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New York Police Seek Man Filmed Close to Failed Car Bomb in Times Square

May 2, 2010

By Henry Goldman May 2 (Bloomberg) — New York detectives sought to identify a person seen in Times Square around the hour of yesterday’s attempted car bombing, while police and building owners stepped up security in midtown Manhattan. Police Commissioner Raymond Kelly said investigators are looking for a man caught on a video camera walking away from the site near Times Square where they found a Nissan Pathfinder SUV with an explosive device inside. Police plan to make the video public, Kelly said. As forensic experts examined the car, gathering fingerprints and its owner history through a recovered vehicle identification number, Kelly said he intends to deploy more officers than usual in midtown Manhattan and elsewhere to help ease tourists’ minds. “It wasn’t an accident; it was someone who brought this to the area to send a message,” Kelly told reporters, defining the crime as terrorism. “If this had detonated, it would have caused casualties, a significant fireball, and would have ripped the vehicle in half.” Transit agency officials said they expected the morning commute to be normal. They and some building owners said they had already upgraded security in the aftermath of the Sept. 11, 2001, terrorist attack on the World Trade Center. “NYC Transit has remained at the highest state of alert since 9/11, reminding employees to report any suspicious activity,” said Paul Fleuranges , a spokesman for New York City Transit, which operates the subways and buses. Heightened Awareness He cited an April 30 incident in which track workers spotted someone in a tunnel near Bowling Green in lower Manhattan and turned the individual in to police as “an example of that heightened state of awareness.” Kelly said the person police are looking for, described as about 40 years old, was captured on a neighborhood surveillance camera as he hurried through Shubert Alley , a pedestrian walkway between 44th and 45th Street, steps away from where the explosive-laden car was parked. The person can be seen on the video removing his dark shirt and placing it in a bag, and while dressed in a red T-shirt, he walked from the scene “in a furtive manner,” Kelly said. Police were also on their way to Pennsylvania, where a tourist reported that he may have unintentionally photographed the person while taking snapshots of Times Square, Kelly said. ‘No Evidence’ of Taliban Investigators have “no evidence” that a group of Pakistani Taliban sympathizers were responsible for the attempt, although a self-described group took credit for it, Kelly said. He noted authorities have ruled out the group’s involvement in other attempted and successful attacks around the world after receiving similar messages in the past. New York Mayor Michael Bloomberg , speaking to reporters this evening in Times Square as a crowd of tourists watched, said there is “no evidence” of a link to terrorist groups. The mayor, founder and majority owner of Bloomberg News parent Bloomberg LP, thanked the federal government for assistance from the FBI and the Department of Homeland Security. Relations between the city and federal authorities “have never been tighter,” Bloomberg said. “This is the crossroads of the world and people will continue to come here,” the mayor said before escorting Wayne Rhatigan, the police officer who was first on the scene, and his wife, to dinner several blocks from where the incident occurred. Federal Support     President Barack Obama , speaking in Louisiana, where he had gone to inspect damage from the Gulf of Mexico oil spill, praised the city’s police and fire departments, the FBI, and the street vendor who alerted police to the smoking car.      “My national security team has been taking every step necessary to ensure that our state and local partners have the full support and cooperation of the federal government,” Obama said. “We’re going to do what is necessary to protect the American people to determine who’s behind this potentially deadly act and to see that justice is done.” Plans to host foreign ministers in New York at the United Nation’s Nuclear Proliferation Conference won’t be disrupted by the bomb scare, said U.S. State Department spokesman Philip Crowley . The conference, which will draw participants from Europe, the Middle East and Asia, starts May 4. Among businesses stepping up security was Bank of America Corp., whose 54-story tower is situated about two blocks from the corner of West 45th Street and Broadway where the vehicle was parked. “Our corporate security team has increased uniform presence at One Bryant Park,” spokesman T.J. Crawford said in an e-mail. ‘9/11 in Mind’ The building “was built with 9/11 in mind,” said its owner, Douglas Durst , co-president of The Durst Organization, in a phone interview. Completed in 2008, the structure “has extra-wide staircases, it has pressurized stairs to keep smoke out, and it’s surrounded by bollards,” or protective traffic guards, he said. Durst, whose properties also include the Conde Nast building at 4 Times Square, said his company had installed security cameras and refitted buildings with blast-resistant glass and traffic buffers to protect against car bombs. At the 1,949-room Marriott Marquis Hotel , where 800 to 1,000 people were evacuated to ballrooms for about seven hours, “everything returned to normal” after guests were permitted to return to their rooms at about 2 a.m., said Kathleen Duffy, a spokeswoman for the hotel chain’s New York operations. The hotel is across the street from where the car was parked. ‘No Complaints’ “Guests were all very cooperative,” she said. “They understood why this was happening and we received no complaints.” Forensic investigators have examined eight one-pound (0.45- kilogram) bags of a granular material found in a gun box in the car, which they believe might be fertilizer, Kelly said. Timothy McVeigh used about 5,000 pounds of ammonium nitrate fertilizer ingredient in the improvised explosive device in the 1995 truck bombing of a federal building in Oklahoma City. The intended detonator of the Times Square bomb, Kelly said, was a 16-ounce can filled with consumer-grade fireworks. The car also held two five-gallon containers of gasoline and three propane tanks, wired with two clocks, the commissioner said. Kelly said officials have identified the owner of the vehicle and are trying to find and talk to the individual. To contact the reporter on this story: Henry Goldman in New York City Hall at hgoldman@bloomberg.net

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Papandreou Makes Austerity Pitch as Unions Slam Cuts

April 30, 2010

By Maria Petrakis and Natalie Weeks April 30 (Bloomberg) — Prime Minister George Papandreou is starting his sales pitch to the Greek people as unions denounce “unjust” budget cuts linked to a potential $159 billion European Union bailout. “We find ourselves before the most savage, unprovoked and unjust attack,” Spyros Papaspyros , head of the ADEDY civil servants union, said in Athens late yesterday after meeting Papandreou. “The answer will be given in the street.” Greek officials aim to reach an agreement with the EU and the International Monetary Fund in coming days on budget cuts that may be worth 24 billion euros ($32 billion). While signs of an accord ended a bond market selloff in Europe yesterday, Moody’s Investors Service warned that Greece could be vulnerable to a “multi-notch” downgrade if measures don’t go far enough. Steps may include a three-year wage freeze for public workers and cutting two of the 14 salary payments that they receive annually, the ADEDY union said. Greece’s NET Radio said yesterday that cuts could amount to 10 percentage points of gross domestic product. The deficit was 13.6 percent of GDP in 2009. “It’s a tall order to assume that Greeks will be convinced because for years they have been used to getting a different type of treatment from their governments,” said Michael Massourakis , chief economist at Alpha Bank, the country’s third largest, in a telephone interview. “Papandreou doesn’t have the luxury of choosing the context or pace of the adjustment.” Retailers plan to shut their stores on May 5, joining a strike organized by the GSEE union, the nation’s biggest. Junk Rating Greece’s credit rating was cut to below investment grade, or junk, this week by Standard & Poor’s. Moody’s Investors Service, which currently has an A3 rating on the country, said its decision will depend on the measures announced by the EU and the IMF. A3 is the fourth-lowest investment grade. Other deficit-cutting steps include increasing sales tax and raising the cap on the number of workers who can be fired to 4 percent from 2 percent, Kathimerini newspaper said, without saying where it got the information. “We will do what is needed for the salvation of the country,” Papandreou said, according to the e-mailed transcript of his comments to union and business representatives. It didn’t give details of the austerity measures. Bond Yield The yield on the Greek 10-year government bond, which surged to 11.406 percent on April 28, fell 91 basis points to 9.04 percent yesterday as officials speed up efforts to finalize a rescue package. The ASE benchmark general index , which has lost nearly a fifth of its value this year, jumped 7 percent, the most since December. National Bank of Greece SA soared 18 percent. The euro was little changed against the dollar in Asia, trading at $1.3239 as of 2:17 p.m. in Tokyo. Stocks across the region snapped a three-day losing streak as earnings results from companies in the region bolstered confidence in Asia’s economic expansion. “The financial support will give Greece sufficient breathing space from pressures of financial markets,” EU Monetary Affairs Commissioner Olli Rehn said yesterday. Election Pledge Papandreou is stuck between investors, who want faster deficit cuts, and voters and unions, who are already chafing from existing austerity measures. Elected in October on pledges to raise wages for public workers, Papandreou has been forced to cut salaries, curb spending and raise taxes to reduce a deficit that was more than four times the EU’s limit last year. “We were and are the champions of change,” Papandreou said April 28. “We know we must put our economy in order if we are to survive.” The time has come to move on from “watching the spreads go up and down, usually more up than down.” “I got a taste of a very tough package,” Yannis Panagopoulos, head of the GSEE union, said after meeting Papandreou. He described it as “arbitrary and unjust.” Voters’ anger has been partly focused on the IMF and the political risks facing Papandreou are highlighted by the IMF’s most recent involvement in Europe. In Hungary, the first EU member to turn to the Washington- based lender, voters this month ousted the ruling Socialist party two years after it accepted a bailout. Fiscal conditions attached to the $27 billion loan exacerbated the country’s recession as unemployment soared to a record, souring support for the government. Popular Opposition Sixty-five percent of Greek voters polled by researcher Alco for the Proto Thema newspaper last week said Papandreou must reject any measures that lead to more wage and pension cuts. Europe’s fiscal crisis worsened this week after Germany’s reluctance to approve emergency funds sparked a drop in Greek bonds and S&P followed its Greek downgrade with cuts for Portugal and Spain. Papandreou, who said last week that his country faces a “new Odyssey,” will now have to convince voters that they don’t have a choice, said Alpha Bank’s Massourakis. Even after yesterday’s bond-market rally, Greece must pay 12.57 percent to borrow for two years. Germany pays 0.79 percent. “It’ll be difficult, but at end of the day people will realize that these are necessary because the country doesn’t have access to borrowing anymore,” he said. To contact the reporters on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net Natalie Weeks in Athens at nweeks2@bloomberg.net .

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Papandreou Makes Austerity Pitch as Unions Slam `Unjust’ Bailout Measures

April 29, 2010

By Maria Petrakis and Natalie Weeks April 30 (Bloomberg) — Prime Minister George Papandreou is starting his sales pitch to the Greek people as unions denounce as “unjust” budget cuts linked to a potential $159 billion European Union bailout. “We find ourselves before the most savage, unprovoked and unjust attack,” said Spyros Papaspyros , head of the ADEDY civil servants union, in Athens late yesterday after meeting Papandreou. “The answer will be given in the street.” Greek officials will reach agreement with the EU and the International Monetary Fund in the next days on budget cuts that may be worth 24 billion euros ($32 billion). While signs of an accord ended a bond market selloff in Europe yesterday, Moody’s Investors Service warned that Greece could be vulnerable to a “multi-notch” downgrade if measures don’t go far enough. Steps may include a three-year wage freeze for public workers and cutting two of the 14 salary payments that they receive annually, the ADEDY union said. Greece’s NET Radio said yesterday that cuts could amount to 10 percentage points of gross domestic product. The deficit was 13.6 percent in 2009. “It’s a tall order to assume that Greeks will be convinced because for years they have been used to getting a different type of treatment from their governments,” said Michael Massourakis , chief economist at Alpha Bank, the country’s third largest, in a telephone interview. “Papandreou doesn’t have the luxury of choosing the context or pace of the adjustment.” Retailers plan to shut their stores on May 5, joining a strike organized by the GSEE union, the country’s largest. Multi-Notch Cut? Greece’s credit rating was cut to junk this week by S&P and Moody’s Investors Service, which currently has an A3 rating on the country, said its decision will depend on the measures announced by the EU and the IMF. Other deficit-cutting steps include increasing sales tax and raising the cap on the number of workers who can be fired to 4 percent from 2 percent, Kathimerini newspaper said, citing no one. “We will do what is needed for the salvation of the country,” Papandreou said, according to the e-mailed transcript of his comments to union and business representatives. It didn’t give details of the austerity measures. The yield on the Greek 10-year government bond, which surged to 11.406 percent on April 28, fell 91 basis points to 9.04 percent yesterday as officials speed up efforts to finalize a rescue package. The ASE benchmark general index , which has lost nearly a fifth of its value this year, jumped 7 percent, the most since December. National Bank of Greece SA soared 18 percent. ‘Tough Package’ “The financial support will give Greece sufficient breathing space from pressures of financial markets,” EU Monetary Affairs Commissioner Olli Rehn said yesterday. Papandreou is stuck between investors, who want faster deficit cuts, and voters and unions, who are already chafing from existing austerity measures. Elected in October on pledges to raise wages for public workers, Papandreou has been forced to cut salaries, curb spending and raise taxes to reduce a deficit that was more than four times the EU’s limit last year. “We were and are the champions of change,” Papandreou said April 28. “We know we must put our economy in order if we are to survive.” The time has come to move on from “watching the spreads go up and down, usually more up than down.” “I got a taste of a very tough package,” Yannis Panagopoulos, head of the GSEE union, said after meeting Papandreou. He described it as “arbitrary and unjust.” Voters’ anger has been partly focused on the IMF and the political risks facing Papandreou are highlighted by the IMF’s most recent involvement in Europe. Pension Cuts In Hungary, the first EU member to turn to the Washington- based lender, voters this month ousted the ruling Socialist party two years after they accepted a bailout. Fiscal conditions attached to the $27 billion loan exacerbated the country’s recession as unemployment soared to a record, souring support for the government. Sixty-five percent of Greek voters polled by researcher Alco for the Proto Thema newspaper last week said Papandreou must reject any measures that lead to more wage and pension cuts. Europe’s fiscal crisis worsened this week after Germany’s reluctance to approve emergency funds sparked a drop in Greek bonds and S&P followed its Greek downgrade with cuts of Portugal and Spain. Papandreou, who said last week that his country faces a “new Odyssey,” will now have to convince to voters that they don’t have a choice, said Alpha Bank’s Massourakis. Even after yesterday’s bond market rally, Greece must pay 12.57 percent to borrow for two years. Germany pays 0.79 percent. “It’ll be difficult, but at end of the day people will realize that these are necessary because the country doesn’t have access to borrowing any more,” he said. To contact the reporters on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net Natalie Weeks in Athens at nweeks2@bloomberg.net .

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U.S. Stocks Rally Most in Two Months on Earnings; Motorola, Starwood Gain

April 29, 2010

By Elizabeth Stanton April 29 (Bloomberg) — U.S. stocks rallied, sending the Standard & Poor’s 500 Index to its biggest gain in almost two months, as better-than-estimated earnings at companies from Motorola Inc. to Starwood Hotels & Resorts Worldwide Inc. showed the economy is strengthening. Motorola, the largest U.S. mobile-phone maker, advanced 3.2 percent after reporting an unexpected profit, and Starwood rose 5.4 percent. Palm Inc. surged 25 percent as Hewlett-Packard Co. agreed to buy the maker of Pre phones for about $1.2 billion. BP Plc, Transocean Ltd. and Cameron International Corp. plunged after the U.S. Coast Guard said an oil well in the Gulf of Mexico is leaking five times faster than previous estimates. The S&P 500 gained 1.2 percent to 1,205.27 at 3:25 p.m. in New York, its biggest advance since March 5. The main benchmark for American equities is within 1 percent of its 19-month high last week. The Dow Jones Industrial Average rallied 120.24 points, or 1.1 percent, to 11,165.51. The gauges fell the most since February on April 27 as credit-rating downgrades of Greece and Portugal triggered a flight from risky assets. “Earnings season has been spectacular,” said Eric Green , senior money manager at Penn Capital Management in Philadelphia, which oversees about $5 billion. “The recovery has been stronger than most have expected.” Earnings Season Profit at companies in the S&P 500 surged 176 percent during the final three months of 2009, the most in Bloomberg data going back to 1998, and analysts estimate a 44 percent increase for the first quarter of 2010. Earnings estimates for companies in the index rose 9.1 percent on average in April, the largest monthly increase since at least 2006. Income for the first three months of this year is beating estimates at nearly the fastest rate ever, with 78.4 percent of the companies that have reported topping projections. That compares with 79.5 percent in the third quarter and 72.3 percent in the period before that. Companies reporting better-than-estimated results since yesterday’s close include Akamai Technologies Inc., Aetna Inc. and International Paper Co. The S&P 500 has rallied 78 percent from a 12-year low in March 2009 as earnings grew following a record nine-quarter slump and the Federal Reserve kept its benchmark interest rate at a record low to safeguard the recovery from recession. The Fed yesterday reiterated its pledge to keep its benchmark rate near zero for an “extended period” even as the labor market shows signs of improvement. Jobless Benefits A Labor Department released before exchanges opened today showed the number of Americans filing claims for unemployment benefits declined last week to a one-month low, a sign the economic rebound is lifting the labor market. European stocks also advanced, lifting the Stoxx Europe 600 Index from a six-week low, as the region’s leaders moved closer to approving a rescue plan for Greece. European Union Economic and Monetary Affairs Commissioner Olli Rehn today told reporters in Brussels that he is confident discussions on the aid package for Greece will conclude “in the next days.” Motorola gained 3.2 percent to $7.14 after posting first- quarter profit, excluding some items, of 2 cents a share. Analysts predicted a loss of 1 cent on average. The company’s forecast for second-quarter earnings beat analysts’ estimates, signaling demand for models like the Droid is helping to reverse a three-year sales slump. Starwood, Palm Starwood climbed 5.4 percent to $56.15. The owner of the St. Regis and W hotel brands said first-quarter profit surged fivefold as revenue exceeded the average analyst projection. Palm rallied 25 percent to $5.80 after agreeing to be bought by Hewlett-Packard for $5.70 a share. The deal puts Hewlett-Packard back in contention with the biggest smartphone makers, including Nokia Oyj, Apple Inc. and Research In Motion Ltd. Acquisitions are rebounding after takeovers of U.S. companies tumbled 83 percent from their 2007 peak to a six-year low of $89.2 billion in last year’s fourth quarter, according to Bloomberg data. Volume totaled $179.1 billion during the first quarter, and $71.1 billion of deals have been announced this month. BP, based in London, plunged 8.4 percent to $52.54 in U.S. trading. The company will have to pay the costs associated with an oil spill in the Gulf of Mexico after last week’s explosion of a well that is leaking as much as 5,000 barrels of crude a day, the Obama administration said today. Shrimpers Sue Transocean, which owns the oil rig, lost 6.9 percent to $79.01. Halliburton Co. retreated 7.2 percent to $30.96. Louisiana fishermen and shrimpers sued BP, Transocean and Halliburton on claims the oil spill will destroy the state’s fishing industry. Halliburton was responsible for capping the well, according to the lawsuit. Cameron International lost 13 percent to $38.67. Its gear has been used on the Deepwater Horizon rig since the vessel was commissioned, Scott Amann , a company spokesman, said in an interview. Baidu Inc., the operator of China’s biggest Internet search engine, rallied 14 percent to $711.23. First-quarter net income rose to 480.5 million yuan ($70.4 million) from 181.1 million yuan a year earlier. That exceeded the 364.6 million-yuan average of analysts’ estimates compiled by Bloomberg. Akamai, the largest supplier of software and services to make Web sites load faster, rose 19 percent to $39.42. Aetna, the third-biggest U.S. health insurer, climbed 2.8 percent to $31.35. International Paper, the world’s largest maker of white paper used in offices, increased 4.1 percent to $28.30. ‘Exceptional Condition’ “Corporations are in exceptional condition,” said Carmine Grigoli , chief investment strategist at Mizuho Securities USA Inc. in New York. “Profitability is approaching levels last seen in 2007 at the peak of the profit cycle.” Education companies retreated following a report that Robert Shireman , the U.S. undersecretary for education, criticized the panels that evaluate for-profit colleges. Apollo Group Inc. fell 6 percent, Corinthian Colleges Inc. declined 5.4 percent and ITT Educational Services dropped 7.1 percent. Inside Higher Ed reported that Shireman compared the agencies that handle accreditation of for-profit colleges to credit-ratings firms, which he said played a role in the “flawed” regulatory process that allowed Wall Street firms to contribute to the financial crisis that began in 2007. To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net

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Stocks, Oil Rise on Economy; Emerging Market Currencies Gain

April 29, 2010

By Rita Nazareth and Gavin Serkin April 29 (Bloomberg) — Stocks rallied the most in almost two months as companies from Motorola Inc. to Unilever NV posted better-than-estimated profit and European leaders moved closer to rescuing Greece. Higher-yielding currencies gained after the Federal Reserve pledged to keep interest rates at a record low. The Standard & Poor’s 500 Index climbed 1.3 percent and the MSCI World Index of stocks in 23 developed nations gained 1.2 percent at 11 a.m. in New York, the most since March 5 for both. The ASE Index jumped 7.1 percent in Athens, the biggest rally this year, as the European Union said it’s close to agreeing on a bailout to prevent a Greek default. The extra yield investors demand to hold Greek 10-year bonds instead of benchmark German bunds narrowed 97 basis points to 596 basis points. South Africa’s rand rose 0.9 percent against the dollar, while oil and tin led gains in commodities. Investor confidence is recovering after almost three- quarters of companies in the MSCI World Index and S&P 500 that reported earnings topped analysts’ estimates. European confidence in the economic outlook improved to the highest in more than two years, while U.S. jobless claims fell to a one- month low and German unemployment plunged. Fed policy makers restated a pledge yesterday to keep interest rates near zero for an extended period even as the labor market begins to improve. ‘Great So Far’ “The earnings season has been great so far,” said Hayes Miller , a Boston-based money manager at Baring Asset Management Inc., which oversees $46.1 billion. “That’s a good indication for the economy. 2010 looks pretty solid right now. In Europe, things are still on the table.” The S&P 500 has recovered three-quarters of its 2.3 percent plunge on April 27 when S&P cut Greece’s credit rating to junk and lowered Portugal by two steps. With the first-quarter earnings season past the half-way point, S&P 500 companies have beaten analysts’ estimates by an average of 17 percent on a per- share basis, according to data compiled by Bloomberg. Motorola, the largest U.S. mobile-phone maker, rallied 4.3 percent after forecasting second-quarter earnings that topped analysts’ estimates amid growing demand for models like the Droid. Aetna Inc. and Starwood Hotels & Resorts Worldwide Inc. were also among companies that climbed after reporting better- than-estimated earnings. Initial jobless claims fell by 11,000 to 448,000 in the week ended April 24, in line with the median forecast of economists surveyed by Bloomberg News and the lowest level in a month, Labor Department figures showed. The number of people receiving unemployment insurance and those getting extended payments decreased. Global Advance The Stoxx Europe 600 Index rallied 1.5 percent, with food and beverage companies leading gains. Unilever, the world’s second-largest food and detergent company, rallied 3.7 percent in Amsterdam after saying profit rose 33 percent. Pernod Ricard SA , the maker of Absolut vodka, climbed 2.9 percent in Paris after raising its forecast for full-year earnings. Siemens AG, Europe’s largest engineering company, advanced 1.7 percent in Frankfurt after profit topped estimates. The rand and Brazilian real rose at least 0.9 percent to lead gains among 14 of 16 major currencies against the dollar as investors bought currencies in countries with higher interest rates. Only the yen and Taiwanese dollar retreated. Brighter economic prospects in Asia and widening interest-rate differentials are likely to attract more capital, while bets for exchange-rate appreciation in the region may boost so-called carry trades, the IMF said in a report today. Euro Rebounds The euro strengthened 0.2 percent to $1.3249, after trading at $1.3115 yesterday, the lowest level in a year. Investors demanded an extra 5.96 percentage points in yield to buy Greece’s 10-year bonds rather than benchmark German bunds, after the difference in yield, or spread, widened to more than 8 percentage points yesterday. Greek Prime Minister George Papandreou began trying to persuade labor unions to accept further austerity measures as the nation tried to qualify for a rescue package worth as much as 120 billion euros ($159 billion). German Chancellor Angela Merkel said yesterday that the “stability of the euro zone” was at stake if a loan package for Greece can’t be delivered quickly. President Nicolas Sarkozy said France is “determined” to support the euro and Greece, while European Union Economic and Monetary Affairs Commissioner Olli Rehn today told reporters in Brussels that he is confident discussions on the aid package for Greece will conclude “in the next days.” Default Swaps The cost of insuring against default on European corporate bonds fell for the first time in four days. The Markit iTraxx Crossover Index of credit-default swaps on 50 mostly high-yield companies fell 18 basis points to 438 as of 3:02 p.m. in London, after yesterday climbing to the highest level since March 22, according to Markit Group Ltd. Contracts tied to Greece’s government debt dropped 97.5 basis points to 657, CMA DataVision prices show. Germany’s DAX Index jumped 1 percent as unemployment declined at the fastest pace in more than two years in April, the Nuremberg-based Federal Labor Agency said today. An index of executive and consumer sentiment in the 16 euro nations rose to 100.6 in April from a revised 97.9 in March, the European Commission in Brussels said today. Spanish 10-year bonds rose, cutting the yield by 6 basis points to 4.05 percent. The Italian 10-year bond yield fell 4 basis points to 4.06 percent even as the nation sold 8 billion euros ($11 billion) of securities due in 2012, 2017 and 2020. Tin for delivery in three months added 2.3 percent to $18,415 a metric ton on the London Metal Exchange, the steepest advance since February. Aluminum gained 1 percent, while gold fluctuated and crude oil added 2.6 percent to $85.38 a barrel in New York. To contact the reporters for this story: Rita Nazareth in New York at rnazareth@bloomberg.net ; Gavin Serkin at gserkin@bloomberg.net .

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Pimco’s El-Erian Will Avoid Greek Debt Until Sustainable Solution Is Found

April 29, 2010

By Dave Liedtka April 29 (Bloomberg) — Mohamed El-Erian, chief executive and co-chief investment officer at Pacific Investment Management Co., said the firm wouldn’t buy Greece debt until there is a sustainable solution to the economic situation in the nation. El-Erian commented on Bloomberg Radio. The euro rose from near a one-year low against the dollar as the European Union neared the conclusion of talks to aid Greece and reports stoked optimism the region’s economy is improving. European Union Economic and Monetary Affairs Commissioner Olli Rehn said the outcome of talks with Greece will be “a multi-annual program that will lead to major fiscal and structural adjustment,” with more details coming “soon.” Standard & Poor’s P this week downgraded Greece’s credit rating to junk, days after the nation called for activation of a financial rescue package of as much as 45 billion euros ($59.7 billion) following a surge in its borrowing costs. S&P cut Spain’s credit rating to AA yesterday, a day after paring Portugal’s rating to A-.

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Papandreou Starts Austerity Pitch to Greeks as EU Says Bailout Almost Done

April 29, 2010

By Maria Petrakis and Paul Tugwell April 29 (Bloomberg) — Greek Prime Minister George Papandreou began trying to persuade labor unions to accept further austerity measures as the European Union said it’s close to agreeing on a bailout that will stave off a default. As Papandreou started his pitch, Greek bonds jumped on optimism a package amounting to 120 billion euros ($159 billion) will help the government meet debt obligations over the next three years. “I got a taste of a very tough package,’’ Yannis Panagopoulos, head of Greece’s biggest union, said in comments broadcast on state-run NET Radio after meeting Papandreou. Panagopoulos, whose union will hold a general strike on May 5, described the measures as “arbitrary and unjust.” He didn’t give details on what they entail. Greek officials will conclude talks with the EU and International Monetary Fund in the next few days after a bond market rout pushed the country’s two-year borrowing costs to 24 percent. The crisis worsened this week after Standard & Poor’s cut Greece’s rating to junk and investors started to shun the bonds of other countries struggling to cut their deficits. As part of the agreement hammered out with the EU and the IMF, the government may cut two of the 14 monthly salaries paid to civil servants and increase value-added tax rates, Kathimerini newspaper reported, without citing anyone. Other plans include raising the cap on the number of workers who can be fired to 4 percent from 2 percent. Stock Rally Papandreou’s government was told to cut the budget deficit, which may have topped 14 percent last year, by 10 percentage points in 2010 and 2011, NET Radio said. The station didn’t say how it got the information. Bonds and stocks rallied after EU Economic and Monetary Affairs Commissioner Olli Rehn said he is confident aid discussions will conclude in a few days. Greek 10-year bond yields fell to as low as 8.9 percent from 9.8 percent. The ASE benchmark general index jumped 7 percent, the most since December. National Bank of Greece SA soared 16 percent. “The financial support will give Greece sufficient breathing space from pressures of financial markets,” Rehn told reporters in Brussels today. “This is done not only because of Greece but for every euro member state and its citizens to safeguard financial stability in Europe and globally.” Merkel Pledge German Chancellor Angela Merkel yesterday pledged to step up efforts to overcome the crisis after the euro fell to the lowest in a year and S&P followed its Greek cut with downgrades of Spain and Portugal. Officials from the EU, the European Central Bank and the IMF, dubbed the “troika” by the Greek press, are in Athens working out details of the loan package that would provide about 45 billion euros this year. IMF Managing Director Dominique Strauss-Kahn told German parliamentary leaders yesterday that Greece may need as much as 120 billion euros over the three-year horizon of the deficit plan, German Green Party lawmaker Juergen Trittin said yesterday. Dimitris Daskalopoulos , the head of the Federation of Greek Industries, said the biggest employer group is prepared to support the government’s plans. “Our will is a given,” he said today after meeting with Papandreou. “Businesses can and will contribute. We can see better days.” Platform Papandreou is stuck between investors who want faster deficit cuts and voters and unions who are uncomfortable with further austerity measures. Elected in October on pledges to raise wages for public workers, Papandreou has been forced to cut salaries, curb spending and raise taxes to reduce a deficit that was more than four times the EU’s limit last year. That’s not enough for some investors. Borrowing costs for Greece, which has the second-highest debt ratio in the EU, have soared amid market concern that the country may default on its debt. The extra yield that investors demand to hold Greek 10- year bonds over German bunds exceeded 800 basis points this week. To contact the reporter on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net .

