.13 percent on Sept. 28, 1990, from 6.59 percent on Aug. 1, 1989, as the nation increased spending to pay for reunification. European Union Economic and Monetary Affairs Commissioner Olli Rehn said on April 16 that “several other countries” in the EU beyond Greece have “competitiveness imbalances.” Morgan Stanley co-chief global economist Joachim Fels said in an April 14 note the Greek bailout “introduces a serious moral hazard problem” that may prompt Germany to consider exiting Europe’s current monetary union. “The Greek decision has introduced, or increased, the incentive for governments to avoid tough choices and to let their finances drift or not to try hard enough to consolidate,” Paul Mortimer-Lee , head of market economics at BNP in London, said on April 12. Europe is engaged in a “game of fiscal chicken” over Greece, he said. Circumventing Maastricht The April 11 agreement followed two months of debate among EU officials over whether to maneuver around the “no bailout clause” of the Maastricht Treaty, which gave birth to the euro. Germany “buckled” under pressure by giving up demands that Greece pay market rates under the rescue, Frank Schaeffler , deputy finance spokesman for Merkel’s Free Democrat junior coalition partners, said April 11. Yields on 10-year bunds rose to within 66 basis points, or 0.66 percentage point, of Treasuries on April 12. The difference was 90 basis points a week earlier, the most since 2006. The spread ended last week at 68 basis points. Bund yields may keep increasing relative to U.S. debt, narrowing the difference to 45 basis points by the end of June and marking the worst performance by Germany’s debt since the fourth quarter of 2008, according to the median estimates compiled by Bloomberg. Yield Forecasts All 18 strategists surveyed predict bund yields will rise, reaching 3.65 percent in the fourth quarter, from 3.08 percent last week. Two-year yields will increase to 1.96 percent from 0.88 percent. Bunds returned 13.4 percent, including reinvested interest, compared with 4.55 percent for Treasuries, between the collapse of Lehman Brothers Holdings Inc. in September 2008 and the end of March, according to Bank of America Merrill Lynch indexes. In the first quarter, they gained 2.7 percent, more than double Treasuries. “We have been very long duration in Europe based on our inflation and rate expectations and we have reduced that now,” Michael Krautzberger , co-head of European fixed-income who helps oversee New York-based BlackRock’s $3.35 trillion of assets from London, said in an interview on April 16. Barings Investment Services Ltd. in London has so far assumed that euro area nations’ need to cut their debt will be positive for bunds because it will slow growth and encourage the European Central Bank to keep rates lower for longer. Lagging Behind “It would be negative for bunds if we were to see a co- mingling of European creditworthiness,” said Toby Nangle , director of asset allocation at Barings, which managed $46.1 billion as of March 31. While the size of the rescue “is substantial enough to initiate some kind of European fiscal union,” it isn’t yet clear this will happen, he said. The euro region’s economy may expand 1.15 percent this year, compared with 3 percent for the U.S., according to the median of economists’ estimates compiled by Bloomberg News. The Federal Reserve may raise its target rate to 0.75 percent this year from a range of zero to 0.25 percent, while the ECB keeps its key rate at 1 percent, separate surveys show. Greece, needing 11.6 billion euros by the end of May to cover maturing debt, may be forced to activate the rescue package within two weeks, Fitch Ratings Director Christopher Pryce said on April 14. Fitch reduced Greece’s rating by two steps on April 9 to BBB-, one level above junk. ‘Bunds Are Vulnerable’ “The package will ease risk aversion in the short term,” said Andre de Silva , deputy head of global fixed-income strategy in London at HSBC Holdings Plc, Europe’s biggest bank. “On that basis, bunds are vulnerable.” The bund yield may rise to within 40 basis points of the 10-year Treasury by the end of this quarter, he said. Greek Prime Minister George Papandreou moved a step closer to triggering the EU package on April 15 by asking the European Commission and the International Monetary Fund for a meeting in Athens. The IMF, EU and ECB are scheduled to begin meeting Greek officials on April 21. Moody’s Investors Service downgraded Greece one step to A2, its sixth-highest credit rating, on Dec. 22, citing “medium- to long-term solvency risks.” Standard & Poor’s, Fitch and Moody’s have “negative” outlooks on the debt. As recently as Aug. 10, 2009, Greek 10-year notes yielded as little as 108 basis points more than bunds. As the extent of the nation’s deficit emerged last year, the spread widened. By April 8 it reached 442 basis points, the most since 1999, before narrowing to 430 basis points on April 16. The spread between Portuguese and German bonds widened to 141 basis points on April 16, the most since Feb. 9. “The Greek rescue is a good reason for bunds to underperform,” said David Keeble , head of fixed-income strategy at Credit Agricole Corporate and Investment Bank in London. “Treasuries had a dismal first quarter, while the Greek crisis shaved 20 to 30 basis points off the bund yield. It’s time for a catch-up. Germany’s credit is certainly polluted. ” To contact the reporters on this story: Paul Dobson in London at pdobson2@bloomberg.net ; Anchalee Worrachate in London at aworrachate@bloomberg.net

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Pressure Mounts on Goldman Shares, Board as Probes Spread Across Atlantic

April 19, 2010

By Christine Harper April 19 (Bloomberg) — Goldman Sachs Group Inc. ’s stock may drop and the board could come under pressure to change managers after European politicians followed a U.S. fraud suit with their own plans to scrutinize the firm, investors said. Prime Minister Gordon Brown called yesterday for the U.K. Financial Services Authority to start a probe, saying he was “shocked” at the “moral bankruptcy” indicated in the Securities and Exchange Commission suit against Goldman Sachs. Germany’s financial regulator, Bafin, asked the SEC for details on the suit, a spokesman for Chancellor Angela Merkel said. The escalating rhetoric adds urgency to efforts by Chairman and Chief Executive Officer Lloyd Blankfein and the rest of his board to stem the negative publicity. Although Goldman Sachs vowed to fight the SEC case, calling it “unfounded in law and fact,” the stock fell 13 percent on April 16. The shares rose 0.6 percent to $162.42 in European trading today. “The lynch-mob mentality that is prevailing right now against Goldman is such that you don’t know where this thing could go, so I think the stock is going to be under continuing pressure,” said Michael Holland , who oversees more than $4 billion as chairman of New York-based Holland & Co. “The board actually has to pay attention not only to the legal niceties of this thing but also to the franchise viability as well.” Michael Farr , president and founder of Washington-based Farr, Miller & Washington LLC, said he sold his Goldman Sachs stock on April 16 because the SEC suit brought the controversy over Wall Street’s dealings in collateralized debt obligations and credit-default swaps to a new level. ‘Investors Understand Fraud’ “Investors understand that something complicated and errant happened with CDOs and CDSs but they’re not sure entirely what, because these collateralized debt obligations and credit- default swaps are complicated and somewhat arcane,” said Farr, whose firm manages more than $700 million in assets. “But investors understand fraud, they get fraud really clearly.” Samuel Robinson , a spokesman for Goldman Sachs, declined to comment. The SEC said that in early 2007, as the U.S. housing market teetered, Goldman Sachs created and sold a CDO linked to subprime mortgages without disclosing that hedge fund Paulson & Co. helped pick the underlying securities and bet against the vehicle, known as Abacus 2007-AC1. Goldman Sachs, whose $13.4 billion profit last year was the highest ever for a Wall Street securities firm, is facing an unprecedented level of public opprobrium because of the perception that it profited from practices that led to the biggest financial crisis since the Great Depression. “This is probably just the tip of the iceberg,” said Chizu Nakajima , director of the Centre for Financial Regulation and Crime at the Cass Business School in London. “As far as other financial institutions are concerned, they are obviously very worried. If the SEC’s action is actually successful, it could well open up the gates to other litigation worldwide.” ‘The Bogey Man’ Politicians that were forced to bail out their nations’ banks are turning on Goldman Sachs. The firm, which paid its employees $16.2 billion last year, has become a target for politicians like the U.K.’s Brown who are running in elections or who, in the U.S., are battling over new financial regulation. “Goldman Sachs will now become the bogey man for all financial ills and I think it’s a story that’s not going away, it is only likely to increase,” said Matt McCormick , an analyst at Bahl & Gaynor Inc. in Cincinnati, which manages about $2.8 billion. “If you buy it at these levels you are hoping that this is the worst of the bad news and I don’t believe that’s the case.” The European Union is probing Goldman Sachs’s role in arranging swaps for Greece that may have masked the country’s budget deficit. Congress has also examined the company’s relationship with American International Group Inc. , which got a $182.3 billion U.S. rescue. Federal Case Assigned The SEC case against Goldman Sachs was assigned to U.S. District Judge Barbara Jones in New York who presided over the case of former WorldCom Inc. CEO Bernard Ebbers . Ebbers, who was convicted in 2005 of overseeing one of the biggest frauds in U.S. history, is serving a 25-year prison term. Goldman Sachs’s first-quarter profit, due out tomorrow, probably won’t help even though analysts expect earnings to rise 41 percent from a year earlier, McCormick said. “They’re going to probably come out with great earnings, at least that’s the expectation, but that is going to be quickly discounted and drowned out,” he said. Goldman Sachs’s board of directors should do its own investigation to ensure that it understands what senior management knew about the issues raised by the SEC’s complaint, said James Post , a professor of corporate governance and ethics at the Boston University School of Management. ‘How Long?’ “The board has got to be insisting on a much deeper level of internal investigation that reports only to them, not to Blankfein,” Post. “They’ve got to be asking the question ‘how long can we continue going with Blankfein before we’ve got to clean house and put a new group of people in there?” William W. George , a Harvard Business School professor who has served on Goldman Sachs’s board since 2002, referred a request for an interview to the company’s press office. His Twitter account, which lauded JPMorgan Chase & Co. CEO Jamie Dimon for his firm’s better-than-expected earnings on April 14, remained silent on the controversy surrounding Goldman Sachs. Boston University’s Post said he wouldn’t expect the board to take any immediate action to change the firm’s management because it would seem to contradict the defiant position the company took on April 16. ‘A Bad Weekend’ “I’m pretty sure that the board at Goldman is having a bad weekend,” Post said on April 18. “They may be praying for some news out of the Vatican or a new volcano to get them off the front pages.” Bahl & Gaynor’s McCormick said changing senior management could add fuel to critics’ complaints instead of mollifying them. A better course, he said, would be to bring in a well- respected Wall Street veteran, even someone like billionaire Warren Buffett , to serve as a chairman or adviser to Blankfein. Buffett’s Berkshire Hathaway Inc. is already one of the largest investors in Goldman Sachs. “I could see them bringing in an outside person, somebody who is viewed by the Street as a wise sage that could come in and give an outsider’s perspective” to advise Blankfein, McCormick said. “Nobody’s going to believe Goldman is going to take care of this on their own.” To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net

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Goldman Sachs May Face U.K., German Inquiries After Fraud Suit

April 18, 2010

By Michael Patterson and Tony Czuczka April 18 (Bloomberg) — Goldman Sachs Group Inc. faces a regulatory probe in Britain and scrutiny from the German government after the U.S. Securities and Exchange Commission sued the firm for fraud tied to collateralized debt obligations. Prime Minister Gordon Brown today called for the Financial Services Authority to start an investigation, saying he was “shocked” at the “moral bankruptcy” indicated in the suit. Germany’s financial regulator, Bafin, asked the SEC for details on the suit, a spokesman for Chancellor Angela Merkel said. Politicians that were forced to bail out their banks during the financial crisis are turning on Goldman, which critics say helped caused the turmoil and profited from it. The European Union is also probing Goldman’s role in arranging swaps for Greece that may have masked the country’s budget deficit. “We will see politicians throughout the world piling on Goldman Sachs,” said Scott Moeller , a former investment banker now teaching at Cass Business School in London. “Now they have vulnerability. Everyone and anyone, especially politicians, are going to be trying to make hay with this one.” The SEC said that in early 2007, as the U.S. housing market teetered, Goldman Sachs created and sold a CDO linked to subprime mortgages without disclosing that hedge fund Paulson & Co. helped pick the underlying securities and bet against the vehicle, known as Abacus 2007-AC1. ‘People Were Misled’ The firm denies any wrongdoing. Fiona Laffan , a spokeswoman for Goldman Sachs, and Heidi Ashley , a spokeswoman for the FSA, declined to comment. “It looks as if people were misled about what happened,” Brown, who faces a national election on May 6, said on the BBC’s Andrew Marr program today. “The banks are still an issue. They are a risk to the economy.’ Royal Bank of Scotland Group Plc paid $841 million to Goldman Sachs to unwind its position in Abacus, which it inherited when it bought parts of ABN Amro in 2007, according to the SEC. The Edinburgh-based lender is now controlled by the British government after receiving a 45.5 billion-pound ($70 billion) taxpayer rescue, the world’s biggest banking bailout. The SEC said Goldman Sachs misled investor IKB Deutsche Industriebank AG about Paulson’s role in the trade. Dusseldorf- based IKB lost about $150 million in the Abacus CDO, most of which went to Paulson, which reaped a $1 billion profit in total from betting against the vehicle, according to the SEC. Legal Steps IKB became Germany’s first casualty of the U.S. subprime- mortgage crisis in 2007 after its investments in asset-backed securities soured. KfW , Germany’s state-owned development bank, pumped almost 10 billion euros ($13.5 billion) into IKB in 2008 to shore up the country’s banking system. The German government “will ask the SEC for information,” said Ulrich Wilhelm , a spokesman for Merkel. “Then we will look at the records and consider possible legal steps.” Goldman Sachs said in a statement it had provided “extensive disclosure” to IKB about the risk of the underlying mortgage securities. Paulson, which hasn’t been charged with any wrongdoing, said in a statement that it didn’t “sponsor or initiate” Goldman’s Abacus program. The fund said that while it did purchase credit protection from Goldman on some Abacus securities, it wasn’t involved in the marketing. ‘Profound and Thorough’ The EU is investigating Goldman Sachs over swaps it arranged for Greece in 2002. The country entered a cross- currency swap with Goldman Sachs on about $10 billion of debt issued in dollars and yen. That was swapped into euros using a historical exchange rate, a mechanism that generated about $1 billion in an up-front payment from Goldman to Greece. Goldman has said it did nothing wrong. The probe will be “profound and thorough,” EU Monetary Affairs Commissioner Olli Rehn said at a press conference in Madrid yesterday. The New York-based firm is already under attack for its role as a trading partner to American International Group Inc. , the insurer bailed out by the U.S. government. Goldman Sachs said April 7 that AIG’s bailout in 2008 helped the bank and every other financial firm because the insurer’s collapse would have been “extremely” disruptive to financial markets. The $182.3 billion bailout ensured that Goldman Sachs and other counterparties were repaid in full. Much of the $12.9 billion Goldman Sachs received from AIG’s rescue was paid out to meet AIG-linked “obligations,” the firm said. To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net n aczuczka@bloomberg.net ;

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Brown Must Avoid 1970-Style Surprise as Growth Data May Turn U.K. Election

April 18, 2010

By Rodney Jefferson April 19 (Bloomberg) — Prime Minister Gordon Brown can’t afford a repeat of 1970 for his governing Labour Party when figures on the U.K. economy are published this week. A sudden deterioration of the trade balance reported just days before that year’s vote helped the Conservatives eject Labour Premier Harold Wilson . British high-school students are taught “poor trade figures” cost him the election. Brown’s early day of reckoning could come April 23, when the Newport, Wales-based Office for National Statistics publishes its initial first-quarter economic growth estimate two weeks before the May 6 election. “It’s an extremely important number,” said Mike Turner , head of strategy at Aberdeen Asset Management Plc in Edinburgh. “If that number surprises either way, I suspect that it will have a significant bearing on the polls because either party will make hay while the sun shines.” After the longest economic slump since World War II, sustaining growth and cutting a record budget deficit have become overriding campaign issues. Brown says the proposal by Conservative leader David Cameron to start cutting spending this year risks a double-dip recession. Gross domestic product rose 0.4 percent in the three months ended in December, the first growth since March 2008. Economists expect the same rate for the first quarter, according to the median of 31 forecasts in a Bloomberg News survey. That matches an estimate by the National Institute of Economic and Social Research, a research group in London whose clients include the Bank of England and the Treasury. ‘Highly Significant’ “Provided it’s right, it’s not a game changer,” said Jeremy Peat , director of the David Hume Institute in Edinburgh and a former chief economist at Royal Bank of Scotland Group Plc in the Scottish capital. “If it’s 0.1 percent or 0.2 percent, we are back in the risk of a double-dip recession and it would be highly significant.” While the most recent polls indicate the May 6 election won’t produce a majority for Brown or Cameron, they show voters favor Brown and Chancellor of the Exchequer Alistair Darling when it comes to handling the economy. In a ComRes Ltd. survey conducted after Darling announced his budget on March 24, 33 percent of respondents backed Brown and Darling to steer the economy, compared with 27 percent favoring Cameron and his finance spokesman, George Osborne. No margin of error was provided. Darling last week underscored the risks of a single economic release roiling markets, noting that this will be the first of three estimates of GDP. ‘Three Cuts’ “Whenever you get the GDP numbers, you’ve got to remember there are three cuts at them,” Darling told reporters in Nottingham, central England, on April 13. “People don’t think about GDP every day of the week.” The economy surprised the last time GDP figures were published, at least at first. GDP expanded 0.1 percent in the fourth quarter, the ONS said initially on Jan. 26, less than the median 0.4 percent forecast in a Bloomberg survey of 33 economists. The figure then was revised up to 0.3 percent and finally on March 30 to the originally expected 0.4 percent. The initial measure from the ONS uses data for the first two months of the period provided by about 40 percent of companies assessed, or about 40,000 businesses, Joe Grice , the organization’s chief economist, said in a February interview. It also includes the full three-month figures for a further 20,000 respondents. The government gets to see the data 24 hours before they are released, the ONS said. Deteriorating Trade In 1970, Labour had been in power for six years and led opinion polls, prior to a report that showed a trade deficit for May, according to British Broadcasting Corp . archives. The ONS, which says it doesn’t keep monthly records, today reports the second-quarter trade surplus as having shrunk to 48 million pounds from 220 million pounds. Conservative leader Edward Heath scored his victory three days later after claiming the pound may have to be devalued and the public turned against Wilson, according to the BBC. Haig Bathgate , head of strategy at Edinburgh-based firm Turcan Connell, which invests on behalf of rich families, said he wouldn’t bet against the GDP number this week having an effect on the outcome of the 2010 election. “If it’s massively worse, the Tories are going to seize on it and if it’s massively better then Labour will benefit,” said Bathgate. “If it’s an extreme figure, it will have an impact.” To contact the reporter on this story: Rodney Jefferson in Edinburgh at r.jefferson@bloomberg.net

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U.S. Stock Futures Fall as Goldman Sachs Faces Possible Probes in Europe

April 18, 2010

By Lynn Thomasson and Chris Nagi April 19 (Bloomberg) — U.S. stock futures fell, extending the biggest one-day decline in more than two months, after the U.K. and Germany signaled inquiries into Goldman Sachs Group Inc. Contracts on the Standard & Poor’s 500 Index expiring in June slipped 0.3 percent to 1,186.2 as of 8:40 a.m. in Tokyo. The benchmark index for American equities retreated 0.2 percent last week, halting the longest streak of gains in a year. Nasdaq 100 Index futures dropped 0.2 percent to 2,004.25 today. Goldman Sachs faces a regulatory probe in Britain and scrutiny from the German government after the U.S. Securities and Exchange Commission sued the firm for fraud tied to collateralized debt obligations. U.S. equities decreased the most since February after the suit spurred concern fallout from the financial crisis isn’t over. “You get a punch in the gut with these Goldman Sachs issues,” said Don Wordell , who oversees the RidgeWorth Mid-Cap Value Equity Fund, which has beaten 97 percent of its peers during the past five years. “It brings investors back to reality. There’s a tremendous amount of skepticism.” Yen-denominated futures on Japan’s Nikkei 225 Stock Average expiring in June closed at 10,915 in Chicago on April 16, 1.7 percent lower than 11,105 in Singapore. They were bid in the pre-market at 11,140 as of 8:05 a.m. today in Osaka, Japan. The Nikkei 225 closed at 11,102.18 on April 16. Weekly Decline Goldman Sachs sank 10 percent last week, the most since March 2009, after the SEC sued the bank and one of its vice presidents. The 1.6 percent retreat in the S&P 500 on April 16 erased gains earlier in the week spurred by better-than- estimated results at companies from Intel Corp. to CSX Corp. and JPMorgan Chase & Co. Goldman Sachs, the most profitable firm in Wall Street history, wiped out its 2010 advance and ended the week at $160.70, the lowest price since March 3. The SEC said the bank created and sold CDOs tied to subprime mortgages in early 2007, as the U.S. housing market faltered, without disclosing that hedge fund Paulson & Co. helped pick the underlying securities and bet against them. Goldman Sachs said the claims are “completely unfounded.” Paulson wasn’t accused of wrongdoing. Bank of America Corp. , Morgan Stanley and JPMorgan Chase & Co . lost more than 4.7 percent on April 16. The lawsuit comes as President Barack Obama is trying to pass the most sweeping overhaul of financial regulations since the 1930s. The proposal would mean more oversight of derivatives trading and hedge funds, a consumer financial-protection authority and a system for unwinding large systemically important firms when they fail. European Losses Deutsche Bank AG, Germany’s largest lender, fell 7.3 percent to 55.99 euros on the day of the suit for the biggest retreat in more than eight months. UBS AG, Switzerland’s biggest bank by assets, slipped 2.8 percent to 17.93 Swiss francs. BNP Paribas SA, France’s biggest bank, slumped 3.8 percent to 55.35 euros. U.K. Prime Minister Gordon Brown yesterday called for the Financial Services Authority to start an investigation, saying he was “shocked” at the “moral bankruptcy” indicated in the suit. Germany’s financial regulator, Bafin, asked the SEC for details on the suit, a spokesman for Chancellor Angela Merkel said. To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net .

