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Sarkozy Faces Voter Rebuke in Regional Election, Final Poll Before 2012

by on March 19, 2010

By Gregory Viscusi March 19 (Bloomberg) — President Nicolas Sarkozy faces a reprimand from voters in the second round of regional elections, France’s last electoral test before the presidential ballot in 2012. In the first round on March 14, Sarkozy’s Union for a Popular Movement won 26.2 percent of the vote nationwide, its lowest score ever. The opposition Socialist Party took 29.4 percent. For the second and final round on March 21, the Socialist Party has merged with the Europe Ecologie coalition of ecologists and the Left Front alliance in 20 of France’s 22 regions. The Socialist-led lists will win 56 percent of the vote nationally versus 36 percent for the UMP, according to a CSA poll published by Le Parisien newspaper today. “We should see a confirmation or even a strengthening of last Sunday’s results,” said Laurent Dubois , a professor at the Paris Political Studies Institute. “The game is over.” The UMP has no second-round allies and is counting on some of the 53.7 percent who abstained in the first round showing up for the second. “I ask all the voters of the presidential majority to mobilize,” Prime Minister Francois Fillon said at a campaign rally on March 16. Lists of candidates winning more than 10 percent on March 14 qualified for the final, deciding round this weekend and they were able to absorb lists that took at least 5 percent. Socialist-Led Lists The Socialists, ecologists and the Left Front have merged in all regions of mainland France except Brittany, where the ecologists are running alone, and central Limousin, where the Left Front refused to join. In both places, the Socialists led the UMP by more than 10 percentage points on March 14. In 12 regions where the anti-immigration National Front made it to the second round it will win 14 percent, the CSA poll said, draining potential UMP votes. CSA said 55 percent may abstain in the second round. CSA questioned 839 people on March 17 and 18. It gave no margin of error. Sarkozy, faced with record-low popularity and the highest unemployment rate in 10 years, has largely avoided involvement in the regional vote and made no comment about the first round. In the last regional elections in 2004, the Socialists and their allies won 20 of the 22 regions, stripping 12 from the UMP. That didn’t stop Sarkozy winning the 2007 presidential elections. Two UMP Regions With the Socialists aiming to take all 22 regions this time, the UMP could claim a victory of sorts if they fall short, Dubois said. The UMP currently controls only Alsace on the German border and the Mediterranean island of Corsica. The UMP took 35 percent in Alsace on March 14, its best score. An OpinionWay-Fiducial survey on second-round voting intentions for Le Figaro newspaper put the UMP and Socialist-led candidates there at 43.5 percent each. OpinionWay-Fiducial interviewed 801 respondents on March 16 and 17. The poll, published yesterday, had no margin of error. In Corsica, where a total of four lists, including two nationalist parties, will compete, the components of the second- round Socialist-led alliance took a combined 40.1 percent to the UMP’s 21.3 percent on March 14. To contact the reporter on this story: Gregory Viscusi in Paris at gviscusi@bloomberg.net .

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Sarkozy Faces Voter Rebuke in Regional Election, Final Poll Before 2012

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Ford Chief Mulally Says Talks to Sell Volvo Cars Unit to Geely Continuing

by on March 18, 2010

By Bruce Einhorn and Keith Naughton March 18 (Bloomberg) — Ford Motor Co. Chief Executive Officer Alan Mulally said talks to sell the automaker’s Volvo unit to China’s Zhejiang Geely Holding Group Co. are proceeding, rebutting local media reports the deal could be delayed. “We are making progress on the negotiations,” Mulally said in an interview in Shanghai, without giving a time frame for when the agreement will be made. Ford aims to sign a $2 billion deal to sell Volvo Cars to Geely by the end of this month, three people familiar with the talks said last week. Dearborn, Michigan-based Ford put Volvo up for sale in late 2008, part of a strategy of dropping European luxury lines to focus on its namesake brand. The China Daily said yesterday financing and technology transfer problems could delay the acquisition, citing people familiar with the matter. “There is little chance for the deal to fall apart given that the two companies have both made a lot of efforts on the deal and have seen some progress,” said Vivien Chan , an analyst with SinoPac Securities Asia Ltd. in Hong Kong. Buying Volvo would give the Chinese automaker access to Volvo’s technology and “improve Geely’s image” because Volvo is considered a premium brand in China. Ford ended three years of losses in 2009 by posting $2.7 billion in net income, its first full-year profit since Mulally came from Boeing Co. in 2006. Mulally has focused on refreshing Ford’s lineup, including adding more fuel-efficient small cars, while cutting costs. He reduced the North American workforce by about 47 percent and sold the Jaguar, Land Rover and Aston Martin luxury brands. ‘Great Brand’ Whoever buys the Swedish unit “are gaining a great brand,” Mulally said. “We will continue to support Volvo just like we did with Aston Martin, Jaguar and Tata.” Geely, China’s largest private automaker based on 2008 sales, wants to gain insights into Western vehicle development and manufacturing through buying a mainstream European brand. Mulally, 64, said he sees about 40 percent of global auto sales coming from the Asia-Pacific region over the next 10 years, while 35 percent will be in the European region and 25 percent in the Americas. “We are going to invest whatever we need to support Asia- Pacific,” Mulally said. “It’s clearly the highest growth market going forward.” Top-Selling Automaker Ford gained U.S. market share last year for the first time since 1995 with new models such as the revamped Taurus sedan, while the predecessors of GM and Chrysler Group LLC reorganized in bankruptcy and received federal aid. Ford surpassed General Motors Co. last month to become the top-selling automaker in the U.S. for the first time since 1998. Mulally broke ground in September on a $490 million small- car factory in Chongqing, Ford’s third assembly plant in China. Ford ranks 12th in the nation with 2.8 percent of sales, according to auto researcher J.D. Power & Associates. GM, which emerged from bankruptcy July 10, outsells Ford 3-to-1 in the country, building twice as many vehicles. Ford gained 4.5 percent to $14.10 in New York trading yesterday. To contact the reporters on this story: Bruce Einhorn in Hong Kong at beinhorn1@bloomberg.net ; Keith Naughton in Dearborn, Michigan, at Knaughton3@bloomberg.net

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Ford Chief Mulally Says Talks to Sell Volvo Cars Unit to Geely Continuing

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Stocks in U.S. Rise on Fed Pledge to Keep Rates Low to Safeguard Recovery