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Greek Citizens `Should Not Fear’ Advice-Bearing IMF, Strauss-Kahn Says

April 24, 2010

By Flavia Krause-Jackson and Sandrine Rastello April 24 (Bloomberg) — International Monetary Fund Managing Director Dominique Strauss-Kahn said Greek citizens shouldn’t be afraid of a bailout. Unions and opposition political parties slammed Prime Minister George Papandreou ’s April 23 request for a European Union and IMF-led rescue plan. ADEDY, an Athens-based federation of the more than 500,000 Greek civil servants who have had wages cut this year, called it a “barbaric attack” and planned a rally for April 27. “The Greek citizens should not fear the IMF,” Strauss- Kahn said at a press conference in Washington, seeking to dispel concerns that a loan package with austerity measures will damage the country’s economy. “We are there to try and help them.” The IMF will provide details about the package at the end of talks, Strauss-Kahn said. Greeks aren’t the only people who have “demonized” the fund, he said. Strauss-Kahn’s efforts to paint the IMF as a benign savior come as Greek unions and voters are incensed at the prospect that the IMF and the EU will demand deeper cuts as a condition for aid. Papandreou said his country needs a financial lifeline of as much as 45 billion euros ($60 billion) this year. The IMF arranged more than $100 billion of loans to Thailand, Indonesia and South Korea after their currencies collapsed during the 1997-98 Asian financial crisis. In return, governments were forced to cut spending, raise interest rates and sell state-owned companies. Asia Crisis Critics said the policies deepened the Asian region’s recession, as higher borrowing costs hurt businesses and crimped domestic consumption. After Argentina defaulted on $95 billion in debt in 2001, former President Nestor Kirchner often blamed the IMF for demanding austerity measures that exacerbated the South American country’s crisis. Kirchner in 2005 mocked former IMF Managing Director Rodrigo de Rato for saying that Argentina should be “respectful” of its creditors. “It’s pathetic to listen to them sometimes,” Kirchner said at the time. The Greek government is negotiating loan terms likely to require it to do more to slash a budget gap that totaled 13.6 percent of gross domestic product in 2009, more than four times the European Union limit. Papandreou, elected six months ago, may have a tough time raising taxes again and cutting spending. He’s already faced street protests and strikes against measures that have failed to convince investors Greece can shore up its debt. Greeks fear the EU and IMF package, crafted to stem the country’s soaring borrowing costs, will mean lower pensions and benefits, more wage cuts and produce a deeper recession. Changed Lender Greece’s finance minister, George Papaconstantinou , arrived in Washington at 2 a.m. today and had meetings with Strauss- Kahn, European Central Bank President Jean-Claude Trichet and EU Economic and Monetary Affairs Commissioner Olli Rehn . He also met with U.S. Treasury Secretary Timothy F. Geithner , who urged European governments and the IMF to “move quickly” to support the cash-strapped nation. The fund has learned from previous aid packages and has changed, Strauss-Kahn said. “We learn from all our programs,” he said. “The IMF is a kind of a cooperative organization, where all the countries of the world work together to try to help those being in trouble,” Strauss-Kahn said. Youssef Boutros-Ghali , the Egyptian finance minister who chair’s the IMF’s steering committee, added: “If you can pass this message to the Greek people, it is a different institution” and should be given “the benefit of the doubt.” To contact the reporter on this story: Flavia Krause-Jackson in Washington at fjackson@bloomberg.net ; Sandrine Rastello in Washington at srastello@bloomberg.net

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Geithner Urges EU, IMF to `Move Quickly’ With Aid to Greece After Meetings

April 24, 2010

By Theophilos Argitis and Shamim Adam April 24 (Bloomberg) — U.S. Treasury Secretary Timothy F. Geithner urged European governments and the International Monetary Fund to “move quickly” to support cash-strapped Greece as its finance minister held aid talks in Washington. “Secretary Geithner encouraged them to move quickly to put in place a package of strong reforms and substantial concrete financial support,” the Treasury said in a statement after Geithner met with his counterpart George Papaconstantinou , IMF Managing Director Dominique Strauss-Kahn and European officials. Papaconstantinou arrived in Washington early this morning, hours after Prime Minister George Papandreou sought a financial lifeline of as much as 45 billion euros ($60 billion) this year as investors question whether the country can finance itself. The government is negotiating loan terms likely to require it to do more to slash a budget gap that totaled 13.6 percent of gross domestic product in 2009, more than four times the European Union limit. Papaconstantinou also met with European Central Bank President Jean-Claude Trichet and EU Economic and Monetary Affairs Commissioner Olli Rehn with discussions centering on the appeal for cash and “the progress of work under way in Athens for the preparation of the medium-term economic program of reforms supporting EU and IMF financing,” the Greek finance ministry said in a statement. Even with outside help, investors are signaling concern about the country’s ability to end its fiscal crisis. A rebound in Greek bonds after the government’s request fizzled out yesterday with the yield on the two-year note rising to 10.23 percent, after falling to 9.63 percent. Not Buying “We are not buying Greek debt while so many problems remain unsolved,” said Ralf Ahrens , who holds Greek bonds as part of the about $20 billion he manages as head of fixed-income at Frankfurt Trust. “Asking for the package will not calm down the market.” European policy makers have only spelled out the aid that Greece would receive over the next year, sparking concern about how the country will finance itself beyond 2011. While Greece has pledged to lower its budget deficit below the EU’s 3 percent limit by 2012, Goldman Sachs Group Inc. says the country’s challenge is so great the nation may cut or delay payments to bond investors. Late Arrival “We wouldn’t touch Greece at the moment,” said Rod Davidson , head of fixed income at Alliance Trust Plc in Dundee, Scotland. “The market needs some clarity on whether or not there will be some kind of restructuring of Greek bonds. There’s too much uncertainty and volatility.” Rehn told reporters late yesterday in Washington that an aid program will likely be agreed by early May and extend over three years. Greece faces 8.5 billion euros of bonds maturing May 19. Papaconstantinou arrived at his hotel about 2 a.m. today dressed in black tracksuit bottoms and a hooded top. He arrived to find the reception unstaffed and declined to comment when asked by Bloomberg News about his plans in Washington. He is also set to meet Russian Finance Minister Alexei Kudrin , Brazilian Finance Minister Guido Mantega today and Chinese Finance Minister Xie Xuren tomorrow, according to a statement yesterday from the Greek embassy in Washington. A press conference is scheduled for tomorrow. Mantega said today that the Greek turmoil “is not big enough to threaten” the global recovery, while Brazilian central bank President Henrique Meirelles said it served as a warning to other governments to cut their budget deficits. Alert to World “The whole world will have to face the fiscal issue, even larger countries have public debts substantially above what they had before the crisis,” Meirelles said. “This was an alert in the sense that we have a problem ahead.” European central bankers in Washington played down speculation that Greece’s woes could spill over to other high- deficit countries such as Spain or Portugal. Trichet said yesterday that “Spain is not Greece.” “Is there a risk for other countries in the zone? No, the other situations have absolutely nothing to do with that of Greece,” Bank of France Governor Christian Noyer said. To contact the reporters on this story: Theophilos Argitis in Washington at targitis@bloomberg.net Shamim Adam in Washington at sadam2@bloomberg.net

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Greek Bailout May Fail to Ease Investor Fiscal Crisis Angst

April 24, 2010

By Matthew Brown and Bryan Keogh April 24 (Bloomberg) — Greece’s request for a $60 billion bailout led by the European Union may fail to ease investor concerns about the nation’s ability to end its fiscal crisis. A rebound in Greek bonds after the government’s request for a rescue yesterday, fizzled out as investors kept their focus on a budget deficit that will still be around 10 percent of gross domestic product this year even after austerity measures. The yield on the Greek two-year note rose to 10.23 percent, after falling to 9.63 percent. “We are not buying Greek debt while so many problems remain unsolved,” said Ralf Ahrens , who holds Greek bonds as part of the about $20 billion he manages as head of fixed-income at Frankfurt Trust. “Asking for the package will not calm down the market.” European policy makers have only spelled out the aid that Greece would receive over the next year, sparking concerns about how the country will finance itself beyond 2011. While Greece has pledged to lower its budget deficit below the EU’s 3 percent limit by 2012, Goldman Sachs Group Inc. says the country’s challenge is so great the nation may cut or delay payments to bond investors. The extra yield that investors demand to hold Greek 10-year debt over German bunds has surged more than 200 basis points since the start of last week. Clarity “We wouldn’t touch Greece at the moment,” said Rod Davidson , head of fixed income at Alliance Trust Plc in Dundee, Scotland. “The market needs some clarity on whether or not there will be some kind of restructuring of Greek bonds. There’s too much uncertainty and volatility.” Canadian Finance Minister Jim Flaherty called the Greek turmoil a “source of concern” at a meeting of finance ministers and central bankers from the Group of 20 in Washington yesterday. U.K. Chancellor of the Exchequer Alistair Darling said the euro area “has to get on with” helping Greece because failure to resolve the crisis would “simply delay confidence coming back to the world economy.” EU Economic and Monetary Affairs Commissioner Olli Rehn said work should be completed on a program by early May. European Central Bank Governing Council member Ewald Nowotny rejected as “totally unfounded” speculation that Greece’s troubles will now spread to other high-deficit countries such as Portugal and Spain. Swaps Rise His French colleague, Christian Noyer , agreed and said the euro remains an “extremely strong” currency. Credit-default swaps on Greek sovereign bonds fell 15 basis points to 619, after falling to as low as 584, according to CMA DataVision prices. Contracts were at 287 basis points on March 17. A basis point on a swap insuring $10 million of debt for five years is equivalent to $1,000 a year. Greece’s national debt is almost 300 billion euros and investors are demanding more than double what they charge Germany for its 10-year bonds. The crisis is threatening to spread to Spain and Portugal, forcing the EU to set up a standby aid facility. Greek Prime Minister George Papandreou’s appeal yesterday came after he described the country’s borrowing costs as unsustainable. 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. The EU has said it’s prepared to lend Greece three-year funds in 2010 at about 5 percent and declined to say what will be dispersed next year. Officials from the EU and the IMF are meeting their Greek counterparts in Athens to discuss terms of the loans as workers strike in protest against further austerity measures. Avoiding Greece “There must be a better way to make money than investing in Greek bonds at the moment,” said John Stopford , co-head of fixed income at Investec Asset Management Ltd. in London, which oversees about $65 billion in assets. “Despite the aid package, we are not convinced by the risk and return of the bonds. We are not comfortable with things that are driven by politics rather than fundamentals.” The premium that investors want to hold Greek two-year notes over 10-year bonds widened to 164 basis points after falling to as low as 121 basis points when Papandreou said he would activate the aid package. Short-term yields rising above longer term ones, creating a so-called inverted yield curve, indicate that investors are concerned they may be forced to accept delayed or reduced payments. The EU, which will finance the rescue with the IMF, said the terms of the aid package may be agreed “in a matter of days.” German Chancellor Angela Merkel , who has stressed her reluctance to put her taxpayers’ money at risk since the crisis started, said that any Greek aid is contingent on its deficit- cutting commitments. Germany and France will contribute more than half of the bailout funds, Germany putting in 8.4 billion euros and France providing 6.3 billion euros, according to an EU document obtained by Bloomberg News. They are followed by Italy and Spain. “The request for the bailout has put a temporary respite on spreads widening, but the market still wants to know the specifics of how much will be given, at what cost and for how long,” said Marc Ostwald , a fixed-income strategist at Monument Securities Ltd. in London. To contact the reporters on this story: Bryan Keogh in London at bkeogh4@bloomberg.net ; Matthew Brown in London at mbrown42@bloomberg.net .

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U.K. Airports Start Opening as Flights Resume; Scottish Airspace Is Closed

April 20, 2010

By Ben Martin and Steve Rothwell April 20 (Bloomberg) — U.K. airports including Heathrow are starting to open after the government, the Civil Aviation Authority and manufacturers agreed on volcanic ash tolerance levels and inspections, Transport Secretary Andrew Adonis said. U.K. air traffic control services have resumed except for an area over the north west of Scotland “which continues to be affected by a dense concentration of volcanic ash,” Britain’s National Air Traffic Services Ltd. said. U.K. airspace restrictions began to be lifted at 9:34 p.m., NATS said in an e- mailed statement. “Manufacturers have now agreed increased tolerance levels in low ash density areas,” the U.K.’s Civil Aviation Authority said. That allows “a phased reintroduction from 10 p.m. tonight of much of the airspace which is currently closed due to the volcanic ash plume over the U.K.,” the U.K.’s safety regulator said in an e-mailed statement. Europe’s air-traffic controllers hadn’t been able to agree on whether it’s safe to fly through the Icelandic ash cloud as airports in Paris, Frankfurt and Amsterdam reopened while London’s Heathrow hub stayed closed. The U.K. guidance was issued in conjunction with the Irish Aviation Authority and covers the Anglo Irish Functional Airspace Block. British Airways Plc planned to return 28 long-haul flights back to the U.K. tonight, after the new guidance was issued, Chief Executive Officer Willie Walsh said in a televised briefing to reporters in London. ‘Blanket Ban’ Walsh said he was “very pleased” that airports were reopening and said he doesn’t “believe it was necessary to impose a blanket ban on all U.K. airspace.” U.K. airspace could have been re-opened earlier, Walsh also said. Services from Paris’s Charles de Gaulle and Orly terminals resumed this morning, with 30 percent of flights likely to operate, according to French Transport Minister Dominique Bussereau . “They are using a different model in Paris and other parts of Europe,” said Richard Goodfellow , a spokesman for British Airways Plc , which uses Heathrow as its main hub. Under the accord to resume flying, airlines must conduct their own risk-assessment tests, “develop operational procedures to address any remaining risks,” add intensive inspections for ash damage before and after each flight, and report any ash-related incidents, the CAA said. Monitor the Situation The CAA said it will continue to run ash tests from the air and on the ground. Travel disruptions began last week after ash from an eruption of Iceland’s Eyjafjallajökull volcano began drifting across northern Europe, grounding planes and stranding travelers across much of the continent. “The government will continue to work with all of the relevant agencies to ensure that people can return home to the U.K. quickly and safely, and that those booked on flights out of the U.K. can travel as soon as possible,” a spokesman for Prime Minister Gordon Brown said in a statement. “We will of course continue to monitor the situation closely.” Virgin Atlantic Airways Ltd. plans to operate a number of flights to the U.K. starting over the next 24 hours, with the aim of resuming its full flight schedule as soon as possible, according to a statement. BMI, a U.K. airline owned by Deutsche Lufthansa AG, will resume some flights at 9.15 a.m. local time tomorrow, it said in a statement. EasyJet Plc will resume European services tomorrow morning, it said in a separate statement. Airline Losses Ash represents a threat to jetliners because it could stop their engines by melting and congealing in turbines. European Union transport ministers agreed yesterday to loosen limits on flying after airline losses reached as much as $300 million a day, according the International Air Transport Association. British Airways, the country’s largest airline, has said it is losing 20 million pounds ($30 million) a day in revenue from the airspace restrictions. As of midday, the ash plume covered a swath of Europe from Ireland to Russia, including northern France and Italy and the whole of Germany, Denmark, the Benelux nations, Switzerland, Austria, Poland, the Czech Republic, Latvia and Lithuania, according to the Met Office. Most of Scandinavia and Scotland are ash free, as is the Iberian peninsula. The U.K.’s relative proximity to the eruption has been a consideration in decisions taken about airport openings, Adonis said earlier today in an interview. ‘Severely Affected’ “Britain is closer to Iceland than other parts of Europe and we’ve been more severely affected, so judgments we make here may not be the same judgments made in Europe,” he said. European airlines have asked governments and the European Union for aid, British Airways’ Walsh said yesterday. Payments were made after the Sept. 11 terror attacks on the U.S. in 2001, “and clearly the impact of the current situation is more considerable,” he said. European Union Competition Commissioner Joaquin Almunia said restrictions on assistance may be eased as the impact of the disruption is discussed by ministers. The Eyjafjallajökull eruption began on March 20 with a lava flow on the eastern flank of the volcano, according to the Institute of Earth Sciences at the University of Iceland. After a lull, it resumed early on April 14 directly under the glacier that covers most of the mountain. The previous eruption of the 1,666-meter peak in December 1821 continued until January 1823. To contact the reporters on this story: Ben Martin in London bmartin38@bloomberg.net ; Steve Rothwell in London at srothwell@bloomberg.net

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EU to Phase Out Flying Bans as Ash Subsides From Iceland Volcanic Eruption

April 19, 2010

By Steve Rothwell and Gregory Viscusi April 19 (Bloomberg) — European airspace will be divided into open, closed and restricted zones as governments seek to restore flights following a volcanic eruption in Iceland that’s costing the industry $300 million a day. Work is under way to determine which areas of the sky are entirely safe for aircraft, which have ash levels that may permit flying following an assessment by national authorities, and which have densities that make air services “too risky,” European Transport Commissioner Siim Kallas said today. “From tomorrow morning on, we should see progressively more planes starting to fly,” Kallas said at a press briefing in Brussels. “It’s not a question of reducing safety but having more sophisticated risk analysis.” About 81,000 flights have been canceled since the Eyjafjallajökull volcano erupted on April 14, spewing dust that could stop jet engines by melting and congealing in turbines. British Airways Plc, which campaigned with other airlines for restrictions to be lifted after test trips showed no sign of impaired performance, aims to resume operations from London Heathrow airport, Europe’s busiest, from 7 p.m. tomorrow. European airline stocks tumbled today before paring losses as the European Union moved toward easing the ban. British Airways closed down 1.4 percent, Air France-KLM Group lost 2.9 percent and Germany’s Deutsche Lufthansa AG fell 2.6 percent. French airspace, which fall under the restricted or “precautionary” zone, will be open tomorrow, subject to ongoing evaluation of the conditions, French Environment Minister Jean-Louis Borloo said after a cabinet meeting. Approved Corridors Still, no more than 20 percent of scheduled flights will operate as services are limited to approved air corridors, and the reopening of airports in Paris will be “gradual and controlled,” he said. Many aircraft are also out of position and carriers have said they’ll concentrate on bringing home stranded passengers before restoring full timetables. Air France was already planning eight long-haul departures and 22 arrivals at terminals in the south and west of the country that aren’t affected by the ash cloud. Lufthansa will resume a limited service this evening and 50 long-haul planes will also fly to Frankfurt, Dusseldorf and Munich tomorrow with stranded passengers, spokesman Wolfgang Weber said. Britain’s National Air Traffic Services said airports in Scotland and northern England will reopen from 7 a.m., with restrictions in southern Britain likely to be removed if conditions continue to improve. “Volcanic activity in Iceland has eased, with ash no longer being emitted to altitudes that will affect the U.K.,” NATS said in a statement. Aid Request Airlines have also asked governments and the European Union for financial payments, British Airways Chief Executive Officer Willie Walsh said in a statement, adding that money was paid after the Sept. 11 terror attacks on the U.S. “and clearly the impact of the current situation is more considerable.” European Union Competition Commissioner Joaquin Almunia said restrictions on aid may be eased as the impact of the disruption is discussed by ministers. About 70 percent of European services remained grounded today as the ash cloud stretched from Moscow almost as far as Canada, according to Brussels -based Eurocontrol, which oversees flight paths in the region and drew up the three-zone strategy. The shutdown has cost airlines as much as $300 million a day in lost revenue, according to the International Air Transport Association , which says it will take as many as six days for air traffic to get back to normal as the ban ends. Safe Skies The European Commission announced the three-zone system after carriers said their own tests showed it was safe to fly. British Airways, which is losing 20 million pounds ($30 million), said a flight yesterday showed no deterioration in engine performance and produced no odors in the cabin. Flight recorders, structural checks and monitoring by engine maker Rolls-Royce Group Plc also revealed no impact from the dust. “The analysis we have done so far, alongside that from other airlines’ trial flights, provides fresh evidence that the current blanket restrictions on airspace are unnecessary,” CEO Walsh said before the EU announcement. “Airlines are best positioned to assess all available information and determine what, if any, risk exists to aircraft, crew and passengers.” Air France-KLM, losing about 35 million euros ($47 million) a day, said a flight from Paris to Toulouse with an Airbus SAS A320 aircraft showed “no anomalies.” Its KLM unit operated 10 test flights over the weekend and concluded that the quality of the atmosphere is “in order.” Lufthansa, which sent 10 aircraft from Munich to Frankfurt to reposition its fleet on April 17, had been “appealing to the government day and night to get an easing of the ban,” spokesman Andreas Bartels said. Aircraft Carriers U.K. Prime Minister Gordon Brown said he’s examining the financial impact of the shutdown on airlines and associated companies. Royal Navy aircraft carriers may be used to bring Britons back across the English Channel and people stuck in Asian and the America’s could be flown to Spain and then put on buses, trains and ferries to complete their journey, he said. “With 313 airports paralyzed, the impact is already worse than 9/11,” Olivier Jankovec , director general at Airports Council International, said in a statement. “While safety remains a non-negotiable priority, it is not incompatible with our legitimate request to reconsider the present restrictions.” Some airports in northern Europe, including Oslo Gardermoen and Swedish terminals north of Soderhamn, reopened earlier as the ash cloud cleared their skies. Northern Spain was shut. Fire and Ice The Eyjafjallajökull eruption began on March 20 with a lava flow on the eastern flank of the volcano, according to the Institute of Earth Sciences at the University of Iceland. After a lull, it resumed early on April 14, directly under the icecap that covers most of the mountain. The previous eruption of the 1,666-meter (5,466-foot) peak in December 1821 continued until January 1823. The current blast has sent ash to 7 kilometers, according to Gudrun Larsen , a volcanologist at the University of Iceland. The magma had to pierce 200 meters of ice before reaching the air, she said. “We really don’t know if this eruption is going to last as long as the previous one, but we can’t say it’s not a possibility,” Larsen said by telephone. Haraldur Eiriksson , a meteorologist at the Icelandic meteorological office , predicts little change in the ash pattern in Europe, at least through April 23. Not so High “The forecast hasn’t changed, although the height the volcano is spewing the ash into has decreased from 5 to 6 kilometers to less than 3 kilometers and now it can’t be seen on our radars,” he said. Volcanic eruptions may continue for months and curtail European air traffic, said Sigrun Hreinsdottir , a geophysicist at the University of Iceland in Reykjavik. “It could erupt, pause for a few weeks, and then possibly erupt again.” Airlines in the Asia-Pacific region canceled most Europe- bound flights today. Qantas Airways Ltd. axed services to European destinations through tomorrow. The shutdown is costing the Australian carrier as much as A$1.5 million ($1.4 million) a day, according to David Epstein , a spokesman. Thai Airways International Pcl is losing 100 million baht ($3.1 million) a day from the closure, President Piyasvasti Amranand said in a Bloomberg TV interview today. Singapore Airlines Ltd., Air China Ltd., Japan Airlines Corp., All Nippon Airways Co., Korean Air Lines Co. and Cathay Pacific Airways Ltd. have also canceled some flights to Europe. UPS, Delta United Parcel Service Inc. , the world’s largest package- delivery firm, began trucking items from Asia through Istanbul and into Europe. The company made a flight from Dubai to Istanbul yesterday, then put those goods on trucks bound for Europe, according to spokesman Norman Black . UPS’s air hub in Cologne, Germany has been closed since April 16. The U.S.-based Air Transport Association said yesterday that 310 non-stop flights scheduled between the U.S. and Europe, or 92 percent of the total for the day, were canceled. Delta Air Lines Inc. , the world’s largest carrier, scrapped 97 flights yesterday to and from Europe, spokesman Anthony Black said. A further 49 flights have been grounded for today. AMR Corp. ’s American Airlines canceled 60 European flights. To contact the reporters on this story: Gregory Viscusi in Paris at gviscusi@bloomberg.net ; Steve Rothwell in London at srothwell@bloomberg.net .

