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Raids on Taliban to Accelerate With Troop Surge, Mirroring Iraq War Tactic

December 10, 2009

By Tony Capaccio Dec. 10 (Bloomberg) — The U.S. will accelerate commando raids against hardcore Taliban and al-Qaeda fighters as it adds forces in Afghanistan, according to top commanders. The same tactics that proved successful during the Iraq surge of 2007 will be used, including targeting senior and mid- level insurgents outside population areas protected by U.S. troops, they said. The current U.S. and NATO commander in Afghanistan, General Stanley McChrystal , directed those efforts. U.S. intelligence agencies and elite special-forces units in Iraq worked in “fusion cells” that consolidated and analyzed real-time information from informants, satellites and eavesdropping on top al-Qaeda operatives. The strategy enabled quick, focused strikes. “We did it in Iraq and we think it’s a very important component of the counterinsurgency strategy” in Afghanistan, Admiral Michael Mullen , chairman of the Joint Chiefs of Staff, told reporters today. “Every effort will be made to focus on key leaders of the insurgency, key leaders in the terrorist world and every effort will be made to capture or kill them,” he said. More special forces will be a small but “significant” part of the 30,000 extra U.S. troops the U.S. is adding to the 68,000 now in Afghanistan, Mullen said. ‘Kill or Capture’ General David Petraeus , who commands U.S. forces in the Middle East and Central Asia, told the Senate Foreign Relations Committee yesterday that the U.S. will increase “our counterterrorist component of the overall strategy.” “You’ve got to kill or capture those bad guys that are not reconcilable and we are intending to do that,” he said. “And we will have additional” forces “to do that.” McChrystal, in an interview yesterday, said the most effective approach to attacking al-Qaeda is not to strike solely at the leaders – “decapitation” strikes such as the U.S. endorsed after the Sept. 11 terrorist attacks. “What I have come to believe is you take the middle of the network – experienced professionals – you attack them, you capture, you kill and you turn as many of them as you can and you cause the network to collapse on itself,” he said on PBS’s Charlie Rose , broadcast on Bloomberg television. “That’s what I saw happen in Iraq and that’s one of the things we are working in Afghanistan,” McChrystal said. Expertise in Special Forces McChrystal’s background is in overseeing special forces, including counter-terrorism units such as the Army’s Delta Force. From September 2003 through August 2008, he led the Defense Department’s Joint Special Operations Command, which manages units in Iraq and Afghanistan. He orchestrated the manhunts that led to the capture of Saddam Hussein in December 2003 and the air strike in June 2006 that killed Abu Musab al-Zarqawi , the leader of al-Qaeda in Iraq. Mullen, speaking in February at a conference in Washington on special operations, praised McChrystal’s work in Iraq. He cited the integration of commando and conventional forces and McChrystal’s use of intelligence to launch quick attacks on suspected terrorists. “It was the merger of intelligence and operations as we have never seen it done before,” Mullen said. “We should capture” those lessons “in every possible way and the devastation that it caused for the enemy. We need to keep that, we need to hang on to that and apply that to Afghanistan.” To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net .

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Mortgage Bond Market in Europe Passes `Milestone’ With Aviva’s Dutch Sale

December 4, 2009

By Esteban Duarte Dec. 4 (Bloomberg) — Aviva Plc’s Dutch financial services unit sold $1.3 billion of residential mortgage-backed bonds in the first sale of its type since 2007. The transaction by Delta Lloyd NV is also Europe’s third public sale of bonds secured by home loans this year after the deepest recession since the 1930s caused investors to shun the debt. Lehman Brothers Holdings Inc. was the last to sell Dutch mortgage-backed bonds when it raised 700 million euros ($1 billion) in 2007 through its Eurosail program, JPMorgan Chase & Co. data show. “This is an important milestone for the reopening of the European primary residential mortgage-backed securities market,” said Luis Merino , a Madrid-based fund manager at La Caixa’s asset management unit, where he helps to manage 15 billion euros. “It shows that there is demand for high quality sellers of securitizations,” said Merino, who put in orders to buy some of the notes. The transaction includes a 189 million-euro portion of class A1 two-year notes priced to yield 110 basis points over the euro interbank offered rate , according to Amstelhuys, the Delta Lloyd unit that originated the home loans backing the transaction. Class A2 4.9-year bonds totaling 643.5 million euros were priced at a spread of 140 basis points. A basis point is 0.01 percentage point. Spreads Shrink Prices for the notes have rallied from record lows amid growing investor confidence in an economic recovery. Yield spreads on five-year notes backed by prime Dutch mortgages have shrunk this year to 145 basis points, the tightest gap since September 2008, JPMorgan Chase data show. The spread was 425 in January. Yields move inversely to prices. Amsterdam-based Delta Lloyd’s bonds were issued through Arena 2009-I, which packages debt into securities that can be sold to investors. The transaction also includes five other classes of junior ranking notes totaling 72 million euros that were kept by the issuer. Delta Lloyd’s issue follows the U.K.’s Nationwide Building Society, which sold 3.5 billion pounds of mortgage-backed debt in October, and Lloyds Banking Group Plc’s 4 billion-pound transaction in September, Bloomberg data show. “The Arena deal shows that there is demand for mortgage- backed securities from established issuers that continued to perform well during the crisis,” said Stefano Loreti , a London- based senior manager at Cairn Capital Ltd., who helps manage $42 billion of assets. Loan-to-Value The Arena notes are backed by 905.9 million euros of mortgages with an average loan-to-value ratio of 91.3 percent, according to the deal’s documents. That compares with a 65 percent ratio on the mortgages backing Nationwide’s notes and 68 percent on Lloyds’s bonds, documentation for the transactions shows. Arena’s notes can be redeemed by the issuer starting in November 2014 and once a month thereafter. The interest spread on the notes will double if Arena doesn’t call them on the first date. Natixis, Rabobank Netherland NV and Royal Bank of Scotland Group Plc managed the deal. Delta Lloyd raised 1 billion euros last month in western Europe’s biggest IPO this year. To contact the reporter on this story: Esteban Duarte in Madrid at eduarterubia@bloomberg.net

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AMR Says Japan Air Talks at Advanced Stage as Delta Holds Out Incentives

November 19, 2009

By Kiyotaka Matsuda Nov. 19 (Bloomberg) — American Airlines said preparations for an investment in Japan Airlines Corp. are at an advanced stage after Delta Air Lines Inc. announced a package of incentives to lure the Asian carrier into a new alliance. Japan Air, as the airline is known, would face a regulatory risk in leaving American’s Oneworld group and joining Delta’s SkyTeam, Theo Panagiotoulias , American’s Pacific director, told reporters today in Tokyo. Delta and AMR Corp. ’s American, the world’s two biggest airlines, are vying for access to JAL’s routes in its home country and in China, Asia’s largest air-travel market. Atlanta- based Delta unveiled its $1 billion proposal yesterday, while American hasn’t detailed its plan to keep JAL in Oneworld. People familiar with the matter have said American and private-equity firm TPG Inc. may offer as much as 130 billion yen ($1.47 billion) to JAL, which is seeking a government rescue and new investors after losses in three of the last four years. JAL probably will stay in Oneworld, Dow Jones reported, citing Vice President Shuta Saito. The Tokyo-based carrier will make a decision after agreeing on how to restructure itself with Japanese government aid, Dow Jones reported. Sze Hunn Yap , a spokeswoman at Japan Air, declined to confirm or deny Saito’s comment. Charley Wilson , a spokesman for American, declined to comment in order to “respect the JAL restructuring process.” Oneworld’s Response American’s Oneworld partners are preparing their own proposals, which would be offered along with the plan from American and TPG, to help persuade JAL to stay. There is no schedule for making details public, Oneworld Managing Director John McCulloch said today in an interview from Vancouver. “A lot of this is moving around, almost by the day,” he said. Other Oneworld airlines aren’t considering equity investments, and instead would help through strengthened alliances, McCulloch said. Delta fell 18 cents, or 2.3 percent, to $7.58 at 1:30 p.m. in New York Stock Exchange composite trading, while AMR dropped 22 cents, or 3.8 percent, to $5.55. AMR and TPG are both based in Fort Worth, Texas. To contact the reporter on this story: Kiyotaka Matsuda in Tokyo at kmatsuda@bloomberg.net

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FAA Resolves Computer Breakdown That Canceled, Delayed Flights Around U.S.