March 16, 2010

By Rita Nazareth March 16 (Bloomberg) — U.S. stocks rose, with the Standard & Poor’s 500 Index reaching a 17-month high, as the Federal Reserve said it will leave its main interest rate near zero for an extended period to safeguard the economic recovery. Citigroup Inc. and Wells Fargo & Co. paced gains in financial shares after the central bank said that while the economy is improving, low rates are still needed for an extended period. Intel Corp. rallied 4 percent after saying it shipped more than 100,000 of its new chips. General Electric Co. rose 4.5 percent on plans to possibly resume dividend raises next year. Harley-Davidson Inc. jumped on renewed buyout speculation. The S&P 500 increased 0.8 percent to 1,159.46 at 4:04 p.m. in New York, the highest since October 2008. The Dow Jones Industrial Average rose 43.83 points, or 0.4 percent, to 10,685.98 for a sixth straight gain, the longest stretch of the year. The SPDR S&P 500 ETF Trust, an exchange-traded fund tracking the benchmark index, rose for a 13th day to extend a record streak of gains. “The FOMC statement wasn’t materially different, but there were some nuances out there that support the market,” said Cliff Remily , a money manager at Santa Fe, New Mexico-based Thornburg Investment Management, which oversees $57 billion. “The statement reaffirms that we are in a recovery and their views on the labor market and business spending certainly helped.” The S&P 500 closed at 1,150.23 on Jan. 19, the highest level since October 2008, and then plunged 8.1 percent through Feb. 8 on concern that European nations including Greece will fail to pay back debt and speculation that the Fed will need to rein in emergency stimulus measures as the economy improves. The index has since erased that loss and extended its rebound since March 9, 2009, to 71 percent. Fed Statement The Fed said today that the labor market is stabilizing and business spending has risen, while inflation remains subdued. Although bank lending continues to contract, the Fed said, financial conditions should spur economic growth. Still, the Fed said, the economy is likely to require low interest rates for an extended period of time. “The market really liked what it heard for a quick pop,” said Dan Cook , senior market analyst at IG Markets Inc. in Chicago, who expects a possible change in rates in the second half of 2010. “People got their orders in pretty quick.” An earlier report showed prices of imported goods fell in February more than anticipated, a sign there is little inflation pressure coming from abroad. The import price index declined 0.3 percent, the first drop in seven months, the Labor Department said. Greece Rating Benchmark equity indexes extended gains in late-morning trading after Greece had the threat of a cut to its credit rating reduced by S&P, which cited the country’s efforts to narrow a budget deficit that is more than four times the European Union’s limit. S&P affirmed the nation’s BBB+ rating, removing it from “creditwatch negative,” meaning the company is no longer considering an imminent reduction to the grade. “Greece is also helping to drive investor sentiment,” said Thomas Nyheim , a money manager at Christiana Bank & Trust Co. in Greeneville, Delaware, which manages $5.2 billion. “With the stable rating now, it doesn’t look like problems are pervasive throughout Europe.” Citigroup rose 4.1 percent to $4.05. The bank 27 percent owned by the U.S. is bolstering a unit that trades stocks with the lender’s own money after a proposed government ban of proprietary trading helped spur eight of its 22 employees to defect, people with direct knowledge of the matter said. Wells Fargo climbed 1.3 percent to $30.28, the highest price in five months. Intel, GE Intel climbed 4 percent to $22.01, its biggest gain since August and its highest price since September 2008. The world’s largest semiconductor maker said it already has shipped more than 100,000 units of its Xeon 5600, a server chip that officially goes on sale today. GE had the biggest gain in the Dow, advancing 4.5 percent to a 15-month high of $18.07. The company, which last year cut its shareholder dividend for the first time since the Great Depression, may resume increases in 2011 and repurchase stock for the first time since 2008 amid a “snapback” at the finance unit, Chief Financial Officer Keith Sherin said. The world’s biggest maker of jet engines and medical imaging machines has “earnings momentum slowly building,” and “for the first time in over 10 years, the pieces are in place for earnings upside,” JPMorgan Chase & Co. said in a note to clients. ‘Pretty Well’ “The market has done pretty well year-to-date,” said Randy Bateman , who oversees $13 billion as chief investment officer at Huntington Asset Advisors in Columbus, Ohio. “We’ll still see catalysts to move stocks higher. Good cash flow, merger and acquisition activity, stock buybacks and dividend increases will tempt investors. We’re looking for a pretty good year of double- digit return.” Limited Brands Inc. rallied 4.2 percent to $24.71. The owner of the Victoria’s Secret and Bath & Body Works chains said its board approved a dividend of $1 per share and authorized a $200 million share repurchase program. Financial Engines Inc. surged 44 percent to $17.25 in its first day of trading after the investment adviser co-founded by Nobel laureate William Sharpe became the first U.S. company to price an initial public offering above its forecast range this year. Harley-Davidson Speculation Harley-Davidson had the biggest gain in the S&P 500, rising 7 percent to $28.35. The biggest U.S. motorcycle maker rallied on renewed speculation it may be acquired. “We’ve been seeing rumors of a leveraged buyout,” said Patrick Mortimer , director of options trading at Pipeline Trading Systems LLC in New Hope, Pennsylvania. Bob Klein , a Harley-Davidson spokesman, couldn’t be reached for comment. Real-estate companies had the second-biggest gain after chipmakers among 24 industries in the S&P 500, rising 2.5 percent as a group. Billionaire investor Sam Zell said real estate investment trusts will have enough cash to boost dividends in the future and that he expects more takeovers in the industry. Equity Residential , the largest publicly traded U.S. apartment owner, surged 3.3 percent to $39.37. ProLogis gained 3 percent to $14.21. Kimco Realty Corp. rose 3.2 percent to $15.57. Housing Starts Homebuilders advanced, led by Lennar Corp., even after a report showed housing starts in the U.S. fell in February as record snowfall in parts of the country hampered construction, while fewer building permits signaled demand is stagnating. Builders broke ground on 575,000 homes at an annual rate last month, down 5.9 percent from January’s revised 611,000 pace, Commerce Department figures showed. Building permits, a sign of future construction, decreased for a second month. EBay Inc. rose 2 percent to $26.79. The most-visited U.S. e-commerce site started a Send Money application for Apple Inc.’s iPhone. EBay said mobile transactions grew almost six- fold last year, to $141 million. Wyndham Worldwide Corp. fell 2.8 percent to $24.07. The franchiser of Days Inn hotels and Super 8 motels was lowered to “neutral” from “buy” at Goldman Sachs Group Inc. Sequenom Inc. tumbled 22 percent to $6.08. The biotechnology company posted a fourth-quarter loss excluding some items of 30 cents a share, 21 percent wider than the average analyst estimate. To contact the reporter on this story: Rita Nazareth in New York at ritanazareth@bloomberg.net .

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Stocks in U.S. Rise on Fed Pledge to Keep Rates Low to Safeguard Recovery