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Goldman Sachs Faces Probes in Britain, Germany After U.S. Files Fraud Suit

April 18, 2010

By Michael Patterson and Tony Czuczka April 18 (Bloomberg) — Goldman Sachs Group Inc. faces a regulatory probe in Britain and scrutiny from the German government after the U.S. Securities and Exchange Commission sued the firm for fraud tied to collateralized debt obligations. Prime Minister Gordon Brown today called for the Financial Services Authority to start an investigation, saying he was “shocked” at the “moral bankruptcy” indicated in the suit. Germany’s financial regulator, Bafin, asked the SEC for details on the suit, a spokesman for Chancellor Angela Merkel said. Politicians that were forced to bail out their banks during the financial crisis are turning on Goldman, which critics say helped caused the turmoil and profited from it. The European Union is also probing Goldman’s role in arranging swaps for Greece that may have masked the country’s budget deficit. “We will see politicians throughout the world piling on Goldman Sachs,” said Scott Moeller , a former investment banker now teaching at Cass Business School in London. “Now they have vulnerability. Everyone and anyone, especially politicians, are going to be trying to make hay with this one.” The SEC said that in early 2007, as the U.S. housing market teetered, Goldman Sachs created and sold a CDO linked to subprime mortgages without disclosing that hedge fund Paulson & Co. helped pick the underlying securities and bet against the vehicle, known as Abacus 2007-AC1. ‘People Were Misled’ The firm denies any wrongdoing. Fiona Laffan , a spokeswoman for Goldman Sachs, and Heidi Ashley , a spokeswoman for the FSA, declined to comment. “It looks as if people were misled about what happened,” Brown, who faces a national election on May 6, said on the BBC’s Andrew Marr program today. “The banks are still an issue. They are a risk to the economy.’ Royal Bank of Scotland Group Plc paid $841 million to Goldman Sachs to unwind its position in Abacus, which it inherited when it bought parts of ABN Amro in 2007, according to the SEC. The Edinburgh-based lender is now controlled by the British government after receiving a 45.5 billion-pound ($70 billion) taxpayer rescue, the world’s biggest banking bailout. Dusseldorf-based IKB Deutsche Industriebank AG was among the other buyers of the Abacus CDO, according to the SEC. IKB became Germany’s first casualty of the U.S. subprime-mortgage crisis in 2007 after its investments in asset-backed securities soured. KfW , Germany’s state-owned development bank, pumped almost 10 billion euros ($13.5 billion) into IKB in 2008 to shore up the country’s banking system. Legal Steps The German government ‘‘will ask the SEC for information,” said Ulrich Wilhelm , a spokesman for Merkel. “Then we will look at the records and consider possible legal steps.” The EU is investigating Goldman Sachs over swaps it arranged for Greece in 2002. The country entered a cross- currency swap with Goldman Sachs on about $10 billion of debt issued in dollars and yen. That was swapped into euros using a historical exchange rate, a mechanism that generated about $1 billion in an up-front payment from Goldman to Greece. Goldman has said it did nothing wrong. The probe will be “profound and thorough,” EU Monetary Affairs Commissioner Olli Rehn said at a press conference in Madrid yesterday. The New York-based firm is already under attack for its role as a trading partner to American International Group Inc. , the insurer bailed out by the U.S. government. Goldman Sachs said April 7 that AIG’s bailout in 2008 helped the bank and every other financial firm because the insurer’s collapse would have been “extremely” disruptive to financial markets. The $182.3 billion bailout ensured that Goldman Sachs and other counterparties were repaid in full. Much of the $12.9 billion Goldman Sachs received from AIG’s rescue was paid out to meet AIG-linked “obligations,” the firm said. To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net Tony Czuczka in Berlin at aczuczka@bloomberg.net ;

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Warsaw Honors Kaczynski as Ash Cloud Threatens Leaders’ Travel to Funeral

April 17, 2010

By David McQuaid and Marta Waldoch April 17 (Bloomberg) — Thousands of Poles gathered in Warsaw to honor President Lech Kaczynski and 95 others killed in an April 10 plane crash. World leaders trying to fly in for his funeral tomorrow in Krakow, where Polish kings were buried, are being hampered by a cloud of volcanic ash over Europe. Sirens wailed at 8:56 a.m. in Poland’s capital, marking the moment Kaczynski’s plane crashed in Smolensk, Russia, where he was to attend a ceremony honoring more than 22,000 Polish officers and officials killed by Stalin’s secret police. At noon, Prime Minister Donald Tusk , whose ruling Civic Platform party had often clashed with Kaczynski and his twin brother Jaroslaw , the leader of the largest opposition party, called for Poles to overcome their political differences. “This is a serious test for all of us,” Tusk told a crowd in Pilsudski Square that police estimated at about 100,000. “Like the passengers on that airplane, we differ by background, political views and age. Our sense of community can only be preserved within us.” All Polish airspace is closed indefinitely to passenger flights, Grzegorz Hlebowicz , a spokesman for the Polish Air Navigation Services Agency , said by phone today. Ash from Iceland’s 5,500-foot Eyjafjallajökull volcano forced closures in Russia and northern Italy and cut the chances leaders such as U.S. President Barack Obama will make it to the funeral. ‘Wait and See’ “We’ll have to wait and see how the situation develops,” Piotr Paszkowski , a spokesman for the Foreign Ministry in Warsaw, said by phone. Dignitaries from India, South Korea, Mexico, New Zealand, Egypt and Pakistan have canceled plans to attend, according to an updated list on the Ministry’s Web Site. The late president and his wife are to be buried in Krakow’s Wawel castle, the resting place of Poland’s medieval kings. Russian President Dmitry Medvedev , German Chancellor Angela Merkel and French President Nicolas Sarkozy are also scheduled to attend the funeral tomorrow. Family members want the ceremony to begin as scheduled “under any circumstances,” Jacek Sasin, a minister in the presidential administration, said yesterday when asked whether heads of state would be forced to cancel. Those still planning to attend include Sarkozy, Italian Prime Minister Silvio Berlusconi and Ukrainian President Viktor Yanukovych . German Chancellor Merkel also intends to be at tomorrow’s funeral after her return flight from the U.S. was diverted to Lisbon and Rome. She then switched to road transport north, a government spokeswoman said. Obama Detour Obama’s aides are considering a longer flight route to allow the U.S. president’s plane to detour around the ash plume, according to an e-mail from the office of White House Press Secretary Robert Gibbs . Warsaw’s downtown streets, closed to traffic, were filled with pedestrians headed for Pilsudski Square, where the memorial services were held. The crowd gathered there in the early morning included uniformed delegations of miners, war veterans, police, firefighters and scouts, all bearing banners. “I came to pray for the dead and to show their families I care,” said retired engineer Jerzy Nowicki, who traveled about 210 kilometers (130 miles) by bus from Torun in northwest Poland. Kaczynski, his wife Maria, and officials including central bank Governor Slawomir Skrzypek and the top four commanders of Poland’s armed forces were among 96 people killed in a plane crash outside Smolensk, Russia on April 10. Early Election Poland must hold an early election by the end of June to fill the empty post of president. Bronislaw Komorowski , the parliamentary speaker who has assumed Kaczynski’s duties and is the ruling party’s candidate for president, said he will set an election date on April 21. Poland’s opposition parties and a legal opinion prepared by parliamentary experts give June 20 as the preferred election date. The edge of the ash cloud was forecast to reach as far south as northern Italy and Romania and as far east as the borders of Kazakhstan today, according to the Met office, the U.K. government forecaster. There have been no landings today at Balice airport near Krakow and at the secondary airfield for guests in Pyrzowice, about 100 kilometers (60 miles) west of Krakow, representatives of the airports said. Visual Flight “We can handle takeoffs and landings, but only for airplanes using visual flight rules,” Justyna Zajaczkowska, a spokeswoman for the Balice airport, said by telephone. Poland, which has closed its air space to passenger traffic, will allow flights by government, military or private aircraft at altitudes below 6,000 meters. Still, the threat posed by volcanic ash to aircraft engines means “they won’t do it, because they might kill themselves,” David Learmount , a former U.K. Royal Air Force pilot and air-safety editor at Flight International Magazine, said by phone. European airlines canceled more than 70 percent of their flights as most of the continent’s northern and central nations remained closed to air traffic. Accuweather predicted little change until April 22. To contact the reporters on this story: David McQuaid in Warsaw dmcquaid1@bloomberg.net ; Marta Waldoch in Warsaw at mwaldoch@bloomberg.net

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EU Readies Greece Aid as Fitch Cuts Country’s Debt Rating on Fiscal Crisis

April 9, 2010

By Jana Randow April 9 (Bloomberg) — European Union officials said they are ready to rescue Greece if needed as Fitch Ratings cut the country’s credit rating to the lowest investment grade and economists at UBS AG said that a bailout may be imminent. Germany restated its opposition to below-market rate loans to Greece as officials in Brussels hammered out details to the framework calling for joint EU-International Monetary Fund aid. European Central Bank policy makers planned a teleconference tonight, two people familiar with the matter said. “They have to be given some help from Europe or the IMF at concessional rates,” billionaire investors George Soros said in an interview on Bloomberg Radio today in Cambridge, England. “It is a make or break time for the euro and it’s a question whether the political will to hold Europe together is there or not.” The premium investors demand to buy Greek 10-year bonds instead of German bunds jumped to 442 basis points yesterday, the highest since the introduction of the euro. Prime Minister George Papandreou has said borrowing at those levels is unsustainable. Greece will need to seek emergency funding now to make debt repayments of more than 20 billion euros ($27 billion) in the next two months, UBS economists said in a note. “The recent market action means that an external intervention may be unavoidable and could happen very soon as the situation is untenable,” UBS economists including Stephane Deo wrote. “An intervention over the weekend is a distinct possibility.” Borrowing Needs Greece still needs to raise 11.6 billion euros to cover debt that is maturing before the end of May and plans to sell bonds to U.S. investors in the coming weeks. The country’s debt agency announced today it would offer 1.2 billion euros of six- month and one-year notes on April 12. Greek Finance Minister George Papaconstantinou said today he’s still not planning to seek emergency EU financing. Greece’s long-term foreign and local currency issuer default ratings were cut two levels to BBB- from BBB+ by Fitch Ratings. The outlook is negative, Fitch said. The spread on Greek 10-year debt narrowed to 394 basis points. That means that Greece pays twice what Germany does to sell 10-year bonds, The higher financing costs will offset some of the spending cuts imposed to bring down a deficit of 12.7 percent of gross domestic product, the largest in the EU. ‘Getting Close’ “We are likely getting close to the point” where Greece asks the EU and the International Monetary Fund for aid, said David Mackie , chief European economist at JPMorgan Chase & Co. in London. “Presumably, all the decisions will need to be taken quickly, between the close of business on a Friday and the opening of business on a Monday.” The Athens benchmark stock index rose for the first day in four amid speculation that officials meeting in Brussels agreed on technical aspects of an package. It fell 5 percent this week. The euro extended yesterday’s gains, adding 0.8 percent today to at $1.3473 at 6:15 p.m. in Frankfurt. Any aid request would risk re-opening EU political divisions, particularly if it were to come before a May 9 regional election in Germany, where opinion polls show public opposition to supporting Greece. Euro-region leaders last month endorsed a compromise proposal reflecting French-led demands for a lead role for the euro area and German insistence that the IMF be involved. ‘Worrisome’ “The situation in Greece looks increasingly worrisome,” James Nixon , co-chief European economist at Societe Generale in London, wrote in a note late yesterday. “If spreads don’t begin to narrow in the next couple of days we are undoubtedly moving into the endgame.” UBS said that the remaining differences about the terms of the aid mechanism means that the IMF might would have to play a key role in a bailout. “A support plan has been agreed and we are ready to activate at any moment to come to the aid of Greece,” French President Nicolas Sarkozy told reporters in Paris. The EU is “ready to intervene,” Herman Van Rompuy , the president of the 27-member bloc, was cited as saying by Le Monde today. German Chancellor Angela Merkel has insisted that no concession be made to Greece and that loans be extended at close to its cost of borrowing in the market. ECB President Jean- Claude Trichet said yesterday that EU countries would extend loans to Greece at their own cost of borrowing, which would leave Greece paying less than if it went directly to the market. ‘Limbo’ “While markets’ anxiety over developments in Greece subsided somewhat, the limbo over the provision of financial support to Greece hasn’t been resolved,” said Ken Wattret , chief euro-area economist at BNP Paribas in London. “If near- term support is not going to be forthcoming from within the euro zone, then Greece may have no option but to look outside for assistance.” The Greek government is counting on wage cuts and tax increases to shave the deficit to 8.7 percent of gross domestic product this year from 12.9 percent in 2009. The country’s first quarter budget deficit fell 39.2 percent to 4.3 billion euros, the finance ministry said today in an e-mailed statement. The UBS economists wrote that the lack of detail and the speed at which the situation is deteriorating mean IMF participation is “unavoidable.” The Washington-based lender would likely impose further austerity on the Greek government, deepening a recession and leading to an economic contraction of as much as 5 percent this year and between 10 percent and 15 percent over the next two years, the report said. To contact the reporters responsible for this story: Jana Randow in Frankfurt at jrandow@bloomberg.net

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Trichet Thwarted as Greek Credit Crisis Creates Instability in ECB Markets

April 8, 2010

By John Fraher April 9 (Bloomberg) — Mounting speculation that Greece will default on 304.2 billion euros ($405.2 billion) of debt is depriving European Central Bank President Jean-Claude Trichet of the stable markets needed to bring Europe out of its worst post- war recession. Since early February when politicians began squabbling over how to rescue Greece from Europe’s largest deficit as a percentage of gross domestic product, the euro has lost 4.1 percent against the dollar and the extra yield demanded by investors to hold Greek debt rather than German bunds increased as high as a record 4.43 percentage points as traders saw a greater risk of default. Trichet, who was supposed to spend his final year in office nurturing the region’s nascent recovery, finds himself powerless to resolve the crisis because he has no control over fiscal policy. “Trichet is essentially an observer in the current crisis,” said Colin Ellis , an economist at Daiwa Capital Markets Europe Ltd. in London and a former Bank of England official. “He does not hold the levers of power.” Greece is highlighting the limits of Trichet’s ability to maintain confidence in the euro, which is facing its biggest challenge since he helped bring it into being in 1999. Trichet, who described himself as ‘Mr. Euro’ in 2006, has no say over how taxpayers’ funds should be used to rescue Greece. His push to limit the International Monetary Fund’s involvement in a rescue was rebuffed by leaders last month. While Greek bonds rose yesterday when Trichet expressed confidence that Greece won’t default, the spread between Greek and German 10-year yields still ended the day at 426 basis points. A basis point is 0.01 percentage point. Interest-Rate Questions Trichet, whose eight-year term ends in October next year, struggled to answer reporters’ questions about the interest rates that Greece would have to pay for emergency funds and explain his stance on the IMF’s role in a bailout. “He’s one of the brightest central bankers out there, but it’s getting too complex,” said Silvio Peruzzo , an economist at Royal Bank of Scotland Group Plc. “He has to fit into a political world and that’s what he’s uncomfortable with.” Trichet, 67, is trying to protect the euro as politicians refuse to fully explain how they would rescue Greece should it fail to raise money in financial markets. While leaders said on March 25 that they would co-finance a bailout with the IMF, they never spelled out when aid would be forthcoming or how much it would cost. German Chancellor Angela Merkel has also questioned whether her taxpayers should be asked to help fund Greek excess, casting doubt on her commitment to any rescue package. As Greek bonds plunged yesterday, a German government official reiterated that a rescue package would only be a last resort. ‘Monstrous Problem’ “The communication exercise here becomes a monstrous problem,” said Peruzzo. “I’m not sure whether it’s possible for a human to cope with the tensions in the topics we’re discussing at this stage.” Some economists say it’s unfair to expect Trichet to calm investors’ jitters about Greece because budget policy lies with governments. The government in Athens aims to cut the budget deficit this year to 8.7 percent of gross domestic product from last year’s level of almost 13 percent, more than four times the EU limit and the highest for any country in the euro’s history. The government this week revised the 2009 deficit to 12.9 percent of GDP from 12.7 percent because of the size of the economic contraction . ‘Wrong Place’ “He’s the focal point because he has the press conference and there is nobody more at the center of European finance and policy,” said Julian Callow , chief European economist at Barclays Capital in London. “So people are looking to him for guidance, but they are looking in the wrong place. This is a political issue.” The ECB is also doing its bit to help Greece by loosening its collateral rules, easing some investors’ concerns that Greek bonds could become ineligible in ECB money-market operations next year. The crisis nevertheless puts the ECB’s chief in an unusual position. Trichet has helped shape Group of Seven currency communiqués over the past two decades and has successfully used the threat of foreign-exchange intervention to steer the euro in the past. ‘I Sign the Notes’ In January 2004, he warned investors against “brutal” currency moves after the euro’s 21 percent surge against the dollar in the previous year. The euro dropped 7 percent over the next four months. “I am Mr. Euro,” he told reporters in June 2006. “We are issuing the currency, I sign the notes.” With the political debate over Greece’s future eroding Trichet’s influence for now, EU leaders are coming under pressure to resolve the crisis. “It’s total paralysis at both levels, it’s incredible,” said Paul De Grauwe , a professor at the Catholic University of Leuven in Belgium. “It’s really a relatively small problem. What is Greece — nothing in a way, the relative size of the Greek economy — and they are unable to come up with a clear policy.” To contact the reporters on this story: John Fraher in Frankfurt at jfraher@bloomberg.net