November 19, 2009

By John Hughes and Mary Schlangenstein Nov. 19 (Bloomberg) — Airline flights were disrupted across the U.S. today by a telecommunications malfunction that forced carriers to e-mail or fax route plans to the Federal Aviation Administration. “Significant” delays and cancellations have resulted, said Susan Elliott, a spokeswoman for Delta Air Lines Inc., who couldn’t provide specifics. “We are investigating now to see how it started and how to remedy the problem,” said Les Dorr , an FAA spokesman. The disruption occurred between 5:15 a.m. and 5:30 a.m. Washington time, he said. The FAA is manually entering flight plans into computer systems, he said. The agency still has operating radar and is communicating with flights, Dorr said. Spokesmen for American Airlines and AirTran Holdings Inc. didn’t immediately return calls seeking comment. To contact the reporter on this story: John Hughes in Washington at jhughes5@bloomberg.net ; Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

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Delta, SkyTeam Ready $1 Billion Japan Airlines Offer Rivaling American Bid

November 18, 2009

By Chris Cooper and Takahiko Hyuga Nov. 18 (Bloomberg) — Delta Air Lines Inc. and its SkyTeam alliance partners offered as much as $1 billion in incentives to lure Japan Airlines Corp. away from the Oneworld group led by American Airlines. SkyTeam airlines may invest $500 million in Japan Air, and Delta would supply $200 million in financing and $300 million to cover lost sales, Delta President Edward Bastian said today. American ’s bid may consist of $1 billion from private-equity firm TPG Inc. and $300 million from the airline. Delta’s proposal escalated the jockeying with AMR Corp. ’s American for a stake in money-losing Japan Air, also known as JAL. The U.S. carriers, the world’s biggest, are vying for access to JAL’s routes in its home country and in China, Asia’s largest air-travel market. “Delta has the bigger network, which may appeal to JAL, but American may offer more long-term potential because of its more global reach,” said Ryota Himeno , an analyst at Mitsubishi UFJ Securities Co. in Tokyo. He rates JAL as “market perform.” Bastian unveiled Delta’s offer in Tokyo, where JAL is based, and said the carrier may boost annual sales by $400 million by joining SkyTeam because Delta flies three times as many passengers to Japan as American. Delta wouldn’t cede any landing slots at Tokyo’s Narita Airport, Bastian said. The airline is the largest overseas carrier at the facility. ‘Survive and Prosper’ “Our goal for JAL is for it to survive and prosper,” he said. “JAL needs to survive for the long-term needs of the Japanese people.” Delta, based in Atlanta, has promised JAL to “bear the whole cost of the transition no matter how much it is,” Bastian said. He didn’t give details on how a SkyTeam investment would be funded. A JAL spokeswoman, Sze Hunn Yap , declined to comment. American and TPG, both based in Fort Worth, Texas, said in a statement their offer would provide “significant value” and be part of a “comprehensive recovery plan” for the Japanese carrier after three annual losses in the past four years. Delta’s offer to make up for lost revenue from shifting alliances “at best merely gets JAL back to status quo, while introducing costly disruptions and distractions,” American said today in its own statement. TPG is awaiting approval from JAL and the Japanese government to become a partner in the bid. JAL now gets as much as $500 million in annual revenue from its Oneworld partners, and approval from U.S. regulators to coordinate pricing on trans-Pacific routes potentially could add $100 million a year more, American has said. Government Bailout Japan Air is seeking loans of 125 billion yen ($1.4 billion) from the Japanese government to maintain operations and has applied to negotiate out-of-court agreements with creditors to temporarily freeze debt payments. Transport Minister Seiji Maehara said in a parliamentary session that a court-led bankruptcy for the carrier couldn’t be ruled out. The U.S. carriers’ offers “won’t be enough to solve JAL’s problems,” said Himeno, the analyst. AMR fell 12 cents, or 2 percent, to $5.87 at 10:08 a.m. in New York Stock Exchange composite trading , while Delta dropped 6 cents to $7.84. JAL fell 3.9 percent to 98 yen in Tokyo. Oneworld, SkyTeam and Star Alliance , the three main global airline groups, help carriers cut operating costs and allow them to expand sales networks without the difficulties or expense of a merger. JAL began a marketing alliance with American in 1999, and joined Oneworld in 2007. SkyTeam, Oneworld China Southern Airlines Co., the second-biggest member of SkyTeam by passenger numbers, is “involved in the incentives package,” said an official at the carrier, who declined to be identified because of a company policy. Korean Air Lines Co. declined to comment. Air France-KLM Group spokeswoman Brigitte Barrand said the airline had no immediate response. TPG is ready to inject 100 billion yen into Japan Air, said Kozo Iino , a spokesman. American said in its statement that it is prepared to make a “significant” investment in JAL, without elaboration. The carrier’s offer may be as much as $300 million, a person familiar with the matter has said. Staying in Oneworld would “make more sense,” and it would be “easy” to seek antitrust immunity to deepen ties with American, JAL President Haruka Nishimatsu said last week. Oneworld carriers, including British Airways Plc, Qantas Airways Ltd. and Cathay Pacific Airways Ltd., are crafting incentives to help keep JAL in the alliance, John McCulloch , the group’s managing partner, said Nov. 13, without providing details. To contact the reporters on this story: Chris Cooper in Tokyo at ccooper1@bloomberg.net ; Takahiko Hyuga in Tokyo at thyuga@bloomberg.net

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JPMorgan Chase Raises Stakes in Credit-Card Wars With 100,000-Mile Bonus

November 5, 2009

By Peter Eichenbaum Nov. 5 (Bloomberg) — JPMorgan Chase & Co. , the biggest credit-card lender, and British Airways Plc will offer new customers 100,000 frequent-flier miles, intensifying the battle for affluent spenders. The miles, worth a round-trip transatlantic flight, will be awarded to customers who spend $2,000 on the co-branded British Airways Signature Visa cards within the first three months, according to a statement. Credit-card issuers including American Express Co. have sweetened their rewards programs, even after lenders said federal regulations enacted in May could squeeze profit, increase costs and prompt them to scale back incentives. “That’s probably the best introductory offer that I’m aware of,” Bill Hardekopf , chief executive officer of LowCards.com , said of Chase’s promotion. His Birmingham, Alabama-based firm reviews about 1,000 credit cards . Hardekopf hasn’t seen the terms of the offer. Customers spending at least $30,000 in the first year will receive a matching travel voucher for a companion to fly British Airways, Europe’s third-largest carrier, and card holders will earn 1.25 miles for each dollar spent, according to the statement. There’s a $75 annual fee. The promotion is scheduled to start tomorrow for U.S. British Airways Executive Club members and Nov. 16 for nonmembers. “We believe this offer provides tremendous rewards for the dollars our card members already spend,” Tony Glover , general manager at Chase Card Services, said in the statement. “The timing of these enhancements is optimal for holiday spending .” Rewards War The rewards war heated up in August when JPMorgan targeted households with incomes exceeding $120,000 for Chase Sapphire, which has no preset spending limit and offers one point for every dollar spent. AmEx, which dominates the market for affluent customers, introduced on Oct. 8 the Premier Rewards Gold Card with triple points on airfare purchases, double points on gasoline and groceries and one point for all other spending. The card has 15,000 bonus points for purchases topping $30,000 in a calendar year. The $175 annual fee is waived for the first year. American Express is removing the 60,000-mile cap on its Delta SkyMiles Card, effective in February, and offers up to four points for every dollar spent at 200 online retailers, said spokeswoman Desiree Fish . A credit-card mile or point typically is worth about 1 cent, Hardekopf said. Perks Survive The added benefits defy industry predictions that U.S. curbs on credit-card practices would lead to fewer perks. Five days after President Barack Obama signed the Credit Card Accountability Responsibility and Disclosure Act in May, Discover Financial Services Chief Executive Officer David Nelms said “some of these new changes will cause competitors to continue to pull back even more in rewards.” Nelms, whose firm pioneered cash rebates on card purchases, said Riverwoods, Illinois-based Discover will continue to emphasize rewards because it’s part of the card’s brand identity and spurs customer usage and loyalty. The card law , which takes effect in stages, includes limits on interest-rate increases and a requirement that banks apply payments to higher-rate balances first. The U.S. House voted yesterday to impose the remaining provisions immediately instead of next year. Lawmakers including Representative Barney Frank , chairman of the House Financial Services Committee, said lenders have taken advantage of the delay by raising rates and fees. Interchange The law also required the Government Accountability Office to study the feasibility of regulating interchange fees that help fund rewards programs. The report, which may lead Congress to enact interchange legislation next year, is likely to be released Nov. 20, said GAO spokeswoman Laura Kopelson . The fees, charged to merchants at the point of sale, average about 2 percent in the U.S. — the highest in the world, according to Representative Peter Welch , a Vermont Democrat. Welch says richer rewards hurt “mom-and-pop” merchants in his district and he is sponsoring a bill with Representative Bill Shuster , Republican of Pennsylvania, that would prohibit payment networks including Visa Inc. and MasterCard Inc. from setting higher interchange fees for premium cards. “These fees are becoming the largest expense items for many businesses,” Welch said in an Oct. 7 interview. “Why let person A and B work out an arrangement that works for them, and then make person C pay for it?” The bill is pending in Frank’s committee. To contact the reporter on this story: Peter Eichenbaum in New York at peichenbaum@bloomberg.net