March 16, 2010

By Rita Nazareth March 16 (Bloomberg) — U.S. stocks rose, with the Standard & Poor’s 500 Index reaching a 17-month high, as the Federal Reserve said it will leave its main interest rate near zero for an extended period to safeguard the economic recovery. Citigroup Inc. and Wells Fargo & Co. paced gains in financial shares after the central bank said that while the economy is improving, low rates are still needed for an extended period. Intel Corp. rallied 4 percent after saying it shipped more than 100,000 of its new chips. General Electric Co. rose 4.5 percent on plans to possibly resume dividend raises next year. Harley-Davidson Inc. jumped on renewed buyout speculation. The S&P 500 increased 0.8 percent to 1,159.46 at 4:04 p.m. in New York, the highest since October 2008. The Dow Jones Industrial Average rose 43.83 points, or 0.4 percent, to 10,685.98 for a sixth straight gain, the longest stretch of the year. The SPDR S&P 500 ETF Trust, an exchange-traded fund tracking the benchmark index, rose for a 13th day to extend a record streak of gains. “The FOMC statement wasn’t materially different, but there were some nuances out there that support the market,” said Cliff Remily , a money manager at Santa Fe, New Mexico-based Thornburg Investment Management, which oversees $57 billion. “The statement reaffirms that we are in a recovery and their views on the labor market and business spending certainly helped.” The S&P 500 closed at 1,150.23 on Jan. 19, the highest level since October 2008, and then plunged 8.1 percent through Feb. 8 on concern that European nations including Greece will fail to pay back debt and speculation that the Fed will need to rein in emergency stimulus measures as the economy improves. The index has since erased that loss and extended its rebound since March 9, 2009, to 71 percent. Fed Statement The Fed said today that the labor market is stabilizing and business spending has risen, while inflation remains subdued. Although bank lending continues to contract, the Fed said, financial conditions should spur economic growth. Still, the Fed said, the economy is likely to require low interest rates for an extended period of time. “The market really liked what it heard for a quick pop,” said Dan Cook , senior market analyst at IG Markets Inc. in Chicago, who expects a possible change in rates in the second half of 2010. “People got their orders in pretty quick.” An earlier report showed prices of imported goods fell in February more than anticipated, a sign there is little inflation pressure coming from abroad. The import price index declined 0.3 percent, the first drop in seven months, the Labor Department said. Greece Rating Benchmark equity indexes extended gains in late-morning trading after Greece had the threat of a cut to its credit rating reduced by S&P, which cited the country’s efforts to narrow a budget deficit that is more than four times the European Union’s limit. S&P affirmed the nation’s BBB+ rating, removing it from “creditwatch negative,” meaning the company is no longer considering an imminent reduction to the grade. “Greece is also helping to drive investor sentiment,” said Thomas Nyheim , a money manager at Christiana Bank & Trust Co. in Greeneville, Delaware, which manages $5.2 billion. “With the stable rating now, it doesn’t look like problems are pervasive throughout Europe.” Citigroup rose 4.1 percent to $4.05. The bank 27 percent owned by the U.S. is bolstering a unit that trades stocks with the lender’s own money after a proposed government ban of proprietary trading helped spur eight of its 22 employees to defect, people with direct knowledge of the matter said. Wells Fargo climbed 1.3 percent to $30.28, the highest price in five months. Intel, GE Intel climbed 4 percent to $22.01, its biggest gain since August and its highest price since September 2008. The world’s largest semiconductor maker said it already has shipped more than 100,000 units of its Xeon 5600, a server chip that officially goes on sale today. GE had the biggest gain in the Dow, advancing 4.5 percent to a 15-month high of $18.07. The company, which last year cut its shareholder dividend for the first time since the Great Depression, may resume increases in 2011 and repurchase stock for the first time since 2008 amid a “snapback” at the finance unit, Chief Financial Officer Keith Sherin said. The world’s biggest maker of jet engines and medical imaging machines has “earnings momentum slowly building,” and “for the first time in over 10 years, the pieces are in place for earnings upside,” JPMorgan Chase & Co. said in a note to clients. ‘Pretty Well’ “The market has done pretty well year-to-date,” said Randy Bateman , who oversees $13 billion as chief investment officer at Huntington Asset Advisors in Columbus, Ohio. “We’ll still see catalysts to move stocks higher. Good cash flow, merger and acquisition activity, stock buybacks and dividend increases will tempt investors. We’re looking for a pretty good year of double- digit return.” Limited Brands Inc. rallied 4.2 percent to $24.71. The owner of the Victoria’s Secret and Bath & Body Works chains said its board approved a dividend of $1 per share and authorized a $200 million share repurchase program. Financial Engines Inc. surged 44 percent to $17.25 in its first day of trading after the investment adviser co-founded by Nobel laureate William Sharpe became the first U.S. company to price an initial public offering above its forecast range this year. Harley-Davidson Speculation Harley-Davidson had the biggest gain in the S&P 500, rising 7 percent to $28.35. The biggest U.S. motorcycle maker rallied on renewed speculation it may be acquired. “We’ve been seeing rumors of a leveraged buyout,” said Patrick Mortimer , director of options trading at Pipeline Trading Systems LLC in New Hope, Pennsylvania. Bob Klein , a Harley-Davidson spokesman, couldn’t be reached for comment. Real-estate companies had the second-biggest gain after chipmakers among 24 industries in the S&P 500, rising 2.5 percent as a group. Billionaire investor Sam Zell said real estate investment trusts will have enough cash to boost dividends in the future and that he expects more takeovers in the industry. Equity Residential , the largest publicly traded U.S. apartment owner, surged 3.3 percent to $39.37. ProLogis gained 3 percent to $14.21. Kimco Realty Corp. rose 3.2 percent to $15.57. Housing Starts Homebuilders advanced, led by Lennar Corp., even after a report showed housing starts in the U.S. fell in February as record snowfall in parts of the country hampered construction, while fewer building permits signaled demand is stagnating. Builders broke ground on 575,000 homes at an annual rate last month, down 5.9 percent from January’s revised 611,000 pace, Commerce Department figures showed. Building permits, a sign of future construction, decreased for a second month. EBay Inc. rose 2 percent to $26.79. The most-visited U.S. e-commerce site started a Send Money application for Apple Inc.’s iPhone. EBay said mobile transactions grew almost six- fold last year, to $141 million. Wyndham Worldwide Corp. fell 2.8 percent to $24.07. The franchiser of Days Inn hotels and Super 8 motels was lowered to “neutral” from “buy” at Goldman Sachs Group Inc. Sequenom Inc. tumbled 22 percent to $6.08. The biotechnology company posted a fourth-quarter loss excluding some items of 30 cents a share, 21 percent wider than the average analyst estimate. To contact the reporter on this story: Rita Nazareth in New York at ritanazareth@bloomberg.net .

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Christie Seeks to Suspend New Jersey’s Tax Rebate in $29.3 Billion Budget

March 16, 2010

By Terrence Dopp March 16 (Bloomberg) — New Jersey Governor Chris Christie proposed a $29.3 billion budget that would suspend property-tax rebates, skip the state’s $3 billion pension contribution and fire 1,300 workers next year. The plan would reduce aid to schools by $820 million, towns by $446 million and higher education by $173 million. Christie, a Republican who took office Jan. 19, also called for a constitutional amendment that would limit annual growth in the state’s highest-in-the-nation property taxes to 2.5 percent. “Today, we stop sweeping problems under the rug,” Christie, 47, said during his first budget address to a joint session of the Democrat-led Legislature in Trenton. “We will not hide our problems until another day. And we are certainly not increasing the tax burden we place upon our people.” Christie pledged not to raise income, sales or corporate taxes to close a record $10.7 billion deficit in the budget for the fiscal year that begins July 1. His plan, which includes $28.3 billion in state spending and $1 billion in federal aid, is 9 percent lower than the budget for the current fiscal year, which ends June 30. New Jersey will get $1.3 billion less from the U.S. government in fiscal 2011, according to Christie’s administration. The budget contains a total of $10 billion in reductions and would have swelled to as much as $38 billion without any action, Treasurer Andrew Eristoff said. Revenue Projections The plan counts on projected revenue rising 2.2 percent to $28.3 billion, which would be the first increase in three years. Christie also expects to receive $490 million in federal funding for a six-month extension of the Medicaid health-care program for the poor which is still being debated in Congress. The new governor didn’t renew a business-tax increase or an income-tax surcharge on residents earning $400,000 or more, both of which make the state less competitive, his Chief of Staff Richard Bagger told reporters yesterday. Eristoff said the budget will seek $8.8 million in “employee actions” including firings of as many as 1,300 workers after Jan. 1. Christie said last week he can’t lay off or furlough any of the 70,000 state workers before then because of a 2009 agreement his predecessor Governor Jon Corzine negotiated with unions as part of a $450 million wage freeze. Spending Cap Christie said he will ask lawmakers to institute an immediate 2.5 percent spending cap on state and local governments. The legislation would be used until a permanent, constitutional amendment can be approved, Bagger said. Real-estate levies, the main source of funding for schools and local governments, averaged $7,281 last year, up from $7,045 in 2008, state data show. The levy has climbed 72 percent since 1999, when the average was $4,239. Christie last month withheld $475 million in school aid to help close a $2.2 billion mid-year deficit. The education funding cuts in fiscal 2011’s plan would amount to as much as 5 percent of district budgets. “All this is doing is pushing the state’s budget problems down to the local property taxpayers,” Assembly Budget Committee chair Louis Greenwald , a Cherry Hill Democrat, said in an interview yesterday. “I get the argument that the wealthiest New Jerseyans have options, but I wish they would get the message that many middle-class taxpayers don’t.” Rebates Bagger said the state would save $848 million by suspending the property tax rebate program this year and then giving homeowners direct credits on their bills beginning in May 2011. Another $50 million would come from an unspecified plan to have some government functions run by private companies. Christie last week said he may privatize some state jobs in 2011 amid rising costs for employee salaries and benefits. New Jersey would skip its full $3 billion pension payment, under Christie’s plan. The system was underfunded by $46 billion as of 2009 because of investment declines and a failure to make full contributions, according to annual financial reports. “Our pension system must be reformed before we can or should fund a broken, out-of-control system,” Christie said. New Jersey’s Senate last month passed bills aimed at closing the pension deficit by excluding part-time workers from the system, reducing benefits and forcing teachers to pay more for health care. The measures await Assembly approval. Christie urged lawmakers to act on the bills and said he would sign them “the moment they hit my desk.” Christie’s budget includes $2.5 billion in payments on the state’s record debt, which grew to $33.9 billion last year from $3.9 billion in 1989. The state has the third-largest net tax- supported debt among U.S. states, according to a 2009 report by Moody’s Investors Service. Its general obligation bonds are rated Aa3 by Moody’s, its fourth-highest ranking, and AA by Standard & Poor’s, its third-highest. To contact the reporter on this story: Terrence Dopp in Trenton, New Jersey, at tdopp@bloomberg.net .