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EU’s Economic Growth May Be Hurt by Sustained Volcano Travel Disruption

April 19, 2010

By Simone Meier April 19 (Bloomberg) — Europe’s economy would be hurt by a sustained disruption to air travel caused by last week’s Icelandic volcanic eruption, said economists at Goldman Sachs Group Inc. and IHS Global Insight. “If this were to continue for a longer time, then it would surely start to have a significant effect,” said Erik Nielsen , chief European economist at Goldman in an e-mailed note. For now, “if the disruption to air traffic is contained to a week or less, then I think the total effect will be minimal.” The unprecedented closing of the region’s airspace led to the cancellation of as many as 63,000 flights, stranding tourists and business travelers and costing carriers $200 million a day, according to the International Air Transport Association. The Icelandic meteorological office predicts little change in the ash pattern in Europe at least through April 23. Officials from the European Union and the International Monetary Fund canceled a trip to Greece today to discuss the country’s fiscal crisis, delaying the visit until April 21. Long-term disruptions would hinder the transport and production of goods such as drugs and perishable foodstuffs, said Nielsen. Howard Archer , chief European economist at IHS Global Insight in London, estimates that transport disruptions could spark a jump in the prices of some products. ‘Extreme Situation’ “In the extreme scenario” where planes are still grounded at the end of June, “I suspect that we would see a very serious knock to our second-quarter GDP forecast,” said Nielsen. He currently projects growth of 0.8 percent, which would be the fastest expansion since the first three months of 2008. “Obviously, the longer the problem goes on, the greater the potential hit to the economy will be,” said Archer. European Union Transport Commissioner Siim Kallas said today he expects the first report “hopefully” next week on the impact that the cloud of volcanic ash has caused to the economy. Jacques Cailloux , chief European economist at Royal Bank of Scotland Group Plc in London, says that consumer confidence could be hurt even though he doesn’t see any negative impact in the medium term as workers return to their workplace and companies use other means of transportation. “At the moment, we’re still more in a strike situation than in a 9/11 situation regarding confidence,” he said. “The main threats are linked to possible health concerns or the bankruptcy of some airline, which could spark ripple effects.” Limited Impact Volcanic ash can cause jet engines to fail by melting and then congealing in the turbines. Volcanic eruptions may continue for months and curtail European air traffic, said Sigrun Hreinsdottir , a geophysicist at the University of Iceland in Reykjavik. The last eruption of the 1,666-meter (5,466-foot) Eyjafjallajökull in December 1821 continued until January 1823. For now, economists say that that the short-term impact on the economy is limited. Nielsen estimates that air transport accounts for no more than 0.1 percent of European GDP and “one would assume that a lot of what’s been lost in the air will be made up in coming weeks.” Ground transportation such as train companies and car rental services are probably also benefiting from the disruption, he said. Archer said that stranded commuters or holidaymakers are likely to spend wherever they are and business meetings can be conducted by teleconference. “There are also some positive counter-effects with hotels, train operators and car rentals benefiting,” said Joerg Kraemer , chief economist at Commerzbank AG in Frankfurt. “I don’t think that the economy will suffer as a result.” To contact the reporter on this story: Simone Meier in Dublin at smeier@bloomberg.net

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European Carriers Seek Aid for Ash Losses, British Airways Says

April 19, 2010

By Steve Rothwell and Gregory Viscusi April 19 (Bloomberg) — British Airways Plc said European carriers are seeking state aid as the closure of the region’s airspace following the volcanic eruption in Iceland costs $300 million a day in lost revenue. Air France-KLM Group and Deutsche Lufthansa AG said separately that flight restrictions should be loosened, and the International Air Transport Association said governments should try to keep services running using flight paths clear of ash. “European airlines have asked the EU and national governments for financial compensation,” British Airways Chief Executive Officer Willie Walsh said in a statement. “There is a precedent for this as compensation was paid after the closure of U.S. airspace following the terrorist events of 9/11 and clearly the impact of the current situation is more considerable.” About 81,000 flights have been canceled since the April 14 eruption of the Eyjafjallajökull volcano spewed dust across Europe’s airspace, according to Eurocontrol, which oversees flight paths. About 70 percent of services are grounded today as the cloud stretches from Moscow almost as far as Canada. Airlines are trying to provide as much support as possible to customers but the situation is “unprecedented” and beyond their control, Walsh said. European Union Competition Commissioner Joaquin Almunia said restrictions on aid may be eased as the impact of the disruption is discussed today. Losses Mount Lost revenue from the restrictions amounts to as much as $300 million a day, according to IATA, which estimates that it will take as many as 6 days for air traffic to get back to normal once a ban ends, as carriers need to work through a backlog of stranded passengers and reposition their fleet. Air France-KLM, Europe’s biggest airline, said it’s losing about 35 million euros ($47 million) a day in revenue and that a test flight yesterday using an Airbus SAS A320 showed “no anomalies.” The Association of European Airlines , which represents 36 carriers, also said it’s seeking an “immediate” reassessment of the restrictions on services. “These were decisions were based on theoretical models,” IATA Chief Executive Officer Giovanni Bisignani said today at a media briefing in Paris. “But the losses and chaos are not theoretical. When in a few weeks this situation is solved it will be a very embarrassing story for Europe.” Germany’s Lufthansa is “appealing to the government day and night to get an easing of the ban,” spokesman Andreas Bartels said by telephone. “There’s not much more we can do but keep knocking on the door. We’re an airline and we want to fly.” British Airways has canceled all flights to and from London through tomorrow and is losing 20 million pounds ($30 million) a day, Walsh said. The CEO was on a test flight yesterday from Heathrow to Cardiff that encountered “no difficulties.” Aircraft Carriers U.K. Prime Minister Gordon Brown said he’s examining the financial impact of the shutdown on airlines and associated companies. Royal Navy aircraft carriers may be used to bring Britons back across the English Channel and people stuck in Asian and the America’s could be flown Spain and then put on buses, trains and ferries to complete their journey, he said. Europe airline stocks slumped, with Air France-KLM dropping as much as 9.1 percent, British Airways 6.6 percent and Lufthansa 5.9 percent. Ryanair Holdings Plc, the region’s biggest discount carrier, fell as much as 6.6 percent. Spain, holder of the European Union presidency, called a video conference among transport ministers today to discuss emergency plans. Volcanic ash can cause jet engines to fail by melting and then congealing in the turbines. ‘Risk Free’ While Brussels -based Eurocontrol, predicts as much as half of Europe’s airspace may be “risk free” today, U.K. Transport Minister Andrew Adonis said yesterday that flights across northern Europe won’t be safe in the next 24 hours, citing advice given by the Met Office. KLM operated 10 test flights with only a crew over the weekend and concluded that the quality of the atmosphere is “in order.” Air France said its engineers found no visual impact during a flight from Paris to Toulouse and no problems with the jet afterwards. Lufthansa sent 10 aircraft from Munich to Frankfurt to reposition its fleet on April 17. “With 313 airports paralyzed, the impact is already worse than 9/11,” Olivier Jankovec , director general at Airports Council International, said in a statement. “While safety remains a non-negotiable priority, it is not incompatible with our legitimate request to reconsider the present restrictions.” ‘Unsustainable’ The disruption to European air traffic caused by the cloud of volcanic ash is “unsustainable,” Transport Commissioner Siim Kallas told a briefing in Brussels yesterday. The Commission will set up a group to assess the impact of the ash cloud on the economy and European travel. German Transport Minister Peter Ramsauer expects airspace restrictions to be maintained for “the coming days,” he told the Bild newspaper in an interview published today. French Environment Minister Jean-Louis Borloo , speaking to reporters yesterday, said he doesn’t expect a complete reopening of the European airspace “from one day to the next.” France’s airspace in the north and east, which includes the airports of Paris and Lyon, will remain closed until at least the morning of April 20. Civil aviation authorities reopened the airspace over the southwest, allowing Air France to fly seven long-haul flights from Toulouse today. Germany’s DFS flight safety authority shut all of the country’s airports by 10 p.m. yesterday after easing a ban earlier on hubs including Berlin and Frankfurt. Airspace closure will remain until at least 8 p.m. The Netherlands extended the closure of its airspace until 8 p.m. The U.K. remains restricted until at least 1 a.m., flight-control authority National Air Traffic Services said. Ash Still ‘Dynamic’ “Conditions around the movement of the layers of the volcanic ash cloud over the U.K. remain dynamic,” NATS said in a statement . Oslo’s Gardermoen airport opened its airspace for domestic and international flights again this morning. Sweden re-opened the area north of Soderhamn, including Kiruna airport. Airspace in northern Spain was shut. “We hope to receive permission as soon as possible after that to start up our operations and to transport our passengers to their destinations,” KLM Chief Executive Officer Peter Hartman said in a statement. Airlines in the Asia-Pacific region canceled most Europe- bound flights. Qantas Airways Ltd. axed services to European destinations through tomorrow. The shutdown is costing the Australian carrier as much as A$1.5 million ($1.4 million) a day, according to David Epstein , a spokesman. Thai Losses Thai Airways International Pcl is losing 100 million baht ($3.1 million) a day from the closure, President Piyasvasti Amranand said in a Bloomberg TV interview today. Singapore Airlines Ltd., Air China Ltd., Japan Airlines Corp., All Nippon Airways Co., Korean Air Lines Co. and Cathay Pacific Airways Ltd. have also canceled some flights to Europe. United Parcel Service Inc. , the world’s largest package- delivery firm, began trucking items from Asia through Istanbul and into Europe. The company made a flight from Dubai to Istanbul yesterday, then put those goods on trucks bound for Europe, according to spokesman Norman Black . UPS’s air hub in Cologne, Germany has been closed since April 16. Haraldur Eiriksson , a meteorologist at the Icelandic meteorological office , predicts little change in the ash pattern in Europe at least through April 23. Forecast Unchanged “This could have an ongoing impact on European air travel,” he said. “The forecast hasn’t changed, although the height the volcano is spewing the ash into has decreased from 5 to 6 kilometers to less than 3 kilometers and now it can’t be seen on our radars.” Volcanic eruptions may continue for months and curtail European air traffic, said Sigrun Hreinsdottir , a geophysicist at the University of Iceland in Reykjavik. “It could erupt, pause for a few weeks, and then possibly erupt again.” The last eruption of the 1,666-meter (5,466-foot) Eyjafjallajökull in December 1821 continued until January 1823. The current blast has sent ash as high as 7 kilometers (4.5 miles), according to Gudrun Larsen , a volcanologist at the University of Iceland. The magma had to pierce 200 meters of ice before reaching the air, she said. “We really don’t know if this eruption is going to last as long as the previous one, but we can’t say it’s not a possibility,” Larsen said by telephone. The volcanic ash cloud also led world leaders, including Barack Obama , German Chancellor Angela Merkel and French President Nicolas Sarkozy to cancel plans to attend yesterday’s funeral of Polish President Lech Kaczynski , killed with 95 others in an April 10 plane crash. The U.S.-based Air Transport Association said yesterday that 310 non-stop flights scheduled between the U.S. and Europe, or 92 percent of the total for the day, were canceled. Delta, AMR Delta Air Lines Inc. , the world’s largest carrier, scrapped 97 flights yesterday to and from Europe, spokesman Anthony Black said. A further 49 flights have been grounded for today. AMR Corp. ’s American Airlines canceled 60 European flights. The eruption began on March 20 with a lava flow on the eastern flank of the Eyjafjallajökull volcano, according to the Institute of Earth Sciences at the University of Iceland. After a lull, it resumed early on April 14, directly under the icecap that covers most of the mountain. To contact the reporters on this story: Gregory Viscusi in Paris at gviscusi@bloomberg.net ; Steve Rothwell in London at srothwell@bloomberg.net .

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European Carriers Seek Aid for Ash Losses, British Airways Says

April 19, 2010

By Steve Rothwell and Gregory Viscusi April 19 (Bloomberg) — British Airways Plc said European carriers are seeking state aid as the closure of the region’s airspace following the volcanic eruption in Iceland costs $300 million a day in lost revenue. Air France-KLM Group and Deutsche Lufthansa AG said separately that flight restrictions should be loosened, and the International Air Transport Association said governments should try to keep services running using flight paths clear of ash. “European airlines have asked the EU and national governments for financial compensation,” British Airways Chief Executive Officer Willie Walsh said in a statement. “There is a precedent for this as compensation was paid after the closure of U.S. airspace following the terrorist events of 9/11 and clearly the impact of the current situation is more considerable.” About 81,000 flights have been canceled since the April 14 eruption of the Eyjafjallajökull volcano spewed dust across Europe’s airspace, according to Eurocontrol, which oversees flight paths. About 70 percent of services are grounded today as the cloud stretches from Moscow almost as far as Canada. Airlines are trying to provide as much support as possible to customers but the situation is “unprecedented” and beyond their control, Walsh said. European Union Competition Commissioner Joaquin Almunia said restrictions on aid may be eased as the impact of the disruption is discussed today. Losses Mount Lost revenue from the restrictions amounts to as much as $300 million a day, according to IATA, which estimates that it will take as many as 6 days for air traffic to get back to normal once a ban ends, as carriers need to work through a backlog of stranded passengers and reposition their fleet. Air France-KLM, Europe’s biggest airline, said it’s losing about 35 million euros ($47 million) a day in revenue and that a test flight yesterday using an Airbus SAS A320 showed “no anomalies.” The Association of European Airlines , which represents 36 carriers, also said it’s seeking an “immediate” reassessment of the restrictions on services. “These were decisions were based on theoretical models,” IATA Chief Executive Officer Giovanni Bisignani said today at a media briefing in Paris. “But the losses and chaos are not theoretical. When in a few weeks this situation is solved it will be a very embarrassing story for Europe.” Germany’s Lufthansa is “appealing to the government day and night to get an easing of the ban,” spokesman Andreas Bartels said by telephone. “There’s not much more we can do but keep knocking on the door. We’re an airline and we want to fly.” British Airways has canceled all flights to and from London through tomorrow and is losing 20 million pounds ($30 million) a day, Walsh said. The CEO was on a test flight yesterday from Heathrow to Cardiff that encountered “no difficulties.” Aircraft Carriers U.K. Prime Minister Gordon Brown said he’s examining the financial impact of the shutdown on airlines and associated companies. Royal Navy aircraft carriers may be used to bring Britons back across the English Channel and people stuck in Asian and the America’s could be flown Spain and then put on buses, trains and ferries to complete their journey, he said. Europe airline stocks slumped, with Air France-KLM dropping as much as 9.1 percent, British Airways 6.6 percent and Lufthansa 5.9 percent. Ryanair Holdings Plc, the region’s biggest discount carrier, fell as much as 6.6 percent. Spain, holder of the European Union presidency, called a video conference among transport ministers today to discuss emergency plans. Volcanic ash can cause jet engines to fail by melting and then congealing in the turbines. ‘Risk Free’ While Brussels -based Eurocontrol, predicts as much as half of Europe’s airspace may be “risk free” today, U.K. Transport Minister Andrew Adonis said yesterday that flights across northern Europe won’t be safe in the next 24 hours, citing advice given by the Met Office. KLM operated 10 test flights with only a crew over the weekend and concluded that the quality of the atmosphere is “in order.” Air France said its engineers found no visual impact during a flight from Paris to Toulouse and no problems with the jet afterwards. Lufthansa sent 10 aircraft from Munich to Frankfurt to reposition its fleet on April 17. “With 313 airports paralyzed, the impact is already worse than 9/11,” Olivier Jankovec , director general at Airports Council International, said in a statement. “While safety remains a non-negotiable priority, it is not incompatible with our legitimate request to reconsider the present restrictions.” ‘Unsustainable’ The disruption to European air traffic caused by the cloud of volcanic ash is “unsustainable,” Transport Commissioner Siim Kallas told a briefing in Brussels yesterday. The Commission will set up a group to assess the impact of the ash cloud on the economy and European travel. German Transport Minister Peter Ramsauer expects airspace restrictions to be maintained for “the coming days,” he told the Bild newspaper in an interview published today. French Environment Minister Jean-Louis Borloo , speaking to reporters yesterday, said he doesn’t expect a complete reopening of the European airspace “from one day to the next.” France’s airspace in the north and east, which includes the airports of Paris and Lyon, will remain closed until at least the morning of April 20. Civil aviation authorities reopened the airspace over the southwest, allowing Air France to fly seven long-haul flights from Toulouse today. Germany’s DFS flight safety authority shut all of the country’s airports by 10 p.m. yesterday after easing a ban earlier on hubs including Berlin and Frankfurt. Airspace closure will remain until at least 8 p.m. The Netherlands extended the closure of its airspace until 8 p.m. The U.K. remains restricted until at least 1 a.m., flight-control authority National Air Traffic Services said. Ash Still ‘Dynamic’ “Conditions around the movement of the layers of the volcanic ash cloud over the U.K. remain dynamic,” NATS said in a statement . Oslo’s Gardermoen airport opened its airspace for domestic and international flights again this morning. Sweden re-opened the area north of Soderhamn, including Kiruna airport. Airspace in northern Spain was shut. “We hope to receive permission as soon as possible after that to start up our operations and to transport our passengers to their destinations,” KLM Chief Executive Officer Peter Hartman said in a statement. Airlines in the Asia-Pacific region canceled most Europe- bound flights. Qantas Airways Ltd. axed services to European destinations through tomorrow. The shutdown is costing the Australian carrier as much as A$1.5 million ($1.4 million) a day, according to David Epstein , a spokesman. Thai Losses Thai Airways International Pcl is losing 100 million baht ($3.1 million) a day from the closure, President Piyasvasti Amranand said in a Bloomberg TV interview today. Singapore Airlines Ltd., Air China Ltd., Japan Airlines Corp., All Nippon Airways Co., Korean Air Lines Co. and Cathay Pacific Airways Ltd. have also canceled some flights to Europe. United Parcel Service Inc. , the world’s largest package- delivery firm, began trucking items from Asia through Istanbul and into Europe. The company made a flight from Dubai to Istanbul yesterday, then put those goods on trucks bound for Europe, according to spokesman Norman Black . UPS’s air hub in Cologne, Germany has been closed since April 16. Haraldur Eiriksson , a meteorologist at the Icelandic meteorological office , predicts little change in the ash pattern in Europe at least through April 23. Forecast Unchanged “This could have an ongoing impact on European air travel,” he said. “The forecast hasn’t changed, although the height the volcano is spewing the ash into has decreased from 5 to 6 kilometers to less than 3 kilometers and now it can’t be seen on our radars.” Volcanic eruptions may continue for months and curtail European air traffic, said Sigrun Hreinsdottir , a geophysicist at the University of Iceland in Reykjavik. “It could erupt, pause for a few weeks, and then possibly erupt again.” The last eruption of the 1,666-meter (5,466-foot) Eyjafjallajökull in December 1821 continued until January 1823. The current blast has sent ash as high as 7 kilometers (4.5 miles), according to Gudrun Larsen , a volcanologist at the University of Iceland. The magma had to pierce 200 meters of ice before reaching the air, she said. “We really don’t know if this eruption is going to last as long as the previous one, but we can’t say it’s not a possibility,” Larsen said by telephone. The volcanic ash cloud also led world leaders, including Barack Obama , German Chancellor Angela Merkel and French President Nicolas Sarkozy to cancel plans to attend yesterday’s funeral of Polish President Lech Kaczynski , killed with 95 others in an April 10 plane crash. The U.S.-based Air Transport Association said yesterday that 310 non-stop flights scheduled between the U.S. and Europe, or 92 percent of the total for the day, were canceled. Delta, AMR Delta Air Lines Inc. , the world’s largest carrier, scrapped 97 flights yesterday to and from Europe, spokesman Anthony Black said. A further 49 flights have been grounded for today. AMR Corp. ’s American Airlines canceled 60 European flights. The eruption began on March 20 with a lava flow on the eastern flank of the Eyjafjallajökull volcano, according to the Institute of Earth Sciences at the University of Iceland. After a lull, it resumed early on April 14, directly under the icecap that covers most of the mountain. To contact the reporters on this story: Gregory Viscusi in Paris at gviscusi@bloomberg.net ; Steve Rothwell in London at srothwell@bloomberg.net .

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British Airways Says European Carriers Seek State Aid as Ash Causes Losses

April 19, 2010

By Steve Rothwell and Gregory Viscusi April 19 (Bloomberg) — British Airways Plc said European carriers are seeking state aid as the closure of the region’s airspace following the volcanic eruption in Iceland costs $300 million a day in lost revenue. Air France-KLM Group and Deutsche Lufthansa AG said separately that flight restrictions should be loosened, and the International Air Transport Association said governments should try to keep services running using flight paths clear of ash. “European airlines have asked the EU and national governments for financial compensation,” British Airways Chief Executive Officer Willie Walsh said in a statement. “There is a precedent for this as compensation was paid after the closure of U.S. airspace following the terrorist events of 9/11 and clearly the impact of the current situation is more considerable.” About 81,000 flights have been canceled since the April 14 eruption of the Eyjafjallajökull volcano spewed dust across Europe’s airspace, according to Eurocontrol, which oversees flight paths. About 70 percent of services are grounded today as the cloud stretches from Moscow almost as far as Canada. Airlines are trying to provide as much support as possible to customers but the situation is “unprecedented” and beyond their control, Walsh said. European Union Competition Commissioner Joaquin Almunia said restrictions on aid may be eased as the impact of the disruption is discussed today. Losses Mount Lost revenue from the restrictions amounts to as much as $300 million a day, according to IATA, which estimates that it will take as many as 6 days for air traffic to get back to normal once a ban ends, as carriers need to work through a backlog of stranded passengers and reposition their fleet. Air France-KLM, Europe’s biggest airline, said it’s losing about 35 million euros ($47 million) a day in revenue and that a test flight yesterday using an Airbus SAS A320 showed “no anomalies.” The Association of European Airlines , which represents 36 carriers, also said it’s seeking an “immediate” reassessment of the restrictions on services. “These were decisions were based on theoretical models,” IATA Chief Executive Officer Giovanni Bisignani said today at a media briefing in Paris. “But the losses and chaos are not theoretical. When in a few weeks this situation is solved it will be a very embarrassing story for Europe.” Germany’s Lufthansa is “appealing to the government day and night to get an easing of the ban,” spokesman Andreas Bartels said by telephone. “There’s not much more we can do but keep knocking on the door. We’re an airline and we want to fly.” British Airways has canceled all flights to and from London through tomorrow and is losing 20 million pounds ($30 million) a day, Walsh said. The CEO was on a test flight yesterday from Heathrow to Cardiff that encountered “no difficulties.” Aircraft Carriers U.K. Prime Minister Gordon Brown said he’s examining the financial impact of the shutdown on airlines and associated companies. Royal Navy aircraft carriers may be used to bring Britons back across the English Channel and people stuck in Asian and the America’s could be flown Spain and then put on buses, trains and ferries to complete their journey, he said. Europe airline stocks slumped, with Air France-KLM dropping as much as 9.1 percent, British Airways 6.6 percent and Lufthansa 5.9 percent. Ryanair Holdings Plc, the region’s biggest discount carrier, fell as much as 6.6 percent. Spain, holder of the European Union presidency, called a video conference among transport ministers today to discuss emergency plans. Volcanic ash can cause jet engines to fail by melting and then congealing in the turbines. ‘Risk Free’ While Brussels -based Eurocontrol, predicts as much as half of Europe’s airspace may be “risk free” today, U.K. Transport Minister Andrew Adonis said yesterday that flights across northern Europe won’t be safe in the next 24 hours, citing advice given by the Met Office. KLM operated 10 test flights with only a crew over the weekend and concluded that the quality of the atmosphere is “in order.” Air France said its engineers found no visual impact during a flight from Paris to Toulouse and no problems with the jet afterwards. Lufthansa sent 10 aircraft from Munich to Frankfurt to reposition its fleet on April 17. “With 313 airports paralyzed, the impact is already worse than 9/11,” Olivier Jankovec , director general at Airports Council International, said in a statement. “While safety remains a non-negotiable priority, it is not incompatible with our legitimate request to reconsider the present restrictions.” ‘Unsustainable’ The disruption to European air traffic caused by the cloud of volcanic ash is “unsustainable,” Transport Commissioner Siim Kallas told a briefing in Brussels yesterday. The Commission will set up a group to assess the impact of the ash cloud on the economy and European travel. German Transport Minister Peter Ramsauer expects airspace restrictions to be maintained for “the coming days,” he told the Bild newspaper in an interview published today. French Environment Minister Jean-Louis Borloo , speaking to reporters yesterday, said he doesn’t expect a complete reopening of the European airspace “from one day to the next.” France’s airspace in the north and east, which includes the airports of Paris and Lyon, will remain closed until at least the morning of April 20. Civil aviation authorities reopened the airspace over the southwest, allowing Air France to fly seven long-haul flights from Toulouse today. Germany’s DFS flight safety authority shut all of the country’s airports by 10 p.m. yesterday after easing a ban earlier on hubs including Berlin and Frankfurt. Airspace closure will remain until at least 8 p.m. The Netherlands extended the closure of its airspace until 8 p.m. The U.K. remains restricted until at least 1 a.m., flight-control authority National Air Traffic Services said. Ash Still ‘Dynamic’ “Conditions around the movement of the layers of the volcanic ash cloud over the U.K. remain dynamic,” NATS said in a statement . Oslo’s Gardermoen airport opened its airspace for domestic and international flights again this morning. Sweden re-opened the area north of Soderhamn, including Kiruna airport. Airspace in northern Spain was shut. “We hope to receive permission as soon as possible after that to start up our operations and to transport our passengers to their destinations,” KLM Chief Executive Officer Peter Hartman said in a statement. Airlines in the Asia-Pacific region canceled most Europe- bound flights. Qantas Airways Ltd. axed services to European destinations through tomorrow. The shutdown is costing the Australian carrier as much as A$1.5 million ($1.4 million) a day, according to David Epstein , a spokesman. Thai Losses Thai Airways International Pcl is losing 100 million baht ($3.1 million) a day from the closure, President Piyasvasti Amranand said in a Bloomberg TV interview today. Singapore Airlines Ltd., Air China Ltd., Japan Airlines Corp., All Nippon Airways Co., Korean Air Lines Co. and Cathay Pacific Airways Ltd. have also canceled some flights to Europe. United Parcel Service Inc. , the world’s largest package- delivery firm, began trucking items from Asia through Istanbul and into Europe. The company made a flight from Dubai to Istanbul yesterday, then put those goods on trucks bound for Europe, according to spokesman Norman Black . UPS’s air hub in Cologne, Germany has been closed since April 16. Haraldur Eiriksson , a meteorologist at the Icelandic meteorological office , predicts little change in the ash pattern in Europe at least through April 23. Forecast Unchanged “This could have an ongoing impact on European air travel,” he said. “The forecast hasn’t changed, although the height the volcano is spewing the ash into has decreased from 5 to 6 kilometers to less than 3 kilometers and now it can’t be seen on our radars.” Volcanic eruptions may continue for months and curtail European air traffic, said Sigrun Hreinsdottir , a geophysicist at the University of Iceland in Reykjavik. “It could erupt, pause for a few weeks, and then possibly erupt again.” The last eruption of the 1,666-meter (5,466-foot) Eyjafjallajökull in December 1821 continued until January 1823. The current blast has sent ash as high as 7 kilometers (4.5 miles), according to Gudrun Larsen , a volcanologist at the University of Iceland. The magma had to pierce 200 meters of ice before reaching the air, she said. “We really don’t know if this eruption is going to last as long as the previous one, but we can’t say it’s not a possibility,” Larsen said by telephone. The volcanic ash cloud also led world leaders, including Barack Obama , German Chancellor Angela Merkel and French President Nicolas Sarkozy to cancel plans to attend yesterday’s funeral of Polish President Lech Kaczynski , killed with 95 others in an April 10 plane crash. The U.S.-based Air Transport Association said yesterday that 310 non-stop flights scheduled between the U.S. and Europe, or 92 percent of the total for the day, were canceled. Delta, AMR Delta Air Lines Inc. , the world’s largest carrier, scrapped 97 flights yesterday to and from Europe, spokesman Anthony Black said. A further 49 flights have been grounded for today. AMR Corp. ’s American Airlines canceled 60 European flights. The eruption began on March 20 with a lava flow on the eastern flank of the Eyjafjallajökull volcano, according to the Institute of Earth Sciences at the University of Iceland. After a lull, it resumed early on April 14, directly under the icecap that covers most of the mountain. To contact the reporters on this story: Gregory Viscusi in Paris at gviscusi@bloomberg.net ; Steve Rothwell in London at srothwell@bloomberg.net .