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BNP Paribas Widens Gap With SocGen as Fortunes Diverge on Crisis, Kerviel

November 3, 2009

By Fabio Benedetti-Valentini Nov. 3 (Bloomberg) — BNP Paribas SA , France’s largest bank, pulled further ahead of Societe Generale SA during the financial crisis, emerging twice as big by assets and deposits. BNP Paribas, like JPMorgan Chase & Co. in the U.S. and Banco Santander SA of Spain, took advantage of competitors’ woes to make acquisitions. The Paris-based bank became the largest by deposits in the euro region with the 10.4 billion-euro ($15.2 billion) purchase of Fortis units this year. “The Fortis deal is amazingly attractive for BNP,” said Jaap Meijer , a London-based analyst at Evolution Securities Ltd. who rates BNP Paribas “buy” and Societe Generale “sell.” Societe Generale , which announced a record trading loss in January 2008, has also been hobbled by at least 8 billion euros of asset writedowns, company reports show. BNP Paribas will probably report third-quarter net income of 1.26 billion euros on Nov. 5, analysts surveyed by Bloomberg estimated. That compares with 399 million euros in profit at Societe Generale, which will publish earnings tomorrow, the analysts said. BNP Paribas climbed 81 percent this year in Paris trading through yesterday, while Societe Generale advanced 34 percent. BNP Paribas’s market value, at 62.9 billion euros, was 87 percent larger than Societe Generale’s. In May 2007, before the crisis took hold, the gap was as narrow as 12 percent. Societe Generale fell 4 percent by 2:14 p.m. in Paris today, while BNP Paribas declined 3.4 percent. Takeover Battle “We have a portfolio of business which is well balanced,” BNP Paribas Chairman Michel Pebereau told Bloomberg News in an Oct. 31 interview in Shanghai. “I put risk control and risk management as being one of the first priorities of the bank and that was a competitive advantage during this crisis.” A spokeswoman at Societe Generale declined to comment. The rivalry between the two banks, France’s largest by market value, intensified a decade ago when Pebereau , then head of Banque Nationale de Paris SA, snatched investment bank Paribas SA away from Societe Generale in a takeover battle and made a hostile bid for the bank itself. Societe Generale, led at the time by Daniel Bouton , evaded Pebereau’s grasp. Bouton, 59, embarked on an expansion into eastern European countries including Romania and the Czech Republic, and gained close to 3 million consumer-banking clients in Russia by acquiring control of OAO Rosbank last year. He built the bank’s equity derivatives business into the world’s No. 2 by revenue in 2008, according to a June 10 report by JPMorgan analyst Kian Abouhossein in London. Trading Loss In January of last year, Societe Generale shocked investors by reporting a 4.9 billion-euro trading loss, which it blamed on unauthorized bets by Jerome Kerviel , a trader on its Delta One desk. The bank announced 2.05 billion euros of writedowns tied to the credit crunch the same day. Societe Generale’s corporate- and investment-banking unit has been unprofitable in five of the last seven quarters. The 32-year-old Kerviel, who was charged with abuse of trust, forging documents, and hacking into the bank’s computers, has said his superiors knew of his trading activity. His trial order is under appeal. Societe Generale also met with setbacks including losses of at least 1.5 billion euros on a portfolio of illiquid assets and a 300 million-euro writedown in Russia. Bouton stepped down as chairman in May, after ceding the CEO job to Frederic Oudea the previous year. Oudea, 46, now holds the chairman role as well. “Societe Generale has found the crisis humbling,” said Simon Maughan , a London-based analyst at MF Global Securities Ltd. who recommends selling the shares. Jean-Pierre Mustier, 48, the head of Societe Generale’s investment bank at the time of the trading loss, left the bank in August. Philippe Citerne , 60, who oversaw the bank’s Russian activities, also left this year. Prot, Pebereau At BNP Paribas , CEO Baudouin Prot , 58, and the 67-year-old Pebereau, now chairman, weathered the crisis. The bank, whose freezing of three funds on Aug. 9, 2007, signaled a deepening of the credit crunch, has posted about 7.2 billion euros of writedowns and provisions related to the financial crisis, according to company reports. The bank had net income of 3.16 billion euros in the first half, compared with 31 million euros at Societe Generale . BNP Paribas’s assets reached 2.29 trillion euros at the end of June, more than double Societe Generale’s. BNP Paribas deposits totaled 606 billion euros by June 30, compared with 291.5 billion euros at Societe Generale. In French consumer banking, where the companies’ networks are similar in size by clients, BNP Paribas had more than twice as many new account openings in 2008, company reports showed. ‘Smaller Provisions’ In the third-quarter, analysts estimated that Societe Generale’s writedowns probably amounted to 700 million euros, compared with 100 million euros at BNP Paribas. “BNP had smaller provisions and writedowns in the first place,” said Jonathan Tyce , a London-based analyst at FBR Capital Markets. “Thanks to the Fortis deal, pre-provisions operating profit is even stronger than before the crisis.” BNP Paribas and Societe Generale both sold new shares in October to repay a combined 8.5 billion euros of funds they got from the state to boost capital and sustain lending after Lehman Brothers Holdings Inc.’s failure shook markets last year. To contact the reporter on this story: Fabio Benedetti-Valentini in Paris at fabiobv@bloomberg.net

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Stock Analysts Proving Right on Earnings With Investors Refusing to Agree

November 2, 2009

By Lynn Thomasson and Mary Childs Nov. 2 (Bloomberg) — Wall Street forecasts for the fastest U.S. earnings increase in two decades are failing to convince investors to pay a premium for the Standard & Poor’s 500 Index. Companies in the gauge traded for an average of 15.4 times annual profit this year, or 0.6 times equity analysts’ projection for 2010 earnings growth of 25 percent, according to data compiled by Bloomberg. That’s the lowest so-called PEG ratio since 1995 and half the median of 1.3 since 1961. The smaller valuations relative to income growth show investors don’t believe earnings forecasts, which are 10 times higher than economists’ prediction for U.S. gross domestic product, says Charles Stamey , who helps oversee $24 billion at Manning & Napier Advisors Inc. Bulls say analysts got it right during the steepest rally since the 1930s and that stocks are cheap when measured by the PEG ratio, a favored tool of Fidelity Investments fund manager Peter Lynch . “We’re in as bad a time as we’ve ever seen to be projecting future earnings,” said Stamey, who is based in St. Petersburg, Florida. “In this environment, earnings estimates should be significantly questioned, and that’s your starting point in a PEG ratio.” Concern the U.S. economy won’t grow enough to justify the S&P 500’s 60 percent advance since March sent the benchmark measure for U.S. equities down 4 percent last week . The index has retreated 2 percent since New York-based Alcoa Inc., the biggest U.S. aluminum producer, became the first Dow Jones Industrial Average company to report third-quarter results on Oct. 7. Record Surprises The drop came as a record number of companies beat third- quarter estimates and analysts raised forecasts for next year. The average projection for combined earnings among S&P 500 companies in 2010 climbed 2.5 percent last month to $77.36 a share, according to Bloomberg data. The decline in stocks after releasing results suggests investors are questioning the earnings outlooks. Companies that reported in October fell 0.7 percent on average in the next trading session, the most in data going back to 2001, according to data released by Harrison, New York-based research firm Bespoke Investment Group LLC on Oct. 28. Inflated estimates can push down the PEG, or the price- earnings ratio divided by income growth. Fidelity’s Lynch, who produced average annual returns of 29 percent managing the Magellan Fund from 1977 to 1990, said the ratio showed stocks offering “growth at a reasonable price.” Lynch, 65, is vice chairman of Fidelity Management & Research. Rise, Fall Since the PEG shrinks as the outlook for profits climbs, a smaller ratio may show investors are speculating companies will fail to meet estimates, said Paul Baiocchi , who helps manage more than $1 billion at Delta Global Advisors in Huntington Beach, California. “That’s the reason the market appears as cheap as it does, when in reality the market may feel that this is a rich valuation,” said Baiocchi, who recommended the Market Vectors Gold Miners ETF in January before a 24 percent rally. “The expectation for growth is not necessarily the same in the market.” State Street Corp. , the largest money manager for institutions, tumbled 20 percent since reporting profit that topped estimates by 4.7 percent on Oct. 20. The decline occurred even as the PEG ratio for the Boston-based firm stood at just over 1, or about 13 percent cheaper than the five-decade average for S&P 500 companies. Beating Estimates The price-to-earnings ratio for Southwest Airlines Co. has jumped more than fourfold since a low in March as the Dallas- based carrier rallied 68 percent and analysts lifted third- quarter forecasts from a loss of 5 cents a share to 1 cent a share in profit. The stock is down 16 percent since Oct. 14, the day before it reported profit of 3 cents a share for the period. Southwest, whose PEG reached 6.7 in January, now trades at 0.2. Earnings estimates compiled by Bloomberg show companies in the S&P 500 will report combined profit in 2011 that is 54 percent higher than this year, the steepest growth in two decades. The projected increase for next year is 10 times faster than the gain in GDP foreseen by economists surveyed last month, near the highest ratio on record, based on data compiled by Bloomberg going back 60 years. The U.S. economy expanded at a 3.5 percent annual rate in the three months that ended in September, according to Commerce Department data released Oct. 29. The pace is projected to slow to 2.4 percent in the current period and average 2.4 percent in 2010, economists’ estimates compiled by Bloomberg show. Buy Signal A low PEG ratio has historically been a bullish signal for equities. The S&P 500 rallied 16 percent on average the year after its PEG sank below the current level of 0.6, based on eight occurrences since 1961. Shares are cheap because executives who overestimated the recession are being too conservative forecasting profits, according to Timothy Ghriskey , who manages $2 billion as chief investment officer at Solaris Asset Management LLC in Bedford Hills, New York. More than 80 percent of S&P 500 companies that have reported third-quarter profit beat analysts’ predictions, data compiled by Bloomberg show. “There are always a large number of skeptics saying it’s going to be different this time, that future growth is not going to be as strong, that earnings aren’t going to be as strong,” Ghriskey said. “This is a very typical reaction, and it’s what prolongs a market rally coming out of recession.” The S&P 500 posted the biggest drop since July on Oct. 30 as declining consumer confidence and spending and the threat of a CIT Group Inc. bankruptcy raised concern over the durability of the recovery. New York-based CIT filed for Chapter 11 yesterday with financing from investor Carl Icahn after the credit crunch dried up its funding. “The market’s going to be wary of paying too high a multiple for earnings growth,” said Leo Grohowski , who oversees $151 billion as the New York-based chief investment officer at BNY Mellon Wealth Management. “The market’s in a show-me mode.” To contact the reporters on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net ; Mary Childs in New York at mchilds4@bloomberg.net .