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Brown Calls British Election for May 6 as Polls Suggest a Hung Parliament

April 6, 2010

By Robert Hutton and Kitty Donaldson April 6 (Bloomberg) — British Prime Minister Gordon Brown will today call an election for May 6, setting up his first nationwide test as U.K. leader in a ballot that may fail to result in a governing majority. The 59-year-old premier arrived at Buckingham Palace at about 10 a.m. to ask Queen Elizabeth II to dissolve Parliament April 12, enabling him to call the vote. He’ll then announce the election at his 10 Downing St. residence in London. The pound weakened 0.7 percent as an ICM Ltd. poll late yesterday showed Brown trailing by 4 percentage points, enough to make Labour the biggest party in the House of Commons. In contrast, Conservative opposition leader David Cameron ’s poll lead over Labour, which he’s held since late 2007, widened to 10 points from 2 points last month, according to YouGov Plc. “I’m struggling to think of a modern election when we’ve had this degree of uncertainty,” said Stephen Driver , who teaches politics at Roehampton University. “It’s going to see- saw backward and forward far more than previous elections. People want a change but they’re anxious about change as well.” The vote may determine how quickly Britain reduces a record budget deficit and trims a national debt that is set to almost double. Brown says curbing spending too quickly risks a “double-dip” recession. The Conservatives plan immediate cuts. If the election fails to result in either party having a majority, the first so-called hung parliament in 36 years, economists and investors say it might be too weak to fix the U.K.’s finances and may put the top-grade credit rating at risk. ‘Hate Uncertainty’ “The markets hate the uncertainty of the possibility of a hung parliament or the possibility of the political parties having to work in a coalition,” said Mark Wickham-Jones , professor of politics at Bristol University . “If no one is in overall control, it will make cutting the deficit difficult because the politics will push it to one side.” The pound has fallen 23 percent against the dollar since Brown took office almost three years ago, weakening today to as low as $1.5169. More Britons dropped out of the labor market in the three months to January than at any time since records began in 1971. Labor unions have stepped up strikes, with cabin crew at British Airways Plc walking off their jobs last month. Labour has governed Britain since 1997, when Tony Blair unseated John Major , ending the Conservatives’ 18-year run that began with Margaret Thatcher ’s election. Brown, Blair’s finance minister, replaced his boss in June 2007. ‘Road to Recovery’ “The people of this country have fought too hard to get Britain on the road to recovery to allow anybody to take us back on the road to recession,” Brown will say today, according to excerpts released by his office. In the first three months of the year, Brown closed a gap in the opinion polls since a survey in September 2008 — during Britain’s longest recession on record — showed him trailing by as much as 28 percentage points. On Feb. 28, a YouGov poll had him 2 points behind. The Conservatives have widened their lead since then after saying it would cancel most of a payroll-tax increase proposed by Brown. Imbalances in the distribution of votes mean vote share doesn’t automatically translate into seats, as Labour benefits from lower turnouts in its districts. Calculations by Colin Rallings and Michael Thrasher , professors of politics at Plymouth University’s Elections Unit, suggest the Conservatives would have a two-seat majority, based on the 41 percent to 31 percent lead in a YouGov poll in today’s Sun. ICM Poll Labour would have the largest bloc if ICM’s numbers, which has Brown’s party trailing by 33 percent to 37 percent, prove correct, 10 seats short of a majority. A hung parliament in which no party has a majority might leave the government dependent on the third party, the Liberal Democrats , or Scottish and Welsh nationalists. “It’s going to be a tight election,” Cameron said April 4. “We are fighting for an overall majority, we think that will be best for Britain. We think a hung Parliament will be damaging, the uncertainty will be bad for Britain.” Brown’s term has been marked by setbacks: a last-moment retreat after signaling he would call an early election in 2007; the reversal of a tax increase on low-wage earners; a warning from Standard and Poor’s that Britain’s top-grade credit rating was at risk because debt might reach 100 percent of gross domestic product; failed mutinies by Labour lawmakers and the deepest global economic slump since the Great Depression. Financial Crisis While Brown won plaudits for helping forge a coordinated global response to the financial crisis — Nobel laureate Paul Krugman suggested Brown had “saved the world” by preventing a run on banks — Cameron has criticized his economic management. The deficit — forecast by Chancellor of the Exchequer Alistair Darling in his budget March 24 to reach 163 billion pounds in the year through March 2011, or 11.1 percent of gross domestic product, — became a flashpoint even before the official start of the campaign. While Darling reduced planned borrowing, he gave no details of how Labour plans to cut the deficit, beyond saying there would be efficiency savings, amounting in 2012-13 to 11 billion pounds out of total spending of 730 billion pounds. Conservative Treasury spokesman George Osborne said March 29 his party would cut spending by 6 billion pounds immediately and cancel part of a proposed employment-tax increase. U.K. government bonds have returned 1.5 percent this year, compared with a 1 percent gain for U.S. Treasuries and a 2.8 percent advance for German bonds, according to Bank of America Corp.’s Merrill Lynch indexes. Gilts ‘Vulnerable’ The gilt market will remain “vulnerable to further bouts of volatility” until there’s clarity on the deficit-reduction plan, Michael Amey , who oversees U.K. fixed income in London at Pacific Investment Management Co., said after the budget. “The last years taught investors not to take guidance on ‘intentions’ as a guarantee of future action.” The Conservatives have pledged to undo many of Brown’s changes to financial regulation, which they say failed to prevent the collapse of several banks. They would make the Bank of England the main regulator, incorporating the Financial Services Authority. Brown frequently says his background as the son of a Church of Scotland minister underpins his political views, giving him a sense of morality, a duty to help the poor and a strong work ethic. A graduate of Edinburgh University, he entered Parliament in 1983. After Blair took power in 1997, Brown remained chancellor and premier-in-waiting for 10 years. Rawnsley’s Book The prime minister’s time in office has seen repeated accusations about his character, and in February he denied allegations in a book by journalist Andrew Rawnsley that he had bullied members of his staff and instructed officials to undermine Darling. Still, the prime minister has hurled pens and even a stapler at aides, according to one official, who said last year Brown had once shoved a laser printer off a desk in a rage. Brown said in an interview March 26 Darling would stay in office if Labour wins. Since becoming Conservative leader in 2005, Cameron has worked to shake off criticism that his upbringing means he doesn’t understand ordinary people’s concerns. The son of a stockbroker, he went to Eton, Britain’s most famous private school . Cameron, 43, a former director of corporate affairs at London-based media company Carlton Communications Plc, has been a lawmaker since 2001. If he wins, he’ll be the youngest premier since the Earl of Liverpool in 1812. ‘Black Wednesday’ Before becoming a member of Parliament, one of Cameron’s jobs was as an adviser to Norman Lamont , who was chancellor on Sept. 16, 1992, “Black Wednesday,” when the U.K. withdrew from Europe’s exchange-rate mechanism after spending 27 billion pounds in a doomed effort to halt a run on the pound. There’s been only one hung parliament in Britain since World War II. That was in February 1974, when Conservative Prime Minister Edward Heath called a snap election after a strike by coal miners seeking higher pay led to power shortages, and the government put the country on a three-day working week. Even though the Conservatives won the largest share of the vote, Harold Wilson ’s Labour Party took most seats. Heath attempted to stay in power and held unsuccessful talks on forming a coalition with the Liberal Party. He resigned four days after the vote, allowing Wilson to form a minority government that lasted until new elections in November. To contact the reporters on this story: Robert Hutton in London at rhutton1@bloomberg.net ; Kitty Donaldson in London at kdonaldson1@bloomberg.net

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Brown Set to Call May 6 British Election as Polls Indicate Hung Parliament

April 5, 2010

By Robert Hutton and Kitty Donaldson April 6 (Bloomberg) — British Prime Minister Gordon Brown will today call an election for May 6, setting up his first nationwide test as U.K. leader in a ballot that may fail to result in a governing majority. The 59-year-old premier will travel to Buckingham Palace at about 10 a.m. to ask Queen Elizabeth II to dissolve Parliament, enabling him to call the vote, campaign aides with Brown’s Labour Party said. He’ll then make the announcement at his 10 Downing St. residence in London. Conservative opposition leader David Cameron ’s poll lead over Labour, which he’s held since late 2007, widened to 10 percentage points from 2 points last month, according to YouGov Plc. In contrast, an ICM Ltd. poll published late yesterday showed Brown trailing by 4 points, enough to make Labour the biggest party in the House of Commons. “I’m struggling to think of a modern election when we’ve had this degree of uncertainty,” said Stephen Driver , who teaches politics at Roehampton University. “It’s going to see- saw backward and forward far more than previous elections. People want a change but they’re anxious about change as well.” The vote may determine how quickly Britain reduces a record budget deficit and trims a national debt that is set to almost double. Brown says curbing spending too quickly risks a “double-dip” recession. The Conservatives plan immediate cuts. If the election fails to result in either party having a majority, the first so-called hung parliament in 36 years, economists and investors say it might be too weak to fix the U.K.’s finances and may put the top-grade credit rating at risk. ‘Hate Uncertainty’ “The markets hate the uncertainty of the possibility of a hung parliament or the possibility of the political parties having to work in a coalition,” said Mark Wickham-Jones , professor of politics at Bristol University . “If no one is in overall control, it will make cutting the deficit difficult because the politics will push it to one side.” The pound has fallen 23 percent against the dollar since Brown took office almost three years ago, and more Britons dropped out of the labor market in the three months to January than at any time since records began in 1971. Labor unions have stepped up strikes, with cabin crew at British Airways Plc walking off their jobs last month. Labour has governed Britain since 1997, when Tony Blair unseated John Major , ending the Conservatives’ 18-year run that began with Margaret Thatcher ’s election. Brown, Blair’s finance minister, replaced his boss in June 2007. ‘Road to Recovery’ “The people of this country have fought too hard to get Britain on the road to recovery to allow anybody to take us back on the road to recession,” Brown will say today, according to excerpts released by his office. In the first three months of the year, Brown closed a gap in the opinion polls since a survey in September 2008 — during Britain’s longest recession on record — showed him trailing by as much as 28 percentage points. On Feb. 28, a YouGov poll had him 2 points behind. The Conservatives have widened their lead since then after saying it would cancel most of a payroll-tax increase proposed by Brown. Imbalances in the distribution of votes mean vote share doesn’t automatically translate into seats, as Labour benefits from lower turnouts in its districts. Calculations by Colin Rallings and Michael Thrasher , professors of politics at Plymouth University’s Elections Unit, suggest the Conservatives would have a two-seat majority, based on the 41 percent to 31 percent lead in a YouGov poll in today’s Sun. Labour would have the largest bloc if ICM’s numbers, which has Brown’s party trailing by 33 percent to 37 percent, prove correct, 10 seats short of a majority. A hung parliament in which no party has a majority might leave the government dependent on the third party, the Liberal Democrats , or Scottish and Welsh nationalists. ‘Tight Election’ “It’s going to be a tight election,” Cameron said April 4. “We are fighting for an overall majority, we think that will be best for Britain. We think a hung Parliament will be damaging, the uncertainty will be bad for Britain.” Brown’s term has been marked by setbacks: a last-moment retreat after signaling he would call an early election in 2007; the reversal of a tax increase on low-wage earners; a warning from Standard and Poor’s that Britain’s top-grade credit rating was at risk because debt might reach 100 percent of gross domestic product; failed mutinies by Labour lawmakers and the deepest global economic slump since the Great Depression. While Brown won plaudits for helping forge a coordinated global response to the financial crisis — Nobel laureate Paul Krugman suggested Brown had “saved the world” by preventing a run on banks — Cameron has criticized his economic management. Darling’s Deficit The deficit — forecast by Chancellor of the Exchequer Alistair Darling in his budget March 24 to reach 163 billion pounds in the year through March 2011, or 11.1 percent of gross domestic product, — became a flashpoint even before the official start of the campaign. While Darling reduced planned borrowing, he gave no details of how Labour plans to cut the deficit, beyond saying there would be efficiency savings, amounting in 2012-13 to 11 billion pounds out of total spending of 730 billion pounds. Conservative Treasury spokesman George Osborne said March 29 his party would cut spending by 6 billion pounds immediately and cancel part of a proposed employment-tax increase. U.K. government bonds have returned 1.5 percent this year, compared with a 1 percent gain for U.S. Treasuries and a 2.8 percent advance for German bonds, according to Bank of America Corp.’s Merrill Lynch indexes. The gilt market will remain “vulnerable to further bouts of volatility” until there’s clarity on the deficit-reduction plan, Michael Amey , who oversees U.K. fixed income in London at Pacific Investment Management Co., said after the budget. “The last years taught investors not to take guidance on ‘intentions’ as a guarantee of future action.” Bank of England The Conservatives have pledged to undo many of Brown’s changes to financial regulation, which they say failed to prevent the collapse of several banks. They would make the Bank of England the main regulator, incorporating the Financial Services Authority. Brown frequently says his background as the son of a Church of Scotland minister underpins his political views, giving him a sense of morality, a duty to help the poor and a strong work ethic. A graduate of Edinburgh University, he entered Parliament in 1983. After Blair took power in 1997, Brown remained chancellor and premier-in-waiting for 10 years. The prime minister’s time in office has seen repeated accusations about his character, and in February he denied allegations in a book by journalist Andrew Rawnsley that he had bullied members of his staff and instructed officials to undermine Darling. Laser Printer Still, the prime minister has hurled pens and even a stapler at aides, according to one official, who said last year Brown had once shoved a laser printer off a desk in a rage. Brown said in an interview March 26 Darling would stay in office if Labour wins. Since becoming Conservative leader in 2005, Cameron has worked to shake off criticism that his upbringing means he doesn’t understand ordinary people’s concerns. The son of a stockbroker, he went to Eton, Britain’s most famous private school . Cameron, 43, a former director of corporate affairs at London-based media company Carlton Communications Plc, has been a lawmaker since 2001. If he wins, he’ll be the youngest premier since the Earl of Liverpool in 1812. ‘Black Wednesday’ Before becoming a member of Parliament, one of Cameron’s jobs was as an adviser to Norman Lamont , who was chancellor on Sept. 16, 1992, “Black Wednesday,” when the U.K. withdrew from Europe’s exchange-rate mechanism after spending 27 billion pounds in a doomed effort to halt a run on the pound. There’s been only one hung parliament in Britain since World War II. That was in February 1974, when Conservative Prime Minister Edward Heath called a snap election after a strike by coal miners seeking higher pay led to power shortages, and the government put the country on a three-day working week. Even though the Conservatives won the largest share of the vote, Harold Wilson ’s Labour Party took most seats. Heath attempted to stay in power and held unsuccessful talks on forming a coalition with the Liberal Party. He resigned four days after the vote, allowing Wilson to form a minority government that lasted until new elections in November. To contact the reporters on this story: Robert Hutton in London at rhutton1@bloomberg.net ; Kitty Donaldson in London at kdonaldson1@bloomberg.net

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Stocks, Euro Gain, Dubai Swaps Plunge as Debt Concern Eases

March 25, 2010

By Gavin Serkin March 25 (Bloomberg) — Stocks rallied and the euro snapped a two-day slide against the dollar as Germany backed a Greek aid proposal and forecasts at Qualcomm Inc. and Best Buy Co. topped estimates. The cost to protect Dubai against a default slid as the emirate committed $9.5 billion to restructure Dubai World. The MSCI World Index gained 0.5 percent and the Standard & Poor’s 500 Index rose 0.7 percent at 10 a.m. in New York, returning to an 18-month high after yesterday’s retreat. The DFM General Index of Dubai shares jumped 4.3 percent, the most since December. The euro strengthened as much as 0.4 percent against the dollar, rebounding from a 10-month low. German Chancellor Angela Merkel said she’ll recommend to European leaders that Greece be pledged International Monetary Fund assistance and bilateral aid to tackle the region’s biggest deficit. The Dubai government’s promise to support the state- owned holding company eased concern of a default four months after plans to delay debt payments roiled markets. Qualcomm’s forecast sent S&P 500 technology shares up 1.1 percent. “Governments are moving toward solutions to stop wholesale collapse in the short term,” said Mark Schofield , head of fixed-income strategy at Citigroup Global Markets Ltd. in London. “There’s a structural desire to stabilize the fiscal environment.” The S&P 500 climbed above its highest close since September 2008 as Citigroup Inc. rose 2.7 percent to help lead financial shares higher. The U.S. Treasury intends to unload its 27 percent stake in the bailed-out bank using a preset trading plan that will lock the government into a schedule for selling its shares, people with direct knowledge of the matter said. Best Buy Rallies Best Buy Co. jumped 8.6 percent after fourth-quarter profit and its full-year earnings forecast topped analyst estimates. U.S. stocks also gained as initial jobless claims fell to the lowest level in six weeks as the rebound in the economy encourages companies to make fewer cuts in payrolls. First-time jobless applications declined by 14,000 to 442,000 in the week ended March 20, lower than anticipated, Labor Department figures showed today. Abu Dhabi’s ADX General Index gained 1.1 percent and Poland’s WIG20 Index advanced 1.8 percent. Credit default swaps linked to Dubai fell 40 basis points to 382.9 basis points as of 12:20 p.m. in London, according to prices provided by CMA DataVision. Europe, Asian Shares Europe’s Stoxx 600 Index rose to the highest level in 18 months. Hochtief AG, Germany’s biggest construction company, gained 4.4 percent in Frankfurt after posting earnings that beat analysts’ estimates. Next Plc, the U.K.’s second-biggest clothing retailer, surged 5.3 percent in London after boosting its dividend and reporting better-than-estimated profit. The MSCI Asia Pacific Index slipped less than 0.1 percent. Li & Fung, a trading company that supplies Wal-Mart Stores Inc., slumped 11 percent in Hong Kong, while Unicom, China’s No. 2 mobile-phone company, sank 4.1 percent. The euro strengthened versus the dollar for the first time in three days, climbing as much as 0.4 percent to $1.3371. European Central Bank President Jean-Claude Trichet said the bank will extend its emergency collateral rules beyond 2010, softening his stance as Greece struggles to cut a budget deficit that is 12.9 percent of gross domestic product. European Union leaders are meeting in Brussels as Germany tries to end haggling over an aid package for Greece, whose budget deficit is more than four times the EU’s limit. Greek bonds rose, with the two-year note yield dropping 21 basis points to 4.8 percent. ‘Very Generous’ Dubai’s government said in a statement it will supply Dubai World with $1.5 billion and convert $8.9 billion in debt to equity. Nakheel PJSC will receive $8 billion in funding and $1.2 billion through a debt swap. Nakheel’s bank creditors will be asked to restructure loans to the company at commercial rates. Dubai’s announcement “surpasses my expectations, it’s very generous,” said Daniel Broby , chief investment officer at SilkInvest Ltd., a London-based investment firm that holds bonds of the Dubai World unit Nakheel PJSC. “This is what it takes to get the U.A.E. and Dubai back on its feet again.” Concern that the fallout from the global financial crisis may leave some countries unable to pay their debts was reignited after Dubai World said Dec. 1 it wanted to restructure $26 billion of securities. Treasuries were little changed before congressional testimony from Federal Reserve Chairman Ben S. Bernanke and a $32 billion auction of seven-year notes as some investors bet yesterday’s surge in yields was unjustified. The yield on the benchmark 10-year note was 3.86 percent after jumping 17 basis points yesterday. Crude oil for May delivery rose 0.7 percent to $81.15 a barrel in New York. To contact the reporters on this story: Gavin Serkin at gserkin@bloomberg.net

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Stocks Rally, Euro Gains as Merkel Backs Greek Aid; Dubai Debt Risk Slumps