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British Airways Says European Carriers Seek State Aid as Ash Causes Losses

April 19, 2010

By Steve Rothwell and Gregory Viscusi April 19 (Bloomberg) — British Airways Plc said European carriers are seeking state aid as the closure of the region’s airspace following the volcanic eruption in Iceland costs $300 million a day in lost revenue. Air France-KLM Group and Deutsche Lufthansa AG said separately that flight restrictions should be loosened, and the International Air Transport Association said governments should try to keep services running using flight paths clear of ash. “European airlines have asked the EU and national governments for financial compensation,” British Airways Chief Executive Officer Willie Walsh said in a statement. “There is a precedent for this as compensation was paid after the closure of U.S. airspace following the terrorist events of 9/11 and clearly the impact of the current situation is more considerable.” About 81,000 flights have been canceled since the April 14 eruption of the Eyjafjallajökull volcano spewed dust across Europe’s airspace, according to Eurocontrol, which oversees flight paths. About 70 percent of services are grounded today as the cloud stretches from Moscow almost as far as Canada. Airlines are trying to provide as much support as possible to customers but the situation is “unprecedented” and beyond their control, Walsh said. European Union Competition Commissioner Joaquin Almunia said restrictions on aid may be eased as the impact of the disruption is discussed today. Losses Mount Lost revenue from the restrictions amounts to as much as $300 million a day, according to IATA, which estimates that it will take as many as 6 days for air traffic to get back to normal once a ban ends, as carriers need to work through a backlog of stranded passengers and reposition their fleet. Air France-KLM, Europe’s biggest airline, said it’s losing about 35 million euros ($47 million) a day in revenue and that a test flight yesterday using an Airbus SAS A320 showed “no anomalies.” The Association of European Airlines , which represents 36 carriers, also said it’s seeking an “immediate” reassessment of the restrictions on services. “These were decisions were based on theoretical models,” IATA Chief Executive Officer Giovanni Bisignani said today at a media briefing in Paris. “But the losses and chaos are not theoretical. When in a few weeks this situation is solved it will be a very embarrassing story for Europe.” Germany’s Lufthansa is “appealing to the government day and night to get an easing of the ban,” spokesman Andreas Bartels said by telephone. “There’s not much more we can do but keep knocking on the door. We’re an airline and we want to fly.” British Airways has canceled all flights to and from London through tomorrow and is losing 20 million pounds ($30 million) a day, Walsh said. The CEO was on a test flight yesterday from Heathrow to Cardiff that encountered “no difficulties.” Aircraft Carriers U.K. Prime Minister Gordon Brown said he’s examining the financial impact of the shutdown on airlines and associated companies. Royal Navy aircraft carriers may be used to bring Britons back across the English Channel and people stuck in Asian and the America’s could be flown Spain and then put on buses, trains and ferries to complete their journey, he said. Europe airline stocks slumped, with Air France-KLM dropping as much as 9.1 percent, British Airways 6.6 percent and Lufthansa 5.9 percent. Ryanair Holdings Plc, the region’s biggest discount carrier, fell as much as 6.6 percent. Spain, holder of the European Union presidency, called a video conference among transport ministers today to discuss emergency plans. Volcanic ash can cause jet engines to fail by melting and then congealing in the turbines. ‘Risk Free’ While Brussels -based Eurocontrol, predicts as much as half of Europe’s airspace may be “risk free” today, U.K. Transport Minister Andrew Adonis said yesterday that flights across northern Europe won’t be safe in the next 24 hours, citing advice given by the Met Office. KLM operated 10 test flights with only a crew over the weekend and concluded that the quality of the atmosphere is “in order.” Air France said its engineers found no visual impact during a flight from Paris to Toulouse and no problems with the jet afterwards. Lufthansa sent 10 aircraft from Munich to Frankfurt to reposition its fleet on April 17. “With 313 airports paralyzed, the impact is already worse than 9/11,” Olivier Jankovec , director general at Airports Council International, said in a statement. “While safety remains a non-negotiable priority, it is not incompatible with our legitimate request to reconsider the present restrictions.” ‘Unsustainable’ The disruption to European air traffic caused by the cloud of volcanic ash is “unsustainable,” Transport Commissioner Siim Kallas told a briefing in Brussels yesterday. The Commission will set up a group to assess the impact of the ash cloud on the economy and European travel. German Transport Minister Peter Ramsauer expects airspace restrictions to be maintained for “the coming days,” he told the Bild newspaper in an interview published today. French Environment Minister Jean-Louis Borloo , speaking to reporters yesterday, said he doesn’t expect a complete reopening of the European airspace “from one day to the next.” France’s airspace in the north and east, which includes the airports of Paris and Lyon, will remain closed until at least the morning of April 20. Civil aviation authorities reopened the airspace over the southwest, allowing Air France to fly seven long-haul flights from Toulouse today. Germany’s DFS flight safety authority shut all of the country’s airports by 10 p.m. yesterday after easing a ban earlier on hubs including Berlin and Frankfurt. Airspace closure will remain until at least 8 p.m. The Netherlands extended the closure of its airspace until 8 p.m. The U.K. remains restricted until at least 1 a.m., flight-control authority National Air Traffic Services said. Ash Still ‘Dynamic’ “Conditions around the movement of the layers of the volcanic ash cloud over the U.K. remain dynamic,” NATS said in a statement . Oslo’s Gardermoen airport opened its airspace for domestic and international flights again this morning. Sweden re-opened the area north of Soderhamn, including Kiruna airport. Airspace in northern Spain was shut. “We hope to receive permission as soon as possible after that to start up our operations and to transport our passengers to their destinations,” KLM Chief Executive Officer Peter Hartman said in a statement. Airlines in the Asia-Pacific region canceled most Europe- bound flights. Qantas Airways Ltd. axed services to European destinations through tomorrow. The shutdown is costing the Australian carrier as much as A$1.5 million ($1.4 million) a day, according to David Epstein , a spokesman. Thai Losses Thai Airways International Pcl is losing 100 million baht ($3.1 million) a day from the closure, President Piyasvasti Amranand said in a Bloomberg TV interview today. Singapore Airlines Ltd., Air China Ltd., Japan Airlines Corp., All Nippon Airways Co., Korean Air Lines Co. and Cathay Pacific Airways Ltd. have also canceled some flights to Europe. United Parcel Service Inc. , the world’s largest package- delivery firm, began trucking items from Asia through Istanbul and into Europe. The company made a flight from Dubai to Istanbul yesterday, then put those goods on trucks bound for Europe, according to spokesman Norman Black . UPS’s air hub in Cologne, Germany has been closed since April 16. Haraldur Eiriksson , a meteorologist at the Icelandic meteorological office , predicts little change in the ash pattern in Europe at least through April 23. Forecast Unchanged “This could have an ongoing impact on European air travel,” he said. “The forecast hasn’t changed, although the height the volcano is spewing the ash into has decreased from 5 to 6 kilometers to less than 3 kilometers and now it can’t be seen on our radars.” Volcanic eruptions may continue for months and curtail European air traffic, said Sigrun Hreinsdottir , a geophysicist at the University of Iceland in Reykjavik. “It could erupt, pause for a few weeks, and then possibly erupt again.” The last eruption of the 1,666-meter (5,466-foot) Eyjafjallajökull in December 1821 continued until January 1823. The current blast has sent ash as high as 7 kilometers (4.5 miles), according to Gudrun Larsen , a volcanologist at the University of Iceland. The magma had to pierce 200 meters of ice before reaching the air, she said. “We really don’t know if this eruption is going to last as long as the previous one, but we can’t say it’s not a possibility,” Larsen said by telephone. The volcanic ash cloud also led world leaders, including Barack Obama , German Chancellor Angela Merkel and French President Nicolas Sarkozy to cancel plans to attend yesterday’s funeral of Polish President Lech Kaczynski , killed with 95 others in an April 10 plane crash. The U.S.-based Air Transport Association said yesterday that 310 non-stop flights scheduled between the U.S. and Europe, or 92 percent of the total for the day, were canceled. Delta, AMR Delta Air Lines Inc. , the world’s largest carrier, scrapped 97 flights yesterday to and from Europe, spokesman Anthony Black said. A further 49 flights have been grounded for today. AMR Corp. ’s American Airlines canceled 60 European flights. The eruption began on March 20 with a lava flow on the eastern flank of the Eyjafjallajökull volcano, according to the Institute of Earth Sciences at the University of Iceland. After a lull, it resumed early on April 14, directly under the icecap that covers most of the mountain. To contact the reporters on this story: Gregory Viscusi in Paris at gviscusi@bloomberg.net ; Steve Rothwell in London at srothwell@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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EU Finance Ministers Tell Greece to Prepare for IMF Conditions on Bailout

April 16, 2010

By Ben Sills and Meera Louis April 16 (Bloomberg) — European Union finance ministers told Greece to brace itself for the International Monetary Fund’s conditions for granting a bailout package for the debt- strapped nation. Greek Prime Minister George Papandreou yesterday asked for a meeting with the EU, the IMF and the European Central Bank, which agreed to back a 45 billion-euro ($61 billion) loan package for Greece this week. Talks will begin in Athens on April 19. “It’s a matter of preparing a joint program of conditionality and financing if needed and if required,” EU Economic and Monetary Affairs Commissioner Olli Rehn said today in Madrid at a meeting of EU finance ministers. The EU and the IMF need to work together to “restructure these deficits” in Greece, German Finance Minister Wolfgang Schaeuble said in a radio interview. The IMF may demand Greece cut pension payments and spending on civil servants as a condition of the loan, according to Giada Giani , an economist at Citigroup Inc. in London. The measures may spark unrest in Athens where union members occupied the Finance Ministry last month in protest over spending cuts already adopted by the government. ‘Important Step’ The Athens meeting “is an important step as it links the availability of external financing to Greece implementing a set of structural reforms,” Giani said yesterday in a research note. “These probably will go well beyond the tightening measures that Greece has put in place up to now, which may help to reduce the deficit for 2010 but do little to tackle Greece’s long-term solvency issues.” The yield on the Greek 10-year security increased to 7.369 percent at 5:09 p.m. Madrid time today, approaching the rate before the EU-IMF rescue package for the cash-strapped nation was unveiled on April 11. The austerity measures “will hurt, but think what would have happened with bankruptcy,” Papandreou told the Greek parliament today. Two-thirds of Greeks disapprove of the way the government is handling the crisis, according to a nationwide Public Issue poll for Skai media group released today. The country’s biggest union pledged “dynamic” resistance to any cuts in pensions. Budget Shortfall Papandreou has implemented tax increases, trimmed spending and cut wages to try to lower the budget shortfall from 12.9 percent of gross domestic product last year, the largest in the euro’s history, to 8.7 percent this year. Those moves contributed to the EU agreeing to come to the country’s rescue if its financing costs didn’t fall. “We agree Greece should now also undertake the required preparations with the International Monetary Fund,” Germany’s Schaeuble said on SWR2 radio today, according to an e-mailed transcript. While Greek restructuring plan “isn’t really on track, you will always have new speculation in the financial markets,” said Schaeuble, who didn’t attend the Madrid meeting in order to extend a hospital stay after surgery. The euro region is aiming to prevent the first default of a member nation that would risk sending shockwaves through the rest of the currency area. Greece needs to raise 11.6 billion euros by the end of May, and the prime minister has said borrowing at current market interest rates is “unsustainable.” Debt Sale Greece will begin a presentation to U.S. investors about a possible debt sale on April 20, Market News reported, citing comments by Petros Christodoulou , managing director of the Greek Public Debt Management Agency, to Japanese news service Jiji News. At the Madrid meeting, European finance ministers, joined by central-bank governors from the 27 EU nations, sought ways to curb budget gaps across the region, which have surged after the worst recession in 60 years slammed revenue and prompted a raft of government stimulus spending. The EU’s Rehn outlined proposals for tighter surveillance of deficits. ECB executive board member Juergen Stark said yesterday that the Greek meltdown may signal a new phase of the crisis, which began in August 2007 with seizures in the global credit markets and has seen borrowing rocket as governments were forced to bail out some of the world’s biggest lenders. “I am particularly concerned about the dramatic deterioration in public finances, which will require very ambitious fiscal consolidation efforts in the years to come,” Stark said in a speech in Washington. Portuguese Bonds Portuguese bonds fell to the lowest in almost two months today. The yield on Portugal’s 10-year debt rose 10 basis points to 4.45 percent. A basis point is one hundredth of a percentage point. The premium of Greek debt over comparable German bonds has more than doubled since Dec. 1 on concern that Greece would struggle to trim the deficit and fund its rising debt . The prospect of a euro-area country defaulting or needing a bailout contributed to the euro declining more than 5 percent this year and raised the borrowing costs for other EU nations with high deficits. Portugal, Italy, Spain and Ireland are also “facing a painful period of fiscal consolidation which, combined with a fundamental lack of competitiveness, spells serious trouble for their economies,” said Jonathan Loynes , Chief European Economist at Capital Economics Ltd. in London. Their problems are “broadly comparable” with Greece’s. Aid Package The 45 billion euros pledged by the EU and IMF would cover the first year of a three-year aid package. The talks in Athens would likely focus on conditions the EU and IMF would impose on funds Greece would need after the first year. Greece has pledged unspecified budget cuts of about 6 percentage points of GDP over the following two years to bring the shortfall back within the EU’s 3 percent limit in 2012. Papandreou has said he will seek to raise the retirement age and the government is preparing other changes to trim spending in the country’s pension system, considered one of the EU’s most generous. Greece’s biggest union warned today that it will call more strikes if the government proceeds with the pension overhaul. To contact the reporters on this story: Ben Sills in Madrid at bsills@bloomberg.net ; Maria Petrakis in Athens at mpetrakis@bloomberg.net .

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Greece Moves Closer to Triggering Aid as IMF, EU Officials Head for Athens

April 15, 2010

By Maria Petrakis and Natalie Weeks April 15 (Bloomberg) — Greek Prime Minister George Papandreou moved a step closer to triggering a $61 billion rescue package, asking the European Commission and the International Monetary Fund for a meeting in Athens next week. The government’s request came after the yield on 10-year government bonds surged to 7.319 percent earlier today, higher than the level before the European Union said April 11 it was prepared to join with the IMF to fund a rescue. The IMF, EU and the European Central Bank begin meeting their Greek counterparts on April 19. Greece needs to raise 11.6 billion euros ($15.7 billion) by the end of May, and Papandreou has called current interest rates “unsustainable.” The bid to resolve the Greek crisis came as ECB Executive Board member Juergen Stark said the global economy may be entering a new “sovereign debt crisis.” Greek yields slipped and stocks rebounded on speculation that the government will soon ask for a package consisting of three-year loans at 5 percent. Greek 10-year bonds yielded 7.30 percent at 6:40 p.m. in London. The benchmark ASE general index gained as much as 2.1 percent, reversing an earlier decline of 1.5 percent. EU Economic and Monetary Affairs Commissioner Olli Rehn said Greece wants talks “on a multi-year program of economic policies that could be supported with financial assistance.” ‘In Due Course’ Papandreou stressed that the Athens meeting didn’t mean Greece will seek the aid. “Whether we activate or don’t activate the mechanism — we’ll see in due course — these three will monitor and play a significant role in our future course,” Papandreou said, according to an e-mailed transcript of his comments in Athens today. The meeting could help clarify what conditions the EU and IMF would impose should Greece seek the funds, Giada Giani , an economist at Citigroup Global Markets in London, wrote in an e- mail to investors today. “This is an important step as it links the availability of external financing to Greece implementing a set of structural reforms,” Giani said. “These probably will go well beyond the tightening measures that Greece has put in place up to now, which may help to reduce the deficit for 2010 but do little to tackle Greece’s long-term solvency issues.” Budget Cuts Papandreou has implemented tax increases, trimmed spending and cut wages to try to lower the budget shortfall from 12.9 percent of gross domestic product last year, the largest deficit in the euro’s history, to 8.7 percent this year. The austerity measures have triggered strikes and protests across Greece. The government has said it will implement further budget cuts in the coming years to bring the shortfall within the EU’s 3 percent limit in 2012. The Athens meeting was announced as EU finance ministers and central bankers gathered in Madrid for a regular policy meeting. Luxembourg Prime Minister Jean-Claude Juncker , who also heads the group of euro-area finance ministers, said he doesn’t think that Papandreou’s request means Greece will seek to trigger the aid package. “We don’t think it makes sense to speculate if yes or no. If Greece will put forward a formal request, that’s a decision and an initiative to be taken by the Greek government,” he said in an interview in Madrid. Risk Premium The premium investors demand to buy Greek debt over comparable German bonds has more than doubled since Dec. 1 on concern that Greece would struggle to trim the deficit and fund its rising debt . The prospect of a euro-region country defaulting or needing a bailout has contributed to the region’s single currency declining more than 5 percent this year and raised the borrowing costs for other high-deficit nations such as Spain and Portugal. The euro fell to $1.3549 from $1.3653. The April 11 announcement initially led to a plunge in risk premium on Greek bonds. That gain eroded this week, with the spread returning to more than 400 basis points today, about the same before the package was announced. “The government realized that markets aren’t going to give a vote of confidence in the Greek economy,” Dimitris Daskalopoulos , head of the Athens-based Federation of Greek Industries, said in an e-mailed statement today. “A more realistic choice would’ve been submitting a request for the immediate activation of the support mechanism.” Greece has not yet officially asked for IMF funds, though the talks about fiscal policies in Athens next week could “mutate” into discussions about a possible loan, Caroline Atkinson , the IMF’s director of external relations, said today at a briefing in Washington. For Related News and Information: Top Bond Stories: TOP BON Greek Bond Stories: TNI GRE GBN BN World Bonds: WB

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Carlyle’s Plan to Sell Taiwan’s Kbro Said to Have Stalled Over Media Rules

April 1, 2010

By Cathy Chan and Tim Culpan April 2 (Bloomberg) — Carlyle Group’s planned sale of a $1 billion stake in Kbro Co. to Taiwan Mobile Co. may be delayed until the government eases restrictions on state ownership of media companies, two people involved with the discussions said. Taiwan Mobile, which the government partially owns through Fubon Financial Holding Co., may extend the June 30 deadline to buy control of the cable-television operator, the people said, asking not to be identified because of confidentiality agreements. Neither side expected the restrictions to obstruct the deal when negotiations began last year, the people said. The rules hamper Taiwan Mobile’s plans to pass China Network Systems Inc. and Taiwan Broadband Communications to become the largest operator in a market where more than 80 percent of homes tune in to cable TV. The National Communications Commission is in talks with the Cabinet to allow government-related entities to indirectly own as much as 10 percent of media companies, Commissioner Lee Ta-sung said. “Under the current situation, they’re not allowed to merge because of the restrictions,” Lee said in a phone interview yesterday. “We’ve submitted our concept and proposal, and are now negotiating with the Cabinet.” Dorothy Lee , a Hong Kong-based spokeswoman at Carlyle, declined to comment. Josephine Juan, deputy spokeswoman at Taiwan Mobile, said the company plans to continue pursuing the acquisition. Washington-based Carlyle, the world’s second-largest buyout firm, bought control of Eastern Multimedia, which includes the cable TV unit that was renamed Kbro, for $1.5 billion in 2006. Waiting for Legislature Lee declined to say when he expects the rule to be amended because it would require approval from the Cabinet and legislature. The island’s second-largest phone carrier has gained 7 percent in Taipei trading since Sept. 16, when the company said it agreed to buy unlisted Kbro with 589 million Taiwan Mobile shares, giving it a 15.5 percent stake, and NT$440 million ($13.8 million) in cash. The benchmark Taiex index has added 7.2 percent over the same period. “It’s key to our future because it allows the convergence of telecom, cable and content,” said Taiwan Mobile’s Juan. “The problem is that the Taipei government owns a stake in Fubon.” Acquiring Kbro would boost cable TV to as much as 30 percent of Taiwan Mobile’s revenue, she said. Taipei City Government owns 14 percent of Fubon after Taipei Bank, in which it held a 44 percent stake, was acquired by the financial holding company in 2002. Fubon owns Taiwan Mobile shares through units including Fubon Securities Co., Fubon Life Insurance Co. and Fubon Insurance Co., according to the phone company’s Web site . Unintentional Owner “They didn’t mean to buy a media stake,” Commissioner Lee said of the Taipei City government’s ownership. “Most cases are due to indirect investment” by a government entity, he said. “This is why the NCC is trying to resolve this issue by allowing 10 percent indirect investment, to avoid such accidental cases,” he said. Taiwan introduced curbs on government and political party ownership of the media in December 2003, when then-President Chen Shui-bian sought to force the opposition Kuomintang to relinquish its interests in media operators. Fubon is 14 percent owned by the Taipei city government, data compiled by Bloomberg shows. To contact the reporter responsible for this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net ; Tim Culpan in Taipei at tculpan1@bloomberg.net

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Ambac Regulator Seizes Subprime Contracts to Avoid `Scramble for Assets’

March 26, 2010

By Andrew Frye and Christine Richard March 26 (Bloomberg) — Ambac Financial Group Inc. ’s regulator said he seized $35 billion in risky mortgage insurance to keep the company afloat and forestall an “uncontrollable scramble for assets” among policyholders and counterparties. “You’re not triggering any defaults,” Wisconsin Insurance Commissioner Sean Dilweg said yesterday in an interview. “All this is, from our perspective, is a timeout so we can create a more orderly runoff.” Dilweg is taking over policies on residential mortgage- backed securities and halting some payments to protect municipal bondholders who count on the company’s guarantees. Claims paid now to mortgage investors are threatening to deplete Ambac’s reserves and leave a thinner cushion for municipal-bond clients whose coverage extends decades into the future, Dilweg said. Ambac, created in 1971 to insure debt sold by states and municipalities, lost its top credit ratings and 99 percent of its stock-market value after expanding from its main business into guaranteeing bonds backed by riskier assets. The company guarantees $256 billion of the $1.4 trillion in insured municipal issuance, according to Bloomberg data. The muni market totals $2.8 trillion, according to the Federal Reserve. “Ambac and its policyholders would be collectively worse off” if policyholders and counterparties seek to exit or modify contracts, Dilweg’s office said in a court filing dated March 24. “The terminations and other actions would bring about the ‘uncontrollable scramble for assets,’” the regulator said, citing a California case upholding that state’s right to curb calls on a troubled insurer’s assets. Skipped Payments Ambac fell 4 cents, or 6.2 percent, to 62 cents at 9:34 a.m. in New York Stock Exchange composite trading. The shares have dropped about 90 percent in the past two years. Ambac saved $120 million on skipped payments this month. Once it resumes meeting obligations, Dilweg said he expects the company to hand out about 25 cents cash for every dollar in claims on residential mortgage-backed securities coverage. The balance of claims would be given in surplus notes, which are paid with regulator permission. Payouts to municipal bondholders aren’t scheduled to change, Dilweg said. “You have two different constituents, and the capital of the business is getting depleted quickly,” said Rob Haines , an insurance analyst with CreditSights Inc. in New York. “You want to avoid a race to the capital.” Ambac said in November that it would face $23.1 billion of payments on credit-default swap contracts if its regulator moved to seize the firm’s main unit. Yesterday, the company said most CDS counterparties had agreed not to seek accelerated payouts amid negotiations. Settling Contracts The unit may pay $2.6 billion in cash and $2 billion of surplus notes to settle the CDS contracts, which are tied to subprime mortgages and unrelated to the $35 billion of policies on housing securities seized by Dilweg. Dilweg’s decision to halt payments on mortgage securities isn’t necessarily a positive for municipal-bond holders, according to Matt Fabian , a senior analyst with Municipal Market Advisors in Westport, Connecticut. “It gives an investor pause — is my bond the next one for which the company doesn’t pay on its policy?” Fabian said. Ambac Assurance Corp., the Wisconsin-based unit, will set up a segregated account for insurance contracts linked to credit-default swaps, residential mortgage-backed securities and other structured finance transactions, the parent company said yesterday. Dilweg’s office ordered the handover in a so-called rehabilitation. Traffic Cop “Once you take them into rehabilitation you have the right to manage the claims,” said Eric Dinallo , the former insurance superintendent for New York, who oversaw Ambac’s bigger competitor MBIA Inc. “You become a traffic cop, you slow some claims down and let others go by.” Ambac said that while it doesn’t consider the regulator’s move to constitute a default, it may consider a “prepackaged bankruptcy.” The International Swaps and Derivatives Association is studying the move and plans to rule on whether holders of contracts protecting against a default by Ambac’s insurance unit should be paid. The committee of banks and investors governs credit-default swaps in North America. Ambac fell 14 cents to 66 cents in New York Stock Exchange composite trading yesterday. The shares are down from as high as $96.10 in May 2007. Ambac sold the industry’s first insurance policy on municipal debt 39 years ago, for a $650,000 bond of the Greater Juneau Borough Medical Arts Building in Alaska. The business thrived, with a handful of competitors obtaining the top AAA credit rating needed to guarantee debt of state and local governments and their agencies that seldom defaulted. Question of Coverage Ambac’s main unit was stripped of its top ratings in 2008 and has since seen its grade cut 17 levels to Caa2 by Moody’s Investors Service. “At this point, it’s not a question of AAA coverage,” Dilweg told Bloomberg Television. “It’s a question of coverage.” To contact the reporters on this story: Andrew Frye in New York at afrye@bloomberg.net ; Christine Richard in New York at crichard5@bloomberg.net .

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Greek Tax Increases to Cut Budget Deficit May Fall Short, EU Draft Warns

March 9, 2010

By Meera Louis March 9 (Bloomberg) — Greek tax increases designed to curb the European Union’s biggest budget deficit may fail to generate as much additional revenue as the government in Athens estimates, a draft EU report said. That would hinder Prime Minister George Papandreou ’s efforts to cut the deficit to 8.7 percent of gross domestic product this year from 12.7 percent in 2009. The Greek parliament last week passed a package of extra tax increases and spending cuts to try to convince the EU and investors that Greece is serious about reining in the budget gap . While the 4.8 billion euros ($6.5 billion) of additional austerity measures enacted on March 5 “appear sufficient to safeguard the 2010 budgetary targets,” risks remain that increases in value-added tax and fuel taxes may generate less revenue than the government has projected, according to the draft report by the European Commission, which was obtained by Bloomberg News. The report will be discussed by EU finance ministers at a regular meeting in Brussels next week. The Greek government projects the increase in the main VAT rate to 21 percent from 19 percent will bring in 1.3 billion euros in added revenue this year, while higher excise duties on gasoline and diesel are estimated to generate 450 million euros more, according to the Finance Ministry in Athens. “The implications on tax revenue of a contraction in demand should not be underestimated,” the draft document said. On the VAT, “changes in the tax base — in relation to the contraction of internal demand — and tax evasion may result to lower-than-expected gains.” Latest Measures EU Economic and Monetary Affairs Commissioner Olli Rehn said today that the Greek government is “on track” to achieve its deficit-cutting goals. The latest measures put Greece on “the path of fiscal adjustment for 2012,” the deadline to meet the EU’s 3 percent deficit limit, Rehn said in an interview in Strasbourg, France. Still, Greece’s overall government debt “remains on a steep upward path,” according to the commission’s draft assessment. Greek debt is projected to swell to 125 percent of GDP this year, the highest in the 27-nation EU, the commission forecasts. Greece’s deficit-reduction measures, which include a 7 percent cut in public-sector wages and a pension freeze, have sparked protests. The nation’s 15,000 tax collectors began a 48- hour strike yesterday and garbage workers have walked off the job through March 11 to protest the last week’s budget cuts. To contact the reporter on this story: Meera Louis in Brussels at mlouis1@bloomberg.net

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Iraqis Defy Bombs, Mortar Attacks in `Wide-Open’ Parliamentary Elections

March 7, 2010

By Kadhim Ajrash and Caroline Alexander March 7 (Bloomberg) — Bombings and mortars struck several Iraqi cities as voters cast ballots in parliamentary elections that are unlikely to produce a clear winner. At least 24 people were killed in the attacks in Baghdad alone, including 14 in the bombing of a building in the northeastern part of the capital, the Associated Press reported. In Mosul, the country’s second-largest city, five precinct stations were moved to avoid assaults. Al-Qaeda’s branch in Iraq warned yesterday it would use “military means” to prevent the poll and called on Sunni Muslims, once the bedrock support for deposed Iraqi leader Saddam Hussein , not to participate. The elections come at a time when U.S. troops are preparing to leave the country and are handing over security control to the Iraqis. Prime Minister Nouri al-Maliki , who said last week that no single party is likely to win an outright majority, predicted a large turnout despite the efforts at intimidation. “I know the Iraqi people,” he said after casting his ballot in Baghdad this morning. “When they are challenged, they persevere.” Even as bombs went off, across the country many voters were casting their ballots while carrying Iraqi flags. Authorities deployed 500,000 soldiers and police to provide security. “Despite the bombs that I heard on my way and the fact that I was stopped and searched three times, I insisted on voting,” said Ali Salim, a 32-year-old public school teacher in Baghdad and a Shiite Muslim, the country’s majority sect. “I even put on my best suit and tie.” It is important to have “new people” in power to tackle Iraq’s security and economic problems, Salim said at a voting station. U.S. Withdrawal The cities of Fallujah, Baquba and Samarra were also struck by mortars or bombs, many of them near polling stations, Agence France-Presse reported. The vote is the second since Saddam Hussein ’s overthrow by U.S. forces in 2003. More than 6,200 candidates from 86 political groupings are seeking seats in the 325-member legislature. The election comes less than six months before U.S. troop strength in Iraq, currently 96,000, is scheduled to be halved. Iraqi forces have taken over almost all security in the country. All U.S. forces are scheduled to leave Iraq by the end of 2011. The withdrawal is “strongly on track,” White House Press Secretary Robert Gibbs told reporters in Washington on March 4. Al-Maliki said last week that he expected his State of Law coalition to gain the most votes, although it would need to build a coalition to govern. Deadlock Political fragmentation may lead the parties to “do what they did in 2005 — go for the weakest compromise candidate to prevent a strong prime minister,” said Joost Hilterman , an analyst at the Brussels-based International Crisis Group . “These elections are wide open.” Other main election alliances include the Iraqiya movement of former Prime Minister Ayad Allawi , which is advocating non- sectarian politics. Sunnis are being wooed by an array of Islamic parties. Iraq’s Kurds, who enjoy semi-autonomy in the north , backed al-Maliki after the last election, although they’ve since feuded with him over sharing oil revenue and control of Kirkuk, an oil- rich northern city. The main Kurdish parties, the Kurdish Democratic Party and Patriotic Union of Kurdistan, have formed an election alliance that is being challenged by a new party called Change. U.S. ambitions to leave a peaceful and stable Iraq may be threatened by a post-election deadlock. If significant portions of Iraq’s main sectarian and ethnic groups — the majority Shiite Muslim and minority Sunni Muslim and Kurds — are not represented in the government coalition, violence could grow. Iranian Influence “If an inclusive coalition doesn’t emerge, the backlash could be very violent,” forcing the U.S. to reconsider its withdrawal plans, said Ahmed Ali , an analyst at the Washington Institute for Near East Policy . The election is the biggest in Iraq’s history. Almost 19 million people are registered to vote at 64,000 polling stations, according to the office of the United Nations High Commissioner for Refugees . Baghdad, a city where once the only portrait of a politician on view was that of Saddam Hussein, is festooned with thousands of posters plastered to walls and giant campaign ads draped from buildings. The growing influence of Iran has been evident in the run up to the vote. Shiite parties once aligned with al-Maliki formed the National Iraqi Alliance under the auspices of Iran, according to Reidar Visser , an Iraq analyst at the Norwegian Institute of International Affairs in Oslo. The U.S. has accused Iran of training militias that have attacked American troops in Iraq. Iran has denied the charge. Iran’s influence over Iraqi politics is inevitable, said Marina Ottaway , director of the Middle East program at Washington’s Carnegie Endowment for International Peace . “The U.S. presence is transitory, Iran is in Iraq to stay,” said Ottaway. “In the long run, Iran will be more influential.” To contact the reporters on this story: Caroline Alexander in London at calexander1@bloomberg.net ; Kadhim Ajrash in Baghdad at kajrash@bloomberg.net

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Iraqis Vote in `Wide-Open’ Parliamentary Election; 24 Killed in Bombings