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GE May Resume Dividend Increases Next Year Amid Finance Unit’s `Snapback’

March 16, 2010

By Rachel Layne March 16 (Bloomberg) — General Electric Co. , which last year cut its dividend for the first time since the Great Depression, may resume increases in 2011 amid a “snapback” at the finance unit, Chief Financial Officer Keith Sherin said. “We’d like to grow the dividend in 2011,” Sherin told investors today at a conference in Boston organized by Goldman Sachs Group Inc. The outlook for the remainder of 2010 has become clearer since the company discussed fourth-quarter results in January, he said. “We’ve got better visibility around financial services. If you think about 2011, we believe we’re going to have GE earnings growth.” GE Chief Executive Officer Jeffrey Immelt has refocused the Fairfield, Connecticut-based company on its role as the world’s biggest provider of jet engines, medical-imaging equipment and power turbines, targeting emerging-market and service-contract growth as well as research and development. Last year, the company invested 7 percent more in research and plans to keep developing new products while shedding divisions not central to its main business lines, such as a majority stake in the NBC Universal media unit, Sherin said. He repeated a forecast for about $25 billion in cash at the end of this year and said the company may also use the proceeds for strategic acquisitions as the GE Capital division contributes from 30 percent to 40 percent of total profit. “On the industrial side, we’ve made a clear call on capital allocation to invest back into infrastructure,” Sherin said. “We feel great about the growth.” Dividend Cut GE cut its annual dividend to 40 cents from $1.24 in February 2009 as the global recession and credit crunch drained profit at its finance unit. Earnings from continuing operations fell 38 percent to $11.2 billion in 2009, and per-share profit of $1.01 is expected to remain about the same in 2010, the company said. Analysts have estimated GE will post adjusted profit of $10.6 billion this year and $12.9 billion in 2011. “With the company expected to earn roughly $23 billion over the next two years, and substantial improvement to the leverage ratio at GE Capital, and vastly improved capital market conditions, it seems totally appropriate for GE to re-evaluate its dividend payout ratio,” said Joel Levington , who follows GE for Brookfield Investment Management Inc. in New York. Levington said he expects a “measured” approach from GE. GE rose 45 cents, or 2.6 percent, to $17.74 at 1:06 p.m. in New York Stock Exchange trading . The shares have gained 18 percent this year and earlier touched $17.76, the highest since December 2008. GE Capital GE has raised reserves to cover delinquencies and losses inside GE Capital, while the division has remained profitable overall. “Clearly, the losses are going to peak for us sometime at 2010,” Sherin said. “As we go forward, we’re not going to have those loss levels, which, without even any new strategies in GE Capital, you’re going to get a real earnings snapback.” Stephen Tusa , an analyst with JPMorgan Chase & Co., told investors in a note today that he concurred with GE’s assessment that losses inside the finance arm would peak in 2010. “For the first time in over 10 years, the pieces are in place for earnings upside, a key to moving GE from value to momentum,” wrote Tusa, who has an “outperform” rating on the stock. Under financial reform proposals introduced yesterday by U.S. Senator Christopher Dodd , a Connecticut Democrat, GE expects to be regulated by the Federal Reserve, doesn’t see a forced breakup of the parent company and the finance unit and should be able to keep its industrial loan and thrift banks based in Utah, Sherin said. “It would be good to get financial regulatory reform completed,” Sherin said, adding the company’s goal is to be “well-capitalized in any scenario.” To contact the reporter on this story: Rachel Layne in Boston at rlayne@bloomberg.net

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GE May Resume Dividend Increases Next Year Amid Finance Unit’s `Snapback’

March 16, 2010

By Rachel Layne March 16 (Bloomberg) — General Electric Co. , which last year cut its dividend for the first time since the Great Depression, may resume increases in 2011 amid a “snapback” at the finance unit, Chief Financial Officer Keith Sherin said. “We’d like to grow the dividend in 2011,” Sherin told investors today at a conference in Boston organized by Goldman Sachs Group Inc. The outlook for the remainder of 2010 has become clearer since the company discussed fourth-quarter results in January, he said. “We’ve got better visibility around financial services. If you think about 2011, we believe we’re going to have GE earnings growth.” GE Chief Executive Officer Jeffrey Immelt has refocused the Fairfield, Connecticut-based company on its role as the world’s biggest provider of jet engines, medical-imaging equipment and power turbines, targeting emerging-market and service-contract growth as well as research and development. Last year, the company invested 7 percent more in research and plans to keep developing new products while shedding divisions not central to its main business lines, such as a majority stake in the NBC Universal media unit, Sherin said. He repeated a forecast for about $25 billion in cash at the end of this year and said the company may also use the proceeds for strategic acquisitions as the GE Capital division contributes from 30 percent to 40 percent of total profit. “On the industrial side, we’ve made a clear call on capital allocation to invest back into infrastructure,” Sherin said. “We feel great about the growth.” Dividend Cut GE cut its annual dividend to 40 cents from $1.24 in February 2009 as the global recession and credit crunch drained profit at its finance unit. Earnings from continuing operations fell 38 percent to $11.2 billion in 2009, and per-share profit of $1.01 is expected to remain about the same in 2010, the company said. Analysts have estimated GE will post adjusted profit of $10.6 billion this year and $12.9 billion in 2011. “With the company expected to earn roughly $23 billion over the next two years, and substantial improvement to the leverage ratio at GE Capital, and vastly improved capital market conditions, it seems totally appropriate for GE to re-evaluate its dividend payout ratio,” said Joel Levington , who follows GE for Brookfield Investment Management Inc. in New York. Levington said he expects a “measured” approach from GE. GE rose 45 cents, or 2.6 percent, to $17.74 at 1:06 p.m. in New York Stock Exchange trading . The shares have gained 18 percent this year and earlier touched $17.76, the highest since December 2008. GE Capital GE has raised reserves to cover delinquencies and losses inside GE Capital, while the division has remained profitable overall. “Clearly, the losses are going to peak for us sometime at 2010,” Sherin said. “As we go forward, we’re not going to have those loss levels, which, without even any new strategies in GE Capital, you’re going to get a real earnings snapback.” Stephen Tusa , an analyst with JPMorgan Chase & Co., told investors in a note today that he concurred with GE’s assessment that losses inside the finance arm would peak in 2010. “For the first time in over 10 years, the pieces are in place for earnings upside, a key to moving GE from value to momentum,” wrote Tusa, who has an “outperform” rating on the stock. Under financial reform proposals introduced yesterday by U.S. Senator Christopher Dodd , a Connecticut Democrat, GE expects to be regulated by the Federal Reserve, doesn’t see a forced breakup of the parent company and the finance unit and should be able to keep its industrial loan and thrift banks based in Utah, Sherin said. “It would be good to get financial regulatory reform completed,” Sherin said, adding the company’s goal is to be “well-capitalized in any scenario.” To contact the reporter on this story: Rachel Layne in Boston at rlayne@bloomberg.net