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Edward Wytkind: Time to Change the Game for Airline and Railroad Workers

October 29, 2009

The deck is stacked against airline and railroad workers when it comes to union elections. That’s why airline CEOs are working so hard to defend current election procedures that count all workers who sit out elections as “no” votes. Americans are accustomed to elections where a simple majority of those voting decides the outcome — whether they’re voting for PTA president or U.S. Senator. Not so for airline and railroad workers — who must first ensure that turnout exceeds 50 percent. How can we justify imposing higher turnout standards on airline and railroad union elections than we do in elections for the highest office of our land? We can’t. Let’s take a moment to consider typical voter turnout data. The 2008 presidential election had the highest turnout in decades; nearly 57 percent of this country’s eligible voters participated. While our presidential elections manage to draw just over half the country’s eligible voters, mid-term elections bring out less than 40 percent. In fact, in every mid-term election since 1930 the national turnout was below 50 percent. What happens to eligible voters who choose not to vote in our local and national elections? The answer, of course, is that they do not factor into the election outcome. The “majority rules” concept for elections is grounded in American democratic principles. But what if we arbitrarily assigned meaning to a voter who doesn’t participate? Imagine if not voting was tabulated as a vote for or against something, such as “every non-vote counts as a vote for Obama,” or conversely, “every non-voter must have intended to vote for McCain.” Not only would this policy significantly skew election results, but it would nullify the expressed intent and incite outrage among those who actually voted. Although it defies logic, this is the system aviation and rail workers must abide by for union elections. It makes no sense, and it is well beyond time for a change. That’s why the Transportation Trades Department, AFL-CIO has asked the National Mediation Board (NMB), the federal agency that oversees these matters, to reform its election procedures to conform to the norms of American democracy: the majority of those casting a vote will decide the outcome and those who do not vote are not counted. Think about this. Even when more than 90 percent of those who vote choose a union, they are routinely denied representation by those who didn’t vote. It’s a “veto by silence” principle at work. Other than airline CEOs and their lobbyists, no one else can defend this system. I wonder if some of the U.S. Senators who are carrying the airline industry’s water would support an amendment to the U.S. Constitution or to the election law in their state that forces them to face the voters under such onerous rules? I doubt it because in most of their elections, they would have lost. Unionization in the airline industry has slowed in recent years. Why? Union-busting campaigns are alive and well — because the current election policy encourages and rewards employer-run voter suppression campaigns. For example, almost 100 percent of Delta flight attendants voted in favor of unionization in 2008. But thanks to Delta’s campaign to discourage its employees from voting (the company called it “Give a Rip” and was essentially instructing employees to destroy government-issued ballots), turnout was below 50 percent and the overwhelming support for a union was nullified. Shockingly, the Bush NMB saw no evil in Delta’s unlawful conduct and voted 2-1 to refuse to even investigate more than 100 charges of illegal interference and coercion. Some call our request for fairness an effort to circumvent the law. Nice try. The law does not require that elections be run this way at all. Voting procedures are set by the NMB, which has the authority to change its policies. In fact, the Supreme Court has said that the law does not require a majority of the entire workforce to vote in union elections for results to be valid. Airline management is arguing against our request, insisting that “the rules are being changed in the middle of the game” because some union elections may get scheduled on some future date. But there are always going to be potential or expected union elections. For the airlines, it will never be a convenient time to change a status quo that favors them so heavily. But for the workers, who have been facing an unfair standard for decades, change cannot come soon enough. It’s time to let those who actually come out and vote decide the outcome of union elections in the airline and railroad industries. The airlines are essentially arguing against a voting system that has been the law of the land for more than 200 years in American democracy.

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U.S. Factories Probably Expanded at Fastest Rate in Three Years Last Month