March 7, 2010

By Caroline Alexander and Daniel Williams March 7 (Bloomberg) — Deadly attacks hit Baghdad as Iraqis voted today in a parliamentary poll that may produce months of political wrangling at a time when U.S. troops are preparing to leave the country. More than 6,200 candidates from 86 political groupings are seeking seats in the 325-member legislature. It is the second national election since the U.S.-led invasion that ousted Iraqi leader Saddam Hussein in 2003. Prime Minister Nouri al-Maliki , seeking re-election on a record of reducing sectarian violence, says he expects to win while acknowledging he won’t get enough support to govern alone. It took al-Maliki six months to form a government after the December 2005 election , and since then his Shiite Muslim alliance has splintered. The premier faces competition from rival Shiite parties backed by Iran, Kurds from the country’s north and parties appealing to secularist Iraqis and religious Sunni Muslims. “If an inclusive coalition doesn’t emerge, the backlash could be very violent,” forcing the U.S. to reconsider its withdrawal plans, said Ahmed Ali , an analyst at the Washington Institute for Near East Policy . Compromise Under a schedule set by President Barack Obama last year, about half the 96,000 U.S. troops currently in Iraq will leave by the end of August, and the rest will withdraw in 2011. The withdrawal is “strongly on track,” White House Press Secretary Robert Gibbs told reporters in Washington on March 4. Al-Maliki said in an interview posted last week on France 24 television’s Web site that “in late 2011, there must not be a single U.S. soldier left in Iraq,” and that the Iraqi army will be ready to take over. He said his State of the Law alliance will need coalition partners to govern Iraq, which holds the world’s third-largest reserves of oil. Political fragmentation may lead the parties to “do what they did in 2005 — go for the weakest compromise candidate to prevent a strong prime minister,” said Joost Hilterman , an analyst at the Brussels-based International Crisis Group . “These elections are wide open.” U.S. ambitions to leave a peaceful and stable Iraq may be threatened by a post-election deadlock, as well as by a recurrence of the sectarian violence that has been abating since 2007. In the run-up to elections, which insurgents vowed to disrupt, attacks increased. Mortar Attacks Three people were killed by mortar fire in northeastern Baghdad, the Associated Press reported today, citing officials it didn’t identify because they weren’t authorized to speak to the media. Twelve people were killed and eight wounded in a bomb attack in Baghdad, Agence France-Presse cited an Interior Ministry official as saying. After casting his vote in Baghdad, al-Maliki called for a heavy turnout. “Every vote will have an effect,” he said. “We want calm, we want stability, we want to build” Iraq. Authorities deployed 500,000 army and police to ensure security for the election. Across the country, many voters were seen casting their ballots while carrying Iraqi flags in their hands. Al-Qaeda’s branch in Iraq, which has warned it would use “military means” to prevent the poll, said two days ago it was imposing a curfew on election day. A car bomb near a Shiite Muslim shrine in Iraq’s holy city of Najaf killed seven people yesterday. On March 4, a roadside bomb and two suicide explosions killed at least 12 people at three separate polling stations where voters eligible for early balloting, including security forces due to be policing today’s vote, were casting ballots. ‘Decisive Vote’ The day before, suicide bombings in Baquba, a mixed Shiite and Sunni Muslim city, killed at least 29 people. Iraqi government figures show 352 people were killed in attacks in February, 80 percent more than the previous month. Polling stations in Iraq opened at 7 a.m. today and are due to close at 5 p.m., with initial results expected tomorrow and final results by the end of March. Iraqi President Jalal Talabani , a Kurd, called the vote “decisive” as he cast his ballot in the northern city of Sulaimaniyah. He said he expected to keep his post. The election will be the biggest in Iraq’s history, with 18.9 million people registered to vote at 64,000 polling stations, according to the office of the United Nations High Commissioner for Refugees . Baghdad is plastered with thousands of banners and posters, and candidates have also sought support via television and radio advertisements, Web sites and text messages. Iran Influence Politics are fragmented largely along ethnic and religious lines. Al-Maliki’s former Shiite allies have formed the National Iraqi Alliance, which also includes the cleric Moqtada al-Sadr , who is believed to be living in Iran. The group was set up in Iran with the Islamic republic’s backing, according to Reidar Visser , an Iraq analyst at the Norwegian Institute of International Affairs in Oslo. The U.S. has said it suspects Iran is trying to develop nuclear weapons, and has also accused it of training militias that have attacked American troops in Iraq. Iranian officials have denied both accusations. Iran’s influence over Iraqi politics is on the rise, said Marina Ottaway , director of the Middle East program at Washington’s Carnegie Endowment for International Peace . “The U.S. presence is transitory,” said Ottaway. “Iran is in Iraq to stay. In the long run, Iran will be more influential.” Other main election alliances include the Iraqiya movement of former Prime Minister Ayad Allawi , which is advocating non- sectarian politics. Sunni Muslims, who boycotted the 2005 election, are being wooed by an array of Islamic parties. Iraq’s Kurds, who enjoy semi-autonomy in the north , backed al-Maliki after the last election, although they’ve since feuded over sharing oil revenue and settling internal boundaries. The two main Kurdish parties, the Kurdish Democratic Party and Patriotic Union of Kurdistan, have formed an election alliance that is being challenged by a new party called Change. “I don’t think the candidates will be able to solve intractable crises unless they first agree to end the state of intolerance,” said Malak Hussein, 47, an eye doctor at a clinic in central Baghdad. To contact the reporters on this story: Daniel Williams in Cairo at dwilliams41@bloomberg.net . Caroline Alexander in London at calexander1@bloomberg.net

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Iraq’s `Wide-Open’ Election Could Pose Threat to Obama’s Withdrawal Plans

March 6, 2010

By Caroline Alexander and Daniel Williams March 7 (Bloomberg) — Iraq votes today in a parliamentary election that is likely to produce months of political wrangling over a new governing coalition, at a time Iraqis are taking over responsibility for security as U.S. troops leave the country. More than 6,200 candidates from 86 political groupings will seek seats in the 325-member legislature. It is the second national election since the U.S.-led invasion that ousted Iraqi leader Saddam Hussein in 2003. Prime Minister Nouri al-Maliki, seeking re-election on a record of reducing sectarian violence, says he expects to win while acknowledging he won’t get enough support to govern alone. It took al-Maliki six months to form a government after the December 2005 election , and since then his Shiite Muslim alliance has splintered. The premier faces competition from rival Shiite parties backed by Iran, Kurds from the country’s north and parties appealing to secularist Iraqis and religious Sunni Muslims. “If an inclusive coalition doesn’t emerge, the backlash could be very violent,” forcing the U.S. to reconsider its withdrawal plans, said Ahmed Ali , an analyst at the Washington Institute for Near East Policy . Under a schedule set by President Barack Obama last year, about half the 96,000 U.S. troops currently in Iraq will leave by the end of August, and the rest will withdraw in 2011. The withdrawal is “strongly on track,” White House Press Secretary Robert Gibbs told reporters in Washington on March 4. Compromise Al-Maliki said in an interview posted last week on France 24 television’s Web site that “in late 2011, there must not be a single U.S. soldier left in Iraq,” and that the Iraqi army will be ready to take over. He said his State of the Law alliance will need coalition partners to govern Iraq, which holds the world’s third-largest reserves of oil. Political fragmentation may lead the parties to “do what they did in 2005 — go for the weakest compromise candidate to prevent a strong prime minister,” said Joost Hilterman , an analyst at the Brussels-based International Crisis Group . “These elections are wide open.” U.S. ambitions to leave a peaceful and stable Iraq may be threatened by post-election deadlock, as well as by a recurrence of the sectarian violence that has been abating since 2007. In the run-up to elections, attacks increased. A car bomb near a Shiite Muslim shrine in Iraq’s holy city of Najaf killed seven people yesterday. On March 4, a roadside bomb and two suicide explosions killed at least 12 people at three separate polling stations where voters eligible for early balloting, including security forces due to be policing today’s vote, were casting ballots. Texting Voters The day before, suicide bombings in the central city of Baquba, a mixed Shiite and Sunni Muslim city, killed at least 29 people. Iraqi government figures show 352 people were killed in attacks in February, 80 percent more than the previous month. Polling stations in Iraq open at 7 a.m. today and are due to close at 5 p.m., with initial results expected tomorrow and final results by the end of March. The election will be the biggest in Iraq’s history, with 18.9 million people registered to vote at 64,000 polling stations, according to the United Nations High Commissioner for Refugees . Baghdad is plastered with thousands of banners and posters, and candidates have also sought support via television and radio advertisements, Web sites and text messages. Politics are fragmented largely along ethnic and religious lines. Al-Maliki’s former Shiite allies have formed the National Iraqi Alliance, which also includes the cleric Moqtada al-Sadr , who is believed to be living in Iran. The group was set up in Iran with the Islamic republic’s backing, according to Reidar Visser , an Iraq analyst at the Norwegian Institute of International Affairs in Oslo. Iran Influence The U.S. has said it suspects Iran is trying to develop nuclear weapons, and has also accused it of training militias that have attacked American troops in Iraq. Iranian officials have denied both accusations. Iran’s influence over Iraqi politics is on the rise, said Marina Ottaway , director of the Middle East program at Washington’s Carnegie Endowment for International Peace . “The U.S. presence is transitory,” said Ottaway. “Iran is in Iraq to stay. In the long run, Iran will be more influential.” Other main election alliances include the Iraqiya movement of former Prime Minister Ayad Allawi , which is advocating non- sectarian politics. Sunni Muslims, who boycotted the 2005 election, are being wooed by an array of Islamic parties. Iraq’s Kurds, who enjoy semi-autonomy in the north , backed al-Maliki after the last election though they’ve since feuded over sharing oil revenue and settling internal boundaries. The two main Kurdish parties, the Kurdish Democratic Party and Patriotic Union of Kurdistan, have formed an election alliance that is being challenged by a new party called Change. “I don’t think the candidates will be able to solve intractable crises unless they first agree to end the state of intolerance,” said Malak Hussein, 47, an eye doctor at a clinic in central Baghdad. To contact the reporters on this story: Daniel Williams in Cairo at dwilliams41@bloomberg.net . Caroline Alexander in London at calexander1@bloomberg.net

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IRS Extends Moratorium Until June 1 on Tax Levy Fought by Small Business

March 4, 2010

By Margaret Collins March 4 (Bloomberg) — The U.S. Internal Revenue Service will extend a moratorium on penalties until June 1 for failing to report transactions considered tax shelters. The rule applies to individuals or other taxpayers that fail to disclose transactions the IRS deems as potentially tax evading, such as employer contributions to post-retirement benefit funds. The levy is as high as $100,000 a year for individuals and $200,000 for all other taxpayers, according to the IRS. It is assessed each year a transaction is not reported and may be charged to both a business and its owner. The department will also “hold off” filing new lien notices on amounts owed, IRS Commissioner Doug Shulman told Congress yesterday. “The penalty has ended up snagging small businesses that weren’t advised of their responsibility to disclose,” Senator Ben Nelson , a Nebraska Democrat, said in a statement last month. The provision was designed to crack down on tax shelters for big corporations and wealthy individuals, and has been applied to small-business owners who’ve paid into retirement accounts for themselves and their employees without following IRS disclosure requirements, said Kathleen Pakenham, a New York- based partner at White & Case LLP , who represents 30 such clients. “Some of these businesses were assessed tax penalties as high as $300,000 per year but received a tax benefit for as little as $15,000 from the transaction,” Senator Charles Grassley , an Iowa Republican, said in a statement on Dec. 23. There were about 30 million businesses with fewer than 500 employees in 2008, according to the U.S. Small Business Administration’s Office of Advocacy. Bandage “It’s a Band-Aid,” said Pakenham of the moratorium. “It’s not addressing the underlying problem.” The Senate passed legislation on Feb. 9 that would make the fee assessed proportional to the tax benefit received. The House of Representatives has not yet passed a similar bill. The IRS’s moratorium suspends penalties on individuals who received less than $100,000 in savings from unreported transactions and under $200,000 for other taxpayers. The U.S. tax code assesses more than 150 penalties, according to a June report by the Government Accountability Office. In fiscal year 2007, the IRS levied more than 37.6 million civil penalties, totaling more than $29.5 billion, according to the GAO. To contact the reporter on this story: Margaret Collins in New York at mcollins45@bloomberg.net .

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World Cup Police Boosted 10% as South Africa’s Zuma Brings `Deadly Force’

March 3, 2010

By Nasreen Seria March 3 (Bloomberg) — Roger Williams , finance director of explosives maker AECI Ltd. in Johannesburg, paid a terrible price for South Africa’s crime rate: His 12-year-old daughter, Emily , was killed in a 2008 crossfire between thieves and security guards. Devastated, he left the country. Now, faced with the loss of talented people like Williams and the global spotlight of hosting soccer’s World Cup, President Jacob Zuma is taking a stand against crime. He wants to change things in a country where 50 people are murdered each day and gun-toting thieves rob armored vehicles carrying cash for banks such as Standard Bank Group Ltd. One consequence could be a better environment to invest and attract skilled employees. “It was a horrendous thing to happen,” AECI Chief Executive Officer Graham Edwards said in an interview. “The government has a short window of time in which to show an improvement. Otherwise we’ll see the brain drain from this country continuing.” Police are being told to use “deadly force,” and the number of police personnel will increase by 10 percent over the next three years, Zuma said in his state-of-the-nation speech on Feb. 11. Finance Minister Pravin Gordhan a week later boosted the police budget by 10 percent, to 53 billion rand ($7 billion), for the fiscal year through March 2011. The new policy is a change from Zuma’s predecessor, Thabo Mbeki , who said only racists perceived crime as a problem and that poverty forced South Africans to “beg, rob and murder.” Prosperity at Stake “There’s definitely been a big difference in the government’s anti-crime approach,” said Adam Habib , a politics professor at the University of Johannesburg . “If the government gets it right on crime, its legitimacy will vastly increase. What’s at stake here is South Africa’s prosperity.” AECI is one of many companies in South Africa hurt by crime. In 1999, Kwan Yang Koo, the head of Daewoo Corp. ’s regional headquarters, was found shot dead in his car outside his home. Many affluent South Africans pay for a response service that brings armed men to their houses minutes after sounding an alarm or pushing a panic button. “Police must respond to fire with fire. We are tightening the screws,” Police Minister Nathi Mthethwa said in an interview. “Being aggressive and tough against criminals, there’s no apology for that.” Mthethwa’s deputy, Fikile Mbalula , told an anti-crime rally in Johannesburg on Dec. 7 that “criminals’ graves are coming.” World Cup Visitors South Africa’s hosting of the World Cup in June may have prompted authorities to take a tougher approach. The month-long tournament is expected to attract as many as 450,000 visitors, local organizers say. “If any so-called mastermind or would-be criminal thinks the 2010 FIFA World Cup is an easy cash cow, they are mistaken,” Mthethwa said in a Jan. 26 statement. “We shall continue with our efforts of obliterating criminals.” South Africa’s murder rate of 37.2 per 100,000 people is almost seven times that of the U.S. Theft from businesses surged 11 percent last year, according to police statistics. It’s difficult to find skilled foreigners to fill vacancies in the engineering and financial services industries, said Vicki Marais-Swanepoel, managing director of Kelly Group SA Ltd. ’s Professional Assignments Group in Johannesburg. ‘What About Crime?’ “We often do recruitment drives in London, Ireland and Dubai and one of the first questions that always comes up is, ‘What about crime?’” she said. A company with 1 million rand or more in annual sales loses 4.5 percent of that to crime and smaller businesses lose more, according to a 2008 study conducted for the presidency. The police are “responding very meaningfully and very harshly,” Graham Wright, chief executive officer of Business Against Crime , a Johannesburg-based lobby group, said in an interview. “When business leaders see the minister of police, the president, the commissioner of police, being as positive and proactive as they are, it sends a very positive message.” The campaign has also stoked public concern about the danger to innocent people. A three-year-old boy sitting in a parked car near Johannesburg was shot by a policeman investigating a murder on Nov. 7. A 29-year-old woman was gunned down by police in the capital, Pretoria, in October after the car she was traveling in was mistaken for a hijacked vehicle. Judge, Jury, Executioner “We can’t allow police to act as judge, jury and executioner,” said Diane Kohler Barnard , spokeswoman on police issues for the opposition Democratic Alliance party in Cape Town. “It’s absolutely irresponsible.” In KwaZulu-Natal, the country’s second-most populous province, the number of arrests more than doubled to 49,000 over the Christmas holiday season, according to provincial government data. National statistics haven’t been published. “There’s definitely a new impetus,” said Lee Ramdiyal, an inspector and 20-year police veteran in Sandton, northern Johannesburg, where he says there was a 40 percent decline in crime in the three months through last December compared with the same period in 2008. The drop didn’t come soon enough for Emily Williams. Three men were given life sentences in August last year for her killing. To contact the reporters on this story: Nasreen Seria in Johannesburg at nseria@bloomberg.net

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EU Puts More Pressure on Greece to Cut Budget Deficit as Merkel Talks Near

March 2, 2010

By Simon Kennedy and Jonathan Stearns March 2 (Bloomberg) — The European Union set the clock ticking on Greece’s attempts to cut the bloc’s largest budget deficit. As Prime Minister George Papandreou prepares to meet Germany’s Angela Merkel on March 5, EU Monetary Affairs Commissioner Olli Rehn yesterday said Greece must reveal new measures “in the coming days” to allay officials’ concerns that the current austerity plan falls short. Merkel and other EU leaders want Greece to do more so they can justify any aid package to taxpayers and political opponents who say that Greece shouldn’t be bailed out after living beyond its means. Failure to satisfy Rehn’s demand before the Berlin talks may dash hopes of a German-led lifeline, spurring investors to reverse yesterday’s rally in Greek bonds. “All the trump cards are with Berlin this week,” said Julian Callow , chief European economist at Barclays Capital in London. “Clearly Greece has a huge financing need in the months ahead and so it will have to do more” before the Merkel meeting. Papandreou addresses his governing Pasok party at 5 p.m. local time today and the cabinet meets tomorrow to discuss further “decisions on the economy,” the government said. “It is Greece’s job to do what it has announced, which is to implement the deficit reduction goal,” said Merkel yesterday. The yield on Greece’s 10-year bonds yesterday fell 9 basis points to 6.25 percent, the lowest in two weeks, as investors speculated a deal to help Greece is close. It was little changed at 8:08 a.m. in London today. Greek Options Papandreou’s efforts to give the EU what it wants are being complicated by strikes, a deteriorating economic outlook and higher borrowing costs. Options outlined by the EU include another increase in the fuel levy, raising sales tax and a luxury tax on cars and yachts. It could also raise duties on alcohol and tobacco products again and abolish the “14th wage”, a payment received twice a year that’s equivalent to one month’s wage. Labor Minister Andreas Loverdos said yesterday that Greece will extend a freeze on public-sector pay increases to pensions. “The announcement of cuts is necessary to pave the way to financial assistance,” said Nick Kounis , chief European economist at Fortis Bank Nederland NV in Amsterdam. “Everyone is being tough on Greece and now it has to outline the extra cuts and commit to them.” Bond Sale? While the head of Greece’s debt management agency said in an interview today that the country will sell bonds when market conditions are “favorable,” the government needs to cover more than 20 billion euros ($27 billion) of bonds and notes maturing in April and May. Finance Minister George Papaconstantinou said yesterday the government will “do anything” to meet its targets, which include lowering the deficit beneath the EU limit of 3 percent of gross domestic product by 2012. This year, the government wants to cut the deficit by 4 percentage points to 8.7 percent. The EU should nevertheless be wary of making Greece do too much too soon, David Mackie , chief European economist at JPMorgan Chase & Co., said in a Feb. 26 research report. He calculates that new cuts amounting to another 2 percentage points of GDP would leave the total at 7 percentage points, which is “getting to the intolerable end of the spectrum.” “It appears that the Greek government has reasonably broad support across the political spectrum and with the population as a whole,” Mackie said. “Too much pressure from the rest of the EU could change this and introduce a political crisis, the consequence of which would be hard to gauge.” Default Risk The government has already raised the retirement age and frozen salary increases for public-sector workers. The yield on Greece’s 10-year debt has stabilized after surging more than two percentage points in three months to as high as 7.15 percent at the end of January as some investors speculated the EU will do whatever is necessary to stave off a default. 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 . “We have a number of options before us, including public and public-private ones,” French Finance Minister Christine Lagarde told reporters near Paris yesterday. “All of this is on the condition that Greece meets its commitments.” To contact the reporters on this story: Jonathan Stearns in Athens at jstearns2@bloomberg.net ; Simon Kennedy in Paris at skennedy4@bloomberg.net .

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EU Sets Clock Ticking on Greek Budget Reduction as Talks With Merkel Near

March 1, 2010

By Simon Kennedy and Jonathan Stearns March 2 (Bloomberg) — The European Union set the clock ticking on Greece’s attempts to cut the bloc’s largest budget deficit. As Prime Minister George Papandreou prepares to meet Germany’s Angela Merkel on March 5, EU Monetary Affairs Commissioner Olli Rehn yesterday said Greece must reveal new measures “in the coming days” to allay officials’ concerns that the current austerity plan falls short. Merkel and other EU leaders want Greece to do more so they can justify any aid package to taxpayers and political opponents who say that it shouldn’t be bailed out after living beyond its means. Failure to satisfy Rehn’s demand before the Berlin talks may dash hopes of a German-led lifeline, spurring investors to reverse yesterday’s rally in Greek bonds. “All the trump cards are with Berlin this week,” said Julian Callow , chief European economist at Barclays Capital in London. “Clearly Greece has a huge financing need in the months ahead and so it will have to do more” before the Merkel meeting. Papandreou addresses his governing Pasok party at 5 p.m. local time today and the cabinet meets tomorrow to discuss further “decisions on the economy,” the government said. The yield on Greece’s 10-year bonds yesterday fell 9 basis points to 6.25 percent, the lowest in two weeks, as investors speculated a deal to help Greece is close. The government needs to raise funds to cover more than 20 billion euros ($27 billion) of bonds and notes maturing in April and May. “It is Greece’s job to do what it has announced, which is to implement the deficit reduction goal,” said Merkel yesterday. Pension Freeze Papandreou’s efforts to give the EU what it wants are being complicated by strikes, a deteriorating economic outlook and higher borrowing costs. Options outlined by the EU include another increase in the fuel levy, raising sales tax and a luxury tax on cars and yachts. It could also raise duties on alcohol and tobacco products again and abolish the “14th wage”, a payment received twice a year that’s equivalent to one month’s wage. Labor Minister Andreas Loverdos said yesterday that Greece will extend a freeze on public-sector pay increases to pensions. “The announcement of cuts is necessary to pave the way to financial assistance,” said Nick Kounis , chief European economist at Fortis Bank Nederland NV in Amsterdam. “Everyone is being tough on Greece and now it has to outline the extra cuts and commit to them.” Wary Finance Minister George Papaconstantinou said yesterday the government will “do anything” to meet its targets, which include lowering the deficit beneath the EU limit of 3 percent of gross domestic product by 2012. This year, the government wants to cut the deficit by 4 percentage points to 8.7 percent. The EU should nevertheless be wary of making Greece do too much too soon, David Mackie , chief European economist at JPMorgan Chase & Co., said in a Feb. 26 research report. He calculates that new cuts amounting to another 2 percentage points of GDP would leave the total at 7 percentage points, which is “getting to the intolerable end of the spectrum.” “It appears that the Greek government has reasonably broad support across the political spectrum and with the population as a whole,” Mackie said. “Too much pressure from the rest of the EU could change this and introduce a political crisis, the consequence of which would be hard to gauge.” The government has already raised the retirement age and frozen salary increases for public-sector workers. Default Risk The yield on Greece’s 10-year debt has stabilized after surging more than two percentage points in three months to as high as 7.15 percent at the end of January as some investors speculated the EU will do whatever is necessary to stave off a default. 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 . “We have a number of options before us, including public and public-private ones,” French Finance Minister Christine Lagarde told reporters near Paris yesterday. “All of this is on the condition that Greece meets its commitments.” To contact the reporters on this story: Jonathan Stearns in Athens at jstearns2@bloomberg.net ; Simon Kennedy in Paris at skennedy4@bloomberg.net .

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Rehn Urges Greece to Outline Measures to Reduce Deficit as EU Debates Aid

March 1, 2010

By Jonathan Stearns and Natalie Weeks March 1 (Bloomberg) — European Union Monetary Affairs Commissioner Olli Rehn urged Greece to quickly outline new ways to cut the region’s largest budget deficit as governments craft a possible rescue package for the cash-strapped nation. “I want to encourage the Greek authorities to consider and announce additional measures in the coming days,” Rehn told reporters in Athens today after meeting Greek Finance Minister George Papaconstantinou . “Given that risks related to macroeconomic and market developments are materializing, additional consolidation measures are necessary.” European leaders are pushing Greece to redouble efforts to regain control of its budget so they can justify to taxpayers any aid they may have to provide in the event Prime Minister George Papandreou ’s government can’t finance its debt. Concern about Greece’s finances pushed the risk premium to buy its bonds over comparable German debt to an 11-year high in January. “It’s clear they’ve been working on a contingency plan because they don’t want a disaster,” Erik Nielsen , chief European economist at Goldman Sachs Group Inc. in London, told Bloomberg Television today. “There’s no appetite for default.” German lawmakers say euro-area officials are devising a plan to grant Greece about 25 billion euros ($34 billion) in aid should the need arise, possibly by using state-owned lenders such as the KfW Group to buy its bonds. Such speculation helped Greece lead a decline today in the cost of insuring against a sovereign-bond default in Europe. ‘Number of Options’ “We have a number of options before us, including public and public-private ones,” French Finance Minister Christine Lagarde told reporters near Paris today. “All of this is on the condition that Greece meets its commitments.” Rehn is in the Greek capital after European officials pored over the government’s books to verify it’s doing enough to meet its pledge to knock 4 percentage points off its budget deficit this year from last year’s 12.7 percent of gross domestic product. The country has until March 16 to satisfy fellow EU governments that its deficit-reduction plan is on track and faces being pressed to increase consumer taxes and lower capital spending if it can’t show sufficient progress. Papaconstantinou said today that it’s Greece’s “national duty” to tackle the budget shortfall and the government will “do anything including new measures” to meet the goals, which include reducing the gap below the EU’s 3 percent limit in 2012. Credit-default swaps linked to Greek government bonds tumbled 28.5 basis points to 335.5 today, the lowest since Jan. 27, according to CMA DataVision prices. To contact the reporters on this story: Jonathan Stearns in Athens at jstearns2@bloomberg.net Natalie Weeks in Athens at nweeks2@bloomberg.net

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Corporate Bonds Rally by Most Since August on Greece Plan: Credit Markets