March 25, 2010

By Gavin Serkin March 25 (Bloomberg) — Stocks rallied and the euro snapped a two-day slide against the dollar as Germany backed a Greek aid proposal and forecasts at Qualcomm Inc. and Best Buy Co. topped estimates. The cost to protect Dubai against a default slid as the emirate committed $9.5 billion to restructure Dubai World. The MSCI World Index gained 0.5 percent and the Standard & Poor’s 500 Index rose 0.7 percent at 10 a.m. in New York, returning to an 18-month high after yesterday’s retreat. The DFM General Index of Dubai shares jumped 4.3 percent, the most since December. The euro strengthened as much as 0.4 percent against the dollar, rebounding from a 10-month low. German Chancellor Angela Merkel said she’ll recommend to European leaders that Greece be pledged International Monetary Fund assistance and bilateral aid to tackle the region’s biggest deficit. The Dubai government’s promise to support the state- owned holding company eased concern of a default four months after plans to delay debt payments roiled markets. Qualcomm’s forecast sent S&P 500 technology shares up 1.1 percent. “Governments are moving toward solutions to stop wholesale collapse in the short term,” said Mark Schofield , head of fixed-income strategy at Citigroup Global Markets Ltd. in London. “There’s a structural desire to stabilize the fiscal environment.” The S&P 500 climbed above its highest close since September 2008 as Citigroup Inc. rose 2.7 percent to help lead financial shares higher. The U.S. Treasury intends to unload its 27 percent stake in the bailed-out bank using a preset trading plan that will lock the government into a schedule for selling its shares, people with direct knowledge of the matter said. Best Buy Rallies Best Buy Co. jumped 8.6 percent after fourth-quarter profit and its full-year earnings forecast topped analyst estimates. U.S. stocks also gained as initial jobless claims fell to the lowest level in six weeks as the rebound in the economy encourages companies to make fewer cuts in payrolls. First-time jobless applications declined by 14,000 to 442,000 in the week ended March 20, lower than anticipated, Labor Department figures showed today. Abu Dhabi’s ADX General Index gained 1.1 percent and Poland’s WIG20 Index advanced 1.8 percent. Credit default swaps linked to Dubai fell 40 basis points to 382.9 basis points as of 12:20 p.m. in London, according to prices provided by CMA DataVision. Europe, Asian Shares Europe’s Stoxx 600 Index rose to the highest level in 18 months. Hochtief AG, Germany’s biggest construction company, gained 4.4 percent in Frankfurt after posting earnings that beat analysts’ estimates. Next Plc, the U.K.’s second-biggest clothing retailer, surged 5.3 percent in London after boosting its dividend and reporting better-than-estimated profit. The MSCI Asia Pacific Index slipped less than 0.1 percent. Li & Fung, a trading company that supplies Wal-Mart Stores Inc., slumped 11 percent in Hong Kong, while Unicom, China’s No. 2 mobile-phone company, sank 4.1 percent. The euro strengthened versus the dollar for the first time in three days, climbing as much as 0.4 percent to $1.3371. European Central Bank President Jean-Claude Trichet said the bank will extend its emergency collateral rules beyond 2010, softening his stance as Greece struggles to cut a budget deficit that is 12.9 percent of gross domestic product. European Union leaders are meeting in Brussels as Germany tries to end haggling over an aid package for Greece, whose budget deficit is more than four times the EU’s limit. Greek bonds rose, with the two-year note yield dropping 21 basis points to 4.8 percent. ‘Very Generous’ Dubai’s government said in a statement it will supply Dubai World with $1.5 billion and convert $8.9 billion in debt to equity. Nakheel PJSC will receive $8 billion in funding and $1.2 billion through a debt swap. Nakheel’s bank creditors will be asked to restructure loans to the company at commercial rates. Dubai’s announcement “surpasses my expectations, it’s very generous,” said Daniel Broby , chief investment officer at SilkInvest Ltd., a London-based investment firm that holds bonds of the Dubai World unit Nakheel PJSC. “This is what it takes to get the U.A.E. and Dubai back on its feet again.” Concern that the fallout from the global financial crisis may leave some countries unable to pay their debts was reignited after Dubai World said Dec. 1 it wanted to restructure $26 billion of securities. Treasuries were little changed before congressional testimony from Federal Reserve Chairman Ben S. Bernanke and a $32 billion auction of seven-year notes as some investors bet yesterday’s surge in yields was unjustified. The yield on the benchmark 10-year note was 3.86 percent after jumping 17 basis points yesterday. Crude oil for May delivery rose 0.7 percent to $81.15 a barrel in New York. To contact the reporters on this story: Gavin Serkin at gserkin@bloomberg.net

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Merkel Says IMF, EU Loans to Greece Should Be Last Resort if Default Looms

March 25, 2010

By James G. Neuger March 25 (Bloomberg) — Germany will press today to end weeks of European haggling over an aid package for debt-laden Greece, seeking new rules to impose fiscal discipline on countries using the euro to buttress the faltering currency. Asserting Germany’s clout as the European Union’s largest economy, Chancellor Angela Merkel ruled out an aid decision at today’s EU summit in Brussels, pushing for the International Monetary Fund to be part of any rescue, and called for tougher penalties on future deficit violators. “The German strategy for the next couple of months is very simple: provide just enough positive rhetoric that investors continue to purchase Greek bonds,” said Peter Zeihan , an analyst at Stratfor , a geopolitical risk consultancy in Austin, Texas. “On the flip side, they want to make sure via rhetoric that there’s just enough doubt that the markets demand a much higher spread than the Greeks are hoping for. The Germans want to make very sure that the Greeks are punished.” Squabbling over Greece and concern that fiscal woes will engulf Portugal, which was stung by a debt downgrade by Fitch Ratings yesterday, sent the euro to a 10-month low against the dollar and its weakest ever against the Swiss franc. French officials declined to comment before the summit even as German officials advocated IMF involvement and outlined the price of their helping Greece cut the biggest EU budget deficit . In an effort to shape the European debate, Merkel made a last- minute decision to outline Germany’s stance to the Bundestag at 9:30 a.m. Berlin time today before heading to Brussels. Weaker Euro The summit starts at 5 p.m., though at the last meeting on Feb. 11 a Greek accord was struck before the official start. The euro, which slumped 1.4 percent to a 10-month low against the dollar yesterday, rose 0.1 percent to $1.3327 at 7:11 a.m. in London. It fell to 1.4271 Swiss francs, the weakest since the euro started in 1999. Central bankers led the charge against an IMF option. An appeal to the Washington-based lender of last resort would be “detrimental to the stability” of the 16-nation currency because it would show that Europe is unable to keep its own house in order, European Central Bank Executive Board member Lorenzo Bini Smaghi said. “The image of the euro would be that of a currency that is able to survive only with the external support of an international organization,” Bini Smaghi told Germany’s Die Zeit newspaper yesterday. Greek bonds fell yesterday, pushing the 10-year yield up 6 basis points to 6.36 percent, 330 basis points above comparable German debt. That extra borrowing cost has risen from 273 basis points on Feb. 11 when the EU vowed “determined and coordinated action” to stanch the crisis. Borrowing Costs Greece isn’t seeking EU handouts, government spokesman George Petalotis said on state-run NET TV. The goal for the summit is “European solidarity” that will help bring down Greek borrowing costs, he said. Greece, which needs to sell about 10 billion euros ($13 billion) of bonds in coming weeks, may need to turn to the IMF in the absence of European aid, Prime Minister George Papandreou said on March 19. Goldman Sachs Group Inc. estimates that Greece may ultimately get aid from the IMF worth about 20 billion euros over 18 months, according to an e-mailed note today. The Greek government is counting on wage cuts and tax increases to shave the deficit to 8.7 percent of gross domestic product this year from 12.7 percent in 2009, the highest in the euro’s 11-year history. EU Limits While the euro’s German-designed “stability pact” foresees financial penalties for countries that go over the limits, no country has been sanctioned since the currency debuted in 1999. The budget deficits of all 16 euro nations are forecast to exceed the EU’s limit of 3 percent of GDP this year. Merkel has left open the possibility of pushing wayward countries out of the euro and sought a rewrite of European treaties to impose more fiscal rectitude. All 27 EU countries would have to back such an overhaul. The EU’s latest treaty, in force since December, took eight years to negotiate and ratify. “We are facing an hour of truth,” said Laurens Jan Brinkhorst , a former deputy Dutch prime minister who now teaches at the University of Leiden. “The stability pact has to be reinvented and this time strengthened. The uncertainty is whether the whole union is ready for that.” As the clock ticked toward the EU’s self-imposed pre-summit deadline to clarify what can be done for Greece, the EU’s central authorities chipped away at German resistance to setting up an aid mechanism under sole European management. European Lead? “We prefer a euro-area facility for a European problem and there needs to be a European lead and a policy conditionality decided by the European Union,” EU Economic and Monetary Commissioner Olli Rehn said yesterday. Germany opposes holding a separate meeting of leaders of euro countries before the Brussels summit starts, and it’s possible that all countries won’t sign up to an official statement on Greece, a German official told reporters in Berlin yesterday. Germany envisions a contingency plan for Greece that involves the IMF, with contributions from all other euro-area countries, the official said, without giving details. As the EU wrestled over what to do for Greece, a decision by Fitch Ratings to reduce Portugal’s credit grade stirred concern that the crisis will escalate. Fitch Ratings cut Portugal one step to AA-, calling a budget deficit that swelled to 9.3 percent of GDP last year a “sizeable fiscal shock.” To contact the reporter on this story: James G. Neuger in Brussels at jneuger@bloomberg.net

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Merkel Says IMF, EU Loans to Greece Should Be Last Resort if Default Looms

March 25, 2010

By James G. Neuger March 25 (Bloomberg) — Germany will press today to end weeks of European haggling over an aid package for debt-laden Greece, seeking new rules to impose fiscal discipline on countries using the euro to buttress the faltering currency. Asserting Germany’s clout as the European Union’s largest economy, Chancellor Angela Merkel ruled out an aid decision at today’s EU summit in Brussels, pushing for the International Monetary Fund to be part of any rescue, and called for tougher penalties on future deficit violators. “The German strategy for the next couple of months is very simple: provide just enough positive rhetoric that investors continue to purchase Greek bonds,” said Peter Zeihan , an analyst at Stratfor , a geopolitical risk consultancy in Austin, Texas. “On the flip side, they want to make sure via rhetoric that there’s just enough doubt that the markets demand a much higher spread than the Greeks are hoping for. The Germans want to make very sure that the Greeks are punished.” Squabbling over Greece and concern that fiscal woes will engulf Portugal, which was stung by a debt downgrade by Fitch Ratings yesterday, sent the euro to a 10-month low against the dollar and its weakest ever against the Swiss franc. French officials declined to comment before the summit even as German officials advocated IMF involvement and outlined the price of their helping Greece cut the biggest EU budget deficit . In an effort to shape the European debate, Merkel made a last- minute decision to outline Germany’s stance to the Bundestag at 9:30 a.m. Berlin time today before heading to Brussels. Weaker Euro The summit starts at 5 p.m., though at the last meeting on Feb. 11 a Greek accord was struck before the official start. The euro, which slumped 1.4 percent to a 10-month low against the dollar yesterday, rose 0.1 percent to $1.3327 at 7:11 a.m. in London. It fell to 1.4271 Swiss francs, the weakest since the euro started in 1999. Central bankers led the charge against an IMF option. An appeal to the Washington-based lender of last resort would be “detrimental to the stability” of the 16-nation currency because it would show that Europe is unable to keep its own house in order, European Central Bank Executive Board member Lorenzo Bini Smaghi said. “The image of the euro would be that of a currency that is able to survive only with the external support of an international organization,” Bini Smaghi told Germany’s Die Zeit newspaper yesterday. Greek bonds fell yesterday, pushing the 10-year yield up 6 basis points to 6.36 percent, 330 basis points above comparable German debt. That extra borrowing cost has risen from 273 basis points on Feb. 11 when the EU vowed “determined and coordinated action” to stanch the crisis. Borrowing Costs Greece isn’t seeking EU handouts, government spokesman George Petalotis said on state-run NET TV. The goal for the summit is “European solidarity” that will help bring down Greek borrowing costs, he said. Greece, which needs to sell about 10 billion euros ($13 billion) of bonds in coming weeks, may need to turn to the IMF in the absence of European aid, Prime Minister George Papandreou said on March 19. Goldman Sachs Group Inc. estimates that Greece may ultimately get aid from the IMF worth about 20 billion euros over 18 months, according to an e-mailed note today. The Greek government is counting on wage cuts and tax increases to shave the deficit to 8.7 percent of gross domestic product this year from 12.7 percent in 2009, the highest in the euro’s 11-year history. EU Limits While the euro’s German-designed “stability pact” foresees financial penalties for countries that go over the limits, no country has been sanctioned since the currency debuted in 1999. The budget deficits of all 16 euro nations are forecast to exceed the EU’s limit of 3 percent of GDP this year. Merkel has left open the possibility of pushing wayward countries out of the euro and sought a rewrite of European treaties to impose more fiscal rectitude. All 27 EU countries would have to back such an overhaul. The EU’s latest treaty, in force since December, took eight years to negotiate and ratify. “We are facing an hour of truth,” said Laurens Jan Brinkhorst , a former deputy Dutch prime minister who now teaches at the University of Leiden. “The stability pact has to be reinvented and this time strengthened. The uncertainty is whether the whole union is ready for that.” As the clock ticked toward the EU’s self-imposed pre-summit deadline to clarify what can be done for Greece, the EU’s central authorities chipped away at German resistance to setting up an aid mechanism under sole European management. European Lead? “We prefer a euro-area facility for a European problem and there needs to be a European lead and a policy conditionality decided by the European Union,” EU Economic and Monetary Commissioner Olli Rehn said yesterday. Germany opposes holding a separate meeting of leaders of euro countries before the Brussels summit starts, and it’s possible that all countries won’t sign up to an official statement on Greece, a German official told reporters in Berlin yesterday. Germany envisions a contingency plan for Greece that involves the IMF, with contributions from all other euro-area countries, the official said, without giving details. As the EU wrestled over what to do for Greece, a decision by Fitch Ratings to reduce Portugal’s credit grade stirred concern that the crisis will escalate. Fitch Ratings cut Portugal one step to AA-, calling a budget deficit that swelled to 9.3 percent of GDP last year a “sizeable fiscal shock.” To contact the reporter on this story: James G. Neuger in Brussels at jneuger@bloomberg.net

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French Government Backs SNCF in Bidding War With Deutsche Bahn Over Arriva

March 24, 2010

By Andreas Cremer and Gregory Viscusi March 24 (Bloomberg) — France’s Transport Ministry said it will back state railroad SNCF in a bid for Arriva Plc, setting up a contest with German rival Deutsche Bahn AG for a U.K. bus and train company valued at 1.49 billion pounds ($2.24 billion). “We are for any project that helps SNCF expand and grow,” Transport Secretary Dominique Bussereau said yesterday in an interview in Paris. “But there is competition from Deutsche Bahn. May the best one win, even if I hope it’s SNCF.” Bussereau’s comments come as representatives of the German government prepare to back a bid from state-owned Deutsche Bahn at a supervisory-board meeting today, two people familiar with the matter said. The Berlin-based company said March 18 it had contacted Arriva regarding a possible cash offer for the biggest public transport company in Europe that’s not in national hands. “There’s no doubt that an acquisition of Arriva would make good sense,” Volkmar Vogel, a lawmaker and member of Chancellor Angela Merkel ’s ruling Christian Democrats, said in an interview. The purchase “may yield major benefits,” he said. Arriva rose as much as 4.9 percent in London trading and was up 4.1 percent at 746 pence at 8:12 a.m. The stock has gained 50 percent this year. Deutsche Bahn and SNCF, as Société Nationale des Chemins de fer Français is known, are competing for Sunderland, England- based Arriva as they target primacy in the liberalizing European transport market. Keolis Plan SNCF, led by Chief Executive Officer Guillaume Pepy , has already sought a combination of Arriva and its Keolis unit once this year. Talks were called off earlier this month. A merger with Keolis, which runs buses, trains and trams in seven European countries, would create a business with 6.5 billion euros ($8.7 billion) in sales and help win contracts as local governments open public transport to private investment, Arriva said Jan. 28, when it confirmed the discussions. Merkel’s coalition government will accept Deutsche Bahn’s argument that the benefits of buying Arriva to expand abroad outweigh the likely costs, according to the two people, who declined to be identified because the matter isn’t public. Net income at the German company amounted to 830 million euros last year, according to a third person, almost 40 percent lower than in 2008. Sales fell 12 percent to 29.3 billion euros as the recession hurt demand for transport, said the person, a labor official who spoke on condition that he not be identified. High Prices Adding Arriva would boost Deutsche Bahn’s presence in the lucrative U.K. rail market, which has been run by private companies since the last Conservative Party government, bringing access to franchise contracts with high ticket prices by European standards without the need to bid for them. Arriva runs trains in Wales and also the CrossCountry franchise that operates the long-distance route from Cornwall to Scotland. Deutsche Bahn already owns Britain’s biggest rail- freight company, together with Chiltern Trains, which provides passenger services from London to Birmingham, and has 50 percent stakes in Wrexham, Shropshire & Marylebone Railway and the London Overground commuter route. It won a seven-year contract to run streetcars in northeast England on Feb. 4. Arriva , which had net income of 108.5 million pounds last year, would also help Deutsche Bahn CEO Ruediger Grube expand into more European markets, helping to match SNCF. The U.K. company, which employs about 42,000 people, gets 52 percent of revenue from its home country and the rest from units in the Czech Republic, Denmark, Germany, Hungary, Italy, the Netherlands, Poland, Portugal, Slovakia, Spain and Sweden. ‘More Pillars’ German Transport Minister Peter Ramsauer , who will attend today’s supervisory board meeting at 10 a.m. in Frankfurt, said March 12 that Deutsche Bahn shouldn’t focus solely on Germany and needs “a few more pillars internationally.” Deutsche Bahn spokesman Reinhard Boeckh declined to comment on the meeting’s agenda when contacted by telephone yesterday. The company’s main labor unions, Transnet and GDBA, say they’re not opposed to international expansion, while cautioning that Arriva must be bought at a price that has no repercussions for pay and conditions for workers in Germany. “Deutsche Bahn is a huge international player,” said Klaus Dieter Hommel , leader of GDBA and a supervisory-board member.“ What matters is that any step the company is now considering to expand its footprint further is taken in a way that doesn’t impact on employment conditions.” The railway’s board will today appoint former Degussa AG CEO Utz-Hellmuth Felcht as chairman, replacing former economy minister Werner Mueller , whose contract is not being extended. Merkel’s ruling coalition of the center-right CDU and CSU parties and the pro-business Free Democrats has three deputy ministers on the 20-strong body. The panel will also approve Deutsche Bahn’s 2009 results, which are due to be published tomorrow. A German government spokesman couldn’t be reached immediately for comment. To contact the reporters on this story: Andreas Cremer in Berlin at acremer@bloomberg.net ; Gregory Viscusi in Paris at gviscusi@bloomberg.net .