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CLO Market to End 12-Month Drought Through Citigroup Deal: Credit Markets

March 15, 2010

By Kristen Haunss and Caroline Salas March 15 (Bloomberg) — The market for collateralized debt obligations backed by high-yield, high-risk loans is poised to reopen in the U.S. for the first time in a year after losses on mortgages prompted investors to flee bundled securities. Citigroup Inc. is underwriting a $500 million fund managed by New York-based WCAS Fraser Sullivan Investment Management LLC, scheduled to price as soon as this week, according to people familiar with the offering, who declined to be identified because terms are private. The deal refinances an existing collateralized loan obligation and increases its size by more than 50 percent. The offering would mark the first new issue backed by widely syndicated loans in the $440 billion market for CLOs since last March and a return to investments that contributed to $1.76 trillion of writedowns and credit losses at the world’s largest financial institutions. Citigroup and WCAS Fraser Sullivan are marketing the deal after prices on CLO debt staged a record rally on signs of economic recovery. “This is the first baby step to getting the market going again,” said Matt Natcharian , head of Babson Capital Management LLC’s structured credit team in Springfield, Massachusetts. “There is a decent amount of investor interest throughout the capital structure and there are managers that want to do deals.” JPMorgan Chase & Co., Bank of America Corp. and Deutsche Bank AG have also been approaching managers of leveraged loans since last year to offer terms for new CLOs to restart the market, according to people familiar with the discussions. CLOs pool loans and slice them into securities of varying risk intended to provide higher returns than similarly rated investments. CLO Prices Prices on the highest-rated portions of CLOs have climbed to 90.5 cents on the dollar from a record low of 69 cents in April, according to Morgan Stanley data. Elsewhere in credit markets, MF Global Holdings Ltd. , Hexagon Securities LLC and at least 19 other firms are pressing regulators to force swaps clearinghouses to lower entry barriers to improve competition in a $605 trillion derivatives market dominated by the world’s biggest banks. Brokers formed an association last month that hired a Washington-based law firm to pursue the issue with lawmakers and regulators, said Mike Hisler , a partner at New York-based Hexagon. They also seek tougher conflict-of-interest laws to ensure that a bank’s derivatives desk doesn’t influence clearinghouse decisions that could shut out new competitors. International demand for long-term U.S. financial assets weakened in January as China and Japan, the two biggest holders of Treasuries, reduced their positions, according to U.S. Treasury Department data released today in Washington. Including short-term securities such as stock swaps, total investment flows show foreigners sold a net $33.4 billion after net buying of $53.6 billion the previous month. Islamic Bonds Kazakhstan, central Asia’s biggest energy producer, may sell Islamic bonds for the first time this year as it seeks to attract overseas money to finance its budget deficit. The government plans to become a “significant player” in the Islamic finance market by offering debt that complies with Muslim tenets as early as 2010, Finance Minister Bolat Zhamishev said. Phillips-Van Heusen Corp. will use two term loans totaling $2 billion and a $450 million undrawn revolving line of credit to help pay for its takeover of clothing maker Tommy Hilfiger BV, according to people familiar with the plan. Phillips-Van Heusen agreed to buy Hilfiger from private-equity firm Apax Partners LP for 2.2 billion euros ($3 billion). Bombardier Sells Debt Bombardier Inc. , the world’s third-largest commercial- airplane maker, sold $1.5 billion of senior notes in a two-part deal after withdrawing a similar offering a week ago, according to data compiled by Bloomberg. The Montreal-based company is returning to the U.S. corporate bond market after postponing an offering on Feb. 12 and later pulling it as the extra yield investors demanded to own speculative-grade debt instead of Treasuries rose amid global credit concerns that Greece couldn’t manage its budget deficit. Anheuser-Busch InBev NV , the world’s largest beer maker, seeks more lenders for $13 billion of loans, according to two people involved in the transaction. Banks joining the deal will get a fee of 45 basis points, or 0.45 percentage point, for providing $250 million or $500 million, the people said. An indicator of corporate credit risk in the U.S. rose. The Markit CDX North America Investment Grade Index, a credit- default swaps benchmark that investors use to hedge against losses on corporate debt, increased 0.8 basis point to 84 basis points, according to CMA DataVision. The index typically rises as confidence in debt markets deteriorates and falls as it improves. European iTraxx The Markit iTraxx Europe Index, tied to the debt of 125 investment-grade companies, rose 2.25 basis points to 76, JPMorgan prices show. Credit-default 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 against default on $10 million of debt for five years. In the CLO market, banks are marketing deals after the S&P/LSTA U.S. Leveraged Loan 100 Index returned an unprecedented 52 percent in 2009. High-yield, or leveraged, loans are those rated below Baa3 by Moody’s Investors Service and lower than BBB- by Standard & Poor’s. CLO Issuance Tumbles CLO issuance tumbled to $26.5 billion in 2009, the lowest in more than a decade, 94 percent of which were deals structured to remove assets from banks’ balance sheets, according to Moody’s. The WCAS Fraser-Sullivan deal being marketed, COA Tempus CLO Ltd., is partially a refinancing of COA CLO Financing Ltd., issued in January 2009 using some Citigroup-arranged loans, the people said. It’s the first deal S&P has rated since March 2009. Assets in the new WCAS Fraser Sullivan CLO will have a par value of about $500 million, compared with about $320 million for COA CLO when that deal was structured last year, according to one of the people familiar with the offering. COA Tempus CLO had acquired $219.8 million in face value of collateral as of March 11 and planned to acquire another $280.2 million, according to S&P, which assigned preliminary ratings to the transaction. “It seems like it is not all new collateral, but there is some new collateral so it falls in between a new deal and a refinancing,” said Vishwanath Tirupattur , an analyst at Morgan Stanley in New York. “Certainly people are watching this and it’s a positive step.” More CLO Deals John Fraser , chief investment officer of WCAS Fraser Sullivan, declined to comment. WCAS Fraser Sullivan was formed in 2007 with the backing of private equity firm Welsh, Carson Anderson & Stowe. The firm was formerly known as Fraser Sullivan Investment Management, which was founded in 2005. Alex Samuelson , a Citigroup spokesman, declined to comment. Tirupattur predicts there may be 10 or more new CLO deals this year. The extra yield, or spread, investors demand to own debt issued by CLOs above benchmark rates must narrow before issuance will pick up, he said. Spreads over the London interbank offered rate on CLO slices rated AAA have narrowed to 2.25 percentage points from 7.25 percentage points in April, Morgan Stanley data show. That’s still more than double the average spread of 0.9 percentage point in February 2008. Libor is the rate banks charge for loans to one another. ‘Not Quite There’ “At the moment the economics are not quite there,” Tirupattur said. “The recreation value of CLOs is lower than the value of the portfolio value of underlying loans,” he said, meaning there is no arbitrage between the cost of buying individual loans in the open market and bundling them together in a CLO. The $327 million AAA rated portion of COA Tempus CLO is being marketed at a spread of about 1.9 percentage points above three-month Libor, according to S&P. Libor was set at 0.26 percent today. The $15 million of AA rated slices may price at a spread of 2.25 percentage points and the $36.5 million of A rated notes may yield 2.5 percentage points more than benchmark rates, S&P said in a report last week. The CLO will also issue $102.1 million of so-called equity, the unrated piece first in line for losses. “Cash investors, insurance companies and banks will be attracted to higher coupons and well-structured investments,” Babson’s Natcharian said. “Eventually prices will start to tighten in the market, but it will take more than one deal to get there.” To contact the reporters on this story: Kristen Haunss in New York at khaunss@bloomberg.net ; Caroline Salas in New York at csalas1@bloomberg.net