March 1, 2010

By Bryan Keogh, Caroline Hyde and Sapna Maheshwari March 1 (Bloomberg) — U.S. corporate bond sales climbed the most this year and global returns staged the biggest rally since August last week, as concern that Europe’s fiscal crises will stifle economic growth eased. Bond offerings worldwide climbed 65 percent to $42.7 billion and U.S. sales more than tripled to $16.7 billion, according to data compiled by Bloomberg. Investment-grade securities returned 0.97 percent, the most since the period ended Aug. 14, according to a Bank of America Merrill Lynch global index. At least 16 companies, from Bombardier Inc. to Russian oil producer Alliance Oil Co., postponed bond offerings last month as growing concerns about Greece’s debt woes made February the slowest in eight years. Confidence is rebounding after German lawmakers said European Union officials are crafting a plan to grant Greece about 25 billion euros ($34 billion) in aid should the need arise. “We believe that the crisis in Europe will eventually be settled, that there will be a rescue package for Greece,” said Peter Vutz , head of corporate credit at Dwight Asset Management Co. in Burlington, Vermont, which oversees $68 billion in fixed- income assets. “It’s a slow and painful recovery, but the economic recovery will be productive and supportive of corporate credit spreads to contract.” Spreads Narrow The extra yield investors demand to own company bonds instead of government debt fell 2 basis points for the week to 167 basis points, or 1.67 percentage point, according to Bank of America Merrill Lynch’s Global Broad Market Corporate index. Spreads widened 3 basis points during the month. Yields fell to 4.04 percent, down from 4.4 percent at the end of last year, and about the lowest since September 2005. Elsewhere in credit markets, leveraged loans “continued to firm,” with new issues reaching $10.5 billion in February, the most since July 2008, JPMorgan Chase & Co. analysts led by Peter Acciavatti in New York wrote in a Feb. 26 report. Another $3.9 billion of deals were added to the calendar, bringing the pipeline to $6.5 billion, according to JPMorgan. In London, the Markit iTraxx Europe index linked to 125 companies with investment-grade ratings fell 1.5 basis points to 83.5, the lowest level since Feb. 3 after declining 4.5 on Feb. 26, according to JPMorgan Chase & Co. prices. U.S. corporate credit risk, as measured by the Markit CDX North America Investment Grade Index of credit-default swaps, declined as fourth-quarter revenue increased, helping offset investor concern stemming from a decline in sales of previously owned homes. The index, used to hedge against losses, declined 2.4 basis points on Feb. 26 to 91.5, according to CMA DataVision after rising as high as 94.2 basis points on Feb. 23. Credit Risk The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan fell 8.5 basis points to 109 basis points, on course for its biggest one-day drop in more than five months, according to Citigroup Inc. and CMA prices. Credit swaps pay the buyer face value if a borrower defaults in exchange for the underlying securities or the cash equivalent. A basis point is 0.01 percentage point and equals $1,000 a year on a contract protecting $10 million of debt. Default insurance on Greek debt tumbled 28.5 basis points to 335.5, the lowest since Jan. 27, after dropping 35.6 basis points on Feb. 26, stemming four days of increases, according to CMA prices. Euro-area officials are putting together a plan under which Greece may receive about 25 billion euros of aid to be used only in an emergency because such a move would encourage investors to speculate against other euro members, according to German lawmakers, speaking on condition of anonymity because the information is confidential. Greek Bond Plans Investors expect EU Monetary Affairs Commissioner Olli Rehn will push Prime Minister George Papandreou to do more to cut the region’s biggest deficit in meetings today. Papandreou will meet with German Chancellor Angela Merkel on March 5. Greece may issue as much as 5 billion euros of 10-year notes as soon as this week. The Markit iTraxx SovX Western Europe index linked to 15 governments fell 8 basis points to 90 on Feb. 26, after reaching a high of 112.5 basis points on Feb. 8, according to CMA prices. In the loan market, New York-based Revlon Inc. , the cosmetics maker controlled by financier Ronald Perelman , is seeking an $800 million term loan to refinance bank debt. Intergraph Corp. , a Huntsville, Alabama, maker of design software, is pursuing a $300 million add-on term loan, according to the JPMorgan report. Slowest February Bond sales worldwide fell to $154.3 billion, the slowest February since 2002, from $283 billion in January. Last month’s delays, led by Montreal-based commercial airline-maker Bombardier and Stockholm-listed Alliance Oil Co., were the most since November 2007, Bloomberg data show. “There will be pockets of demand, but investors will be being more strategic in their buying and sorting the wheat from the chaff,” said Simon Ballard , a senior credit strategist at RBC Capital Markets in London. Comcast Corp. , the biggest U.S. cable-television company, and Hartford, Connecticut-based United Technologies Corp. led $12.95 billion of U.S. investment-grade issuance last week, compared with $3.88 billion the previous week, Bloomberg data show. Sales for the month of $48.6 billion marked the slowest February since 2005. Comcast’s $1.4 billion of 5.15 percent notes due 2020, sold on Feb. 24, rose 1.12 cents on the dollar to 101.019 as of the end of last week. United Technologies’ $1.25 billion of 10-year, 4.5 percent notes issued Feb. 23 rose 1.707 cents on the dollar to 101.208 cents. Zayo Junk Bonds In Europe, investment-grade borrowers raised 44.3 billion euros, half the amount in the previous month and below the average for the past year of 78 billion euros. Zayo Group LLC, an operator of fiber-optic networks, is marketing $225 million of bonds as speculative-grade issuers take advantage of interest rates near five-year lows to refinance debt. High-yield bonds are rated below Baa3 by Moody’s Investors Service and lower than BBB- by Standard & Poor’s. In the U.S., the extra yield investors demand to own investment-grade bonds rather than the safest government securities widened 4 basis points to 185 last month, Bank of America Merrill Lynch data show. In Europe, spreads on investment-grade corporate debt widened 5 basis points to 160, the first weekly increase this year. U.S. Leads Rally U.S. corporate bond yields fell 13 basis points last week to 5.53 percent, according to the Bank of America Merrill Lynch Corporate & High Yield Master index. Yields were 5.41 percent on Jan. 21, the low since December 2004. U.S. dollar-denominated bonds led last week’s rally, returning 1.32 percent, followed by 1.26 percent for U.K. pound securities, according to Bank of America Merrill Lynch’s Global Broad Market Corporate index. Debt tied to energy and healthcare companies were the top performers, with returns of 1.36 percent and 1.27 percent respectively. Investment-grade global bonds returned 16.3 percent in 2009. Even after last year’s record rally, bond investors will get better returns in investment-grade debt than “sitting in Treasuries,” said Dan Sheppard , a director in fixed-income at Deutsche Bank AG’s Private Wealth Management unit. “We’re still overweight credit even though the easy money is gone,” said Sheppard, who helps oversee $12 billion for the bank in New York. “Last year turned out to be unbelievable in terms of the return you got on credit. This year is going to be a much more difficult process.” To contact the reporters on this story: Bryan Keogh in London at bkeogh4@bloomberg.net ; Caroline Hyde at chyde3@bloomberg.net ; Sapna Maheshwari in New York at sapnam@bloomberg.net

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Copper Jumps Most in 11 Months on Chile Earthquake; Asian Stocks, Oil Gain

March 1, 2010

By James Regan and Akiko Ikeda March 1 (Bloomberg) — Copper jumped the most in 11 months after an earthquake in Chile cut production in the world’s biggest producer. Stocks rose, oil climbed above $80 a barrel and currencies of commodity-supplying nations strengthened. The May-delivery copper contract gained as much as 20.3 cents, or 6.2 percent, to $3.4870 a pound, the largest intraday advance since April. The MSCI Asia Pacific Index of shares added 1 percent to 119.21 at 2:25 p.m. in Tokyo and the Standard & Poor’s 500 Index futures were 0.5 percent higher. The Australian dollar appreciated 0.8 percent to 89.78 U.S. cents and the New Zealand dollar rose 0.5 percent to 69.87. Chile’s 8.8 magnitude earthquake struck Feb. 27, disrupting mines a day after the U.S. reported the fastest economic growth in six years. In China, the world’s biggest copper user, Premier Wen Jiabao said policy makers need to strike a balance between maintaining “stable and relatively fast” growth and inflation. “Risk money is flowing into commodities such as crude oil and nonferrous metals after the earthquake,” said Yoshihiro Ito , a senior strategist at Tokyo-based Okasan Asset Management Co., which oversees about $8.2 billion. Codelco, the world’s largest copper producer, said it will meet supply contracts after power cuts caused by the temblor forced the company and Anglo American Plc to halt operations at some mines. Copper for three-month delivery on the London Metal Exchange surged as much as 5.6 percent to a five-week high of $7,600 a metric ton and Jiangxi Copper Co. , China’s biggest maker of the metal, climbed 5.8 percent to HK$16.70 in Hong Kong. U.S. Growth All 10 industry groups in the MSCI Asia Pacific Index advanced after the U.S. said its gross domestic product increased at a 5.9 percent annual rate in the fourth quarter, more than the 5.7 percent originally reported. South Korea today said its exports climbed 31 percent from a year earlier in February, more than the median 25 percent gain forecast in a Bloomberg News survey of economists. Crude oil rose 0.7 percent to $80.20 a barrel in New York after Saudi Arabia, the world’s biggest exporter of the fuel, yesterday agreed to almost double shipments to India to about 770,000 barrels a day, reflecting growing demand in Asia’s third-largest economy. PetroChina Co. , the largest oil company by market value, gained 2.3 percent to HK$8.87. “There is a general feeling that we will see global demand picking up this year,” said Mark Pervan , a senior commodity strategist at Australia and New Zealand Banking Group Ltd. in Melbourne. China, Taiwan China’s Shanghai Composite Index rose 1 percent to 3,083.31, a five-week high, after Premier Wen on Feb. 27 said he’s “confident” the government can manage the rising property market, reiterating plans for a “moderately loose” monetary policy this year. Taiwan’s Taiex index surged 2.1 percent to 7,589, the most in six months, after the Straits Exchange Foundation said the island will hold a second round of talks with China for a trade agreement in the first half of March. “Investors are expecting more benefits from these negotiations and so are excited by it,” said Stanley Chou , a stocks trader at Mega International Investment Service Corp. in Taipei. Mitsubishi UFJ Financial Group Inc. , Japan’s largest bank by market value, climbed 2.2 percent to 459 yen after JPMorgan Chase & Co. boosted its recommendation to “overweight.” Toll Holdings Ltd. , Australia’s largest trucking and freight company, surged 6.6 percent to A$7.25 after the nation’s manufacturing expanded the most in two years. Financial markets in South Korea, India and Thailand were closed for holidays. Greek Debt The euro weakened against 11 of the 16 most-used currencies before European Union Monetary Affairs Commissioner Olli Rehn meets today with Greek Prime Minister George Papandreou to discuss the Mediterranean nation’s finances. German lawmakers say euro-area officials are devising a 25 billion euro ($34 billion) rescue plan for Greece, which needs to raise 53 billion euros this year. The yen slipped against higher-yielding currencies including the Australian dollar as investors bet a bailout will spur risk-taking. Benchmark interest rates are 0.1 percent in Japan and 3.75 percent in Australia. A rescue package for Greece “will reduce the drag on the euro,” said Akio Yoshino , chief economist in Tokyo at Societe Generale Asset Management (Japan) Inc. “This will then weaken demand for safe-haven currencies such as the yen.” The yen slid 0.4 percent to 79.97 per Australian dollar, while the euro fell 0.2 percent to $1.3605. The euro has retreated 5.5 percent against the greenback this year. Less Default Risk The cost of protecting Australian and Japanese bonds from default fell to the lowest level in at least four weeks, according to traders of credit-default swaps. The Markit iTraxx Australia index fell 8.5 basis points to 89.5 in Hong Kong, according to Citigroup Inc. That’s the lowest since Jan. 21, CMA DataVision prices in New York show. The Markit iTraxx Japan index lost 4.5 basis points to 140.5 in Tokyo, the lowest level since Jan. 28, Morgan Stanley and CMA prices show. The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails meet its debt agreements. A basis point is 0.01 percentage point. To contact the reporters for this story: James Regan in Hong Kong at jregan19@bloomberg.net

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Dennis Santiago: La-La Land Gets Feisty

February 26, 2010

L.A. City Councilman Richard Alarcon is hopping mad about the way his City and his people are being treated by the banking and finance industry and he’s building a template for how the City of Los Angeles will respond to it. He wants banks doing business with the City to prove they are involved in “investing local” and he is not of a mind to shy away from divesting Los Angeles’ treasure from banks who do not. And how much treasure is that? Start with around $28.9 billion dollars in city operating and related pension funds the City can influence directly. Then there’s the wealth of ordinary people and businesses local leaders can influence by example. When I testified to the Jobs and Business Development Committee on February 23rd I included in my testimony a 17 page table detailing the amounts of deposits in small and large bank branches in every zip code in Los Angeles County. It contains a powerful message that the actions of the City of Los Angeles messages a resident and commuter economic base of nearly $300 billion dollars in bank deposits presently split equally between large and small banking institutions. If such an effort activate an “invest local” movement succeeds, that is a potential public-private economic powerhouse. The hearing aired several public frustrations centering on issues including foreclosure prevention, access to banking by “Unbanked and Under Banked” persons and a most interesting side trip into the world of swaps. Alarcon reported that his 7th District faces the highest rate of pending single family home foreclosures in the City. With the 2010 wave of Option-ARM mortgage resets still to come, he has even more future social stress to weigh on his mind. A packed room filled with the yellow t-shirts from the Alliance for Californians for Community Empowerment (ACCE) and purple t-shirted members of the Service Employees International Union (SEIU) made their feelings known with the thunder of a crowd watching a Laker game. What was their message? The real net effect of the nation’s foreclosure prevention programs has done diddly. They do have a point. People are not only losing their homes they are suffering extraordinary emotional stresses dealing with a seemingly heartless loan modification process. A group from the California Reinvestment Coalition (CRC) even flew all the way down from San Jose to direct their anger specifically at the practices of the Bank of America who they allege as being singularly uncaring compared to every other bank dealing with these issues in the San Jose area. They reported they even went to Bank of America’s headquarters to express their concerns but alas Charlotte does not know the way to San Jose. The truth is that there’s no easy answer to the foreclosure problem for anyone involved with the process, bank or otherwise. Alarcon took a long view about loan modifications in his remarks. He opined that loan modifications are just kicking the can down the road and worried out loud that we’d wind up back at square one five years from now unless the programs ultimately morph into substantive principal reduction programs. The fly in that ointment though is that one can’t really offer mortgage principal relief to the troubled borrowers without creating an even greater political demand for equal or better principal relief for the far larger number of current mortgage obligors as well as a new series of tax credits for lien free real estate owners. Never mind the considerable effect it would have on bank balance sheets as mark-to-market rules trigger a mass devaluation of book assets, policy makers need to worry just as much about the implied hit to their property tax base. Like I said, there are no easy answers to this one. My gut still says we are looking at some sort of transformational outcome that will turn renters back into renters en masse. The real question is will be the landlords be a new wave of private barons, deputized banks turned unwilling REIT, federal GSE’s morphed into national rental property management companies, or does Los Angeles have in mind another one of those public-private coops that have been tried in the past be the City? The words from a song echo in my head. “life is so strange … destination unknown”. Here’s the thing, there isn’t actually anything in the draft ordinance that guides an implementable operational outcome to the issue at this time. Nebulous laws aren’t the way to San Jose either. If “responsible banking” in Los Angeles is to deal substantively with the issue of foreclosure, the control language outlining specific, actionable and realizable expectations of bankers and the specification of the public apparatus to that will be created to manage the process needs to be added to the text of the final ordinance. Councilman Alarcon also noted that fellow committee member Councilman Bernard Park’s 8th District contains the highest concentration of unbanked and under banked persons in the City of Los Angeles. It’s not a small problem. The FDIC’s 2009 Survey of Unbanked and Underbanked Households estimates that 7.7 percent of U.S. households are unbanked – meaning they have neither checking or savings accounts – and 17.9 percent of U.S. households are underbanked – meaning they make extensive use of far costlier non-bank alternatives to their financing needs. That’s a whopping 30 million households. The FDIC’s findings indicate the problem disproportionately impacts African-Americans, Hispanics and American Indians five to seven times greater than Whites and Asians. And so we get to one of the expanded objectives of City of Los Angeles Motion 09-0234 also known as the “Responsible Banking Practices” motion to compel banks doing business with the City to help address this concern. It’s a big ask and one that is a bit more complex than both government and banking probably realize. I’ve seen these we’ve got a good idea initiatives in a multitude of business and civic contexts now and I have to tell you that displacing establish incumbent businesses is not as easy as one thinks. It costs money for any business to establish a physical point of presence in a community and Los Angeles is a tough town to do that in. Bank accounts cost overhead to support and you typically have to maintain a minimum balance of some sort to gain service fees relief from a bank. Unbanked people tend not to like costs showing up as recurring fees on their already meager account balances. The check cashing shop down the street may cost more but the charge only hits when you actually have a check and the payday loan guy gives you money you need now. My message here is not that I’m supportive of higher cost alternatives to banking. Quite the contrary! I cut my teeth on civic involvement with Rebuild LA almost twenty years ago. I’ve witnessed my share of cycle of poverty perpetuating infrastructures and understand that it’s important to find and implement sustainable game change solutions. What I am saying is that a municipality contemplating mandating that banking and financial services vendors must somehow compete with entrenched “irregular immediacy” financial services models as a predicate to being eligible to deliver conventional services is a lot to ask from a portion of the banking industry that has little demonstrated business acumen addressing this kind of market demand profitably. Both of the above issues are certainly intriguing social responsibility challenges to ponder. Personally, I’d suggest making them agenda items for a banking practices task force to investigate separately rather than try to incorporate it into the original tenets of 09-0234. It’ll bog it down and in my opinion Los Angeles does not have the time to let that happen. Better to leave appropriate hooks in 09-0234 to bring the outcome of the task force’s recommendations back into the process to add to a bureaucratic vehicle created by an ordinance. The immediate need remains to perfect the primary motion into an draft ordinance that will actually be “operable” and pass it into law. Where to improve? The Los Angeles motion is presently moving along a track that could result in an ordinance that is strong on policy and weak on efficacy. The February 23rd hearing further amplified policy but left it up to the staff apparatus of the city to continue to pursue efficacy. The draft from the Los Angeles Chief Legislative Analyst’s (CLA) office is based on a copy of an old Philadelphia ordinance. The inspection criteria matrix is a direct extract from the 1978 CRA law. I have to tell you straight up. A photocopier is not a proper tool for designing a micromanagement version of the Community Reinvestment Act (CRA) able to inspect, analyze and verify compliance with “invest local” policies by any municipality, county or state. Something more specific and actionable is needed. Something that, as committee member Bernard Parks alluded to several times during the hearing, will stand up to legal scrutiny. I see the stakes in that poker hand and raise you to stringent legal AND political scrutiny. The most glaring flaw in the draft is reliance on federal CRA scores. CRA ratings are federal ratings that are updated infrequently, once every three years nominally. The scores are also computed looking at the bank as a whole AND focusing on community involvement in its’ primary markets of presence. Thus a bank like say the Bank of New York – Mellon or Capital One who do business with the Los Angeles area can argue well within the limits of statutory reason that they owe Los Angeles or any other community outside their local areas nothing under CRA guidelines. No boys and girls, I did not make that observation up. Forescee Hogan-Rowles from the L.A. public-private Community Financial Resource Center (CFRC) did and I figure the on the record observations of someone who is also a Commissioner of the Los Angeles Department of Water and Power deserves the stature of ordinance designing guidance in this process. There’s a lot more brain trust out there that can help the City of Los Angeles get this template right. The CLA and CAO need to be taking advantage of it. Naturally you utter stuff like this within earshot of people and the next question becomes, “Ok if not CRA then what Dennis?” Time for me to put my mouth where my foot is so here’s this week’s lesson in financial analysis and requlatory reporting regime design. In this case, all you city councils, county boards of supervisors and state legislatures please pay close attention. The City of Los Angeles desires to annually assess using objective data on the specific “local economy impact” of banks wishing to do business with the City. These data will be used as part of the City’s criteria to qualify the eligibility of banks to conduct such business. The City further specifies that these objective tests be based on “evidentiary grade” public document data submittals and that the City wishes to create an effective solution to capturing this data that can be scaled for use by other government entities similarly interested in “local” efficacy measurement. 1. All banks are required to submit quarterly Call Reports to the FDIC as all credit unions are similarly required to do so with the NCUA within 30 days of the end of each operating quarter. The City is aware that these Call Reports are entity wide reports that are not locality specific however it does imply that the reporting infrastructure to file these reports exists. 2. All banks are also required to file a branch level of detail Summary of Deposits report commensurate with the FDIC timed to coincide with the June 30th (2nd Quarter) Call filing each year. 3. Evaluation categories, a. Local institutions: These will be defined as financial institutions with depository and lending operations contained within Los Angeles, Orange, Santa Barbara and Riverside counties. The economic impact of these institutions will be considered to fall within a City of Los Angeles greater economic zone benefitting the resident and commuter populations of the City. The primary test for qualifying as a local institution will be their listing of branch locations as reported in the most recent FDIC Summary of Deposits reference file. b. Broad-Based institutions: Broad-based institutions are depository and lending operations with greater than 10% business activity in locations outside of zip codes contained within the economic inclusion zone. In the case of multiple unit bank holding companies (BHC’s), the broadness test for an institution will be considered taking into account all of the banking units of the BHC. 4. Annual reporting data, a. For local institutions, the June 30th FDIC Call Report or NCUA 5300 filing shall serve as the basis of analysis. b. For broad-based institutions, a special June 30th Call Report styled equivalent filing encompassing just those branches identified within the zip codes of the Los Angeles economy zone detailing lending information of interest to the City shall serve as the basis for analysis and comparison against local institutions. (final requirements TBD to be identified by the yet to be commissioned L.A. Banking Practices Committee) c. All institutions are to additionally file an annual statement detailing their past year performance on loan modifications and access by “unbanked and underbanked” persons specifically within the Los Angeles area as well as a statement on their goals for the coming year. These goals to be part of each succeeding year’s performance evaluation. (Again, the specifics of what the statement needs to have in it should be delegated to a commission of specialists to ensure the best possible capture of objectivity.) I’ve rambled almost enough. I’ll end this section with one additional message to the FDIC and NCUA. You can make this process a lot easier on America by adding the most critical pieces of information on lending to the data collection set and output fields of the SOD file. That would enable scaling the process to apply across the nation as a level playing field. I’m more than happy to help draft a Notice of Proposed Rule Making to facilitate. Hey so what ya’ll wanna bet all them prarie dogs in banking are looking up right about now wondering what that cracking sound that just went overhead was? And now a side trip into swaps. This is actually more my partner Chris Whalen’s commenting territory and I’ll leave it to him to do any definitive banter on the topic elsewhere but it seems that Los Angeles got talked into one of those “hey sovereign government you know you can lessen the cost of your municipal bond issuance by also purchasing a swap deal with it” things. This one was a good deal for the City the first four years as interest rates chugged along normally but when Ben Bernanke decided the Fed was going to artificially drive interest rates to zero percent to save Manhattan Island from itself it put the City of L.A. in the awkward position of shelling out $10 million a year in windfall profit money to the Bank of New York – Mellon on a deal that last until 2028 OR the City can buy out of it for $29 million which by the way is equal to three years of payments aka one business cycle of look ahead modeling aka about where Ben Bernanke might have changed interest rates in God knows what direction by then territory. Read the world’s newspaper about sovereign debt boys and girls. They aren’t the only ones that got nailed with that one. My mechanic likes to point out whenever I try to play with my car too much that “it costs money to go to the school of hard knocks”. But a Federal Reserve artificial windfall and there was no pre-packed out in the deal structure protecting both parties against severe non-normal departures from the projected interest rate curve model at deal instantiation? Hmm? I think I’ll leave this one here for the moment. It’s time to close the kimono for the weekend. This one had a lot of babble not normally exposed to ordinary people. Hope you’re being entertained.

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AIG `Death Spiral’ Ends With Bailout Support Bringing Stability to Revenue

February 22, 2010

By Hugh Son Feb. 22 (Bloomberg) — American International Group Inc. , the troubled financial firm that threatened to bring down the U.S. economy, is showing stable revenue for its insurance units and improving its ability to repay taxpayers 17 months after a bailout that swelled to $182.3 billion. AIG property-casualty businesses, contributing more than a third of the company’s revenue , posted sales increases in three straight quarters last year after plunging 23 percent following the company’s near-death experience in September 2008. Life insurance and retirement-products sales, AIG’s other main operations, rose for the first time since the bailout in the three months ended September 2009. AIG gained 6.5 percent in New York trading today. “There are clear signs that AIG has pulled out of what could have been a death spiral,” said David Havens , managing director in credit trading at Nomura Securities International Inc. in New York. AIG’s insurance results have been improving “after dropping off a cliff following the bailout,” he said. Chief Executive Officer Robert Benmosche , 65, must increase insurance profits to repay loans included in AIG’s government rescue. The CEO has said he would rebuild businesses damaged after AIG’s derivatives unit, called an unregulated hedge fund by Federal Reserve Chairman Ben S. Bernanke , sapped the parent company of cash in the weeks leading to the bailout. Fourth-Quarter Results The insurer, which may report fourth-quarter 2009 results by next week, could show underwriting improving “more in line with the industry as opposed to worse than the industry average,” said Jennifer Marshall, an analyst at A.M. Best Co. in Oldwick, New Jersey, which rates insurers including AIG. After scaling back operations at its plane-leasing unit, consumer lender and derivatives business and divesting its two largest non-U.S. life insurance divisions, AIG may remain the No. 1 U.S. commercial insurer. It is among top sellers of workers’ compensation, professional liability and property coverage, competing with Travelers Cos. and Warren Buffett’s Berkshire Hathaway Inc. AIG posted $7.1 billion in commercial property-casualty sales in the fourth quarter of 2008, the first full period after the bailout. That figure rose to $7.7 billion in the first quarter of 2009, $7.9 billion in the second and $8.1 billion in the third. Life premiums and investment-product fees were $15.2 billion in the fourth quarter of 2008. That figure declined to $14.5 billion in the first quarter of 2009 after U.K. clients abandoned the firm, then fell to $13 billion in the second quarter before rising to $13.7 billion in the third. “Things are stabilizing,” said Pennsylvania Insurance Commissioner Joel Ario , AIG’s lead U.S. regulator for commercial insurance, citing the revenue figures as evidence. 2008 Stock Plunge After the bailout, a 97 percent stock plunge in 2008 and criticism from lawmakers over retention bonuses paid to derivatives employees, there was “concern that most of AIG’s largest customers would flee entirely,” said Robert Hartwig , president of Insurance Information Institute Inc., a trade organization in New York. “That didn’t happen. Most of the larger insureds spread their business around, so AIG doesn’t have as much of their account as they used to.” AIG is retaining more commercial customers, according to a Barclays Plc survey. About 75 percent of insurance buyers using AIG said they plan to stay with the insurer compared with 41 percent six months earlier, Jay Gelb , a Barclays analyst in New York, said in a Dec. 14 research note. ‘Ship Afloat’ “They’ve actually done a very good job of keeping the ship afloat,” James Tisch , CEO of Loews Corp., which owns about 90 percent of rival property-casualty insurer CNA Financial Corp., said in an interview. “They’ve done relatively well under a lot of stress and duress.” Insurance buyers may find comfort in the government’s 80 percent stake in the company and a $60 billion Federal Reserve credit line, said Shivan Subramaniam , CEO of FM Global, a Johnston, Rhode Island-based property-casualty insurer. “People view the federal government as being a backstop,” said Subramaniam. AIG “continued to be competitive in the marketplace as they’ve always been,” he said. Under Benmosche, AIG will focus on selling coverage to corporate customers worldwide, the company’s core business for most of its four decades under former CEO Maurice “Hank” Greenberg . Greenberg, who ran AIG until 2005, added life insurance, asset management , derivatives and a plane-leasing business to diversify revenue. Selling Assets Since the bailout, AIG has retreated from asset management for institutional clients and the U.S. auto insurance industry by striking deals to sell businesses for a total of about $12 billion. The company has said it expects to close its derivatives unit by year-end, while keeping $300 billion to $400 billion in trades AIG expects to be profitable. AIG’s consumer lender, American General Finance Corp. , has shut offices, cut jobs and sold receivables. Its Los Angeles- based aircraft-leasing unit, International Lease Finance Corp. , may sell assets, Benmosche said in a Feb. 4 statement. American General in Evansville, Indiana, and ILFC have been downgraded by rating firms and lost access to their usual funding sources. The insurer said it will support both units through Nov. 15. The company gave stakes in its two biggest overseas life insurance divisions, American Life Insurance Co. and American International Assurance Co., to the Fed to pay down its credit line by $25 billion. MetLife Inc. has said it is in talks to buy Alico, which operates in more than 50 countries. Profit Streak Paying down the insurer’s debts is expected to trigger about $5.2 billion in fourth-quarter accounting charges, AIG said. The insurer may post a $3.94-a-share fourth-quarter operating loss, according to the average estimate of three analysts surveyed by Bloomberg. That would snap a streak of two profitable quarters last year after more than $100 billion in net losses fueled by the derivatives-trading unit. AIG advanced $1.73 to $28.26 at 10:27 a.m. in New York Stock Exchange composite trading, the second-largest gain on the Standard & Poor’s 500 Index. AIG has climbed about 4 percent since Aug. 7, the last trading day before Benmosche took over. The New York-based company, once the world’s largest insurer by assets, has shrunk by about a fifth. Total assets were $844 billion at the end of September 2009, down 21 percent from their peak two years earlier. Insurance revenue for the first nine months of 2009, excluding investment results, fell 17 percent to $52.6 billion from the same period a year earlier. Surviving as a smaller, healthier insurer doesn’t mean AIG will be able to repay all of its U.S. debts, which total more than $65 billion on Fed and Treasury Department facilities. ‘Utter Collapse’ The Government Accountability Office said in December that taxpayers will probably lose $30.4 billion on the AIG bailout. Treasury Secretary Timothy F. Geithner , who helped orchestrate the first of four rescues as president of the Federal Reserve Bank of New York, testified in December that the U.S. is unlikely to recoup all of its AIG support. The firm had to be saved to prevent an “utter collapse” of the U.S. economy, Geithner has said. AIG is competing for a bigger share of a shrinking pie amid the economic slump. U.S. property and casualty sales slipped 5 percent in the third quarter, the biggest drop since at least 1986, on lower insurance rates and reduced demand. Annualized premiums for U.S. life insurers dropped 19 percent in the first nine months of 2009 from the same period a year earlier, according to trade group Limra International. The insurer’s U.S. and overseas property-casualty division was rebranded Chartis Inc. last year to distance the subsidiary from AIG. It sells coverage for property, workers’ compensation, corporate boards and ships and airplanes. ‘Solvency Risk’ AIG’s recovery and the prospects of repaying taxpayers could be imperiled if it is selling policies at a price inadequate to cover future claims, as competitors Chubb Corp. and Liberty Mutual Group Inc. have claimed. Ario, the Pennsylvania insurance regulator, said he expects to complete a “broad-scale examination” into AIG during the first half of this year, including whether it is holding onto customers by slashing pricing. “We’re very concerned about under-pricing because it can become a solvency risk,” Ario said of the industry in general. “It’s also true that companies are constantly complaining about their competitors pricing too low in a soft market.” He declined to comment further on the probe. “This kind of speculation is obviously competitively driven,” said Mark Herr , an AIG spokesman. “We have not changed how we underwrite or price our business.” Hedge-Fund Rebound The rebound in credit and equity markets has helped AIG. The insurer had a net unrealized gain of about $5.5 billion on corporate debt holdings as of Sept. 30 compared with an unrealized loss of about $8.9 billion at the end of 2008. The figures, monitored by investors and rating firms, reflect market fluctuations that aren’t counted toward earnings. AIG’s corporate bond holdings were valued at more than $180 billion at the end of the third quarter. Corporate bonds returned 2.2 percent in the fourth quarter after earning a 9.6 percent yield in the three months ended Sept. 30 and 13 percent in the second quarter, according to data compiled by Bank of America Corp.’s Merrill Lynch. The insurer also benefited from a rebound in municipal debt and private-equity and hedge-fund holdings. Buyout and hedge funds earned $286 million in the third quarter, after contributing about $1.7 billion in losses in the last three months of 2008. Compensation Restrictions Managers continue to leave AIG, which falls under the jurisdiction of Kenneth Feinberg , the Obama administration’s special master for executive compensation who instituted a $500,000 salary cap for most workers. More than 60 executives have left AIG since the rescue, some bringing subordinates to the company’s rivals. Benmosche, who declined to be interviewed, has been able to fill some posts with veteran executives, including Peter Hancock , a former chief financial officer of a predecessor to JPMorgan Chase & Co., and Thomas Russo , a former Lehman Brothers Holdings Inc. top lawyer. “As long as they’re majority-owned by the U.S., AIG is going to be impacted” by compensation restrictions, said Marshall, the A.M. Best analyst. If Benmosche can retire AIG’s debt to taxpayers, those restrictions would be lifted, she said. “We’re looking down the road to a point when the government assistance has gone away and Chartis isn’t going to have a parent of the magnitude it used to,” Marshall said. To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