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Gilt Sales May Fall 16% as Economic Recovery Lifts Finances, Survey Shows

March 22, 2010

By Anchalee Worrachate and Keith Jenkins March 23 (Bloomberg) — U.K. gilt sales may fall for the first time in three years as signs of an economic rebound reduce the government’s need to fund stimulus measures with debt, a survey of bond dealers showed. The government will issue 190 billion pounds ($285 billion) of bonds in the fiscal year starting April 1, according to the median forecast of 14 financial institutions that deal directly with the U.K. Debt Management Office. That’s a 16 percent drop from the record 225.1 billion pounds projected this fiscal year. Chancellor of the Exchequer Alistair Darling sets out the government’s spending plans in his budget report tomorrow, ahead of an election that must be held by June. Fewer sales may boost Prime Minister Gordon Brown , who is seeking to persuade voters that his Labour Party’s economic stimulus program is the best strategy for cementing the recovery. The opposition Conservatives have criticized his handling of public finances and Moody’s Investors Service says the risk of a U.K. downgrade has risen. “Concern over the budget deficit was overplayed, and gilt issuance will start to be less than we had feared,” said Steven Major , head of fixed-income research at HSBC Holdings Plc in London. “When the Chancellor speaks this week, the budget is in a much stronger position. Politically, it’s not bad to be able to say the government has ended the recession and is already getting on with the job of restoring the public finances.” Gilts Underperform Gilts have underperformed this year amid the widening budget shortfall and record supply. U.K. bonds returned 0.96 percent, compared with 2.66 percent for German debt and 1.7 percent for U.S. Treasuries, according to Bank of America Merrill Lynch indexes. Issuance will remain above historical standards over the next few years, said Simon Hayes , the chief U.K. economist at Barclays Capital in London. Sales averaged 48 billion pounds in the five years through March 2007, according to Debt Management Office data. “Such a revision would not change the overall picture,” Hayes said. “The elephant has not left the room. The U.K. would still be facing record levels of borrowing, and the public debt ratio will still be on a rising trend for the whole of the forecast period.” Rising Yields Yields on 10-year gilts will increase to 4.50 percent by year-end, according to a median estimate of 13 analyst forecasts compiled by Bloomberg. The yield was 3.92 percent yesterday, up from last year’s low of 2.93 percent in March. U.K. service industries, which account for three quarters of the economy, expanded in February at the fastest pace in three years, the Chartered Institute of Purchasing and Supply and Markit Economics said March 3, adding to signs that interest rate cuts and stimulus measures are reviving growth. Gross domestic product may expand 1.2 percent this year, according to the median estimate of 15 economists surveyed by Bloomberg. The Bank of England cut its key rate to a record low 0.5 percent last year and embarked on a 200-billion pound bond- buying program to aid the recovery. The rate will rise to 1 percent by year-end, a separate forecast showed. The U.K. Treasury predicted the budget deficit will swell to 12.6 percent of GDP this year, the largest in British postwar history, as tax receipts decline. The country has moved “substantially” closer to losing its AAA rating as the cost of servicing debt rose, Moody’s said March 15. Fitch Ratings said this month the U.K.’s credit profile has deteriorated “pretty sharply.” ‘Unsustainable’ Deficits The budget gap was 131.9 billion pounds in the fiscal year through February, up from 66.5 billion pounds a year earlier, the Office for National Statistics said March 18. The Treasury predicts a deficit of 170 billion pounds for the full fiscal year. Bank of England Deputy Governor Charles Bean said March 16 that the deficit is “unsustainable” in the medium term. Bank of England policy maker Andrew Sentance said March 19 there’s a chance Britain may return to recession should there be new shocks from the world economy. The recovery will be “slow and sluggish” this year, the Confederation of British Industry said yesterday. A drop in gilt sales next year may not translate into lower yields because longer-term supply will remain relatively high, rates will rise and policy makers will stop buying gilts under their quantitative-easing program, according to Jamie Searle , a fixed-income strategist at Citigroup Inc. in London. “Supply next year might be falling, but it’s still at a very high level” when viewed over time, said Searle. “High levels of borrowing will continue for a while. Add to that the fact that the Bank of England is no longer buying gilts and interest rates may rise. It’s hard to envisage lower bond yields in this environment.” To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net ; Keith Jenkins in London at Kjenkins3@bloomberg.net

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Stocks Fall on Interest-Rate, Debt Concerns; Dollar Strengthens

March 22, 2010

By Michael P. Regan and Justin Carrigan March 22 (Bloomberg) — Stocks declined for a third day and the dollar rallied on concern rising interest rates and widening government deficits will hamper the economic recovery. Greek bonds and shares fell. The MSCI World Index dropped 0.7 percent at 9:15 a.m. in New York, marking its longest losing streak in six weeks. Futures on the Standard & Poor’s 500 Index retreated 0.7 percent. The dollar strengthened against 15 of its 16 most- traded counterparts. Greece’s ASE Index sank 2.9 percent and the premium investors demand to hold the nation’s 10-year notes instead of benchmark German bunds widened 18 basis points. India’s central bank raised interest rates for the first time in almost two years late on March 19, saying that controlling prices was imperative after inflation accelerated to a 16-month high. German Chancellor Angela Merkel told investors they shouldn’t expect this week’s European Union summit to agree on a package to help Greece tackle the region’s biggest deficit. “There has been an uptick in sovereign-default concerns and there is uncertainty over support for Greece,” said Lee Hardman , a foreign-exchange strategist at Bank of Tokyo- Mitsubishi UFJ Ltd. in London. “Investors are likely to be disappointed again from the EU summit this week and that’s going to continue to weigh on the euro to the benefit of the dollar.” Health-care stocks in the MSCI World Index slipped 0.3 percent for the second-best performance among 10 groups. The U.S. House passed the most sweeping health-care legislation in four decades, rewriting the rules governing medical industries and ensuring that tens of millions of uninsured will get medical coverage. The approval will remove a significant “overhang” from the industry and be viewed positively, Credit Suisse Group AG analyst Ralph Giacobbe wrote in a note today. Europe, Asia The Stoxx Europe 600 Index declined 1.1 percent while the MSCI Asia Pacific Index dropped 0.9 percent. Vedanta Resources Plc, the largest copper producer in India, led basic resources shares lower, falling 2.3 percent in London. Royal Dutch Shell Plc slipped 0.9 percent after agreeing with PetroChina Co. to buy Arrow Energy Ltd. for A$3.5 billion ($3.2 billion). PetroChina Co., the nation’s biggest energy producer, declined 2.7 percent in Hong Kong. U.S. Futures The decline in U.S. futures indicated the S&P 500 may trim gains from three straight weekly advances. The Dow Jones Industrial Average snapped an eight-day winning streak on March 19 after India’s unexpected rate increase. The Dollar Index , which tracks the currency against those of six U.S. trading partners, climbed for a third day, adding 0.3 percent. Government bonds gained, with the yield on the German bund falling 2 basis points to 3.08 percent. The yield on the 10-year Treasury note slipped 1 basis point to at 3.68 percent. Maintaining government debt at post-crisis levels may reduce growth in advanced economies by as much as half a percentage point a year from the pace before the first global recession since World War II, John Lipsky , first deputy managing director of the International Monetary Fund, said in Beijing yesterday. “Risk aversion has come up after developments in India and Greece,” said Henrik Gullberg , a fixed-income strategist at Deutsche Bank AG in London. “Any exiting of the current accommodative policy stance is bad for risk appetite and good for the dollar.” Greek bonds tumbled for a third day, with the yield on the two-year note jumping as much as 38 basis points to 5.5 percent. National Bank of Greece SA, the nation’s biggest lender, led stock declines in Athens, sinking as much as 6 percent. The cost of insuring against a default on Greek government bonds rose, with credit-default swaps climbing 26 basis points to 356, according to CMA DataVision. Default Swaps Credit-default swaps on the Markit iTraxx Crossover Index of high-yield European corporates climbed 14 basis points to 467, according to JPMorgan Chase & Co. Credit-swap gauges in Europe rolled into their 13th series today. New series of the benchmarks are created every six months when companies are added or dropped depending on their ratings, cost of protection and ease of trading. The MSCI Emerging Markets Index dropped 1.2 percent for a third day of declines. South Korea’s Kospi Index and Taiwan’s Taiex Index fell 0.8 percent, and India’s Sensitive Index slid 1 percent. Russia’s Micex Index lost 1.3 percent and the ruble depreciated against the central bank’s target basket for the first time in a week, slipping 0.5 percent. The rand weakened 0.9 percent against the dollar in limited trading during a public holiday today. Copper for delivery in three months fell 1.7 percent to $7,310 a metric ton on the London Metal Exchange, retreating for a third day. Crude oil for April delivery dropped 2.4 percent to $78.76 a barrel in New York trading, falling for a third day. The April contract expires today. To contact the reporter on this story: Justin Carrigan in London at jcarrigan@bloomberg.net

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Stocks Fall on Interest-Rate, Debt Concerns; Dollar Strengthens

March 22, 2010

By Michael P. Regan and Justin Carrigan March 22 (Bloomberg) — Stocks declined for a third day and the dollar rallied on concern rising interest rates and widening government deficits will hamper the economic recovery. Greek bonds and shares fell. The MSCI World Index dropped 0.7 percent at 9:15 a.m. in New York, marking its longest losing streak in six weeks. Futures on the Standard & Poor’s 500 Index retreated 0.7 percent. The dollar strengthened against 15 of its 16 most- traded counterparts. Greece’s ASE Index sank 2.9 percent and the premium investors demand to hold the nation’s 10-year notes instead of benchmark German bunds widened 18 basis points. India’s central bank raised interest rates for the first time in almost two years late on March 19, saying that controlling prices was imperative after inflation accelerated to a 16-month high. German Chancellor Angela Merkel told investors they shouldn’t expect this week’s European Union summit to agree on a package to help Greece tackle the region’s biggest deficit. “There has been an uptick in sovereign-default concerns and there is uncertainty over support for Greece,” said Lee Hardman , a foreign-exchange strategist at Bank of Tokyo- Mitsubishi UFJ Ltd. in London. “Investors are likely to be disappointed again from the EU summit this week and that’s going to continue to weigh on the euro to the benefit of the dollar.” Health-care stocks in the MSCI World Index slipped 0.3 percent for the second-best performance among 10 groups. The U.S. House passed the most sweeping health-care legislation in four decades, rewriting the rules governing medical industries and ensuring that tens of millions of uninsured will get medical coverage. The approval will remove a significant “overhang” from the industry and be viewed positively, Credit Suisse Group AG analyst Ralph Giacobbe wrote in a note today. Europe, Asia The Stoxx Europe 600 Index declined 1.1 percent while the MSCI Asia Pacific Index dropped 0.9 percent. Vedanta Resources Plc, the largest copper producer in India, led basic resources shares lower, falling 2.3 percent in London. Royal Dutch Shell Plc slipped 0.9 percent after agreeing with PetroChina Co. to buy Arrow Energy Ltd. for A$3.5 billion ($3.2 billion). PetroChina Co., the nation’s biggest energy producer, declined 2.7 percent in Hong Kong. U.S. Futures The decline in U.S. futures indicated the S&P 500 may trim gains from three straight weekly advances. The Dow Jones Industrial Average snapped an eight-day winning streak on March 19 after India’s unexpected rate increase. The Dollar Index , which tracks the currency against those of six U.S. trading partners, climbed for a third day, adding 0.3 percent. Government bonds gained, with the yield on the German bund falling 2 basis points to 3.08 percent. The yield on the 10-year Treasury note slipped 1 basis point to at 3.68 percent. Maintaining government debt at post-crisis levels may reduce growth in advanced economies by as much as half a percentage point a year from the pace before the first global recession since World War II, John Lipsky , first deputy managing director of the International Monetary Fund, said in Beijing yesterday. “Risk aversion has come up after developments in India and Greece,” said Henrik Gullberg , a fixed-income strategist at Deutsche Bank AG in London. “Any exiting of the current accommodative policy stance is bad for risk appetite and good for the dollar.” Greek bonds tumbled for a third day, with the yield on the two-year note jumping as much as 38 basis points to 5.5 percent. National Bank of Greece SA, the nation’s biggest lender, led stock declines in Athens, sinking as much as 6 percent. The cost of insuring against a default on Greek government bonds rose, with credit-default swaps climbing 26 basis points to 356, according to CMA DataVision. Default Swaps Credit-default swaps on the Markit iTraxx Crossover Index of high-yield European corporates climbed 14 basis points to 467, according to JPMorgan Chase & Co. Credit-swap gauges in Europe rolled into their 13th series today. New series of the benchmarks are created every six months when companies are added or dropped depending on their ratings, cost of protection and ease of trading. The MSCI Emerging Markets Index dropped 1.2 percent for a third day of declines. South Korea’s Kospi Index and Taiwan’s Taiex Index fell 0.8 percent, and India’s Sensitive Index slid 1 percent. Russia’s Micex Index lost 1.3 percent and the ruble depreciated against the central bank’s target basket for the first time in a week, slipping 0.5 percent. The rand weakened 0.9 percent against the dollar in limited trading during a public holiday today. Copper for delivery in three months fell 1.7 percent to $7,310 a metric ton on the London Metal Exchange, retreating for a third day. Crude oil for April delivery dropped 2.4 percent to $78.76 a barrel in New York trading, falling for a third day. The April contract expires today. To contact the reporter on this story: Justin Carrigan in London at jcarrigan@bloomberg.net

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Stocks Decline, Dollar Gains on Sovereign Debt; Greeks Bonds, Shares Fall

March 22, 2010

By Justin Carrigan March 22 (Bloomberg) — Stocks declined for a third day and the dollar rallied on concern increasing sovereign-debt burdens will hamper the economic recovery. Greek bonds and shares fell. The MSCI World Index dropped 0.4 percent at 10:12 a.m. in London, marking its longest losing streak in six weeks. Futures on the Standard & Poor’s 500 Index retreated 0.7 percent. The dollar strengthened against 14 of its 16 most-traded counterparts. Greece’s ASE Index sank 2.8 percent and the premium investors demand to hold the nation’s 10-year notes instead of benchmark German bunds widened 16 basis points. Maintaining government debt at post-crisis levels may reduce growth in advanced economies by as much as half a percentage point a year from the pace before the first global recession since World War II, John Lipsky , first deputy managing director of the International Monetary Fund, said in Beijing yesterday. German Chancellor Angela Merkel told investors they shouldn’t expect this week’s European Union summit to agree on a package to help Greece tackle the region’s biggest deficit. “There has been an uptick in sovereign-default concerns and there is uncertainty over support for Greece,” said Lee Hardman , a foreign-exchange strategist at Bank of Tokyo- Mitsubishi UFJ Ltd. in London. “Investors are likely to be disappointed again from the EU summit this week and that’s going to continue to weigh on the euro to the benefit of the dollar.” Europe, Asia The Stoxx Europe 600 Index declined 1.1 percent while the MSCI Asia Pacific Index dropped 0.9 percent. Vedanta Resources Plc, the largest copper producer in India, led basic resources shares lower, falling 1.8 percent in London. Royal Dutch Shell Plc slipped 0.9 percent after agreeing with PetroChina Co. to buy Arrow Energy Ltd. for A$3.5 billion ($3.2 billion). PetroChina Co., the nation’s biggest energy producer, declined 2.7 percent in Hong Kong. India’s central bank raised interest rates for the first time in almost two years late on March 19, saying that controlling prices was imperative after inflation accelerated to a 16-month high. The decline in U.S. futures indicated the S&P 500 may trim its third straight weekly gain. The Dow Jones Industrial Average snapped an eight-day winning streak on March 19 after India’s unexpected rate increase. The Dollar Index , which tracks the currency against those of six U.S. trading partners, climbed for a third day, adding 0.1 percent. Government bonds gained, with the yield on the German bund falling 2 basis points to 3.09 percent. The yield on the 10-year Treasury note lost 1 basis point to 3.68 percent. Risk Aversion “Risk aversion has come up after developments in India and Greece,” said Henrik Gullberg , a fixed-income strategist at Deutsche Bank AG in London. “Any exiting of the current accommodative policy stance is bad for risk appetite and good for the dollar.” Greek bonds tumbled for a third day, with the yield on the two-year note jumping as much as 26 basis points to 5.63 percent. National Bank of Greece SA, the nation’s biggest lender, led stock declines in Athens, sinking as much as 3 percent. The cost of insuring against a default on Greek government bonds rose, with credit-default swaps climbing 7 basis points to 337, according to CMA DataVision. Credit-default swaps on the Markit iTraxx Crossover Index of high-yield European corporates climbed 17 basis points to 470, according to JPMorgan Chase & Co. Credit-swap gauges in Europe rolled into their 13th series today. New series of the benchmarks are created every six months when companies are added or dropped depending on their ratings, cost of protection and ease of trading. Emerging Markets The MSCI Emerging Markets Index dropped 0.9 percent for a third day of declines. South Korea’s Kospi Index and Taiwan’s Taiex Index fell 0.8 percent, and India’s Sensitive Index slid 0.7 percent. Russia’s Micex Index lost 0.5 percent and the ruble depreciated against the central bank’s target basket for the first time in a week, slipping 0.1 percent. The rand weakened 0.4 percent to 7.3674 per dollar in limited trading during a public holiday today. Copper for delivery in three months fell 0.4 percent to $7,408 a metric ton on the London Metal Exchange, retreating for a third day. Rice added 1.1 percent to $12.84 per 100 pounds in Chicago. Crude oil for April delivery dropped 0.5 percent to $80.30 a barrel in New York trading, falling for a third day. The April contract expires today. To contact the reporter on this story: Justin Carrigan in London at jcarrigan@bloomberg.net

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Treasury Yield Curve Flattest Since January on Inflation Outlook, Supply

March 20, 2010

By Cordell Eddings March 20 (Bloomberg) — The difference in yield between 2- and 10-year Treasury notes narrowed for a fifth week as the Federal Reserve reiterated it would keep borrowing costs low for an “extended” period and reports showed a lack of inflation. Two-year Treasury debt posted a third consecutive drop in the longest stretch of weekly decreases since August before record-tying $118 billion sales next week of two-, five- and seven-year notes. The yield on the two-year note increased to the highest level since January. “With the Fed leaving the ‘extended period’ language in place and benign inflation, investors are understanding that to pick up yield you have to go out the curve,” said Larry Milstein , managing director of government and agency debt trading in New York at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors. “Supply has weighed on the front end. The big question next week will be supply and how the market absorbs it.” Yields on two-year notes increased this week 3 basis points, or 0.03 percentage point, to 0.9 percent and touched 1 percent, the highest level since Jan. 8. The price of the 0.875 percent security due in February 2012 dropped 2/32, or 63 cents per $1,000 face amount, to 99 25/32. The spread between 2- and 10-year yields, charted on the yield curve, dropped yesterday to 2.70 percentage points, the lowest level on a closing basis since Jan. 1. The yield on the 10-year note was little changed at 3.69 percent at the end of this week. Flattening in 2005 The last time the yield curve flattened for five consecutive weeks or more was in June 2005, when then Fed Chairman Alan Greenspan said in congressional testimony that underlying inflation remained “contained.” U.S. consumer prices were unchanged last month, the first time prices had failed to increase since March 2009, the Labor Department said March 18. Producer prices fell 0.6 percent in February, the government said a day earlier. A lack of inflation helps preserve the purchasing power of debt’s fixed payments. The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of expectations for inflation known as the breakeven rate, was 2.21 percentage points yesterday, down from this year’s high of 2.49 percentage points reached Jan. 11. “We expect inflation to remain contained for the rest of this year given the slack in the economy and the headwinds to growth,” Curtis Arledge , chief investment officer of fixed income at New York-based BlackRock Inc., wrote in a note to clients this week. “We are more constructive on intermediate-to longer-dated Treasuries.” Fed’s Statement The Fed said in its statement following its meeting on March 16 that the economic recovery will be slow while repeating that its program to buy $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt will be completed by the end of March. Futures on the CME Group Inc. exchange showed a 51 percent chance yesterday that policy makers will increase the fed funds target by at least a quarter-percentage point by the September meeting, compared with 53 percent odds a month ago. The Fed may raise the discount rate, charged on direct loans to banks, before the next meeting of the Federal Open Market Committee on April 28, economists said. A Fed spokesman, David Skidmore , declined to comment this week. “It’s going to happen at some point,” said Michael Feroli , chief U.S. economist at JPMorgan Chase & Co. in New York. “Whether it’s today, whether it’s next week or next month is hard to say.” U.S. Auctions Demand for Treasuries was tempered as the U.S. prepared to sell a record-matching amount of two-, five-, and seven-year notes next week. The government will offer $44 billion of 2012 debt on March 23, $42 billion in five-year notes the following day and $32 billion of 2017 securities on March 25, the Treasury announced on March 18. President Barack Obama has increased U.S. marketable debt to an unprecedented $7.41 trillion to fund a budget deficit the government predicts will swell to a record $1.6 trillion in the fiscal year ending Sept. 30. “Supply is certainly going to drive the market,” said Thomas L. di Galoma, head of U.S. rates trading at Guggenheim Partners LLC in New York. “There will have to be a bit of concession on the curve.” Benchmark 10-year securities snapped two weeks of losses as Greece’s Prime Minister George Papandreou set a one-week deadline for the European Union to compile a rescue package before the nation goes to the International Monetary Fund. Papandreou said on March 18 he may turn to the IMF to overcome Greece’s debt crisis unless European leaders agree to set up a lending facility at a March 25-26 summit. The IMF option has already been dismissed by European Central Bank President Jean-Claude Trichet and French President Nicolas Sarkozy , who said it would show the EU can’t solve its own crises. German Chancellor Angela Merkel said this week the IMF may be the only answer. To contact the reporter on this story: Cordell Eddings in New York at ceddings@bloomberg.net