October 1, 2009

By Courtney Schlisserman Oct. 1 (Bloomberg) — U.S. manufacturing probably expanded last month at the fastest pace in more than three years and consumer spending in August grew the most since 2003 as the recession eased, economists said ahead of reports today. The Institute for Supply Management’s factory gauge rose to 54 in September from 52.9 the month before, according to the median forecast in a Bloomberg News survey of economists. Fifty is the dividing line between expansion and contraction. Another report may show purchases rose 1.1 percent in August. A record drawdown in inventories earlier this year and stimulus programs such as “cash for clunkers” set the stage for more production and a return to economic growth last quarter. While output and spending may slow in coming months as the government’s measures expire, economists say a recovery is under way. “As long as manufacturing gauges continue to expand, it’s going to suggest that the recovery in the economy is more durable,” said Jonathan Basile , an economist at Credit Suisse in New York. The Tempe, Arizona-based purchasing managers’ factory report is due at 10 a.m. New York time. Estimates in the Bloomberg survey of 80 economists ranged from 51.5 to 56. The projected reading would be the highest since April 2006. A Commerce Department report due at 8:30 a.m. may show the August gain in consumer spending was accompanied by a 0.1 percent increase in personal incomes , according to the survey. The National Association of Realtors, meanwhile, may say the number of contracts to buy previously owned homes rose in August at a slower pace than the prior month. Clunker Effect Ford Motor Co, General Motors Co. and Honda Motor Co. are among automakers that have cited the popularity of the Obama administration’s cash-for-clunkers plan as they announced production increases for the coming months. The program, which ended Aug. 24, offered discounts of as much as $4,500 to trade in older cars and trucks for new, more fuel-efficient vehicles. The plan produced almost 700,000 sales before it ended, the Transportation Department said Aug. 26. Economists yesterday said the end of the incentive may have helped fuel a weaker-than-forecast September reading for the Institute for Supply Management-Chicago’s business survey , which found activity dropped. The Chicago group is not a chapter of the national Institute for Supply Management. Other gauges released last month indicate the expansion in manufacturing is accelerating. The Federal Reserve Bank of Philadelphia said its economic index rose to 14.1, the highest since June 2007, while a similar measure from the New York Fed increased to 18.9, the highest since November 2007. Fed Assessment The Federal Open Market Committee last week left the target rate for overnight loans between banks at a record low of between zero and 0.25 percent, while policy makers said for the first time since August 2008 that the economy is growing. “Economic activity has picked up following its severe downturn,” Fed policy makers said Sept. 23 in a statement. “Household spending seems to be stabilizing, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth and tight credit.” GM said last week that it will add a third shift at three U.S. plants taking on additional production from factories slated to close or be idled. The facilities getting the new shifts are in Fairfax, Kansas; Fort Wayne, Indiana; and Delta Township, Michigan, GM said in a statement. The changes will restore 2,400 jobs, the Detroit-based company said. An additional 600 jobs will be restored at stamping and powertrain facilities, Tim Lee , the company’s vice president of global manufacturing, said on a conference call. Inventory Cuts Leaner inventories are helping factories return to work as companies restock shelves. Stockpiles dropped at a record $160.2 billion annual rate in the second quarter, the Commerce Department said yesterday, after shrinking at a $113.9 billion pace in the first three months of the year. Even so, an unexpected drop in durable-goods orders in August was a reminder that companies remain cautious. “As we look at the economic data, it’s certainly encouraging,” DuPont Co. Chairman Charles O. Holliday said in an interview on Sept. 23. Nonetheless, he said, the third- largest U.S. chemical maker must not “get ahead of ourselves to build inventory too fast or assume we’re going to come out in a rapid-fire order, because I assume we’ll come out at a much different pattern than before.” =============================================================== = Pers Pers ISM Pending Inc Spend Manu Homes MOM% MOM% Index MOM% =============================================================== = Date of Release 10/01 10/01 10/01 10/01 Observation Period Aug. Aug. Sept. Aug. – ————————————————————– – Median 0.1% 1.1% 54.0 1.0% Average 0.1% 1.1% 53.9 1.0% High Forecast 0.5% 1.6% 56.0 3.0% Low Forecast -0.1% 0.1% 51.5 -2.5% Number of Participants 76 80 80 35 Previous 0.0% 0.2% 52.9 3.2% – ————————————————————– – 4CAST Ltd. 0.2% 1.1% 53.5 -0.5% Action Economics 0.2% 1.0% 53.0 0.4% AIG Investments 0.0% 1.0% 54.0 0.5% Aletti Gestielle SGR 0.2% 1.4% 53.0 — Ameriprise Financial Inc 0.2% 0.9% 54.0 0.4% Argus Research Corp. 0.1% 0.1% 53.0 — Banesto 0.2% 1.0% 53.5 1.5% Bank of Tokyo- Mitsubishi 0.1% 1.3% 53.3 — Bantleon Bank AG 0.1% 1.2% 53.8 — Barclays Capital 0.1% 1.2% 56.0 — Bayerische Landesbank 0.1% 1.2% 53.5 — BBVA -0.1% 0.7% 55.7 0.5% BMO Capital Markets 0.2% 1.4% 53.5 2.0% BNP Paribas 0.2% 1.1% 54.0 — BofA Merrill Lynch Resear 0.1% 1.1% 55.0 — Briefing.com 0.0% 1.2% 55.7 1.0% Calyon 0.2% 0.9% 51.5 — Capital Economics 0.3% 1.3% 55.0 1.5% CIBC World Markets 0.1% 1.5% 56.0 — Citi 0.1% 0.9% 54.0 — ClearView Economics 0.2% 1.2% 53.5 2.0% Commerzbank AG 0.2% 1.2% 55.0 1.0% Credit Suisse 0.1% 1.1% 54.5 — Daiwa Securities America 0.1% 0.6% 54.0 — Danske Bank 0.2% 1.3% 55.0 — DekaBank 0.2% 0.9% 53.5 — Desjardins Group 0.2% 1.2% 53.5 — Deutsche Bank Securities 0.1% 1.4% 53.0 2.7% Deutsche Postbank AG — 1.0% 53.5 — DZ Bank 0.1% 1.2% 54.8 1.4% First Trust Advisors 0.0% 1.6% 54.0 — Fortis — 0.9% 53.5 — FTN Financial 0.1% 1.5% 55.0 — Goldman, Sachs & Co. 0.0% 1.1% 55.0 — Helaba 0.1% 1.2% 53.0 — Herrmann Forecasting 0.1% 1.0% 54.6 -1.8% High Frequency Economics 0.0% 0.9% 52.9 2.0% HSBC Markets 0.1% 1.0% 55.0 1.5% Ibersecurities 0.3% 1.2% 52.0 0.8% IDEAglobal 0.1% 0.8% 55.0 — IHS Global Insight 0.1% 0.8% 53.5 — Informa Global Markets 0.2% 1.2% 53.5 1.5% ING Financial Markets 0.1% 1.5% — 1.5% Insight Economics 0.0% 1.5% 54.0 2.0% Intesa-SanPaulo 0.2% 1.0% 54.0 — J.P. Morgan Chase -0.1% 0.8% 53.5 0.0% Janney Montgomery Scott L 0.2% 1.2% 53.5 1.5% Jefferies & Co. 0.2% 1.0% 54.0 — Johnson Illington Advisor 0.4% 0.4% 53.0 — Landesbank Berlin -0.1% 1.3% 54.5 — Maria Fiorini Ramirez Inc 0.1% 1.2% 53.5 — MFC Global Investment Man 0.0% 1.2% 55.0 — Mizuho Securities 0.0% 1.3% 52.0 0.5% Moody’s Economy.com 0.0% 1.1% 54.7 -1.0% Morgan Keegan & Co. 0.1% 0.6% — — Morgan Stanley & Co. 0.1% 1.1% 53.0 — National Bank Financial — — 56.0 — Natixis 0.0% 1.0% 54.2 0.9% Newedge 0.1% 1.2% 53.5 — Nomura Securities Intl. 0.4% 1.0% 52.1 — Nord/LB 0.0% 1.0% 53.5 — PNC Bank 0.1% 1.0% 53.3 — Raymond James 0.1% 1.1% 54.5 — RBC Capital Markets 0.1% 1.3% 55.0 — RBS Securities Inc. 0.1% 1.0% 54.5 — Ried, Thunberg & Co. — 1.2% 54.0 1.0% Schneider Foreign Exchang 0.2% 1.4% 52.0 0.6% Scotia Capital 0.2% 1.0% 55.0 — Standard Chartered 0.1% 1.0% 55.0 3.0% Stone & McCarthy Research 0.2% 1.5% 52.0 — TD Securities 0.1% 1.1% 54.5 1.0% Thomson Reuters/IFR 0.2% 0.9% 53.0 1.9% Tullett Prebon 0.1% 0.9% 54.3 — UBS 0.1% 1.0% 53.5 1.4% UniCredit Research — — 54.0 — Union Investment 0.1% 1.1% 54.5 — University of Maryland 0.2% 0.9% 53.5 1.0% Wells Fargo & Co. 0.5% 0.8% 54.5 — WestLB AG 0.1% 1.0% 54.0 — Westpac Banking Co. 0.2% 1.3% 53.5 2.0% Woodley Park Research 0.3% 1.1% 53.5 -2.5% Wrightson Associates — 1.2% 54.0 1.0% =============================================================== =

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Goods Orders, Home Sales Probably Increased as U.S. Emerged From Recession

September 25, 2009

By Timothy R. Homan Sept. 25 (Bloomberg) — Orders for durable goods probably rose in August for the fourth time in the last five months, a sign companies are gaining confidence the U.S. is emerging from the worst recession since the 1930s, economists said before reports today. Bookings for long-lasting goods likely rose 0.4 percent, according to the median forecast of 75 economists surveyed by Bloomberg News. Another report may show purchases of new homes climbed last month to a one-year high, the survey showed. Government stimulus measures such as “cash for clunkers” and credits to first-time homebuyers have revived manufacturing and housing, two areas that deepened the slump. Federal Reserve policy makers this week acknowledged the economy had picked up and pledged to keep interest rates low for the foreseeable future to ensure the rebound is sustained. “The recovery is here, and it’s starting to look like it will be more robust than we previously thought” said Christopher Low , chief economist at FTN Financial in New York. “There’s no question it would not be happening at all without stimulus. But the stimulus is there and will continue to be there next year.” The Commerce Department’s durable goods report is due at 8:30 a.m. in Washington. Survey estimates ranged from a decline of 2 percent to a 4 percent increase. The projected gain would follow a 5.1 percent surge in July that was the biggest jump in two years. Broad Gains Excluding transportation equipment, such as cars and aircraft, orders climbed 1 percent, according to the survey median. That would be the fourth monthly gain and the longest streak since November 2005. Carmakers including General Motors Co. and Ford Motor Co. plan to boost output through the second half of the year to rebuild depleted inventories. The government’s $3 billion cash- for-clunkers incentive to trade in gas-guzzlers for more fuel- efficient vehicles lifted auto sales and production last month. GM will add a third shift at three U.S. plants that are taking on additional production from factories slated to close or be idled. The facilities getting the new shifts are in Fairfax, Kansas; Fort Wayne, Indiana; and Delta Township, Michigan, GM said this week. The changes will restore 2,400 jobs , the Detroit-based company said. “This is a really good day for GM employees,” Tim Lee , the company’s vice president of global manufacturing, said during a Sept. 22 conference call. An additional 600 jobs will be restored at stamping and powertrain facilities, he said. New-Home Sales Data on new-home sales , due from the Commerce Department at 10 a.m., will probably show sales rose 1.6 percent to a 440,000 rate, according to the survey median. They reached a record-low rate of 329,000 in January. The Obama administration’s $8,000 tax credit for first- time buyers has helped boost new-home sales this year. Sales of existing homes , meanwhile, unexpectedly fell last month for the first time since March. Purchases dropped 2.7 percent in August to a 5.1 million annual rate, the second- highest level in the last 23 months, the National Association of Realtors said yesterday. The median price dropped 12.5 percent from August 2008. Housing starts rose to a nine-month high in August, the Commerce Department reported last week, signaling residential construction may soon add to growth after subtracting from gross domestic product since 2006. The Standard & Poor’s Homebuilder Supercomposite is up 29 percent so far this year, compared with a 16 percent gain for the broader S&P 500. Consumers are becoming less pessimistic as the recession eases. The Reuters/University of Michigan index of consumer sentiment probably rose to 70.5 this month from 65.7 in August, according to economists’ forecasts before today’s report, due at 10 a.m. To contact the reporter on this story: Timothy Homan in Washington at thoman1@bloomberg.net