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Tiger Woods Doesn’t Know When He Will Return to Golf

February 19, 2010

By Michael Buteau and Mason Levinson Feb. 19 (Bloomberg) — Tiger Woods said he had no idea when he would return to golf as he apologized for his marital infidelity and “my repeated irresponsible behavior.” Golf’s 14-time major-tournament winner spoke at the TPC Sawgrass clubhouse in Ponte Vedra Beach, Florida, the headquarters of the U.S. PGA Tour. He didn’t take questions from media members who were among those present, and hugged his mother, Kultida, after the 13 1/2-minute address, Woods’s first public appearance since a one-car accident outside his home on Nov. 27. Woods said he would return to therapy tomorrow. There was no sign of Woods’s wife, Elin. PGA Commissioner Tim Finchem and Executive Vice President Ty Votaw ; and Tiger Woods Foundation President Greg McLaughlin were among about 30 people in the room. “Every one of you has good reason to be critical of me,” Woods, wearing a blue blazer and an open-collared blue shirt, told the group. “I have let you down. I have let down my fans.” Reporters from Bloomberg News, the Associated Press and Reuters were invited. The Golf Writers Association of America boycotted the event. The top player in the World Golf Rankings, the 34-year-old Woods said he would return to the sport that has made him a billionaire but had no timetable. “I will return to golf one day,” Woods said. “I just don’t know when that will be.” Woods said his plan to return to therapy tomorrow was the reason for the timing of today’s announcement. Media reports, including TMZ.com, have said that Woods was enrolled in sex-addiction treatment at a clinic in Hattiesburg, Mississippi. Break From Golf Woods had said in a statement in December that he had been unfaithful to his wife, announcing then that he was taking an indefinite break from golf. “The issue involved here was my repeated irresponsible behavior,” he said today. “I was unfaithful, I had affairs, I cheated. What I did was not acceptable, and I am the only person to blame. I stopped living by the core values that I was taught to believe in. I knew my actions were wrong, but I convinced myself that normal rules didn’t apply. I never thought about who I was hurting, instead I thought only about myself. I ran straight through the boundaries that a married couple should live by. I thought that I could get away with whatever I wanted to.” Woods’s announcement came amid tight security. Everyone in the clubhouse room had to turn off cell phones 15 minutes before Woods was scheduled to speak. Last Tournament Woods hasn’t played a tournament since announcing on Dec. 11 that he’d take an indefinite break from the game to focus his attention on his family. His decision followed the accident outside of his home near Orlando, Florida, that was quickly followed by the publication of often lurid details about his private life. Two days ago, Woods’s agent, Mark Steinberg , announced his client’s intention to apologize for his behavior and address his past and future. Woods previously asked for privacy to deal with his marital issues, while some of his corporate sponsors ended or modified their relationships with him. Accenture Plc , the consulting company that once hailed Woods as the centerpiece of its marketing campaign, and AT&T Inc . dropped the golfer. TAG Heuer, the Swiss watchmaker owned by LVMH Moet Hennessy Louis Vuitton SA , said it would scale back its use of Woods, who has earned $1 billion in tournament winnings and sponsorships in his career, according to Forbes magazine. Procter & Gamble Co. , based in Cincinnati, said it was phasing him out of its Gillette razor advertising. Woods’s absence has also hit television coverage of U.S. PGA Tour events. Ratings Down Ratings for the first two tournaments of the season, the SBS Championship and Sony Open in Hawaii, fell an average of 27 percent, according to figures provided by the Golf Channel. Television advertising may also have dropped by as much as 40 percent, said Aaron Cohen , chief media negotiating officer at New York-based ad agency Horizon Media Inc. There have been eight PGA Tour events this year without Woods, whose 71 wins on the world’s richest golf circuit rank second to Sam Snead’s 82. Woods won his last tournament, the Australian Masters, on Nov. 15, his first victory in that country. Year-End Awards In December, he was named the PGA Tour’s Player of the Year for the 10th time, after going winless in golf’s four major tournaments for the first time in five years. Two days earlier, he was named Athlete of the Decade by the AP. While Woods failed to capture the Masters Tournament, U.S. Open, British Open or PGA Championship in 2009, he had six victories in 17 PGA Tour events. He also won the season-long FedEx Cup title, which carried a $10 million bonus. Woods is four wins shy of tying Jack Nicklaus’s mark of 18 titles in the four professional majors. He hasn’t missed the Masters, scheduled for April 8-11 in Augusta, Georgia, since 1995, when he was an amateur. This year’s U.S. Open will be played at California’s Pebble Beach Golf Links, where Woods won the 2000 edition by 15 shots. To contact the reporter on this story: Michael Buteau in Ponte Vedra Beach, Florida, at mbuteau@bloomberg.net ; Mason Levinson in New York at mlevinson@bloomberg.net .

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Austin Pilot’s Dispute With IRS Began in Early 1980s, Web Site Note Said

February 18, 2010

By Ryan J. Donmoyer Feb. 19 (Bloomberg) — Joseph Stack, the software engineer police say flew a small plane into an Austin, Texas, building housing offices of the Internal Revenue Service, may have been feuding with the U.S. agency for almost 30 years. Authorities said a suicide note posted on a Web site and signed “Joe Stack (1956-2010)” presumably was written by the 53-year-old suspected of deliberately crashing the plane into the building yesterday. The crash injured at least 13 people, with one federal employee reported missing. Two bodies had been recovered at the crash site as of late last night, neither yet positively identified by authorities, the Associated Press reported. In the Web site note, Stack said he lost “$40,000 and 10 years of my life” participating in what tax experts describe as an attempt to avoid taxes by claiming his home was a church. He said he later clashed with the IRS over a law targeting computer consultants suspected of abusing employment tax rules. Stack wrote of raiding retirement accounts after suffering a loss of income following a move to Texas, struggling to report “a boatload of undocumented income” earned by his wife, and trying to write-off a piano, which he called “an expensive new business asset.” Craig Etter , a tax lawyer at Greenberg Traurig LLP in McLean, Virginia, said the employment tax issue has been controversial in the technology industry since it was enacted as a last-minute inclusion in the Tax Reform Act of 1986 , the last time Congress overhauled tax laws. “It caught everybody by surprise,” he said. “It’s not often that legislation carves out one industry to pick on. There were a lot of angry people.” Computer Consultants The law makes it harder for software engineers, computer consultants, and other technical services workers to act as independent contractors, rather than as employees. While some workers prefer to be classified as employees, meaning the employer pays half of Social Security and Medicare taxes that total 7.35 percent of salary, independent contractors can shelter more money from taxes through larger contributions to retirement accounts and by deducting business expenses. Workers in the computer-consulting industry typically want to be classified as independent contractors for that reason, Etter said. Obama Proposal President Barack Obama proposed a crackdown on employment tax fraud in his 2011 budget proposal with new rules to more clearly define when workers should be classified as employees or as independent contractors. In addition, the IRS this month is scheduled to begin auditing 6,000 companies to test compliance with employment tax laws. Businesses duck about $14 billion a year in taxes due to worker misclassification, the Treasury Department estimated in 2005. In the posting, Stack said his tax troubles began when he was working in Southern California in the 1980s. He described becoming involved in an organization that sought to exploit a tax-code section that exempts churches from taxes. “We carefully studied the law (with the help of some of the ‘best,’ high-paid experienced tax lawyers in the business) and then began to do exactly what the ‘big boys’ were doing,” Stack wrote in his note, referring to tax exemptions claimed by the Catholic Church. That “little lesson,” he wrote, cost him “$40,000 and 10 years of my life, and set my retirement plans back to 0.” In a statement yesterday, IRS Commissioner Doug Shulman said his department is “working with law-enforcement agencies to fully investigate the events that led up to this plane crash.” IRS Targeted Stack’s posting, which was taken down from his Web site at the request of authorities, mentioned the IRS as a target. “Violence not only is the answer, it is the only answer,” it said. “Well, Mr. Big Brother IRS man, let’s try something different; take my pound of flesh and sleep well.” J.J. McNabb , a Bethesda, Maryland, author working on a book about tax protesters who has testified before Congress twice on the subject, said the posting echoes the beliefs of such activists. “He fits the mold,” she said in an interview. “Blaming the government for your failures in life is unfortunately a big factor in the tax protester movement.” To contact the reporter on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net .

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Austin Pilot’s Suicide Note Says Tax Dispute With IRS Began in Early 1980s

February 18, 2010

By Ryan J. Donmoyer Feb. 18 (Bloomberg) — Joseph Stack, the software engineer police say flew a small plane into an Austin, Texas, building housing offices of the Internal Revenue Service, may have been in conflict with the U.S. agency for almost 30 years. Authorities said a suicide note posted on a Web site and signed “Joe Stack (1956-2010)” may have been posted by the 53- year-old suspected of deliberately crashing the plane today. The crash injured at least 13 people, with one federal employee reported missing. The writer said he lost “$40,000 and 10 years of my life” participating in what tax experts describe as an attempt to avoid taxes by claiming his home was a church. He said he later clashed with the IRS over a law targeting computer consultants suspected of abusing employment tax rules. In the Web posting, Stack wrote of raiding retirement accounts after suffering a loss of income following a move to Texas, struggling to report “a boatload of undocumented income” earned by his wife, and trying to write-off a piano, which he called “an expensive new business asset.” Craig Etter , a tax lawyer at Greenberg Traurig LLP in McLean, Virginia, said the employment tax issue has been controversial in the technology industry since it was enacted as a last-minute inclusion in the Tax Reform Act of 1986 , the last time Congress overhauled tax laws. “It caught everybody by surprise,” he said. “It’s not often that legislation carves out one industry to pick on. There were a lot of angry people.” Computer Consultants The law makes it harder for software engineers, computer consultants, and other technical services workers to act as independent contractors, rather than as employees. While some workers prefer to be classified as employees, meaning the employer pays half of Social Security and Medicare taxes that total 7.35 percent of salary, independent contractors can shelter more money from taxes by making larger contributions to retirement accounts and by deducting business expenses. Workers in the computer-consulting industry typically want to be classified as independent contractors for that reason, Etter said. President Barack Obama proposed a crackdown on employment tax fraud in his 2011 budget proposal with new rules to more clearly define when workers should be classified as employees or as independent contractors. In addition, the IRS this month is scheduled to begin auditing 6,000 companies to test compliance with employment tax laws. Businesses duck about $14 billion a year in taxes due to worker misclassification, the Treasury Department estimated in 2005. Church Exemption In his posting, Stack said his tax troubles began when he was working in Southern California in the 1980s. He describes becoming involved in an organization that sought to exploit a tax-code section that exempts churches from taxes. “We carefully studied the law (with the help of some of the ‘best,’ high-paid experienced tax lawyers in the business) and then began to do exactly what the ‘big boys’ were doing,” Stack wrote in his note, referring to tax exemptions claimed by the Catholic Church. That “little lesson,” he wrote, cost him “$40,000 and 10 years of my life, and set my retirement plans back to 0.” In a statement today, IRS Commissioner Doug Shulman said his department is “working with law-enforcement agencies to fully investigate the events that led up to this plane crash.” Stack’s posting, which was taken down from his Web site at the request of authorities, specifically mentioned the IRS as a target. “Violence not only is the answer, it is the only answer,” it said. “Well, Mr. Big Brother IRS man, let’s try something different; take my pound of flesh and sleep well.” J.J. McNabb , a Bethesda, Maryland, author working on a book about tax protesters who has testified before Congress twice on the subject, said the posting echoes the beliefs of such activists. “He fits the mold,” she said in an interview. “Blaming the government for your failures in life is unfortunately a big factor in the tax protester movement.” To contact the reporter on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net .

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Austin Pilot’s Suicide Note Says Tax Dispute With IRS Began in Early 1980s

February 18, 2010

By Ryan J. Donmoyer Feb. 18 (Bloomberg) — Joseph Stack, the software engineer police say flew a small plane into an Austin, Texas, building housing offices of the Internal Revenue Service, may have been in conflict with the U.S. agency for almost 30 years. Authorities said a suicide note posted on a Web site and signed “Joe Stack (1956-2010)” may have been posted by the 53- year-old suspected of deliberately crashing the plane today. The crash injured at least 13 people, with one federal employee reported missing. The writer said he lost “$40,000 and 10 years of my life” participating in what tax experts describe as an attempt to avoid taxes by claiming his home was a church. He said he later clashed with the IRS over a law targeting computer consultants suspected of abusing employment tax rules. In the Web posting, Stack wrote of raiding retirement accounts after suffering a loss of income following a move to Texas, struggling to report “a boatload of undocumented income” earned by his wife, and trying to write-off a piano, which he called “an expensive new business asset.” Craig Etter , a tax lawyer at Greenberg Traurig LLP in McLean, Virginia, said the employment tax issue has been controversial in the technology industry since it was enacted as a last-minute inclusion in the Tax Reform Act of 1986 , the last time Congress overhauled tax laws. “It caught everybody by surprise,” he said. “It’s not often that legislation carves out one industry to pick on. There were a lot of angry people.” Computer Consultants The law makes it harder for software engineers, computer consultants, and other technical services workers to act as independent contractors, rather than as employees. While some workers prefer to be classified as employees, meaning the employer pays half of Social Security and Medicare taxes that total 7.35 percent of salary, independent contractors can shelter more money from taxes by making larger contributions to retirement accounts and by deducting business expenses. Workers in the computer-consulting industry typically want to be classified as independent contractors for that reason, Etter said. President Barack Obama proposed a crackdown on employment tax fraud in his 2011 budget proposal with new rules to more clearly define when workers should be classified as employees or as independent contractors. In addition, the IRS this month is scheduled to begin auditing 6,000 companies to test compliance with employment tax laws. Businesses duck about $14 billion a year in taxes due to worker misclassification, the Treasury Department estimated in 2005. Church Exemption In his posting, Stack said his tax troubles began when he was working in Southern California in the 1980s. He describes becoming involved in an organization that sought to exploit a tax-code section that exempts churches from taxes. “We carefully studied the law (with the help of some of the ‘best,’ high-paid experienced tax lawyers in the business) and then began to do exactly what the ‘big boys’ were doing,” Stack wrote in his note, referring to tax exemptions claimed by the Catholic Church. That “little lesson,” he wrote, cost him “$40,000 and 10 years of my life, and set my retirement plans back to 0.” In a statement today, IRS Commissioner Doug Shulman said his department is “working with law-enforcement agencies to fully investigate the events that led up to this plane crash.” Stack’s posting, which was taken down from his Web site at the request of authorities, specifically mentioned the IRS as a target. “Violence not only is the answer, it is the only answer,” it said. “Well, Mr. Big Brother IRS man, let’s try something different; take my pound of flesh and sleep well.” J.J. McNabb , a Bethesda, Maryland, author working on a book about tax protesters who has testified before Congress twice on the subject, said the posting echoes the beliefs of such activists. “He fits the mold,” she said in an interview. “Blaming the government for your failures in life is unfortunately a big factor in the tax protester movement.” To contact the reporter on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net .

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Dell, Microsoft Prepare to Fight Offshore Tax Increase in Obama’s Budget

February 17, 2010

By Ryan J. Donmoyer Feb. 17 (Bloomberg) — Software and computer companies such as Microsoft Corp. , Hewlett-Packard Co. and Dell Inc. are gearing up to fight an Obama administration plan to curb offshore tax avoidance. The $15.5 billion proposal in President Barack Obama ’s 2011 budget targets what the Internal Revenue Service calls the growing problem of so-called transfer pricing. The technique allows companies to reduce their tax bills by transferring intangible property such as patents, trademarks and licenses to offshore subsidiaries. The Business Software Alliance , a Washington-based trade group that represents technology companies, said it would “educate policy makers” on how the proposal would hurt U.S. companies, jobs and the economy. “The transfer tax on intangibles, which regulates how expenses and profits from overseas subsidiaries are recognized and taxed, would unfairly punish American firms vis-à-vis their foreign competitors,” BSA Chairman Robert Holleyman said in a statement. “The U.S. software industry and many other U.S. businesses would pay a steep price in terms of global competiveness.” While the proposal represents less than 4 percent of the $400 billion in business-tax increases in the budget plan, the debate signals that companies are likely to resist Obama’s efforts to raise their taxes to help narrow deficits the administration estimates will total $8.5 trillion over 10 years. Fair Market Value In the past, lawmakers have been willing to take on offshore tax-avoidance techniques, though Senate Finance Committee Chairman Max Baucus , a Montana Democrat, has said he would prefer to change such rules in the context of a broader tax-code overhaul. Corporations engage in transfer pricing when they sell goods or services between subsidiaries. A globally accepted set of practices is meant to ensure that goods are priced so companies don’t inflate deductible expenses in high-tax countries and taxable income in low-tax ones. Determining the fair market value of intellectual property is difficult, said John Samuels , the top tax lawyer for Fairfield, Connecticut-based General Electric Co. , which gets more than half its sales from outside the U.S. Transfer pricing “is the soft underbelly of the income tax,” Samuels said last month. “Nobody understands it.” Coca-Cola, Merck The Obama administration said this uncertainty creates opportunities for companies to shift their intangible assets to low-tax countries. The proposal in Obama’s budget may also affect companies such as Coca-Cola Co. , and Merck & Co. Inc., which report tax burdens below the top 35 percent U.S. corporate rate through the use of intangible property and global operations. “Any high-tech company that has international operations, which is almost all of them, they’ll be worried about this,” said Stewart Karlinsky , a professor emeritus at San Jose State University who advises technology companies on tax law. The administration proposal would force companies to immediately pay U.S. tax when they receive “excessive returns” of more than 30 percent that are traced to intangible property owned by offshore subsidiaries operating in countries with effective tax rates of less than 10 percent, according to an administration official. The law allows companies to defer U.S. tax on those foreign profits until they are repatriated to the U.S. parent company. 10% Threshold Karlinsky said the 10 percent threshold may be designed to exempt countries such as Ireland, which has a 12.5 corporate tax rate. Subsidiaries in countries without a corporate tax such as Bermuda or the Cayman Islands and those in countries offering temporary tax holidays such as Malaysia or Indonesia are more likely to be affected, he said. IRS Commissioner Douglas Shulman has said his agency is investigating transactions involving intangible property. In December, he announced the creation of a unit to “strategically and systematically administer transfer-pricing issues.” Christina Pearson , a spokeswoman for Redmond, Washington- based Microsoft , the world’s biggest software maker, Dana Bolden , a spokesman for Atlanta-based Coca-Cola, the world’s largest soft-drink maker, and Pamela Bonney , a spokeswoman for Palo Alto, California-based Hewlett-Packard, the world’s biggest personal-computer maker, declined to comment. Jess Blackburn , a spokeswoman for Round Rock, Texas-based Dell, and Amy Rose , a spokeswoman for Whitehouse Station, New Jersey-based Merck, the second-largest U.S. drugmaker, also wouldn’t comment. $200 Billion Kimberly Clausing , an economist at Reed College in Portland, Oregon, estimated last month that U.S. companies used techniques including transfer pricing to shift almost $200 billion in profits out of the country between 1982 and 2004. The Obama administration proposed the change in place of a provision last year to repeal rules allowing companies to disregard foreign subsidiaries in tax havens on their returns. Douglas Nakajima , managing director of Devon, Pennsylvania-based SMART Business Advisory and Consulting LLC, which advises on transfer pricing, said many of the companies that objected to the initial plan may oppose the new one. “I don’t think it has much of a flash as some of the earlier proposals, but it still has the ability to impact business decisions,” Nakajima said. Restricting the use of transfer pricing by U.S. companies may disrupt widely accepted practices that are “the fundamental bedrock of our international tax system,” said Barbara Angus , a principal at the New York-based accounting firm Ernst & Young LLP and a former U.S. Treasury official. To contact the reporter on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net

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Greek Swaps Information Demanded by End of This Week in EU Investigation

February 16, 2010

By Meera Louis Feb. 16 (Bloomberg) — Greece was ordered by the European Union to hand over information on its swaps transactions by the end of this week in an investigation that may extend to other EU countries. EU Economic and Monetary Affairs Commissioner Olli Rehn told Greece to submit the swaps data by Feb. 19. The probe comes as questions arise about how long European officials have known that Greece may have used derivatives to conceal the extent of its budget deficit, and whether other EU countries used similar techniques. “In case there is a reason to expect that this kind of technique has been used by other member states, not only Greece, then we shall request information” from those nations, Rehn said today after a meeting of EU finance ministers in Brussels. “We need further enquiries on this,” Luxembourg Treasury Minister Jean-Claude Juncker said. Greece turned to Goldman Sachs Group Inc. in 2002 to get $1 billion in funding through a swap, Christoforos Sardelis , head of Greece’s Public Debt Management Agency at the time, said in an interview last week. EU officials today fielded questions about how long they knew about the swaps and whether other countries used such instruments to mask the size of their debt. Italy defended its use of derivatives in the 1990s to lower its deficit to qualify for the euro. “At the time we had the lira, it was not forbidden,” Italian Finance Minister Giulio Tremonti told journalists today in Brussels. The swaps allowed Italy to temporarily cut the amount of interest paid and to trim the 1997 deficit, the year it qualified for the single currency. The European Commission reviewed the operation and approved the transaction. More Pressure Spanish Finance Minister Elena Salgado , whose country currently holds the EU’s six-month rotating presidency, said Spain “would not have accepted” a transaction like the one Greece undertook in 2002. Salgado led the meeting in Brussels today where Greece came under more pressure to tame its debt. Greek Finance Minister George Papaconstantinou today defended his government’s use of swaps to manage debt as “fully legal and well known” at the time. He said Greece doesn’t use them now “because we want bigger transparency.” The use of the swaps, which allowed Greek officials to delay payments and shrink its reported deficit, is fueling questions about whether Greece used the instruments to mask the size of its budget gap. EU regulators pressed Greece yesterday to disclose details of the swaps after an inquiry by the nation’s Finance Ministry uncovered a series of deals that it may have used to conceal mounting debt. To contact the reporter on this story: Meera Louis in Brussels at mlouis1@bloomberg.net

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Germany Weighs Greek Aid as Market Drop Spurs Reversal on Eve of EU Summit

February 9, 2010

By Brian Parkin and Jonathan Stearns Feb. 10 (Bloomberg) — German Finance Minister Wolfgang Schaeuble will brief lawmakers today on steps he may take to support the Greek government as it braces for a wave of strikes protesting deficit-reduction plans. The German initiative came on the eve of a European Union summit and followed a slump in bond prices amid speculation that Greece would fail to tackle the EU’s largest budget deficit . A German official said nothing will be agreed upon before tomorrow’s summit in Brussels and no decision has been made on whether aid would take the form of loan guarantees. “We are considering support,” Michael Meister , financial- affairs spokesman for Chancellor Angela Merkel’s Christian Democratic Union, said in an interview yesterday. Schaeuble was scheduled to speak in Berlin at 7:45 a.m. local time. The euro’s slide to a nine-month low and surging bond yields prompted leaders to drop their resistance to rescuing Greece and protect the rest of the euro region from market turmoil. Greek Prime Minister George Papandreou has failed to convince investors his deficit-cutting plans go far enough. His challenge will be highlighted today when labor unions shut down schools, hospitals and flights to fight his proposals. “We are talking about support in the broad sense,” Olli Rehn , the EU’s new economic affairs commissioner, said yesterday. Meister said aid would come “under strict conditions and if the Greek government undertakes far-reaching state reforms.” Signs of a rescue helped ease investors’ concerns that worsening government finances would derail the global recovery. The euro rose 1.4 percent to $1.3839 yesterday and the Dow Jones Industrial Average rose the most since July. The yield on the Greek 10-year bond slid the most in at least 12 years. Plan B? For weeks, European officials have insisted that no bailout was planned and that Greece’s effort to reduce its deficit, estimated at 12.7 percent of gross domestic product, should be given a chance to work. EU policy makers have no “plan B” to help Greece, former Monetary Affairs Commissioner Joaquin Almunia said in a Jan. 29 interview. “I’m not surprised it happened, just by the timing of it,” said Julian Callow , chief European economist at Barclays Capital in London. “They would have to structure it in a way that it’s sufficiently penal so as not to create a moral hazard issue and encourage other countries like Portugal, Spain and Ireland to keep on track in terms of getting their own houses in order.” ‘Unfounded’ German government spokesman Ulrich Wilhelm said in a statement that reports that a decision had “virtually been taken” to offer Greek assistance were “unfounded.” Germany and other EU nations were considering offering Greece and other debt-ridden euro-area members loan guarantees, the Wall Street Journal reported yesterday, citing people familiar with the matter. Papandreou was in Paris today, scheduled to meet French President Nicolas Sarkozy. Papandreou’s government yesterday floated new steps to bring down the deficit and its efforts were saluted by Fitch Ratings, which called his 2010 deficit-reduction plan “achievable.” The measures include cuts of as much as 5.5 percent in government workers’ wages and a waiver on taxes for Greeks who repatriate funds held in foreign accounts. Aid for Greece isn’t officially on the EU summit agenda. Still, EU President Herman Van Rompuy said this week he will lead a discussion of “some aspects of the present economic situation” over lunch, a session without notetakers that is traditionally devoted to the most sensitive subjects. Conditions for Aid In the interview in Strasbourg, Rehn, pointed to tomorrow’s summit and a meeting of European finance ministers next week and indicated that Greece will be held to strict conditions in exchange for any backing. “Solidarity goes both ways,” Rehn said. “I am sure that in the next couple of days we will see discussion and decisions to this effect.” EU law bars the European Central Bank or national central banks from bailing out EU countries through buying their debt or offering loans, according to a report by the German parliament’s research unit published today. Options for Greece include bilateral aid or a package put together by a group of countries using the euro, Meister said. Nobel laureate Joseph Stiglitz said Greece’s budget-deficit reduction plan will prevent a default, and he reiterated his call for the European Union to aid the nation against “speculative attacks” in financial markets. “I’ve been very impressed with the comprehensive approach they’ve had,” Stiglitz said in an interview on Bloomberg Television in London yesterday. “There’s clearly no risk of default. I’m very confident about it.” To contact the reporters on this story: Brian Parkin in Berlin at bparkin@bloomberg.net ; Jonathan Stearns in Strasbourg, France at jstearns2@bloomberg.net

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EU Parliament Backs New Economy Team Amid Greek Woes, Bank-Oversight Push