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Treasury Yield Curve Flattest Since January on Inflation Outlook, Supply

March 20, 2010

By Cordell Eddings March 20 (Bloomberg) — The difference in yield between 2- and 10-year Treasury notes narrowed for a fifth week as the Federal Reserve reiterated it would keep borrowing costs low for an “extended” period and reports showed a lack of inflation. Two-year Treasury debt posted a third consecutive drop in the longest stretch of weekly decreases since August before record-tying $118 billion sales next week of two-, five- and seven-year notes. The yield on the two-year note increased to the highest level since January. “With the Fed leaving the ‘extended period’ language in place and benign inflation, investors are understanding that to pick up yield you have to go out the curve,” said Larry Milstein , managing director of government and agency debt trading in New York at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors. “Supply has weighed on the front end. The big question next week will be supply and how the market absorbs it.” Yields on two-year notes increased this week 3 basis points, or 0.03 percentage point, to 0.9 percent and touched 1 percent, the highest level since Jan. 8. The price of the 0.875 percent security due in February 2012 dropped 2/32, or 63 cents per $1,000 face amount, to 99 25/32. The spread between 2- and 10-year yields, charted on the yield curve, dropped yesterday to 2.70 percentage points, the lowest level on a closing basis since Jan. 1. The yield on the 10-year note was little changed at 3.69 percent at the end of this week. Flattening in 2005 The last time the yield curve flattened for five consecutive weeks or more was in June 2005, when then Fed Chairman Alan Greenspan said in congressional testimony that underlying inflation remained “contained.” U.S. consumer prices were unchanged last month, the first time prices had failed to increase since March 2009, the Labor Department said March 18. Producer prices fell 0.6 percent in February, the government said a day earlier. A lack of inflation helps preserve the purchasing power of debt’s fixed payments. The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of expectations for inflation known as the breakeven rate, was 2.21 percentage points yesterday, down from this year’s high of 2.49 percentage points reached Jan. 11. “We expect inflation to remain contained for the rest of this year given the slack in the economy and the headwinds to growth,” Curtis Arledge , chief investment officer of fixed income at New York-based BlackRock Inc., wrote in a note to clients this week. “We are more constructive on intermediate-to longer-dated Treasuries.” Fed’s Statement The Fed said in its statement following its meeting on March 16 that the economic recovery will be slow while repeating that its program to buy $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt will be completed by the end of March. Futures on the CME Group Inc. exchange showed a 51 percent chance yesterday that policy makers will increase the fed funds target by at least a quarter-percentage point by the September meeting, compared with 53 percent odds a month ago. The Fed may raise the discount rate, charged on direct loans to banks, before the next meeting of the Federal Open Market Committee on April 28, economists said. A Fed spokesman, David Skidmore , declined to comment this week. “It’s going to happen at some point,” said Michael Feroli , chief U.S. economist at JPMorgan Chase & Co. in New York. “Whether it’s today, whether it’s next week or next month is hard to say.” U.S. Auctions Demand for Treasuries was tempered as the U.S. prepared to sell a record-matching amount of two-, five-, and seven-year notes next week. The government will offer $44 billion of 2012 debt on March 23, $42 billion in five-year notes the following day and $32 billion of 2017 securities on March 25, the Treasury announced on March 18. President Barack Obama has increased U.S. marketable debt to an unprecedented $7.41 trillion to fund a budget deficit the government predicts will swell to a record $1.6 trillion in the fiscal year ending Sept. 30. “Supply is certainly going to drive the market,” said Thomas L. di Galoma, head of U.S. rates trading at Guggenheim Partners LLC in New York. “There will have to be a bit of concession on the curve.” Benchmark 10-year securities snapped two weeks of losses as Greece’s Prime Minister George Papandreou set a one-week deadline for the European Union to compile a rescue package before the nation goes to the International Monetary Fund. Papandreou said on March 18 he may turn to the IMF to overcome Greece’s debt crisis unless European leaders agree to set up a lending facility at a March 25-26 summit. The IMF option has already been dismissed by European Central Bank President Jean-Claude Trichet and French President Nicolas Sarkozy , who said it would show the EU can’t solve its own crises. German Chancellor Angela Merkel said this week the IMF may be the only answer. To contact the reporter on this story: Cordell Eddings in New York at ceddings@bloomberg.net

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Treasury Yield Curve Flattest Since January on Inflation Outlook, Supply

March 20, 2010

By Cordell Eddings March 20 (Bloomberg) — The difference in yield between 2- and 10-year Treasury notes narrowed for a fifth week as the Federal Reserve reiterated it would keep borrowing costs low for an “extended” period and reports showed a lack of inflation. Two-year Treasury debt posted a third consecutive drop in the longest stretch of weekly decreases since August before record-tying $118 billion sales next week of two-, five- and seven-year notes. The yield on the two-year note increased to the highest level since January. “With the Fed leaving the ‘extended period’ language in place and benign inflation, investors are understanding that to pick up yield you have to go out the curve,” said Larry Milstein , managing director of government and agency debt trading in New York at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors. “Supply has weighed on the front end. The big question next week will be supply and how the market absorbs it.” Yields on two-year notes increased this week 3 basis points, or 0.03 percentage point, to 0.9 percent and touched 1 percent, the highest level since Jan. 8. The price of the 0.875 percent security due in February 2012 dropped 2/32, or 63 cents per $1,000 face amount, to 99 25/32. The spread between 2- and 10-year yields, charted on the yield curve, dropped yesterday to 2.70 percentage points, the lowest level on a closing basis since Jan. 1. The yield on the 10-year note was little changed at 3.69 percent at the end of this week. Flattening in 2005 The last time the yield curve flattened for five consecutive weeks or more was in June 2005, when then Fed Chairman Alan Greenspan said in congressional testimony that underlying inflation remained “contained.” U.S. consumer prices were unchanged last month, the first time prices had failed to increase since March 2009, the Labor Department said March 18. Producer prices fell 0.6 percent in February, the government said a day earlier. A lack of inflation helps preserve the purchasing power of debt’s fixed payments. The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of expectations for inflation known as the breakeven rate, was 2.21 percentage points yesterday, down from this year’s high of 2.49 percentage points reached Jan. 11. “We expect inflation to remain contained for the rest of this year given the slack in the economy and the headwinds to growth,” Curtis Arledge , chief investment officer of fixed income at New York-based BlackRock Inc., wrote in a note to clients this week. “We are more constructive on intermediate-to longer-dated Treasuries.” Fed’s Statement The Fed said in its statement following its meeting on March 16 that the economic recovery will be slow while repeating that its program to buy $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt will be completed by the end of March. Futures on the CME Group Inc. exchange showed a 51 percent chance yesterday that policy makers will increase the fed funds target by at least a quarter-percentage point by the September meeting, compared with 53 percent odds a month ago. The Fed may raise the discount rate, charged on direct loans to banks, before the next meeting of the Federal Open Market Committee on April 28, economists said. A Fed spokesman, David Skidmore , declined to comment this week. “It’s going to happen at some point,” said Michael Feroli , chief U.S. economist at JPMorgan Chase & Co. in New York. “Whether it’s today, whether it’s next week or next month is hard to say.” U.S. Auctions Demand for Treasuries was tempered as the U.S. prepared to sell a record-matching amount of two-, five-, and seven-year notes next week. The government will offer $44 billion of 2012 debt on March 23, $42 billion in five-year notes the following day and $32 billion of 2017 securities on March 25, the Treasury announced on March 18. President Barack Obama has increased U.S. marketable debt to an unprecedented $7.41 trillion to fund a budget deficit the government predicts will swell to a record $1.6 trillion in the fiscal year ending Sept. 30. “Supply is certainly going to drive the market,” said Thomas L. di Galoma, head of U.S. rates trading at Guggenheim Partners LLC in New York. “There will have to be a bit of concession on the curve.” Benchmark 10-year securities snapped two weeks of losses as Greece’s Prime Minister George Papandreou set a one-week deadline for the European Union to compile a rescue package before the nation goes to the International Monetary Fund. Papandreou said on March 18 he may turn to the IMF to overcome Greece’s debt crisis unless European leaders agree to set up a lending facility at a March 25-26 summit. The IMF option has already been dismissed by European Central Bank President Jean-Claude Trichet and French President Nicolas Sarkozy , who said it would show the EU can’t solve its own crises. German Chancellor Angela Merkel said this week the IMF may be the only answer. To contact the reporter on this story: Cordell Eddings in New York at ceddings@bloomberg.net

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Finance Bonds Beating Industrials as JP Morgan Sells Debt: Credit Markets

March 18, 2010

By Bryan Keogh March 18 (Bloomberg) — Financial company bonds are outperforming industrial debt by the most this year after lagging behind in February, encouraging investors to snap up new issues from JPMorgan Chase & Co. and Credit Suisse Group AG . Debt sold by banks, insurers and brokers returned 0.81 percent this month through yesterday, compared with 0.48 percent for the rest of the market, according to Bank of America Merrill Lynch index data. The cost to borrow for banks is the cheapest since February 2008, with yields falling to within 1.95 percentage points of Treasuries on March 17. Bond offerings today by JPMorgan, the second-largest U.S. bank by assets, and Zurich-based Credit Suisse helped drive global financial debt issuance this month to at least $120 billion, already surpassing February’s total, according to data compiled by Bloomberg. The MSCI World index of stocks shows financial company earnings exceeding economists’ estimates by an average 13 percent this year. “Very few people are underweight banks and finance right now,” said Brian Machan , a money manager at Aviva Investors North America with more than $50 billion in assets under management in Des Moines, Iowa. Given the demand, “why not come to market?” he said. Elsewhere in credit markets, the Federal Home Loan Bank system, the 12 government-chartered cooperatives owned by U.S. financial companies, sold $3 billion of 2-year global notes, according to a statement from its finance office in Reston, Virginia. The bonds priced to yield 21 basis points more than similar-maturity Treasuries. Its last sale of benchmark 2-year notes in November was issued at a spread of 29 basis points. Commercial Paper Declines Holdings of agency securities sold by companies including Fannie Mae and Freddie Mac by official foreign institutions such as central banks climbed $3 billion last week, the most this year, to $770.9 billion, according to Federal Reserve data . U.S. commercial paper outstanding fell to the lowest in eight weeks, the Fed said on its Web site . The market for short- term IOUs declined $22.4 billion to $1.12 trillion in the week ended March 17, the least since the period ended Jan. 20, according to data compiled by Bloomberg. Commercial paper, which typically matures in 270 days or less, is used to finance everyday business activities such as payroll and rent. A unit of Avis Budget Group Inc. sold $580 million of bonds backed by rental-car debt, according to a person familiar with the offering. A $400 million top-rated portion, the largest in the sale, priced to yield 2.1 percentage points more than the benchmark swaps rate, said the person, who declined to be identified because terms aren’t public. The sale was the first by Avis since the Fed’s Term Asset-Backed Securities Loan Facility ended this month. Bondholder Protection National Bank of Abu Dhabi PJSC is planning to sell bonds, according to a person familiar with the matter. A deal would make NBAD the first United Arab Emirates borrower to tap capital markets since state-owned Dubai World said last year it was seeking to restructure $26 billion of debt. The U.S. economy will keep expanding without a pickup in inflation that would require the Fed to raise interest rates, reports today indicated. Consumer prices were unchanged in February, the first time they didn’t increase since March 2009, Labor Department figures showed in Washington. The index of leading indicators rose 0.1 percent last month, the 11th straight gain, according to the Conference Board, a New York research group. Credit-Default Swaps A benchmark indicator of corporate credit risk in the U.S. rose from a two-month low. The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses on corporate debt, climbed 1.5 basis point to a mid-price of 84 basis points, according to Markit Group Ltd. The index typically increases as investor confidence deteriorates and falls as it improves. In London, the Markit iTraxx Europe index of 125 companies with investment-grade ratings rose 2.75 basis points to 76.25, JPMorgan prices show. 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 a year on a contract protecting $10 million of debt. Global financial issuance in March compares with $99 billion in all of February, Bloomberg data show. ‘Look Attractive’ U.S. banks issued the most unsecured debt in March since May 2008, with sales in all currencies totaling about $17 billion, Bloomberg data show. Overall global corporate bond sales surged to at least $190 billion, from $162 billion in February. Average spreads on financial issuers’ bonds dropped 16 basis points this month to 195 basis points as of yesterday, compared with a premium of 130 basis points on bonds issued by industrial companies, the indexes show. Financial-company bonds returned 0.28 percent in February, compared with 0.49 percent for industrial debt, according to Bank of America index data. “Bank bond yields versus industrials look attractive,” said Andreas Fischer , a money manager at London & Capital Group Ltd. in London, which has $3 billion of assets under management. “Banks are also benefiting from the recent rebound in profits.” JPMorgan raised $2.75 billion in its biggest offering since April 2009, according to Bloomberg data. The sale included $1.25 billion in an add-on to its 3.7 percent notes due in 2015 that priced to yield 110 basis points more than Treasuries. The debt traded on March 17 at 101.9 cents on the dollar, paying a spread of 89.9 basis points, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Credit Suisse New York-based JPMorgan also issued $1.5 billion of 4.95 percent bonds due in 2020 that paid a spread of 127.5 basis points. Bank of America Corp. of Charlotte, North Carolina, is the largest U.S. bank by assets. Credit Suisse’s New York branch issued $1.5 billion of 3.5 percent, 5-year notes that paid a spread of 112.5 basis points, its first benchmark deal in the currency since Jan. 11, Bloomberg data show. Switzerland’s largest bank by market value last issued 5-year debt in dollars in April 2009, paying 362.5 basis points more than government securities. Finnish lender Pohjola Bank Oyj sold 750 million euros ($1 billion) of five-year bonds in its first benchmark fixed-rate note sale since May 2009. The Helsinki-based bank priced the notes at 78 basis points more than midswaps. Lloyds TSB Bank Plc , Britain’s biggest mortgage provider, sold 1.5 billion euros of subordinated debt March 17 as Standard & Poor’s said bad loans will hurt the lender’s earning for the next two years. The so-called lower Tier 2 notes were priced to yield 325 basis points over swaps, according to Bloomberg data. Nordea Bank AB , the Nordic region’s largest lender, also issued 1 billion euros of 10-year junior bonds on March 17, with a spread of 123 basis points, Bloomberg data show. Greece’s Budget Crisis Financial company bond issuance slowed in early February amid concern Greece’s struggle to contain the largest budget deficit in the European Union would prompt a regional debt crisis. The global market picked up again later in the month after Prime Minister George Papandreou promised spending cuts of as much as 4.8 billion euros and the nation was able to use the capital markets to raise 5 billion of new 10-year bonds. Papandreou challenged Germany to drop its doubts about a financial rescue package from the European Union after Chancellor Angela Merkel ruled out “overly hasty” aid pledges, and said he may turn to the International Monetary Fund. To contact the reporter on this story: Bryan Keogh in London at bkeogh4@bloomberg.net

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Euro Set for Biggest Weekly Drop in Six on Concern Europe Split by Greece

March 18, 2010

By Candice Zachariahs and Ben Levisohn March 19 (Bloomberg) — The euro was set for its biggest weekly loss in six on concern Greece will fail to secure financial assistance from the European Union. The euro slid this week versus 15 of its 16 major counterparts as Greece’s prime minister set a one-week deadline for the European Union to craft a financial aid mechanism for the nation, challenging Germany and damping appetite for the 16- nation currency. The Swiss franc traded near its strongest level in 17 months against the euro as an official said policy makers can’t prevent the currency’s advance indefinitely. “Reports on inter-governmental relations between Greece and Germany will be the major driver of the euro, and they’re likely to keep bickering,” said Joseph Capurso , a currency strategist at Commonwealth Bank of Australia in Sydney. “We can see euro falling down to the low $1.30s,” over the next week. The euro traded at $1.3611 as of 8:43 a.m. in Tokyo after yesterday dropping 1 percent to $1.3608 in New York. It bought 123.19 yen from 122.99 yen. The dollar fetched 90.50 yen from 90.39 yen. The euro’s five-day decline against the dollar of 1.1 percent was the biggest since the week ended Feb. 5. Greek Prime Minister George Papandreou said yesterday he may turn to the International Monetary Fund to overcome his nation’s debt crisis unless EU leaders agree to set up a lending facility at a summit March 25-26. The IMF option has already been dismissed by European Central Bank President Jean-Claude Trichet and French President Nicolas Sarkozy , who said it would show the EU can’t solve its own crises. Merkel on IMF German Chancellor Angela Merkel told parliament in Berlin March 17 the IMF may be the only answer to Greece’s fiscal problems. In the absence of a European lender of last resort, calling in the IMF “would probably have to be the way out right now if action were to be taken,” she said. Europeans purchased 13.7 billion euros ($18.6 billion) of foreign bonds and notes in January, and put another 19.1 billion into non-euro money market instruments, data released yesterday by the ECB showed. Foreigners dumped 3.7 billion euros of euro- area bonds and notes in January, after selling 6.8 billion in December. “It is extremely unusual to see two consecutive months of selling; the last time was mid-2005,” currency strategists at Nomura International Plc including Jens Nordvig in New York wrote in a report yesterday. The data “clearly suggest to us that euro weakness has been driven by a broad shift in investor attitudes, a shift which goes well beyond shorter-term FX position changes within hedge funds,” they wrote. Long Dollar The dollar yesterday rose versus 14 of the 16 most-traded currencies as a report showed that manufacturing in the Philadelphia region expanded in March at the fastest pace this year. The Federal Reserve Bank of Philadelphia’s general economic index rose to 18.9, the highest level since December, from 17.6 in February. Readings greater than zero signal growth. The currency was also bolstered as economists said the Federal Reserve may raise the discount rate, charged on direct loans to banks, before the next meeting of the Federal Open Market Committee on April 28. “The improved U.S. economic outlook and very modest policy tightening outlook continue to highlight the U.S.’s relative economic growth outperformance,” Emma Lawson , a currency strategist in London at Morgan Stanley, wrote in a research note yesterday “We retain our long dollar-yen and short euro-dollar positions.” Swiss Franc The franc strengthened 1.2 percent against the euro, its biggest weekly gain since December 2008, as Swiss National Bank Governing Board member Jean-Pierre Danthine said yesterday policy makers can’t keep borrowing costs near zero for an extended period of time and maintain purchases of foreign currencies indefinitely. Danthine said the central bank has the “toolbox” to exit a policy in which it has sought to prevent excessive gains in the franc versus the euro for the past year. “Households and firms should prepare themselves for a return, sometime in the future, to a world of higher interest rates, with exchange rates being guided by market forces,” he said in Zurich yesterday. “Suffice it to say that the toolbox is available” for an exit, he said. “It is not a question of how, only of when.” The Swiss currency traded at 1.4393 per euro after touching 1.4356 yesterday, the strongest level since October 2008. To contact the reporters on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net ; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