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Initial Jobless Claims in U.S. Unexpectedly Decreased to 530,000 Last Week

September 24, 2009

By Timothy R. Homan Sept. 24 (Bloomberg) — The number of Americans filing first-time claims for jobless benefits dropped unexpectedly last week to the lowest in two months, another sign firings are slowing as the economy pulls out of the recession. Applications fell by 21,000 to 530,000 in the week ended Sept. 19, from a revised 551,000 the week before, Labor Department data showed today in Washington. The total number of people collecting unemployment insurance fell in the prior week to 6.14 million, lower than forecast. The job market may be starting to stabilize as recent gains in homebuilding and manufacturing reinforce forecasts that economic growth will resume this quarter. Nonetheless, unemployment is still rising, a reminder that a rebound in hiring will be gradual and that the economic recovery likely won’t be led by consumer spending. “The layoff picture is improving,” said Jonathan Basile , an economist at Credit Suisse Holdings USA Inc. in New York, which accurately forecast last week’s jobless claims. “Companies are realizing they don’t have to keep cutting costs as aggressively as they have.” Futures on the Standard & Poor’s 500 Index climbed after the report, rising 0.4 percent to 1,063.00 at 8:42 a.m. in New York. Treasuries declined, pushing the yield on the 10-year note up two basis points to 3.44 percent. Economists forecast weekly claims would rise to 550,000 from a previously reported 545,000, according to the median of 44 projections in a Bloomberg News survey. Estimates ranged from 510,000 to 565,000. Continuing Claims Continuing claims were forecast to rise to 6.18 million. The report showed the four-week moving average of initial applications, a less volatile measure, fell to 553,500 last week, the lowest since January, from 564,500. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, fell to 4.6 percent in the week ended Sept. 12, from 4.7 percent the prior week. Forty-nine states and territories reported a decrease in claims, while three reported an increase. These data are reported with a one-week lag. Initial jobless claims reflect weekly firings and tend to rise as job growth — measured by the monthly non-farm payrolls report — slows. The economy has lost 6.9 million jobs since the recession started in December 2007, the most of any downturn since the Great Depression. The 216,000 drop in payrolls reported for August, meanwhile, was the smallest in a year and lower than economists projected. Losses ‘Bottoming’ President Barack Obama last week said job losses in the U.S. are “bottoming out,” and pointed to gains in exports and manufacturing as signs the economy is expanding again. Federal Reserve Chairman Ben S. Bernanke and his fellow policy makers yesterday indicated for the first time since August 2008 that the economy is accelerating, even as they recommitted to keep their benchmark interest-rate “exceptionally low” for an “extended period.” Yesterday’s statement from the rate-setting Federal Open Market Committee signaled the Fed will maintain its stimulus measures to secure a recovery and reduce unemployment. The U.S. House voted this week to extend jobless benefits for 13 weeks in states hardest hit by the recession. The chamber approved a measure that would continue aid to about 300,000 Americans projected to exhaust their benefits by the end of this month. The aid to people in 27 states with unemployment rates of at least 8.5 percent, when combined with prior extensions, would mean they could receive benefits for as much as 92 weeks. The bill now goes to the Senate. Long-Term Unemployed The share of unemployed people who have been without a job for at least 27 weeks was 33.3 percent in August, which translates into about 5 million Americans, according to Labor Department data. That’s down from 33.8 percent in July, the most since record-keeping began in 1948. General Motors Co. said this week that it will add a third shift at three U.S. plants taking on additional production from factories slated to close or be idled. The facilities getting the new shifts are in Fairfax, Kansas; Fort Wayne, Indiana; and Delta Township, Michigan, GM said in a statement. The changes will restore 2,400 jobs, the Detroit-based company said. “This is a really good day for GM employees,” Tim Lee, the company’s vice president of global manufacturing, said on a conference call. An additional 600 jobs will be restored at stamping and powertrain facilities, he said. GM is adjusting its factory capacity after scaling back in a government-aided bankruptcy reorganization. The largest U.S. automaker exited court protection July 10. Consolidating vehicle output lets the company run its plants more efficiently. To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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GM Recalls About 2,400 Workers

September 22, 2009

DETROIT — General Motors Co. will go to 24-hour operations at factories in Kansas, Michigan and Indiana to handle an expected increase in demand and to make up for production lost from a large-scale factory consolidation announced earlier in the year. The automaker says it will add a third shift at its Fairfax plant in Kansas City, Kan., in January. That will be followed in March or April by third shifts at factories in Delta Township, Mich., near Lansing, and Fort Wayne, Ind. About 2,400 production workers will be recalled as a result of the added shifts, and another 600 will be recalled at parts factories across the country, said Tim Lee, group vice president for global manufacturing. The increases announced Tuesday, coupled with other production increases unveiled during the summer, will allow GM to raise North American production from about 1.9 million vehicles this year to 2.8 million in 2010, Lee said. The increase also is necessary because of an expected sales increase next year and because GM’s inventory of cars and trucks was at a record-low level of 378,000 at the end of August, said Mark LaNeve, vice president of U.S. sales. The Fairfax plant makes the midsize Chevrolet Malibu, Saturn Aura and Buick LaCrosse, while Delta Township makes the Buick Enclave, GMC Acadia and Saturn Outlook large crossover vehicles. The Fort Wayne factory makes pickup trucks. GM says in a statement that Fairfax will get all production of the Malibu when a midsize car factory in Orion Township, Mich., closes Nov. 25. It will be converted to a small-car plant and reopen in 2011. Delta Township will get production of the Chevrolet Traverse large crossover when the Spring Hill, Tenn., factory that now makes the vehicles closes, also on Nov. 25. That plant will go on standby in case demand increases. Fort Wayne will add production of heavy-duty versions of the GMC Sierra and Chevrolet Silverado pickups that are being made in Pontiac, Mich. That factory is to close at the end of September, the company said in a statement. Lee said GM will not hire new workers to staff the additional shifts. Instead, the company generally will first offer the jobs to workers at the plants that will be closed. After that, they will be offered to workers in the region and then across the nation, he said. GM, under its contract with the United Auto Workers union, will pay to move workers from other cities, he said. Although the company’s dealer inventory is low now, it will take a minimum of three months to add the shifts because workers must be moved and because machinery must be disassembled and moved from Spring Hill and Pontiac, the company said. “This is a massive move for us in terms of the transference of people,” Lee said. GM’s September sales have been slow following the end of the government’s Cash for Clunkers program, LaNeve said. The company, though, predicts an increase in total U.S. sales from 10.5 million this year to 11.5 million to 12 million next year, he said. Currently GM has about a 40-day supply of large crossover vehicles, a 52-day supply of Malibus and a 60-day supply of Silverado pickups, according to Ward’s AutoInfoBank. Jeff Schuster, executive director of forecasting at J.D. Power and Associates, said GM has a low supply of many models and should have 1.5 to 2 times what is now on dealer lots. The low inventory, combined with an expected uptick in sales starting next year, means the production increase is justified, he said. “They’ve got some successful vehicles now. The new products are doing well,” Schuster said, adding that it’s reasonable to assume GM will pick up a share of any increase in overall U.S. sales. Brian Fredline, president of the UAW local at the Delta Township crossover plant, said the increase at his factory is not just due to the closure of the Tennessee plant. “It’s because we have increased demand for our product,” he said. “We build a world-class vehicle and the marketplace is responding to it.” Workers at the plant, while unhappy that Spring Hill is closing, are happy to get the additional work, Fredline said. “It creates job and income security for our UAW workers,” he said. “Any job and income security in this economic climate is a good thing.” GM plans to move tooling for the Traverse from Spring Hill later this year, and hopes to begin build Traverses, which are similar to the GMC and Saturn crossovers, by January of next year. About 800 workers will be recalled at Delta Township, 900 in Kansas City and 700 in Fort Wayne, Lee said. Last month GM announced it would add shifts at factories in Ingersoll, Ontario, and Lordstown, Ohio, mainly in the fourth quarter. The Ontario plant makes the brand-new Chevrolet Equinox and GMC Terrain crossover vehicles, both of which get 32 mpg on the highway. Lordstown makes the Chevrolet Cobalt small car, GM’s highest mileage vehicle at 37 mpg on the highway. Production also was to be boosted at other North American factories, including those that make the Chevrolet HHR small wagon, the Chevrolet Colorado and GMC Canyon midsize pickups, the Chevrolet Camaro muscle car, Buick LaCrosse sedan and the Cadillac SRX and CTS Wagon. (This version CORRECTS in 7th graf the year in which an Orion Township, Mich., factory will reopen from 2010 to 2011.)