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Auren Hoffman: To Grow a Company, You Need to Be Good at Killing Things

March 14, 2010

Companies are all about building things, not destroying them. When your company is growing, you add lots of things to build the company: employees, investors, products, features, meetings, benefits, processes, reports, code, and more. While it does not come natural for a company (or any organization) to toss things out, every so often you need to look at everything and focus on getting rid of things that are no longer needed, important, or helping the company grow. Timing is also important. Recognizing and throwing out things is hard enough, but doing so early is truly difficult. The biggest flaw of most CEOs (including myself) is that they don’t kill things fast enough (or ever). Maybe every company over a certain size should have a CKO — a Chief Killing Officer. That person’s entire job would be to look at everything the company does and try to kill it. Being able to kill things early is essential to the long-term growth and success of any company. But recognizing that you should be searching for things to kill is the first step to building a better company. Long-term benefits of killing things quickly · Save time and money – Getting rid of something early enough can save a company countless hours of headaches and resources. This is especially important for start-ups that have both time and financial constraints. It can also be the difference a between thriving company and a dead one. · Renewed clarity and focus – By continually re-visiting the various facets of your company, you will streamline not only resources, but also overall goals and strategies since it will force you to weigh the various pros and cons of what you do now and how to prioritize efforts moving forward. Going for the Kill Here are some areas that every company should review and clean up regularly: · Products – A company can only do so many things well. For example, PayPal is great business that makes it safe for people to buy goods and services online. But they initially developed and kept a Palm Pilot beaming application and supported it for many years, way past when they should have killed it. This does not mean you shouldn’t start things — you can start lots of new things as long as you kill them. Google recognized this when they killed Google Answers in 2006 . · Features – Your products may have features once thought to be important, but are no longer necessary or demanded by customers. Slay them. · Code – Software code is worth re-visiting because they can be optimized after their initial implementation. Also, not reviewing code regularly can cause setbacks and long debugging hours after a lot more code has been written on top. Rapleaf holds ” Sweepleaf ” days semi-monthly where engineers do nothing but cleaned up and streamline code. · People – Check-in on employees at set intervals to look out for bad hires or people that are not adding the value they once were. Doing so can help guide people back on track and save a lot of headache later on. Never settle for “average” people. As Reed Hastings is famous for saying: adequate performance deserves a nice severance package. · Meetings – As companies grows, so does the number of internal meetings. Internal meetings are important for communication and to make decisions, but some are legacy meetings that were created for a particular past purpose but are no longer massively beneficial. Strive to kill these meetings. Only keep meetings that are very beneficial to all attendees. There is also attendance creep in meetings where non-essential people are often in attendance. Focus on keeping meetings short, on topic, and with as few people as possible. · Reports – Sometimes the CEO or a board member asks for a report and it keeps getting produced for years after it is valuable. Work to kill these reports, even if they are automated. · Investors – Even investors and board members should be on the chopping block. Some early-stage investors don’t add much value as your company grows. Buy these investors out — many of them will be happy to give up their stock for a decent return. · Processes – Many internal processes (like performance reviews) are really useful. But many of these processes that once were important can later be burdensome. Slay these processes before they kill your company. · HR practices – A lot of HR practices are vestiges of the past or should have never been implemented in the first place. Try to kill all non-essential HR policies and practices as these can be cancers which can turn your company from a fast moving start-up to a bureaucratic maze. One of the first things to look at is all the forms a new employee has to fill out. You might be thinking “Wow, we’re really in bad shape because we are really terrible at killing things.” You’re not in as bad of shape as you think because very few companies are actually good at killing things. So just by recognizing that this is important, you’ll have a leg up on many of your competitors. As your company grows, you’ll have more things — both big and small — that either weigh down growth or are not core to long-term success. The companies that work proactively to get rid of these issues and devote resources to the areas that matter are the ones that will be able to remain nimble, innovative, and win. See comments and comment yourself at: Summation blog: To Grow a Company, You Need to be Good at Killing Things

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Vatican to Drop Statute of Limitations for Priests Accused of Molestation

March 13, 2010

By Flavia Krause-Jackson March 13 (Bloomberg) — The Vatican’s chief prosecutor will remove the statute of limitations for priests accused of child molestation and said today it was “false and calumnious” to accuse Pope Benedict XVI of a cover-up. “Practice has shown that the limit of ten years is not enough in this kind of case,” Monsignor Charles Scicluna, promoter of justice of the Congregation for the Doctrine of Faith, said in a Vatican-approved interview with Avvenire. Maltese-born Scicluna is in charge of prosecuting clergy accused of delicta graviora, Latin to mean the most serious crimes, including sexual abuse. Avvenire is an Italian daily newspaper owned by the Italian Bishops Conference and affiliated to the Roman Catholic Church. Benedict has struggled to contain damage to the Church’s reputation by allegations of sexual abuse by priests. Bringing the scandal a step closer to the papacy, a German Church report said yesterday that when he was archbishop of Munich he took part in the 1980 decision to move a priest accused of molestation to his diocese to undergo therapy. Joseph Ratzinger , who became pope in 2005, was appointed archbishop of Munich in 1977 at age 49, after spending most of his life as a theology professor and Catholic intellectual. He served the Bavarian church until Pope John Paul II transferred him to Rome in 1982 to oversee the Congregation of the Doctrine of Faith, which polices church dogma. Benedict Defended Scicluna defends Benedict from criticism that he did too little too late to tackle sex-abuse cases. Between 1975 and 1985, no cases of pedophile priests were reported to the congregation. Moreover, it wasn’t until 2001 that it was clarified by the Vatican’s hierarchy that it was Ratzinger’s job to deal with these crimes. Asked whether the Church has been too lenient, Scicluna says “it may be that in the past, perhaps also out of a misdirected desire to protect the good name of the institution, some bishops were, in practice, too indulgent towards this sad phenomenon.” As leader of more than a billion Catholics, Benedict visited the U.S. and Australia for the first time in 2008 and apologized to victims of abuse. He is the first pontiff to do so. Scicluna’s office has dealt with about 300 cases of alleged pedophilia in the past nine years. Between 2001 and 2009, there were 3,000 accusations of sexual wrongdoing, of which 60 percent are reported same-sex attraction while 30 percent are heterosexual. The remaining 10 percent are serious claims of abuse of minors. The U.S. accounts for 80 percent of the priests currently under trial. “Currently we can say that a full trial, penal or administrative, has taken place in twenty percent of cases, normally celebrated in the diocese of origin — always under our supervision — and only very rarely here in Rome,” Scicluna said. — With assistance from Patrick Donahue in Berlin. Editors: Kim McLaughlin , Keith Campbell . To contact the reporters on this story: Flavia Krause-Jackson in Rome at fjackson@bloomberg.net