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Euro Weakens on Concern Greek Aid Plan Unravelling; Oil Falls as Yen Rises

March 18, 2010

By David Merritt March 18 (Bloomberg) — The euro weakened and Greek stocks and bonds fell on concern a bailout plan for the region’s most indebted country is unravelling. The yen and dollar appreciated while oil declined. The euro slipped against 14 of its 16 most traded counterparts, depreciating 0.6 percent against the yen at 11:25 a.m. in London. Greece’s ASE Index of stocks slid 3.1 percent and the extra yield investors demand to hold the nation’s debt instead of German bunds increased. Oil fell as much as 1 percent. Futures on the Standard & Poor’s 500 Index declined 0.1 percent. Greece should turn to the International Monetary Fund if it needs aid, Michael Meister , a lawmaker with Chancellor Angela Merkel ’s Christian Democratic Union, said in an interview in Berlin. That contradicts comments from leaders including Jean- Claude Trichet , Jean-Claude Juncker and Nicolas Sarkozy , who have said the region should solve its own financial problems as officials contemplate establishing a European Monetary Fund. “It appears that the rift between Greece and Germany is much deeper than assumed and Greece could be much closer to turning to the IMF than previously assumed by the market,” a team led by Hans Guenter Redeker , global head of foreign- exchange strategy at BNP Paribas SA in London, wrote in a report today. “This brings the recent optimism regarding the euro to an abrupt halt.” Greek Spread The 16-nation currency dropped 0.5 percent to $1.3667. The euro has weakened 4.8 percent this year and the ASE declined 7.8 percent as Greece struggled to finance its budget deficit, which at 12.7 percent of gross domestic product is the biggest in the EU. The difference in yield , or spread, between 10-year Greek bonds and bunds widened to 396 basis points in January, the most since before the euro’s introduction in 1999. The gap widened 13 basis points today, to 313. The yen climbed 0.5 percent to 123.36 per euro and less than 0.1 percent to 90.26 against the dollar, strengthening against 15 out of 16 of its most-traded peers. The MSCI World Index of 23 developed nations’ stocks fell 0.2 percent. In Asian trading, Canon Inc., which counts Europe as its biggest market, lost 2.8 percent in Tokyo. Mitsui Fudosan Co., Japan’s largest developer, dropped 2.4 percent after Morgan Stanley downgraded the stock. Three stocks declined for every two that advanced on the Stoxx Europe 600 Index , which was little changed. Total SA, the third-largest European oil company, fell 0.8 percent in Paris after Goldman Sachs Group Inc. recommended selling the shares. National Bank of Greece SA, the nation’s biggest lender, plunged 5.1 percent in Athens, its biggest drop in three weeks. Glaxo Gains Declines were limited as GlaxoSmithKline Plc, Britain’s biggest drugmaker, jumped 2.6 percent. Novartis AG abandoned the U.S. rights to an asthma drug that would rival Glaxo’s Advair. U.S. futures were little changed after the S&P 500 yesterday reached its highest level since September 2008. A report from the Labor Department at 8:30 a.m. in Washington may show that the cost of living in the U.S. rose at a slower pace in February, restrained by lower gasoline prices and a stagnant home-rental market. The consumer price index may have climbed 0.1 percent after a 0.2 percent increase in January, according to the median forecast of 79 economists in a Bloomberg survey. Another report from the Labor Department, also set for 8:30 a.m., may show initial claims for unemployment insurance benefits dropped to 455,000 last week, the fewest in two months, from 462,000 the prior week, according to the survey median. Emerging Markets The MSCI Emerging Markets Index fell 0.1 percent, snapping a two-day advance. Turkish bonds dropped for the first time in six days and the lira weakened for the first day in five after the Taraf newspaper reported prosecutors are ready to file a second attempt to outlaw Prime Minister Recep Tayyip Erdogan ’s governing party. Turkey’s ISE National 100 index of stocks fell 1.3 percent. Teva Pharmaceutical Industries Ltd. rose 1.5 percent in Tel Aviv. The Israeli drugmaker is close to an agreement to buy Ratiopharm GmbH for about 3.5 billion euros ($4.78 billion), ending a nine-month battle for Germany’s second-biggest maker of generic medicines, two people with knowledge of the sale said. Oil prices retreated from a 10-week high after the dollar gained and a government report yesterday showed rising U.S. crude inventories. Crude oil for April delivery dropped 52 cents, or 0.6 percent, to $82.41 a barrel in electronic trading on the New York Mercantile Exchange. Copper for delivery in three months fell 0.4 percent to $7,502 a metric ton on the London Metal Exchange. Aluminum, zinc and tin also declined. Wheat dropped 1.4 percent to $4.8875 a bushel in Chicago and corn retreated 1 percent to $3.7025 a bushel. To contact the reporter on this story: David Merritt in London on dmerritt1@bloomberg.net .

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

March 12, 2010

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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Greece’s Financial Crisis Is Over, Neighbors Have Room to Move, Prodi Says

March 10, 2010

By Bloomberg News March 10 (Bloomberg) — The worst of Greece ’s financial crisis is over and other European nations won’t follow in its path, said former European Commission President Romano Prodi . “For Greece, the problem is completely over,” Prodi, who was also Italian prime minister, said in an interview in Shanghai. “I don’t see any other case now in Europe. I don’t think there is any reason to think the euro system will collapse or will suffer greatly because of Greece.” Greek officials have been working to reduce the nation’s budget deficit , which at 12.7 percent of gross domestic product was Europe’s largest in 2009. The government last week announced spending cuts and tax increases totaling 4.8 billion euros ($6.5 billion), the third round of austerity measures this year. French President Nicolas Sarkozy said on March 7 the 16- nation euro region must support Greece, which has more than 20 billion euros of debt falling due in April and May, or risk destroying the currency. German Chancellor Angela Merkel, who runs Europe’s largest economy, has so far refused to give the green light to any aid package. Intervention by European nations to date “was enough” and countries such as Spain and Portugal have “plenty of time” to get their finances in order, said Prodi, who in 1997 introduced a “euro tax” that helped Italy cut its budget deficit to 2.7 percent of GDP and so qualify to join the currency. Italy’s shortfall in 1997 was equivalent to 7 percent of the economy. Prodi, 70, who was head of the commission from 1999 to 2004, will teach at the China Europe International Business School in Shanghai. He said budget deficits are “a general problem for almost all the wealthy countries.” The euro has weakened 5.8 percent against the dollar this year as concern Greece will struggle to finance its deficit eroded confidence in the European currency. The Chinese yuan has rallied 6.2 percent against the euro in that time, reflecting the Asian currency’s peg to the greenback. A stronger yuan erodes the competitiveness of China’s exports to Europe, the No. 1 destination for the shipments. “Europe is more than happy,” said Prodi. “For the benefit of the European economy, the decrease of the value has been absolutely positive.” For Related News and Information: Stories on Greece: NI GRE Stories on Greek election: NSE GREEK ELECTION For more on Greek economy: NI GEECO

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Greek Financial Crisis Is `Over,’ Rest of Euro Region Is Safe, Prodi Says

March 10, 2010

By Bloomberg News March 10 (Bloomberg) — The worst of Greece’s financial crisis is over and other European nations won’t follow in its path, said former European Commission President Romano Prodi . “For Greece, the problem is completely over,” Prodi, who was also Italian prime minister, said in an interview in Shanghai. “I don’t see any other case now in Europe. I don’t think there is any reason to think the euro system will collapse or will suffer greatly because of Greece.” Greek officials have been working to reduce the nation’s budget deficit, which at 12.7 percent of gross domestic product was Europe’s largest in 2009. The government last week announced spending cuts and tax increases totaling 4.8 billion euros ($6.5 billion), the third round of austerity measures this year. French President Nicolas Sarkozy said on March 7 the 16- nation euro region must support Greece, which has more than 20 billion euros of debt falling due in April and May, or risk destroying the currency. German Chancellor Angela Merkel, who runs Europe’s largest economy, has so far refused to give the green light to any aid package. Intervention by European nations to date “was enough” and countries such as Spain and Portugal have “plenty of time” to get their finances in order, said Prodi, who in 1997 introduced a “euro tax” that helped Italy cut its budget deficit to 2.7 percent of GDP and so qualify to join the currency. Italy’s shortfall in 1997 was equivalent to 7 percent of the economy. Prodi, 70, who was head of the commission from 1999 to 2004, will teach at the China Europe International Business School in Shanghai. He said budget deficits are “a general problem for almost all the wealthy countries.” The euro has weakened 5.8 percent against the dollar this year as concern Greece will struggle to finance its deficit eroded confidence in the European currency. The Chinese yuan has rallied 6.2 percent against the euro in that time, reflecting the Asian currency’s peg to the greenback. A stronger yuan erodes the competitiveness of China’s exports to Europe, the No. 1 destination for the shipments. “Europe is more than happy,” said Prodi. “For the benefit of the European economy, the decrease of the value has been absolutely positive.” — Judy Chen . Editors: Allen Wan , James Regan To contact Bloomberg News staff for this story: Judy Chen in Shanghai at +86-21-6104-7047 or Xchen45@bloomberg.net ;

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`Speculative’ Sovereign Default Swap Sales Could Face a Ban, Barroso Says

March 9, 2010

By Ben Moshinsky March 9 (Bloomberg) — Traders could be banned from selling some sovereign credit default swaps in the wake of the Greek debt crisis, European Commission President Jose Barroso said today. The commission will examine “the relevance of banning purely speculative naked sales on CDS of sovereign debt,” Barroso said in a speech at the European Parliament today. “If it is true that the current problems in Greece were not caused by speculation on the financial markets, it is also true that this speculation was an aggravating factor,” said Barroso. European banks and regulators met with the European Commission March 5 to discuss regulation of the sovereign credit-default swaps market amid concerns over Greece’s fiscal woes. German Chancellor Angela Merkel and Christine Lagarde , France’s finance minister, have criticized the products amid concerns they can distort bond market perceptions. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent if a country or company fails to adhere to its debt commitments. Traders in naked CDS buy and sell insurance on bonds they don’t own. To contact the reporters on this story: Ben Moshinsky in Brussels at bmoshinsky@bloomberg.net

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Egypt’s Mubarak Has Inflamed Gallbladder Removed, Temporarily Yields Power

March 6, 2010

By Daniel Williams and Holger Elfes March 6 (Bloomberg) — Egypt President Hosni Mubarak’s inflamed gallbladder was successfully removed today during an operation in Germany, Heidelberg University Hospital said. “The surgery was successful,” hospital spokeswoman Annette Tuffs said. Egypt’s government Middle East News Agency said Mubarak, 81, was in an intensive care unit following the operation and speaking to family members and doctors. Mubarak temporarily handed power to Prime Minister Ahmed Nazif , who will carry out the presidential role until the longtime leader is able to resume his duties, the government information ministry said. In Egypt, there is no vice president. Mubarak is conscious and communicating with his family and medical team, Marcus Buchler, a doctor at the Heidelberg Medical Center, said in a statement. The Egyptian leader will stay in the hospital “in the following days until he has fully recovered,” the statement said. Former German Chancellor Helmut Kohl had the same surgery done at the southern Germany facility last month and was discharged three weeks later, Tuffs said in a telephone interview. It’s “perfectly possible” to live without a gallbladder, she said. 28-Year Rule Mubarak has ruled the Middle East’s most populous country for 28 years. His reign is the longest since the military overthrew Egypt’s monarchy in 1952. He had been visiting Germany for talks with Chancellor Angela Merkel . During an examination yesterday, Mubarak was found to have “chronic inflammation of the gallbladder,” Egypt’s government press office said. Magdy Rady , the cabinet spokesman, said Nazif, 58, will stay in Egypt until Mubarak is back. “It’s business as usual,” Rady said. “There’s no worries about Nazif for Mubarak,” said Hisham Kassem , a former newspaper publisher and opposition activist. “There won’t be a coup.” Nazif was appointed prime minister in July 2004. He was Minister of Communications and Information Technology in the previous government. Liberalization of Egypt’s economy has been a main thrust of his time in office. Munich Surgery In June 2004, Mubarak underwent surgery in Munich for a slipped disc. He put presidential powers in the hands of then- Prime Minister Atef Obeid for 10 days. Mubarak has been in office since 1981 following the assassination of Anwar Sadat during a military parade by soldiers belonging to an underground Islamic group. He has kept to the peace treaty with Israel that took effect in 1979 and in the past two years tried to mediate between feuding Palestinians in hopes of getting peace talks for a Palestinian state next to Israel under way. Presidential elections are scheduled for 2011. The aging leader has kept succession possibilities firmly linked to his ruling National Democratic Party. Rules introduced in 2006 require presidential candidates to belong to the NDP or established opposition parties, which have virtually no popular support. If an independent wants to run, he must win endorsement by parliament and local councils, all dominated by the NDP. The country’s biggest opposition group, the Muslim Brotherhood, isn’t recognized by the government as a political party. Emergency Laws Mubarak reins in dissent through emergency laws decreed in 1981 that prohibit besmirching Egypt’s image, permit secret trials to be held and allow jailings without trial. Speculation on a successor to Mubarak has swirled since 2003, when he fainted during a session of parliament. In Cairo, democratic activists have campaigned to prevent a possible dynastic succession to Mubarak’s son Gamal, 47. He heads the NDP’s policy committee. Gamal denies he’s running for president. Mohammed ElBaradei , former head of the International Atomic Energy Agency, is campaigning for constitutional changes that would widen the field for presidential candidates. During a visit to Cairo last month, ElBaradei formed a group of 30 opposition politicians and activists to press for new rules. To contact the reporters on this story: Daniel Williams in Cairo at Dwailliams41@bloomberg.net Holger Elfes in Dusseldorf at helfes@bloomberg.net

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Volcker Says Euro Will Survive as Greek Budget Crisis Not `Insuperable’

March 6, 2010

By Rainer Buergin and Philipp Encz March 6 (Bloomberg) — Former Federal Reserve Chairman Paul Volcker said European officials are lucky that the euro region’s first major crisis was sparked by one of its smaller members and he’s confident the currency will survive. “I’m still a believer in the euro,” said Volcker in an interview in Berlin today. The lack of a unified government to back up the European Central Bank is a “structural crack” and “maybe fortunately it’s tested with a country as small as Greece, which doesn’t present an insuperable financing problem.” The euro has dropped 8 percent in the past three months as Greece’s soaring budget deficit sparked concern it could default and cause the euro region to break up. The euro’s founding treaty sets out no rules on how a struggling member nation could be rescued and didn’t establish a single finance ministry, prompting billionaire investor George Soros to say on Feb. 28 that the currency “may not survive” the crisis. The lack of a unified fiscal policy has sparked a divergence of bond yields across the euro region as Greece’s crisis worsened. The extra yield investors demand to hold Greek 10-year debt instead of German equivalents jumped to 396 basis points in January, the highest since 1998. The average gap over the past decade was 34 basis points. The Spanish and Portuguese spreads are about five times their respective 10-year averages. Greece, which announced a further round of deficit cutting measures this week, managed to sell 5 billion euros ($6.8 billion) of new 10-year bonds on March 4, which Volcker called “a good sign.” At 12.7 percent, Greece’s deficit was the highest in the 27-nation European Union last year. ‘Peculiar Arrangement’ A “combination of very strong measures and availability of money” may help solve the Greek problem and stop contagion spreading to other euro nations, Volcker said. Academics and investors have pointed to the lack of European political union as an inbuilt weakness of the euro since it was created in 1999. Volcker said most U.S. economists were skeptical the euro would survive when the currency was introduced in 1999 because of its “peculiar arrangement.” “I would say about 99 out of 100 American economists said it was not a good idea, but I was the one who did,” he said. Harvard University Professor Martin Feldstein , who warned in 1997 that European monetary union would spark greater political conflict, said Feb. 12 that the euro “isn’t working.” Soros said 10 days later that if EU members don’t take the next step toward political union, the common currency may disintegrate. Safeguarding the Euro While EU leaders on Feb. 11 pledged to safeguard financial stability in the euro area as a whole, no mechanism has been set up for doing that, Soros said. Greece’s debt crisis has put the euro on its longest losing streak against the dollar since November 2008. Greek Prime Minister George Papandreou is visiting Luxembourg, Berlin, Paris and Washington after his government passed a 4.8 billion euro austerity package yesterday. German Chancellor Angela Merkel , who met him yesterday, said the question of a bailout “absolutely doesn’t arise” and the steps taken in Greece to cut the deficit make her optimistic that a rescue won’t be needed. French President Nicolas Sarkozy , who meets Papandreou in Paris tomorrow, said today the EU must support Greece or risk destroying the euro. To contact the reporters on this story: Rainer Buergin in Berlin at rbuergin1@bloomberg.net ;

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Sarkozy Says European Union Must Support Greece or Risk Destroying Euro

March 6, 2010

By John Fraher and Lorenzo Totaro March 6 (Bloomberg) — French President Nicolas Sarkozy said the European Union must support Greece or risk destroying the euro as Prime Minister George Papandreou heads for Paris to lobby support for the debt-laden country. “If we created the euro, we cannot let a country fall that is in the eurozone,” said Sarkozy, who hosts Papandreou in Paris tomorrow. “Otherwise there was no point in creating the euro. We must support Greece because they are making an effort.” EU leaders have so far refused to give financial aid to Greece and have ordered the government to cut its budget deficit, the EU’s highest, on its own. While Papandreou says steps taken this past week to slash the shortfall warrant more help from the EU, German Foreign Minister Guido Westerwelle said today that his country is “not going to write a blank check.” Papandreou is touring Luxembourg, Berlin, Paris and Washington after his government passed a 4.8 billion euro ($6.5 billion) austerity package yesterday. German Chancellor Angela Merkel , who met him yesterday, said the question of a bailout “absolutely doesn’t arise” and the steps taken to cut the deficit make her optimistic that a rescue won’t be needed. Sarkozy, who didn’t say financial support would be forthcoming in his speech today, will meet Papandreou in the Elysee Palace around 6 p.m. local time tomorrow. They will brief reporters afterwards. Merkel is rebuffing any talk of a rescue even as EU nations are said to be working on a contingency bailout plan for Greece to be funded by member governments. Greece sold 5 billion euros of bonds on March 4, with investor demand more than three times the offering, the day after Papandreou announced the package of tax increases and spending cuts. Bond Sale The 6.25 percent bonds Greece sold rose to about 99.4 cents on the euro to yield 6.32 percent, compared with an issue price of 98.94 cents, according to EFG Eurobank Trading prices on Bloomberg. The risk premium that investors demand to buy Greek bonds over comparable German debt, the European benchmark, fell 4 basis points to 293 basis points. Papandreou is indicating that Greece may still need financial support and is prepared to turn to the IMF if necessary, calling it a “final resort” on March 3. That prompted a rebuff from European Central Bank President Jean-Claude Trichet a day later as finance officials fret such a move would signal the EU isn’t capable of solving its own problems. Italian Finance Minister Giulio Tremonti nevertheless today refused to rule out a role for the IMF in any aid package. IMF Role “The IMF should act as a bank” in any rescue, he told reporters in Venice. “We finance the IMF so it can use the funds around the world. Why not use that capital with the IMF acting as a bank with its know-how?” Tremonti also said that the EU could also issue “eurobonds” or coordinated the sale of euro-denominated government bonds to better counter “financial speculation.” As Greece calls for more help, Merkel yesterday turned her focus to restricting the use of derivatives to halt “speculators” from exploiting countries’ budget deficits. Greece has done its work and Europe and the U.S. must now ensure that financial-market speculators aren’t allowed to inflict further damage on Greece or on other countries, she said. “Credit-default swaps, where you insure your neighbor’s house just to destroy it and make money from it, that’s exactly what we have to curb,” Merkel said at a joint press conference in Berlin yesterday with Papandreou. Speaking in Venice today, French Finance Minister Christine Lagarde said today that credit-default swaps “need to be much more and much better regulated.” To contact the reporters on this story: Lorenzo Totaro in Rome at ltotaro@bloomberg.net