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Japan Airlines Said to Hire Merrill as Financial Adviser in Partner Search

September 19, 2009

By Takahiko Hyuga Sept. 19 (Bloomberg) — Japan Airlines Corp., Asia’s most indebted carrier, hired Merrill Lynch Japan Securities Co. to advise on its search for partners and investments, two people familiar with the situation said. Japan Airlines appointed Bank of America Corp. ’s Merrill Lynch to evaluate the carrier’s value and select a partner who can help replenish its capital, said the people, who asked not to be identified because they aren’t authorized to discuss the deal publicly. Overseas carriers including American Airlines , Delta Air Lines Inc. and Air France-KLM are considering investments in Japan Air, also known as JAL. Delta and American, a unit of AMR Corp., are both in talks to invest in Japan Air, Hirotaka Yamauchi, a member of the government panel formed to help restructure the airline, said on Sept. 15. “JAL can’t revitalize on its own; it needs a drastic fix with help from overseas,” said Makoto Haga , chief strategist at Tokyo-based securities firm Monex Group Inc. “Hiring an adviser means the deal has taken a step forward, which is positive for stakeholders.” American, the world’s second-largest airline, has hired an investment bank to advise it on buying a stake, two people familiar with the plan said Sept. 18. The U.S. carrier partners with Japan Air in the Oneworld alliance and might lead other members of the group in an investment in the Japanese company. Delta and Air France-KLM are partners in the rival SkyTeam alliance. Government Help Japan Air’s Tokyo-based spokeswoman Sze Hunn Yap was not available to comment. Merrill Lynch’s Tokyo-based spokesman Tsukasa Noda declined to comment. Japan Airlines may receive more government-backed loans as it seeks alliance partners, said Shizuka Kamei , the nation’s newly appointed financial minister. “It’s a big national project to rehabilitate the airline properly,” Kamei said in an interview yesterday. “We will back up JAL if the company makes all efforts for its survival.” State-owned Development Bank of Japan, which has already made 235 billion yen ($2.6 billion) in loans to the Tokyo-based carrier, could provide more funds, said Kamei, 72, named to head the ministry Sept. 16 by Japan’s new government. Development Bank and lenders including Mizuho Financial Group Inc. and Mitsubishi UFJ Financial Group Inc. provided the airline with a 100 billion yen loan in June. Government support may further encourage overseas carriers to invest in Japan Air. Previous Bailouts After three government bailouts since 2001, JAL predicts a loss of 63 billion yen this year. It may have difficulty meeting that figure as the median forecast of 12 analyst estimates compiled by Bloomberg is for an 80 billion yen loss. Japan Air’s debt rating may be downgraded from the current B+ by Standard & Poor’s, the rating company said in a statement yesterday. Japan Air, which had 47,526 employees at the end of March, plans to cut 6,800 jobs by the end of 2011, President Haruka Nishimatsu said earlier this week. The carrier’s payroll compares with 33,045 at rival All Nippon Airways Co., Asia’s second-largest carrier by sales. Globally, the airline industry may lose $11 billion this year, according to the International Air Transport Association. JAL had a 25 percent drop in overseas passengers in June, the biggest decline since outbreaks of severe acute respiratory syndrome and bird flu in 2003. To contact the reporter on this story: Takahiko Hyuga in Tokyo at thyuga@bloomberg.net

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Opel Revamps Astra Compact to Challenge Volkswagen Golf as Car Show Opens

September 14, 2009

By Chris Reiter Sept. 14 (Bloomberg) — Adam Opel GmbH, the automaker surviving on 1.5 billion euros ($2.2 billion) in German government loans, is ready to take on Volkswagen AG’s Golf with a new version of its Astra compact. The carmaker being sold by General Motors Co. packed its best-selling Astra with technology such as a traffic-sign recognition system to set it apart from competition including the Ford Focus and Fiat Bravo. Opel said it plans to display the model at the Frankfurt Auto Show this week. As European “cash for clunkers” programs expire, Opel will have to overcome a potential slump in demand, especially for small cars that benefited most from the incentives. Unlike VW, Opel can’t rely on emerging markets for growth because it’s blocked from selling in countries such as China under GM’s agreement to sell a majority stake in Opel to a shareholder group led by Magna International Inc. “Without the Astra at least fulfilling expectations, the restructuring money would be wasted,” said Christoph Stuermer , a Frankfurt-based automotive analyst with IHS Global Insight, who estimates that GM has invested about $2 billion in developing the Astra. “It’s Opel’s make-or-break model.” The Astra, the first model built using GM’s new small- car platform, accounted for 30 percent of the 1.5 million vehicles Ruesselsheim, Germany-based Opel and its U.K. sister brand Vauxhall sold last year. The revamped Astra boasts a system that warns the driver when the car veers out of its lane, while steering and suspension can be adjusted between sporty and comfort- oriented driving styles, according to the carmaker’s Web site. Fuel Consumption The sporty compact will compete with new versions of the Golf and Renault SA’s Megane introduced within the past 12 months. At the Frankfurt Auto Show, which starts Sept. 17, Volkswagen plans to show a more fuel-efficient version of its Golf, which was named the 2009 World Car of the Year. The new Astra’s engines will cut fuel consumption and carbon-dioxide emissions by more than 12 percent, which may help Opel woo buyers because of tax rules in European countries such as France that make it cheaper to own a less- polluting vehicle, said Kaushik Madhavan , an automotive analyst with consultant Frost & Sullivan in London. “If they can position Astra in these CO2 bands, it could help Opel,” he said. The outlook for the Western European car market — destination for about 90 percent of Opel’s sales — doesn’t bode well for the automaker. Demand may shrink 10 percent next year, led by a 29 percent drop in Germany, according to J.D. Power Automotive Forecasting in Oxford, England. Frankfurt Show “Refreshed competition is going to make it tougher for the Astra at a time when the marketplace is so weak,” said Jonathon Poskitt , an analyst with J.D. Power. Carl-Peter Forster , Opel’s chairman, said Sept. 10 that the success of previous models, such as the Insignia, which won European Car of the Year honors last year, will provide momentum for the Astra. Opel, which hasn’t given sales forecasts or pricing details for the new model, is scheduled to hold a press briefing in Frankfurt tomorrow. Opel officials declined to comment before the event. Chancellor Angela Merkel has committed to provide 4.5 billion euros in guarantees to finance Opel’s takeover by Aurora, Ontario-based car-parts supplier Magna and its Russian partner OAO Sberbank. The sale, scheduled to be completed by the end of November, would end Opel’s control by Detroit-based GM that began in 1929. ‘Still Not Selling’ With Opel’s future clouded ever since it asked for state aid last November, buyers have turned away from the brand. Its market share in Europe slid to 7.6 percent in the first half of 2009 from 8.2 percent a year earlier, according to data from the European Automobile Manufacturers’ Association. Simon Empson , managing director of Broadspeed.com, a U.K. automobile retail Web site, said Vauxhall accounted for less than 3 percent of sales inquiries last month, compared with 7.6 percent for Ford Motor Co. The U.K. is Astra’s biggest market, followed by Germany and Russia. The German manufacturer is also discounting to move its vehicles. Its Insignia mid-sized sedan is being offered at 24 percent below sticker price at Broadspeed, and “it’s still not selling,” Empson said. The Astra is important not only for Opel, but also for GM, which will retain a 35 percent stake in the unit and provide it with technology. The underpinnings of the model are designed by Opel engineers at its Ruesselsheim headquarters, and the so-called Delta 2 platform will serve as the basis for other GM compacts worldwide, including the Chevrolet Cruze and the electric-powered Volt. The platform could underpin more GM vehicles than any other GM platforms, Global Insight’s Stuermer said. “It’s not just about the model, it’s about the role of the platform and Opel within GM,” Stuermer said. The Astra platform “feeds the most people.” To contact the reporter on this story: Chris Reiter in Berlin at creiter2@bloomberg.net

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Lloyds May Sell Part of Fund Management Unit, Weighs Scottish Widows IPO