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Dick Fuld May Be Haunted by Assurances After Report Finds Hidden Leverage

March 13, 2010

By Joshua Gallu and David Scheer March 13 (Bloomberg) — Lehman Brothers Holdings Inc.’s Richard Fuld exuded confidence as he briefed analysts on June 16, 2008, four days after demoting his firm’s finance chief in the wake of a $2.8 billion quarterly loss. “I am the one who ultimately signs off and I’m comfortable with our valuations at the end of our second quarter,” then- Chief Executive Officer Fuld said on the conference call. “We have always had a rigorous internal process.” The rigor was based on a shaky foundation, according to a 2,200-page report about the firm’s demise by Anton Valukas , the examiner for the bankrupt firm. Lehman Brothers “reverse- engineered” a key measure of stability, masking the firm’s true financial condition , Valukas said. Some asset valuations were also “unreasonable,” he said. Keen to show that it had reduced leverage, a gauge of a company’s ability to withstand losses, Chief Financial Officer Ian Lowitt said on the June 16 call that the firm had shrunk its net leverage ratio to 12 times from 15.4 in the second quarter. It accomplished the feat by reducing net assets by $70 billion, said Lowitt, who had just replaced Erin Callan in his post. “We’re going to operate conservatively,” he said. Unbeknownst to shareholders, the firm was hiding $50 billion in assets through off-balance sheet transactions known as Repo 105s that temporarily removed holdings until days after the quarter closed, according to Valukas. In the first quarter, the firm had used the same strategy to hide $49 billion in assets, he said in the report. ‘Shenanigans’ Lehman Brothers actions amounted to no more than “shenanigans,” said Sanford C. Bernstein & Co. analyst Brad Hintz , a former Lehman chief financial officer. “If all you’re doing is hiding something behind the curtain, the financial strength isn’t there.” The repos helped prop up Lehman’s credit rating, Valukas said. The off-balance dealings required more collateral than if Lehman had opted for ordinary transactions visible to shareholders, he said. “Repos were just one of many ways to hide losses,” said Janet Tavakoli , president of Chicago-based financial consulting firm Tavakoli Structured Finance Inc. “All of the former investment banks used those techniques. All of them borrowed too much money and were overleveraged.” Lehman Brothers bolstered capital by raising about $12 billion from investors during the first half of 2008, a time when Valukas said the New York-based firm’s financial statements were misleading. ‘Grossly Negligent’ Investors included Blackrock Inc., the largest publicly traded fund manager in the U.S., a venture run by former American International Group Inc. CEO Maurice “Hank” Greenberg, and New Jersey government retirees. Fuld, 63, was “at least grossly negligent in causing Lehman Brothers to file misleading periodic reports,” Valukas said. Fuld’s lawyer, Patricia Hynes , disputed the examiner’s conclusions. “Mr. Fuld did not know what those transactions were — he didn’t structure or negotiate them, nor was he aware of their accounting treatment,” Hynes said in a statement. She also said none of Lehman’s senior financial officers, lawyers or outside auditors raised concern about the transactions with Fuld. Robert Cleary , a lawyer for Callan at Proskauer Rose, didn’t return a call seeking comment. Callan, 44, took a personal leave of absence last month from Swiss bank Credit Suisse Group AG, where she had worked since 2008. Real Estate Overvalued Lewis Liman , a lawyer for Lowitt, 46, said in an e-mail that his client did nothing wrong. Lowitt is now chief operating officer at Barclays Wealth Americas, whose parent, Barclays Plc, bought Lehman’s North American brokerage for $1.54 billion. In its final year, Lehman overvalued real-estate holdings, including a stake in U.S. apartment developer Archstone-Smith Trust, Valukas said. Lehman and Tishman Speyer Properties LP completed a joint acquisition of Archstone for $22 billion, including debt, in October 2007. Lehman presented “unreasonable” valuations of its Archstone stake in the first three quarters of 2008, overvaluing the holding by as much as $450 million in the second quarter, the examiner wrote. The bankruptcy case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). To contact the reporters on this story: Joshua Gallu in Washington at jgallu@bloomberg.net ; David Scheer in New York at dscheer@bloomberg.net .

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Chile May Borrow Abroad, Tap Copper Savings for $30 Billion Reconstruction

March 13, 2010

By Sebastian Boyd March 13 (Bloomberg) — Chilean President Sebastian Pinera plans to tap copper savings funds and may borrow abroad to pay for the estimated $30 billion cost of repairing damage caused by the 8.8-magnitude earthquake that struck the country Feb. 27. More than 500 Chileans died in the quake and the tsunami that followed it, Pinera said yesterday. That death toll will probably rise as more bodies are identified and because of the “many people” still missing, he said. The country has been left poorer by the earthquake, he said, citing damage done to homes, schools, hospitals and infrastructure. Last month’s quake, the world’s fifth biggest in the past century, was a “calamity” for Chile, Pinera said. “Chile is poorer than a few weeks ago,” Pinera told reporters in Santiago yesterday. “We’re poorer for the loss of life, we’re poorer for the loss of economic wealth.” Pinera said he plans to rewrite the 2010 budget to free up resources for a reconstruction fund, adding the government will also tap its savings. Chile has $11.3 billion invested overseas in an economic stabilization fund that the government can use to finance a budget deficit. Using money from the fund could mean selling dollars to buy pesos, boosting the Chilean currency. “We will study the possibility of contracting debts overseas,” Pinera said. “Chile has hardly any public sector debt.” Chile, South America’s fifth-largest economy with gross domestic product of $169 billion, is a net creditor, with more in its offshore savings funds than it owes. The country has $1.75 billion of international bonds outstanding, all due before the end of 2013, according to data compiled by Bloomberg. Loan Offers Multilateral lenders such as the World Bank, the Inter- American Development Bank and Caracas-based Corporacion Andina de Fomento have offered to lend Chile money, Finance Minister Felipe Larrain said. “The options are there, but before that we have to look at the numbers and see how much we’ll need in financing,” Larrain said. “We’re still working on the budget and analyzing the different items in the budget to see how to allocate resources to reconstruction.” Chile’s government will spend $300 million on cash handouts to the poor, Larrain said. Pinera signed the bill authorizing the payments in his first legislative act as president, and it will be sent to Congress on March 15, Larrain said. The government hopes to make the first payments this month, the finance minister said. The high price of Chile’s main export, copper, may also help pay for reconstruction, the president said. Years of Rebuilding Rebuilding “won’t last weeks or months,” Pinera said. “It will last years, because the magnitude of the damage caused is on a scale never before seen in Chile,” Chile’s new government will need to weigh the advantages of borrowing in dollars, which may push up the peso, and borrowing in pesos, which could push up the cost of selling bonds for Chilean companies. “If they tap too much domestically, they’ll crowd out the private sector, which needs funds for reconstruction,” said Rafael de la Fuente, chief Latin American economist at BNP Paribas SA in New York. “If they go abroad, they put pressure on the currency. That’s the trade-off.” The peso rose 3.1 percent in the five days following the quake, the most of any of the seven Latin American currencies tracked by Bloomberg, on speculation the government would need to sell dollars to pay for rebuilding. Since then it has depreciated 1.8 percent, the most of 26 emerging-market currencies, after central bank President Jose De Gregorio said it may have “overshot.” Chile’s peso will begin weakening late this year as the earthquake, economic growth and record-low interest rates sap demand for fixed-income assets, said Guillermo Osses, who helps oversee $50 billion in emerging-market assets at Pacific Investment Management Co. The peso may slide to 550 per dollar in a year and to as weak as 600 in an “extreme case,” Osses said. To contact the reporter on this story: Sebastian Boyd in Santiago at sboyd9@bloomberg.net