February 9, 2010

By Jonathan Stearns Feb. 9 (Bloomberg) — The European Union approved new economic leadership, putting a Finn in charge of policing Greece’s deficit, a Frenchman at the helm of bank regulation and a Spaniard in the top antitrust job. European Commission President Jose Barroso won approval for a five-year team that features Olli Rehn as economy commissioner, Michel Barnier as financial-services chief and Joaquin Almunia as head of competition. The European Parliament gave its backing today in Strasbourg, France, amid investor concerns about ballooning government deficits and bank resistance to planned rules that would curb risk-taking. The new lineup at the commission, the 27-nation EU’s executive arm , takes office as Europe’s economy recovers from the credit crunch and the worst recession in more than half a century. The commission is grappling with a Greek budget gap that’s more than four times the EU limit and is pushing for sharper scrutiny of banks, hedge funds and credit-rating companies after European governments committed $5.3 trillion to support lenders. “The economy is the new commission’s biggest challenge and Rehn, Barnier and Almunia will play important roles,” said Michael Tscherny , who advises companies on EU policy at GPlus Europe in Brussels. “After the rescue of banks, it now looks like entire countries may need to be bailed out. The commission must show courage in telling governments what needs to be done.” Budget Deficits The euro has dropped to an eight-month low against the dollar amid concern that widening budget deficits will stifle Europe’s economic recovery . With companies across the 16-nation euro region cutting jobs and costs to shore up earnings, the jobless rate will probably average 10.7 percent this year and 10.9 percent in 2011, according to commission forecasts. That would be the highest since the euro-area data began in 1996. The new commission also faces trade tensions with China and the U.S., the risk of an internal climate-policy split between rich and poor EU nations and national resistance to a stronger European energy role with foreign suppliers. Karel De Gucht of Belgium is the top EU trade negotiator, Denmark’s Connie Hedegaard is climate commissioner and Germany’s Guenther Oettinger is energy chief in the new Barroso team. “The challenge in these three jobs is to make sure the EU speaks with one voice,” said Karel Lannoo , chief executive officer of the Centre for European Policy Studies in Brussels. “On this point, the EU is most advanced when it comes to trade, has made some steps on climate policy and is nowhere when it comes to energy, where there is a growing potential for the commission to regulate foreign supplies traditionally handled by national governments.” Compromise Choice The 53-year-old Barroso, a former Portuguese prime minister, became commission president in 2004 as a compromise choice after national leaders were split over higher-profile candidates. He has presided over a crackdown on cartels, a push to cut industrial emissions blamed for global warming and a campaign to break down national barriers in the EU electricity and natural-gas markets before turning his attention to tougher financial regulation and Greece’s fiscal woes. His reappointment last September made Barroso the first commission president to gain a second term since France’s Jacques Delors , who crafted the EU’s plans for a single market and common currency while in the job between 1985 and 1995. Each national government in the EU appoints one member of the commission and Barroso is responsible for allocating the posts. International Bailout Rehn takes over the economy commissioner’s job from Almunia as Greece’s deficit of 12.7 percent of gross domestic product prompts some economists to question the unity of the euro region and whether a single monetary policy can be applied to 16 disparate economies. Last week, Almunia endorsed a Greek plan to reduce the deficit to within the EU’s 3 percent limit in 2012, pledged stepped-up surveillance of Greece’s austerity measures and dismissed the notion of an international bailout for the country. Rehn, who for the past five years has been enlargement commissioner dealing with aspiring EU members including Turkey and Croatia, said last week that he backs Almunia’s stance “to encourage Greece to succeed in its reform efforts.” The new EU enlargement commissioner is Stefan Fule of the Czech Republic. The fallout from the 2008 collapse of Lehman Brothers Holdings Inc. prompted the commission to turn its sights last year to stricter financial-market rules — the focus of Barnier’s new job. Barnier is a former EU Parliament member and previous French foreign and agriculture minister. U.K. Resistance Barnier faces U.K. resistance to what would be the first EU law on hedge funds and buyout firms, seeking to force money managers to report regularly on their main investments, performance and risks. Britain is also concerned about plans for the most sweeping overhaul of financial regulation through the creation of an economic-risk watchdog led by central bankers and agencies to unify oversight of banks, insurers, investment firms and credit-rating companies. National finance ministers and EU Parliament members are preparing to vote on these draft laws later this year. Barnier’s role will be to help find consensus on these pieces of legislation and to prepare new European rules on the over-the- counter derivatives market. To contact the reporter on this story: Jonathan Stearns in Strasbourg, France at jstearns2@bloomberg.net

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Greece Says Call for Help Would Send `Worst Signal’ as Bond Yields Surge

February 8, 2010

By Svenja O’Donnell and David Tweed Feb. 9 (Bloomberg) — Greek Finance Minister George Papaconstantinou said he can’t call for outside aid as his government struggles to cut the European Union’s largest budget deficit. “The worst possible signal which we could send out is one calling for outside help,” he said in an interview with Bloomberg Television in Athens yesterday. “We will tackle the deficit,” he said, adding that tax revenues in January exceeded forecasts “by some percentage points.” Papaconstantinou has so far failed to convince investors that Greece can push the deficit below the EU’s ceiling of 3 percent of gross domestic product. With European leaders meeting on Feb. 11 to discuss the economic outlook, Greek two-year bond yields have surged to the highest in almost a decade and concerns about budget sustainability are spreading to Spain and Portugal. “The current state of the markets suggests Greece may need conditional support from the key European institutions and governments,” said Janet Henry , chief European economist at HSBC Holdings Plc, in an e-mailed note. European finance officials are for now sticking to their line that Greece, which has a deficit of 12.7 percent of GDP, won’t need outside help. European Central Bank President Jean- Claude Trichet said Feb. 4 he’s “confident” measures announced by Greece will work and EU Monetary Affairs Commissioner Joaquin Almunia says there’s no “plan B” for Greece. Woes Overshadow Greece’s budget woes threaten to overshadow a summit of European Union leaders that compelled Trichet to shorten his trip to a Reserve Bank of Australia symposium in Sydney by one day. The EU meeting was called to lay the groundwork for a 10- year economic program to strengthen the region’s competitiveness. Nobel Prize-winning economist Joseph E. Stiglitz said in an interview with Sky News yesterday that Greece has been the target of a “speculative attack” and doesn’t need a bailout. Papaconstantinou said yesterday that Greece’s budget plan will get the “green light” from European finance ministers. He may this week unveil an overhaul of Greece’s tax system that imposes the top 40 percent levy on Greeks earning less than the current threshold of 75,000 euros per year. Investors are turning a deaf ear to EU officials as Greece’s fiscal woes focus their attention on gaping budget deficits across the euro region’s southern fringe. Credit- default swaps on Spain and Portugal rose to a record yesterday. Raise Concern “Greece, Portugal and Spain have the most challenging fundamentals but Italy and Belgium could also start to raise some concerns,” said HSBC’s Henry. Italian Finance Ministry Undersecretary Luigi Casero told Sky TG24 yesterday his government must “maintain a policy of fiscal rigor” to avoid “difficulties.” Trichet’s efforts to shore up confidence in the euro region as a whole are also being ignored. While the ECB president said on Feb. 4 the bloc’s combined budget deficit may be lower than those of the U.S. and Japan this year, the euro fell the next day, extending its slide since the start of December to almost 10 percent. To contact the reporters on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net ; David Tweed in Athens on jtweed@bloomberg.net .

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Trichet Says ECB Confident Greek Deficit Can Be Cut; Keeps Key Rate at 1%

February 4, 2010

By Jana Randow Feb. 4 (Bloomberg) — The European Central Bank left its benchmark interest rate at 1 percent, a record low, and will probably hold off unwinding any more emergency lending measures as Greece’s budget deficit takes center stage. ECB President Jean-Claude Trichet holds a press conference at 2:30 p.m. in Frankfurt to explain today’s rate decision, which was predicted by all 55 economists in a Bloomberg News survey . Trichet has indicated he’ll wait for new growth and inflation forecasts in March before deciding when to step up the withdrawal of measures used to battle the financial crisis. “I imagine the Greek situation will be the main topic of discussion today,” said Nick Kounis , chief European economist at Fortis in Amsterdam. “They have to think about the consequences for the rest of the region, so they will continue to take a rather hard line on Greece.” Rising unemployment and concern that Greece’s fiscal problems could spread through the 16-nation euro area complicate the ECB’s efforts to return the economy to health. The Greek government is struggling to convince policy makers and investors that it can cut its deficit from 12.7 percent of gross domestic product last year to below the European Union’s 3 percent limit by 2012. Clear Message “Trichet’s message will be quite clear: Greece has to get its fiscal house in order,” said Ken Wattret , chief euro-area economist at BNP Paribas in London. “But if you consolidate in such a rush, you very likely generate a recession. Radical fiscal tightening doesn’t usually go hand in hand with robust growth.” The euro remained lower against the dollar after the rate decision, at $1.3850 as of 1:54 p.m. in Frankfurt from $1.3893 yesterday. The yield on the 10-year German bund fell 2 basis points to 3.2 percent. The Bank of England earlier kept its key rate at a record low of 0.5 percent and paused its bond-purchase program. Australia’s central bank this week unexpectedly paused in its rate-tightening cycle after last year’s increases drove up the nation’s currency, hurting exports. The Federal Reserve last week restated its intention to keep interest rates near zero for an “extended period,” saying the pace of economic recovery “is likely to be moderate for a time.” Unwinding Measures While the ECB isn’t forecast to raise borrowing costs before the fourth quarter, it has started to unwind its emergency lending programs. The central bank in December tightened the terms of its final tender of 12-month loans, one of its flagship measures during the crisis, and said it will discontinue its six-month loans after March. The ECB is still lending commercial banks as much money as they need at its benchmark rate, rather than having them bid for the cash, in an effort to get credit flowing through the economy. Council members Axel Weber and Yves Mersch have indicated the next step in the ECB’s exit strategy is likely to be a return to an auction procedure in some of its refinancing operations, which may be announced after the March policy meeting. “The ECB is on track for a complete normalization of its lending operations by the third quarter,” said Laurent Bilke , a former ECB economist now at Nomura International Plc in London. “That’s a prerequisite and will pave the way for the first rate hike” in November, he said. Economic Recovery The euro-area economy will grow 0.8 percent this year and 1.2 percent in 2011, according to the ECB’s December forecasts. It contracted 4 percent last year, the European Commission estimates. Fiscal belt-tightening across the region may damp the recovery as governments rein in spending to reduce budget shortfalls incurred during the recession. The euro has dropped 8.5 percent since Nov. 25, to $1.3840 today. EU Economic and Monetary Affairs Commissioner Joaquin Almunia yesterday backed Greece’s consolidation program while saying its implementation “is not easy.” Skepticism about Greece’s consolidation plans last week drove the premium that investors demand to hold Greek 10-year bonds instead of benchmark German bunds to almost 400 basis points, the highest since before the euro was launched in 1999. Spanish and Portuguese bond yields have also risen amid concern those nations are facing similar challenges. To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net .

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Greek Deficit Plan Gains EU Backing After Papandreou Broadens Wage Freeze

February 3, 2010

By Maria Petrakis and Meera Louis Feb. 3 (Bloomberg) — Greece’s plan to cut the European Union’s biggest budget deficit won European Commission backing after the government announced more measures to reduce the shortfall and try to quell investor concern that the nation may need a bailout. “We are endorsing the Greek program; we are giving confidence and supporting the Greek authorities,” EU Economic and Monetary Affairs Commissioner Joaquin Almunia told reporters in Brussels today. “The implementation of this program is not easy.” The Brussels-based commission, the EU executive, said it will demand monthly updates from Greece on its progress in completing the plan to reduce a deficit of 12.7 percent of gross domestic product to within the EU’s 3 percent limit in 2012. Greek Prime Minister George Papandreou yesterday announced a fuel-tax increase and said he would broaden a planned partial wage freeze to cover all public workers. The risk premium on Greek bonds rose to an 11-year high last week on concern over the government’s ability to sell the 53 billion euros ($74 billion) of bonds needed this year to finance its deficit and debt. Spanish and Portuguese bonds have also suffered as other high-deficit EU nations came under investor scrutiny, fueling speculation about the possibility of an EU bailout to protect the monetary union. ‘Speculative Game’ “Greece is in the center of a speculative game aimed at the euro,” Papandreou said in a televised speech in Athens late yesterday. “It is our national duty to stop the attempts to push our country to the edge of the cliff.” Greek bonds gained today, with the premium investors demand to buy 10-year Greek securities over comparable German debt, the EU benchmark, sliding 21 basis points to 333. That was down from a peak of 396 on Jan. 28. Papandreou yesterday urged Greeks to support the new measures and said the country couldn’t afford strikes and blockades that may derail the attempt to get the economy back on track. After the announcement of the broader wage freeze, unions urged workers to attend a previously announced strike of civil servants on Feb. 10. Greece’s original deficit plan pledges to cut spending and raise revenue by about 10 billion euros this year to trim the shortfall by 4 percent of GDP. The government said it would meet that goal through cuts in bonuses to civil servants, a crackdown on tax evasion and state-asset sales. The additional measures announced yesterday would reduce spending by 0.3 percent to 0.4 percent of GDP, economists at HSBC Holdings Plc estimate. Monitoring Greece In its statement today, the commission demanded more details on the new measures within a month. “The commission will be in charge of monitoring the implementation of the program through a very intense surveillance,” commission President Jose Barroso said yesterday. “The successful correction of its very excessive deficit is not only important for Greece, but for the euro area and the EU as a whole.” The additional spending cuts and higher taxes may put a further drag on an economy set to contract 0.3 percent in 2010. “Unless the wage-freeze measure is accompanied by initiatives that would boost exports and investments in the economy, the contraction in 2010 should be greater than expected, thus negatively affecting tax revenues,” economists at Marfin Analysis in Athens said in a note to investors today. Worst Performers The nation’s government bonds were the world’s worst performers in January, losing 6 percent in local currency terms and extending their decline over the past three months to more than 11 percent on concern about its deteriorating finances, Bloomberg/EFFAS indexes show. Greece’s financial woes have prompted some economists to question the future unity of the euro region and whether a single monetary policy can be applied simultaneously to 16 disparate economies. The euro has declined 7.1 percent against the dollar since the start on December. Economist Nouriel Roubini said in an interview today that the EU, the European Central Bank or the International Monetary Fund will probably offer financial aid to Greece to help the country avoid default and limit the damage to monetary union. “I expect there is going to be eventually some financial support,” Roubini told Bloomberg Television in Moscow. That support will come “either directly from the European Union or the ECB or, as I suggest, Greece should be going to the IMF to get an IMF package,” he said. Greek Debt The jump in Greece’s debt, which is set to surpass Italy as the region’s largest at more than 120 percent of GDP this year, has prompted investors to increase insurance against a possible default. Credit-default swaps on Greek government bonds reached a record high level of 422 basis points on Jan. 28. They fell 7 basis points today to 380, according to CMA DataVision prices. That means it costs $380,000 a year to insure against losses on the debt for five years. That perceived risk would decline further if the EU publicly offered to aid Greece and defend monetary union, said Nobel prize-winning economist Joseph Stiglitz . “If it made that announcement, then the speculators would know there’s no more hope and they would just go away,” Stiglitz, a Columbia University professor, said in an interview yesterday in Athens. “It would cost nobody.” Persuading Investors Portugal and Spain have also been struggling to convince investors that they can cut their deficits and finance rising debt. In announcing on Jan. 26 its own budget plan to bring the deficit back within the EU limit in 2013, Portugal said that its shortfall was 9.3 percent of GDP last year, higher than the commission’s November forecast of 8 percent. Spain, where the collapse of a real-estate boom deepened the recession and helped flip a budget surplus of 1.9 percent in 2007 into a deficit of 9.5 percent last year, also presented a budget plan calling for spending cuts and higher taxes. Cutting back on stimulus spending may make it harder for the government to reduce the EU’s highest jobless rate at almost 20 percent. The yield premium investors demand to hold Portuguese bonds instead of bunds increased 4 basis points today to 131 basis points, the highest since April. Spain’s spread with Germany fell 2 basis points to 83.7, down from a nine-month high of 98 on Jan. 28. To contact the reporters on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net ; Meera Louis in Brussels at mlouis1@bloomberg.net .

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Greek Deficit Plan Gains EU Backing After Papandreou Broadens Wage Freeze

February 3, 2010

By Maria Petrakis and Meera Louis Feb. 3 (Bloomberg) — Greece’s plan to cut the European Union’s biggest budget deficit won European Commission backing after the government announced more measures to reduce the shortfall and try to quell investor concern that the nation may need a bailout. “We are endorsing the Greek program; we are giving confidence and supporting the Greek authorities,” EU Economic and Monetary Affairs Commissioner Joaquin Almunia told reporters in Brussels today. “The implementation of this program is not easy.” The Brussels-based commission, the EU executive, said it will demand monthly updates from Greece on its progress in completing the plan to reduce a deficit of 12.7 percent of gross domestic product to within the EU’s 3 percent limit in 2012. Greek Prime Minister George Papandreou yesterday announced a fuel-tax increase and said he would broaden a planned partial wage freeze to cover all public workers. The risk premium on Greek bonds rose to an 11-year high last week on concern over the government’s ability to sell the 53 billion euros ($74 billion) of bonds needed this year to finance its deficit and debt. Spanish and Portuguese bonds have also suffered as other high-deficit EU nations came under investor scrutiny, fueling speculation about the possibility of an EU bailout to protect the monetary union. ‘Speculative Game’ “Greece is in the center of a speculative game aimed at the euro,” Papandreou said in a televised speech in Athens late yesterday. “It is our national duty to stop the attempts to push our country to the edge of the cliff.” Greek bonds gained today, with the premium investors demand to buy 10-year Greek securities over comparable German debt, the EU benchmark, sliding 21 basis points to 333. That was down from a peak of 396 on Jan. 28. Papandreou yesterday urged Greeks to support the new measures and said the country couldn’t afford strikes and blockades that may derail the attempt to get the economy back on track. After the announcement of the broader wage freeze, unions urged workers to attend a previously announced strike of civil servants on Feb. 10. Greece’s original deficit plan pledges to cut spending and raise revenue by about 10 billion euros this year to trim the shortfall by 4 percent of GDP. The government said it would meet that goal through cuts in bonuses to civil servants, a crackdown on tax evasion and state-asset sales. The additional measures announced yesterday would reduce spending by 0.3 percent to 0.4 percent of GDP, economists at HSBC Holdings Plc estimate. Monitoring Greece In its statement today, the commission demanded more details on the new measures within a month. “The commission will be in charge of monitoring the implementation of the program through a very intense surveillance,” commission President Jose Barroso said yesterday. “The successful correction of its very excessive deficit is not only important for Greece, but for the euro area and the EU as a whole.” The additional spending cuts and higher taxes may put a further drag on an economy set to contract 0.3 percent in 2010. “Unless the wage-freeze measure is accompanied by initiatives that would boost exports and investments in the economy, the contraction in 2010 should be greater than expected, thus negatively affecting tax revenues,” economists at Marfin Analysis in Athens said in a note to investors today. Worst Performers The nation’s government bonds were the world’s worst performers in January, losing 6 percent in local currency terms and extending their decline over the past three months to more than 11 percent on concern about its deteriorating finances, Bloomberg/EFFAS indexes show. Greece’s financial woes have prompted some economists to question the future unity of the euro region and whether a single monetary policy can be applied simultaneously to 16 disparate economies. The euro has declined 7.1 percent against the dollar since the start on December. Economist Nouriel Roubini said in an interview today that the EU, the European Central Bank or the International Monetary Fund will probably offer financial aid to Greece to help the country avoid default and limit the damage to monetary union. “I expect there is going to be eventually some financial support,” Roubini told Bloomberg Television in Moscow. That support will come “either directly from the European Union or the ECB or, as I suggest, Greece should be going to the IMF to get an IMF package,” he said. Greek Debt The jump in Greece’s debt, which is set to surpass Italy as the region’s largest at more than 120 percent of GDP this year, has prompted investors to increase insurance against a possible default. Credit-default swaps on Greek government bonds reached a record high level of 422 basis points on Jan. 28. They fell 7 basis points today to 380, according to CMA DataVision prices. That means it costs $380,000 a year to insure against losses on the debt for five years. That perceived risk would decline further if the EU publicly offered to aid Greece and defend monetary union, said Nobel prize-winning economist Joseph Stiglitz . “If it made that announcement, then the speculators would know there’s no more hope and they would just go away,” Stiglitz, a Columbia University professor, said in an interview yesterday in Athens. “It would cost nobody.” Persuading Investors Portugal and Spain have also been struggling to convince investors that they can cut their deficits and finance rising debt. In announcing on Jan. 26 its own budget plan to bring the deficit back within the EU limit in 2013, Portugal said that its shortfall was 9.3 percent of GDP last year, higher than the commission’s November forecast of 8 percent. Spain, where the collapse of a real-estate boom deepened the recession and helped flip a budget surplus of 1.9 percent in 2007 into a deficit of 9.5 percent last year, also presented a budget plan calling for spending cuts and higher taxes. Cutting back on stimulus spending may make it harder for the government to reduce the EU’s highest jobless rate at almost 20 percent. The yield premium investors demand to hold Portuguese bonds instead of bunds increased 4 basis points today to 131 basis points, the highest since April. Spain’s spread with Germany fell 2 basis points to 83.7, down from a nine-month high of 98 on Jan. 28. To contact the reporters on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net ; Meera Louis in Brussels at mlouis1@bloomberg.net .

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Greek Deficit Plan to Get EU Endorsement as Papandreou Pledges Wage Freeze

February 3, 2010

By Maria Petrakis and Meera Louis Feb. 3 (Bloomberg) — The European Commission today will ask finance ministers to endorse Greek measures to reduce the European Union’s biggest budget deficit as Prime Minister George Papandreou promised more action, including a freeze on state workers’ pay. “Greece is in the center of a speculative game aimed at the euro,” Papandreou said in a televised speech in Athens late yesterday. “It is our national duty to stop the attempts to push our country to the edge of the cliff.” Papandreou pledged to raise fuel taxes in a move that will boost income immediately, and said an overhaul of the tax system, which will increase 2011 revenue, would be targeted at the wealthier to protect poorer Greeks. He said it is time for Greece, like other EU countries, to take “brave decisions” and raise the retirement age. No state worker will receive a wage increase this year, Papandreou said, a reversal of a pledge he made before his Oct. 4 election victory. Greek unions last night called on workers to join a strike already planned for Feb. 10 to protest the government’s cuts. The commission, the Brussels-based EU executive, has warned that Greece may need to take further steps to shore up the budget even as it prepares to support the government’s program to rein in its deficit. The three-year plan Papandreou outlined last month includes measures to cut spending and raise revenue by 10 billion euros ($14 billion) this year. ‘Subject to Risks’ The planned correction of the deficit by 2012 “is feasible but subject to risks,” commission President Jose Barroso said yesterday. The commission will recommend in a report today that European finance ministers endorse the Greek program at a meeting in Brussels later this month. Skepticism about Papandreou’s plan drove the premium that investors demand to hold Greek 10-year bonds instead of benchmark German bunds to almost 400 basis points last week, the highest since the year before the euro’s debut in 1999. Concern that Greece and other European nations may struggle to contain their deficits has pushed the euro down more than 7 percent since late November. Papandreou yesterday urged Greeks to support the new measures and said the country couldn’t afford strikes and blockades that may derail the attempt to get the economy back on track. He sought backing in a series of meetings with political party leaders yesterday. Papandreou’s Measures Adedy, the federation of Greek state worker unions, had already called a strike for Feb. 10 to protest the government’s initial plans to cut bonuses and put a partial freeze on wages. Last night, the organization said Papandreou’s measures “confirmed our expectations” and urged workers to join the strike. Greece, which had the EU’s widest deficit at 12.7 percent of gross domestic product last year, has struggled to convince investors it can bring the budget shortfall within the bloc’s limit of 3 percent. Greek 10-year bonds declined yesterday, sending the yield up 14 basis points to 6.75 percent. The difference in yield between the Greek securities and bunds widened 13 basis points to 357 points. Spanish and Portuguese debt also fell as Greece’s finance minister said those nations face similar challenges in paring their deficits. The EU will institute “a completely new mechanism to monitor” Greece’s budget cuts, European Economic and Monetary Affairs Commissioner Joaquin Almunia said in a Feb. 1 interview in Brussels. The government will have to submit a progress report by March 16, with a second report due on May 15, followed by quarterly updates. ‘Intense Surveillance’ “The commission will be in charge of monitoring the implementation of the program through a very intense surveillance,” Barroso said yesterday. “The successful correction of its very excessive deficit is not only important for Greece, but for the euro area and the EU as a whole.” Economist Nouriel Roubini said in an interview today that the EU or the International Monetary Fund will probably offer financial aid to Greece to help the country avoid default. “I expect there is going to be eventually some financial support,” Roubini told Bloomberg Television in Moscow. That support will come “either directly from the European Union or the ECB or, as I suggest, Greece should be going to the IMF to get an IMF package,” he said. The EU today also will take a first step toward a court case to force Greece to improve its reporting of deficit figures and other economic statistics. The commission said on Jan. 12 that “severe irregularities” in the nation’s statistical data leave the accuracy of the deficit in doubt. Soon after winning elections in October, Papandreou’s government raised the 2009 deficit estimate to more than 12 percent from a previous forecast of 3.7 percent. The commission questioned the accuracy of the statistics presented by both the new government and the previous administration and said political interference remained an issue. To contact the reporters on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net ; Meera Louis in Brussels at mlouis1@bloomberg.net .

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Greece Pledges Freeze on State Wages as EU’s Barroso Warns of Budget Risks

February 2, 2010

By Maria Petrakis and Meera Louis Feb. 2 (Bloomberg) — Greek Prime Minister George Papandreou said he will freeze the wages of all state workers as part of additional measures to boost revenue this year and reduce the European Union’s biggest budget shortfall. “Greece is in the center of a speculative game aimed at the euro,” he said in a televised speech in Athens today. “We are the weak link in the euro zone. We must act immediately and decisively.” He urged Greeks to support the new measures and said the country couldn’t afford strikes and blockades that could derail the attempt to get the economy back on track. Papandreou pledged to raise fuel taxes in a move that will bring in income this year, and said an overhaul of the tax system, which will boost 2011 revenue, would be targeted at the wealthier to protect poorer Greeks. He said it is time for Greece, like other European countries, to take “brave decisions” and will raise the retirement age. No state workers will receive wage increases this year, a reversal of a pledge he made before his Oct. 4 election victory. The EU has warned that more action may be required to shore up the budget even as it prepares to give Greece European Commission backing for the government’s program to rein in its budget deficit. The three-year plan Papandreou outlined last month includes measures to cut spending and raise revenue by 10 billion euros ($14 billion) this year. The planned correction of the deficit by 2012 “is feasible but subject to risks,” commission President Jose Barroso said today. The commission will recommend in a report tomorrow that European finance ministers endorse the Greek program. Investor Skepticism Skepticism about Papandreou’s plan drove the premium that investors demand to hold Greek 10-year bonds instead of benchmark German bunds to almost 400 basis points last week, the highest since the year before the euro’s debut in 1999.sss Greece, which had the EU’s widest deficit at 12.7 percent of output last year, has struggled to convince investors it can bring the budget shortfall within the bloc’s limit of 3 percent. Greek 10-year bonds declined today, sending the yield up 14 basis points to 6.75 percent. The difference in yield between the securities and bunds widened 13 basis points to 357 points. Spanish and Portuguese debt also fell as Greece’s finance minister said today that those nations are facing similar challenges in paring their deficits. The EU will institute “a completely new mechanism to monitor” Greece’s budget cuts, EU Economic and Monetary Affairs Commissioner Joaquin Almunia said in an interview yesterday in Brussels. The government will have to submit a progress report by March 16, with a second report due on May 15, followed by quarterly updates. ‘Intense Surveillance’ “The commission will be in charge of monitoring the implementation of the program through a very intense surveillance,” Barroso said today. “The successful correction of its very excessive deficit is not only important for Greece, but for the euro area and the EU as a whole.” The EU tomorrow also will take a first step toward a court case to force Greece to improve its reporting of deficit figures and other economic statistics. The commission said on Jan. 12 that “severe irregularities” in the nation’s statistical data leave the accuracy of the deficit in doubt. Soon after winning elections in October, Papandreou’s government raised the 2009 deficit estimate to more than 12 percent from a previous forecast of 3.7 percent. The commission questioned the accuracy of the statistics presented by both the new government and the previous administration and said political interference remained an issue. To contact the reporters on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net ; Meera Louis in Brussels at mlouis1@bloomberg.net

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