August 27, 2009

By Ambereen Choudhury Aug. 27 (Bloomberg) — Lloyds Banking Group Plc may sell part of its fund management business, including a possible initial public offering of Scottish Widows, to raise cash after its bailout, two people familiar with the talks said. Lloyds is in the early stages of assessing options for Scottish Widows, its 194 year-old money management and insurance division , said the people, who declined to be identified because the talks are private. The bank may also sell Clerical Medical, a provider of investment products and pensions, the people said. The takeover of U.K. mortgage lender HBOS Plc, announced last September, is putting pressure on Lloyds to dispose of assets as losses from the acquisition increase. Lloyds posted a 3.1 billion-pound ($5.3 billion) first-half loss, with HBOS accounting for about 80 percent of the bank’s 13.4 billion pounds of bad-loan provisions. Scottish Widows may be worth about 4 billion pounds, said Marcus Barnard , a banking analyst at Oriel Securities Ltd. London-based Lloyds paid 7.3 billion pounds for the firm in 2000 to boost sales of life insurance and pensions. The bank, which has yet to decide on the IPO, would keep a stake following any transaction, the people added. Scottish Widows is an “integral part” of the group, Chief Executive Officer Eric Daniels said when the bank reported first-half results on Aug. 5. Lloyds spokesman Mark Elliott declined to comment. A spokeswoman at U.K. Financial Investments Ltd. , which manages the government’s 43 percent stake in the bank, and a spokeswoman at Scottish Widows in Edinburgh declined to comment. Insight Sold Prime Minister Gordon Brown has pledged to insure 260 billion pounds of Lloyds’ toxic and other assets. European Competition Commissioner Neelie Kroes, who is examining whether bailed-out banks hurt competition, has said Lloyds may have to sell units following a government-led rescue. Lloyds acquired 185-year-old Clerical Medical when it purchased HBOS. The unit is valued at 3 billion pounds, and may draw an offer from Resolution Ltd. , Clive Cowdery ’s investment firm, the people said. The bank hasn’t made a decision to sell so far, the people added. Lloyds said in April it would phase out the brand and combine Clerical Medical’s sales teams with their counterparts at Scottish Widows. Resolution spokesman Alex Child-Villiers declined to comment. The lender agreed to sell Insight Investment Management, a money manager it also acquired as part of HBOS, to Bank of New York Mellon Corp. for 235 million pounds earlier this month. ‘Confidence Returns’ The MSCI World Index’s 20 percent gain in the second quarter, the biggest since 1998, is encouraging companies to revive IPO plans after the credit crisis caused a two-year dearth of the sales. Aviva Plc , the U.K.’s second-biggest insurer by market value, said on Aug. 6 it plans to sell 25 percent of its Delta Lloyd insurance unit through an IPO. “Confidence is returning to the market, though it’s still fragile,” said Richard Weaver , a London-based partner at PricewaterhouseCoopers LLP’s capital markets group. “Positive economic news is leading companies to consider IPOs.” Scottish Widows traces its origins to 1812, when a group of Edinburgh businessmen set up the fund to provide for widows of British soldiers killed in the Napoleonic wars. The firm set up the Scottish Widows Fund Life Assurance Society in 1815, and early clients included Walter Scott, the author of the Waverley novels. The company had considered going public before Lloyds agreed to acquire it from its customer-owners. Scottish Widows oversaw 83 billion pounds at the end of June. Since then, Lloyds moved 42 billion pounds of funds managed by its Insight unit to Scottish Widows. First-half pretax profit at Widows rose 7 percent to 287 million pounds. The company’s largest investment pool, the 2.4 billion- pound U.K. Corporate Bond Fund run by Neil Murray , has returned 8.7 percent so far this year, compared with 13.7 percent for the average corporate bond fund registered in the U.K., according to data compiled by Bloomberg. To contact the reporters on this story: Ambereen Choudhury in London at achoudhury@bloomberg.net

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Total Distressed Commercial Real Estate Hits $114+ Billion. Tip of …

August 25, 2009

A new report from the Distressed Asset Recovery Team (a Delta Associates entity) states that the total value of distressed commercial real estate hit a peak in August 2009 at $114.2 billion. Mostly attributed to retail and hotel …

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Hillary Clinton to Balance Oil Need, Anti-Graft Demands in Nigeria Stop

August 12, 2009

By Janine Zacharia Aug. 12 (Bloomberg) — Secretary of State Hillary Clinton continues her African journey in Nigeria today where she will seek to improve ties with the largest U.S. oil supplier on the continent while offering to help it tackle corruption. Clinton arrived in Abuja, Nigeria’s capital, late yesterday from the Democratic Republic of Congo, where she urged that government to prevent militias from exploiting mineral wealth to fund their warfare. She stopped earlier in her trip in Kenya, South Africa and Angola, another major African oil producer. In Nigeria, Clinton will seek to balance U.S. concerns about graft with the American need for the West African nation’s oil. Corruption in Nigeria is a concern in business and in government. The election of Umaru Yar’Adua as Nigerian president in 2007 was deemed to be a sham by international observers because of ballot stuffing. Clinton will press Nigeria to reform its election commission, seek ways to help leaders fight corruption, and work to address militancy in the Niger Delta region that is reducing oil exports, a U.S. official said. “Nigeria is going to be probably the most tricky country” on Clinton’s seven-nation Africa tour, said Dave Peterson , director for African affairs at the National Endowment of Democracy in Washington and a monitor in Nigeria’s election. Clinton will meet today with President Yar’Adua and Foreign Minister Ojo Maduekwe, participate in an interfaith roundtable, talk to Nigeria’s political elites about corruption, and hold a town hall meeting with civic groups. Government Shortcomings In Washington yesterday, State Department spokesman Philip J. Crowley described Nigeria as “another country profoundly affected by conflict fueled at least in part by natural resources and the inability of the central government to effectively govern and meet the needs of its people.” A new assessment of the U.S.’s African diplomacy by the State Department’s inspector general says anti-corruption efforts should carry more weight. “Corruption is an issue that receives insufficient attention as an impediment to trade, development and investment,” said the report from the inspector’s office. In Congo, Clinton found a president, Joseph Kabila , unable to control militias that have exacerbated the violence in the eastern part of the country as they harvest valuable minerals. Nigerian President Yar’Adua’s government is “a disaster,” said Stephen Morrison , an Africa specialist at the Center for Strategic and International Studies in Washington. Yar’Adua “does not have his arms around the government.” Niger Delta Of immediate concern for the energy industry in Nigeria is violence and abductions in the southern Niger Delta. The acts have cut oil production capacity by roughly 800,000 barrels per day, Morrison said. Nigeria’s military said it hasn’t engaged in any shooting with militants since the government last week began an amnesty plan aimed at ending violence in the delta. Irving, Texas-based Exxon Mobil Corp . and San Ramon, California-based Chevron Corp. pump more than half of Nigeria’s oil and have been hit by some of the attacks. Yar’Adua may seek U.S. support through the Pentagon’s new Africa Command to tackle the threat from armed groups to oil production in Nigeria and in Cameroon, Equatorial Guinea and Sao Tome. Nigeria is also dealing with religious unrest. In northeastern Nigeria, at least 600 people have died since fighting erupted on July 26, when Islamists attacked police stations in the state of Bauchi. The clashes spread to at least four other states. Anti-Graft Effort The country, ranked as one of the most corrupt by Berlin- based Transparency International , is weighing anti-graft measures. Yar’Adua set up a panel in April to investigate the alleged bribery of state officials by foreign companies. Still, some observers are skeptical about the government’s commitment. “The whole drive against corruption has fizzled out,” Peterson said. En route to Abuja, Clinton reflected on her visit to Goma in eastern Congo yesterday, where she toured a camp housing about 18,000 Congolese who have fled fighting. “I’ve been in a lot of very difficult and terrible settings over a lot of years and I was just overwhelmed by what I saw both in the camp and in the conversation” with rape victims, Clinton told reporters on her plane. Clinton announced $17 million in new U.S. aid for rape victims in the region. To contact the reporter on this story: Janine Zacharia in Abuja, Nigeria, at jzacharia@bloomberg.net .

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Raymond J. Learsy: The Huffington Post Outs The Oil Price Speculators

August 2, 2009

Exaggeration? Perhaps. But there it was, the bold, front page headline blazoned on Monday’s Wall Street Journal : “Traders Blamed For Oil Spike.” Continuing, it states, “The Commodity Futures Trading Commission (CFTC) plans to issue a report next month suggesting that speculators played a significant role in driving wild swings in oil prices — a reversal of an earlier CFTC position.” The article goes on to explain that a contentious report issued last year by the CFTC, the nation’s predominant U.S

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Video: More Perspective – Opposing the Healthcare Plan

July 31, 2009

A Wall Street Perspective – Analysis and Discussion with Chip Hanlon of Delta Global Advisors (Bloomberg News)

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Paris Derivatives Jobs Burn Up as Market Rues BNP Paribas, SocGen Exotics

July 20, 2009

By Jacqueline Simmons and Fabio Benedetti-Valentini July 20 (Bloomberg) — Dorothee Bary, who graduated in March from Ecole Polytechnique in Paris, France’s premier engineering school, has two degrees in mathematical finance and worked as an intern at BNP Paribas SA , the country’s largest bank. None of that helped her land work as a derivatives trader.

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