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Dollar Gains Versus Yen as U.S. Loses Fewer Jobs in February Than Forecast

March 6, 2010

By Ben Levisohn March 6 (Bloomberg) — The dollar posted its biggest five- day gain versus the yen in two weeks as fewer Americans lost jobs last month than economists forecast, increasing the likelihood that the U.S. economic recovery remains on track. The euro gained against the Japan’s currency as Greece’s prime minister prepares to meet with leaders in Paris and Washington to discuss resolving its debt crisis. The yen fell versus South Africa’s rand and Canada’s dollar after the U.S. employment report spurred demand for riskier assets. “The payrolls number was big from a psychological point of view,” said Sebastien Galy , a currency strategist at BNP Paribas SA in New York. “It’s the end of the double dip scenarios. The impact has been massive on dollar-yen, which will accelerate quite sharply.” The dollar rose 1.5 percent this week to 90.28 yen, from 88.97 on Feb. 26. The euro traded at $1.3626, compared with $1.3631, and gained 1.7 percent to 123 yen, from 121.26. Japan’s currency this week fell 5.7 percent, the biggest drop since the five days ended April 3, to 12.1812 per rand. Against Canada’s dollar the yen fell 3.8 percent, the biggest decline since the five days ended Dec. 4. The greenback yesterday gained as much as 1.76 percent against the yen, the biggest intraday move since Dec. 11, after U.S. payrolls dropped 36,000 in February, below the 68,000 median forecast in a Bloomberg News survey. Job Losses Economists had forecast job losses may have accelerated last month, partly because of blizzards on the East Coast and winter storms in the South that closed some businesses and prompted temporary shutdowns. “The U.S. economy averted what could have been an extremely weak labor market report,” Kathy Lien , director of currency research with online trader GFT Forex in New York wrote in a report. “The blizzards in the Northeast clearly did no damage to the labor market. In fact traders have bought dollars aggressively because without the winter storms, job growth probably returned.” Canada’s dollar posted its biggest weekly gain in two months versus the greenback as the improvement in its largest trading partner’s outlook could provide a boost for Canada’s economy. Carry Trade “Canada ought to benefit from this because it’s closely tied to the U.S. economy,” said Brian Kim , a currency strategist at UBS AG in Stamford, Connecticut. “We see stronger Canadian dollar, but prefer to play it against non-dollar crosses.” Canada’s trade surplus with the U.S. widened to C$3.7 billion in December from C$3.4 billion, Statistics Canada said on Feb. 10. Japan’s currency fell this week against all 16 of the most traded currencies tracked by Bloomberg as signs that the global recovery were still on track spurred demand for riskier assets. “The jobs number is taking the flight to quality out of the market,” said Frank Pavilonis , senior market strategist in Chicago at futures broker MF Global Ltd.’s Lind-Waldock unit. “It’s putting assets back into risk currencies.” The yen fell as better-than-forecast economic data boosted demand for carry trades, in which investors buy higher-yielding assets with amounts borrowed in nations with low interest rates. The benchmark of 0.1 percent in Japan makes the yen popular for funding such transactions. ‘Non-Negative News’ The South African rand posted its biggest weekly gain versus the yen in almost a year after a report yesterday showed the central bank hasn’t been buying foreign reserves to weaken the currency, easing concern of intervention to stem rand gains. Gross gold and foreign currency reserves declined to $39.4 billion last month from $39.5 billion in January, the Pretoria- based South African Reserve Bank said on its Web site today. Net reserves dropped to $38.3 billion from $38.6 billion. Europe’s currency this week gained 1.4 percent against the yen as Greece’s parliament yesterday gave final approval to the government’s 4.8 billion euros ($6.5 billion) of additional cuts to the European Union’s biggest budget deficit. “The last several days have seen some concerns over Greece fade,” said Vassili Serebriakov , a currency strategist at Wells Fargo & Co. in New York. “The non-negative news prevents slippage in the euro.” Net Shorts Greek Prime Minister George Papandreou , who met with Germany’s Chancellor Angela Merkel and Luxembourg Prime Minster Jean-Claude Juncker yesterday, will meet with French President Nicolas Sarkozy on March 7 before travelling to Washington to meet with President Barack Obama on March 9 in Washington. The euro has declined 5.1 percent against the greenback this year amid concern Greece’s deficit woes could hinder the region’s recovery. Futures traders decreased their bets that the euro will decline against the U.S. dollar, figures from the Washington- based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain — so-called net shorts — was 66,770 on March 2, compared with net shorts of 71,623 a week earlier. Chile’s peso posted its biggest weekly advance since November against the dollar as the country’s worst earthquake since 1960 fueled speculation the government will tap its overseas savings fund to finance reconstruction. The peso climbed 1.2 percent to 508.82 per dollar, extending its weekly advance to 3.1 percent, more than all other emerging-market currencies except the South African rand. The peso earlier touched 508.75, the strongest level in almost six weeks. To contact the reporter on this story: Ben Levisohn in New York at blevisohn@bloomberg.net .

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Greece’s Financial Aid Plea Snubbed by Merkel in `Historic Moment’ for EU

March 3, 2010

By Tony Czuczka and Rainer Buergin March 4 (Bloomberg) — Greece’s pledge to ramp up planned budget-deficit cuts by half failed to yield commitments of financial assistance from Germany, Europe’s biggest economy, to help solve its financial crisis. German Chancellor Angela Merkel said a meeting tomorrow with Greek Prime Minister George Papandreou won’t be “about aid commitments.” Her finance minister, Wolfgang Schaeuble , said the deficit-reduction measures announced in Athens were probably enough to convince investors to buy Greek debt. While Papandreou is risking a backlash at home to meet European Union demands for more deficit cuts before allies even consider providing aid, Merkel is facing domestic opposition to tapping taxpayers to extend a financial lifeline to Greece. “There would be no understanding in Germany for bailing out Greece,” Henrik Enderlein, a political economist at the Hertie School of Governance in Berlin, said by phone. “It’s a bit of catch-22 situation: if you give in to Greece and you put 5 billion or perhaps even 10 billion into some kind of rescue package or into some guarantees, then the German government would look irresponsible. However, if it doesn’t, then European Union leaders might put a lot of pressure on Merkel and say, look, we have to bail out Greece.” With public workers set to demonstrate in Athens today after the Cabinet yesterday backed 4.8 billion euros ($6.6 billion) of measures in the third round of deficit cuts this year, Papandreou said Greece was prepared to turn to the International Monetary Fund as a last resort. ‘Fulfilled to Utmost’ “We have fulfilled to the utmost all that we must from our side; now it’s Europe’s turn,” Papandreou told his ministers yesterday, according to an e-mailed transcript. “It is a historic moment for the European Union.” Greek bonds rose to their highest in three weeks after the Cabinet endorsed a package of revenue-raising and budget-cutting steps, including higher fuel, tobacco and sales taxes and a cut of 30 percent in three bonus payments to civil servants on top of a wage and benefits freeze. The measures are “convincing,” the European Central Bank said in a statement. The ECB appreciates the Greek government’s recognition of the need to “rapidly adopt and implement decisive structural reforms.” The Greek announcement “is as much about giving other EU governments more political capital in the event that they do eventually need to provide liquidity to Greece,” said Gary Jenkins , head of credit research at Evolution Securities Ltd. in London. “They can make the claim to their own taxpayers that Greece has taken further measures as suggested by the EU.” Summit Promise For now, none of the potential lenders has stepped up since a statement at a Feb. 11 EU summit promised “determined and coordinated action” to support Greece. “There’s no need for such a thing at this point in time,” French Finance Minister Christine Lagarde said late yesterday on Sky television. “If it was required, the partners in the club would be available to restore stability.” After meeting Merkel in Berlin, the Greek leader is due in Paris two days later for talks with French President Nicolas Sarkozy . While Greece is pressing EU leaders to help cover the bloc’s largest budget deficit, Merkel’s comments were the clearest signal yet that Germany isn’t convinced. “I expressly want to say that Friday isn’t about aid commitments, but about good relations between Germany and Greece,” Merkel said yesterday in an interview with N-TV, according to a transcript provided by her office. Greece’s steps are “an important signal” toward restoring confidence in the euro. Euro Climbs The euro climbed as much as 1.21 cents yesterday, or 0.9 percent, to $1.3736, its highest intraday level since Feb. 17. The yield on the benchmark 10-year bond fell 13 basis points to 6.02 percent, the lowest since Feb. 11. The premium investors demand to buy Greek government debt over comparable German bonds, the European benchmark, declined 14 basis points to 2.91 percentage points. Investor concern about Greece’s ability to finance its debt pushed the risk premium to 396 basis points on Jan. 28, the highest since the start of the euro in 1999, boosting the cost of selling new bonds and raising the risk of default. The premium on Spanish and Portuguese debt has also surged as investors shunned bonds of other high-deficit EU nations. Greece faces more than 20 billion euros in debt redemptions in April and May. The EU is devising a plan to grant Greece about 25 billion euros in emergency aid should the need arise, German lawmakers have said, enough to cover the maturing debt. One option could involve using state-owned lenders such as Germany’s KfW Group to buy its bonds. Deficit Cuts Greece has pledged to trim a deficit of 12.7 percent of gross domestic product to 8.7 percent this year. Concern that Greece won’t be able to tame the shortfall saw the euro lose almost 5 percent against the dollar this year. Greece has blamed market speculators for fueling the decline in its securities. European officials have warned hedge funds that they shouldn’t try to profit from the woes of the region’s nations. U.S. authorities have told some hedge funds not to destroy trading records on euro bets, according to a person with knowledge of the requests. Banks and regulators across Europe were summoned by the European Commission to discuss regulation of the market for sovereign credit-default swaps in the wake of the Greek debt crisis. To contact the reporters on this story: Rainer Buergin in Berlin at rbuergin1@bloomberg.net ; Tony Czuczka in Berlin at aczuczka@bloomberg.net

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Hedge Funds Said Told by U.S. to Save Trading Records on Bets Against Euro

March 2, 2010

By Katherine Burton and David Scheer March 2 (Bloomberg) — The U.S. Department of Justice has sent notices to hedge funds telling them not to destroy trading records involving bets on the euro, according to a person who has seen the requests. The notices went to at least some of the hedge funds whose executives attended an idea dinner hosted by New York-based research and brokerage firm Monness, Crespi, Hardt & Co. on Feb. 8, said the person, who declined to be identified because the information is private. One of the 23 themes discussed at the dinner was a wager that the euro would fall against the dollar, according to an agenda of the meeting obtained by Bloomberg News. Aaron Cowen , an executive at SAC Capital Advisors LP, David Einhorn , head of Greenlight Capital LLC, and Don Morgan , who runs Brigade Capital Management LLC, attended the dinner, as did a representative from Soros Fund Management LLC, the Wall Street Journal said Feb. 25. “The big issue is whether the meeting was informational, and these various traders were simply responding in a parallel way to a common set of facts,” which would be legal, said Herbert Hovenkamp , who teaches antitrust law at the University of Iowa College of Law in Iowa City. “What’s not legal is for people to agree to trade at a particular price or against the euro to devalue it and start a stampede that devalues it further,” he said. Bullish on Canada Spokespeople for the hedge funds declined to comment or didn’t return calls seeking a comment. Neil Crespi , president of Monness Crespi, couldn’t be reached for comment. Gina Talamona , a Department of Justice spokeswoman, declined to comment. The requests were reported earlier today by CNBC. Even if the Department of Justice decides to request the records, it doesn’t necessarily mean that the managers will be investigated, said Jedd Wider , a partner at Morgan, Lewis & Bockius LLP. Other ideas discussed at the dinner, which took place at the Townhouse, a private dining facility run by restaurant Park Avenue Winter, were bullish bets on the Canadian dollar and Philip Morris International and bearish wagers on Wells Fargo & Co. and Bank of America Corp. The euro has tumbled 11 percent since Nov. 25 on concern that Greece may not be able to finance its debt. It traded at $1.3610 as of 6:25 p.m. New York time. The premium investors demand to buy Greek government debt over comparable German bonds, the European benchmark, rose to 396 basis points on Jan. 28, the highest since the start of the euro in 1999, making it more expensive for the country to sell new bonds. Sovereign credit default swaps, used to insure against default, rose to a record last month. The European Commission has said it will investigate trades in sovereign credit default swaps in the wake of the Greek debt crisis, saying they can fuel speculation that can distort market perceptions. German Chancellor Angela Merkel ’s government is considering ways to “tighten up rules” in the sovereign CDS market. French Finance Minister Christine Lagarde said Feb. 17 “we should examine the suitability” of credit swaps. To contact the reporters on this story: Katherine Burton in New York at kburton@bloomberg.net ; David Scheer in New York at dscheer@bloomberg.net .

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Greece Said to Prepare $6.5 Billion of Deficit Cuts, Bowing to EU Pressure

March 2, 2010

By Maria Petrakis March 2 (Bloomberg) — The Greek government will announce as much as 4.8 billion euros ($6.5 billion) of additional deficit cuts tomorrow, bowing to pressure from the European Union and investors to do more to tame the region’s biggest shortfall, a person familiar with the plan said. The new measures will include higher, tobacco, alcohol and sales taxes and deeper cuts in public workers’ bonus payments, said the person, who declined to be identified because the details aren’t public. Greek bonds advanced for a third day today on the prospect that the deficit measures might ease opposition to EU aid for Greece. EU Monetary Affairs Commissioner Olli Rehn said yesterday that Greece must reveal new measures “in the coming days” to allay officials’ concerns that the current austerity plan falls short. The announcement would come two days before Prime Minister George Papandreou meets Germany’s Angela Merkel and may help the chancellor justify aiding Greece to taxpayers and political opponents who say the country shouldn’t be bailed out after living beyond its means. The yield on the benchmark 10-year bond fell 7 basis points today to 6.18 percent, the lowest since Feb. 12. The premium investors demand to buy Greek government debt over comparable German bonds, the European benchmark, fell 15 basis points to 3.01 percent, the least in three weeks. Rising Risk Concern about Greece’s ability to finance its debt pushed that premium to 396 basis points on Jan. 28, the highest since the start of the euro in 1999, making it more expensive for the country to sell new bonds. German lawmakers say euro-area officials are devising a plan to grant Greece about 25 billion euros in aid should the need arise. One option could involve using German state-owned lenders such as the KfW Group to buy its bonds . That would be enough to cover more than 20 billion euros of debt redemptions in April and May. Greece had planned to sell 5 billion-euros of bonds as soon as this week. Greece is under no pressure to sell more debt and will do so when market conditions are “favorable,” Petros Christodoulou , head of the country’s debt management Agency, said in an interview today. In its original deficit reduction plan presented to the European Commission on Jan. 15, the government pledged to cut a deficit of 12.7 percent of gross domestic product to 8.7 percent this year. The new measures, the second set of additional actions announced by Greece since the original plan was presented, are the equivalent of as much as 2 percentage points of GDP. To contact the reporters on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net

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Greece’s Debt and Goldman Sachs: Week in Review

February 19, 2010

Feb. 19 (Bloomberg) — “ Goldman Sachs, Greece Didn’t Disclose Swap Contract ” leads a selection of top stories from Bloomberg News in the past week. Goldman Sachs Group Inc. managed $15 billion of bond sales for Greece after arranging a currency swap that allowed the government to hide the extent of its deficit. German Chancellor Angela Merkel said it would be a “scandal” if banks helped Greece massage its budget. Click here for more stories on Greece’s debt crisis. Bloomberg BusinessWeek’s cover story focuses on Merkel, the head of Europe’s biggest economy, who has emerged as the key player in the drive to save Greece from default. For the latest news from the Winter Olympic Games in Vancouver, click here . Following is a selection of other top stories from the past week, chosen by senior editors at Bloomberg News. Carney Says Investors Signal Stimulus ‘Limits’ as Deficits Grow Feb. 15 (Bloomberg) — Bank of Canada Governor Mark Carney said investors are beginning to warn governments that there are “limits to stimulus” and adding pressure that may force policy makers to keep budget deficits in check. Billionaire Blavatnik Takes On JPMorgan Over $98 Million Loss Feb. 17 (Bloomberg) — Billionaire Len Blavatnik said JPMorgan Chase & Co., his bank for 15 years, lost a tenth of the $1 billion he had it manage and, for redress, he did something he never did before: He sued. Gundlach’s Clash With TCW May Cost ’The Godfather’ $500 Million Feb. 17 (Bloomberg) — Jeffrey Gundlach has a black eye and a cut on the bridge of his nose, and he winces as he rubs his side. Goldman Tennessee Mall Loan Shows CMBS Stirring: Credit Markets Feb. 17 (Bloomberg) — A mortgage on a Tennessee shopping mall coming due in June may show Wall Street is ready to resume bundling real estate loans into bonds, part of a $700 billion debt market shuttered for almost two years. Mongolian Harvard Elites Aim for Wealth Without ‘Dutch Disease’ Feb. 16 (Bloomberg) — Mongolia’s billions of dollars worth of copper, gold, uranium and coal reserves promise the greatest influx of wealth for the country since Genghis Khan conquered much of the known world in the 13th century. Birthday Flower May Be Part of Kim Jong Il Succession Feb. 16 (Bloomberg) — North Korea celebrated Kim Jong Il’s birthday today with tens of thousands of flowers. The most intriguing blossom is a new variety of begonia sent on his son’s birthday that may signify preparations for a succession. Citadel’s DePietro Uses Hedge-Fund Skills to Direct First Movie Feb. 18 (Bloomberg) — After graduating from Harvard University in 1993, Julio DePietro got a job with Citadel Investment Group, then a small, obscure financial firm in Chicago. He planned to stay just long enough to pay off his student loans. The five most-read opinion columns from the past week: 1. Tiger Woods Can’t Face His Need to Come Clean: Scott Soshnick 2. Currency Trading Is Place to Make Your Fortune: Matthew Lynn 3. Olympic Luger’s Death Shouldn’t Be a Surprise: Scott Soshnick 4. Libido Control Is How to Get Ahead at the Office: Susan Antilla 5. Four Bargains Emerge Amid Knocked-Down Stocks: John Dorfman The top 10 most-read stories on Bloomberg.com for the past week (excluding daily market coverage): 1. Goldman Sachs, Greece Didn’t Disclose Swap Contract 2. Fed Raises Discount Rate by Quarter-Point to 0.75% 3. Goldman’s O’Neill Says ‘Something Brewing’ in China on Currency 4. Europe Economy Chief Calls for More Steps by Greece 5. Rich Getting Richer Rewards as Credit-Card Law Refutes Bankers 6. EU Seeks Greek Swaps Disclosure After Ministry Probe 7. Citigroup Stock Proving Irresistible to Hedge Funds 8. Merkel Slams Greek ‘Scandal’ as Goldman Role Examined 9. Goldman Sachs’s Spilker, Overseer of $871 Billion, Exits Firm 10. Soros More Than Doubled Gold ETF Stake in 4th Quarter # # -0- Feb/19/2010 20:37 GMT

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