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Video: Doug Dachille Discusses Fed and Complacency: Video

March 12, 2010

March 12 (Bloomberg) — Doug Dachille, chief executive officer of First Principles Capital Management LLC, talks with Bloomberg’s Pimm Fox about risk and the Federal Reserve. (Source: Bloomberg)

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Video: Schumacher Steals Limelight at F-1 Opener in Bahrain

March 12, 2010

March 12 (Bloomberg) — Bloomberg’s Ryan Chilcote reports from Bahrain ahead of the first race of the new Formula One season, which will mark the the return of seven-time world champion Michael Schumacher after three years out of the driver’s seat.

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

March 11, 2010

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

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Treasury Yield Curve Near Record Adds to Demand at Bond Auction

March 11, 2010

By Cordell Eddings and Susanne Walker March 11 (Bloomberg) — Treasury 30-year bonds gained as one of the biggest yield premiums over 2-year government securities on record bolstered demand at today’s U.S. auction of $13 billion in bonds. Most U.S. stocks fell as higher-than-estimated inflation in China spurred speculation the nation will be forced to raise interest rates while technology companies and banks rallied. The dollar was mixed against most major currencies as the U.S. trade deficit unexpectedly narrowed in January, raising concern that global growth may slow, diminishing the appeal of higher- yielding assets. Investors are seeking higher interest rates on long-term U.S. government debt as President Barack Obama borrows record amounts to sustain the recovery. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.89 at today’s bond sale, the highest level since September. “Insurers, pension funds and other investors continue to buy the 30-year because of its outright yield and it relative value attractive against the short-end given the inflation and economic pictures,” said Thomas Tucci, head of U.S. government bond trading in New York at the Royal Bank of Canada, one of the 18 primary dealers required to bid at Treasury auctions. “There is just little value in the front end versus the long bond.” The 30-year bond yield fell 2 basis points, 0.02 percentage point, to 4.67 percent at 1:54 p.m. in New York, according to data compiled by Bloomberg. The yield had climbed as high as 4.72 percent prior to the auction. The 4.625 percent security due February 2040 rose 10/32, or $3.13 per $1,000 face amount, to 99 8/32. Yield Curve Thirty-year bonds yield 3.76 percentage points more than two-year notes. The gap reached 3.85 percentage points on Feb. 17, the most since at least 1980, according to data compiled by Bloomberg. “People are looking at the spread,” said William Larkin, a fixed-income portfolio manager in Salem, Massachusetts at Cabot Money Management, which manages $500 million. “The spread is so narrow on a lot of issues. The safety makes a lot of sense if you believe inflation will stay flat.” Obama has increased U.S. marketable debt to an unprecedented $7.41 trillion to fund a budget deficit the government predicts will swell to a record $1.6 trillion in the fiscal year ending Sept. 30. The trade gap decreased 6.6 percent to $37.3 billion from a revised $39.9 billion in December as Americans imported the fewest barrels of crude oil in a decade, Commerce Department figures showed today in Washington. Exports decreased 0.3 percent, the first decline since April. Separate data showed initial claims for U.S. jobless benefits fell by 6,000 to 462,000 last week. Risk Currencies “If you look behind the trade numbers, exports and imports both fell,” said Kathy Lien, director of currency research, with online currency trader GFT Forex, in New York. “The contraction in imports and exports does not play into the growth story. That’s why risk currencies are selling off and the dollar is rising.” The New Zealand dollar slid 0.2 percent to 70.07 U.S. cents. The greenback weakened 0.1 percent to $1.3672 per euro, compared with $1.3657 yesterday. The dollar traded at 90.58 yen from 90.52. The S&P 500 fell 0.1 percent to 1,144.48, while the Dow Jones Industrial Average was little changed at 10,565.37. Chinese Inflation China’s consumer prices rose 2.7 percent in February from a year earlier, the National Bureau of Statistics said in Beijing, compared with the 2.5 percent median estimate of 29 economists surveyed by Bloomberg News. Production rose 20.7 percent in the first two months of 2010, the most in more than five years. The difference between yields on 10-year notes and Treasury Inflation Protected Securities, or TIPS, a gauge of expectations for gains in consumer prices known as the breakeven rate, widened to 2.26 percentage points today, from 2.18 points a week ago. The average over the past five years is 2.16 percentage points. Germany’s 10-year breakeven rate is 1.83 percentage points. Today’s auction of 30-year debt followed a sale of $21 billion of 10-year debt yesterday. The Treasury auctioned a record-tying $40 billion of three-year notes on March 9. The 30-year securities drew a yield of 4.679 percent, compared with an average forecast of 4.702 percent in a Bloomberg News survey of 9 of the Federal Reserve’s 18 primary dealers. Direct bidders, non-primary dealers that place their bids directly with the Treasury, bought 29.6 percent, the highest since at least February 2006. “The yield pick-up extending out the curve is attractive at these levels,” said Richard Bryant, senior vice president in fixed income at MF Global Inc. in New York, a broker of exchange-traded futures. “Real money will go to work on the long end of the Treasury market. The range that has held on the long end is reflective of the benign inflation environment at the moment.” To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net ; Susanne Walker in New York at swalker33@bloomberg.net

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Inflation Eroding China’s Bank Deposits Signals Zhou Must Increase Rates

March 11, 2010

By Bloomberg News March 12 (Bloomberg) — China’s inflation rate outstripped returns on household savings for the first time in 16 months, making it harder for officials to damp rising expectations for price gains. Consumer prices rose a more-than-forecast 2.7 percent in February, the fastest pace in 16 months, the statistics bureau said in Beijing yesterday. The number, probably boosted by seasonal factors, compares with a benchmark one-year deposit rate of 2.25 percent. Chinese policy makers aim to prevent the world’s fastest- growing major economy from overheating after reports showed exports rebounded, industrial production accelerated and new loans exceeded forecasts. Central bank Governor Zhou Xiaochuan may raise interest rates as early as in the next three weeks, Standard Chartered Bank Plc, Nomura Holdings Inc. and Royal Bank of Canada said after this week’s data. February’s inflation number “will increase the social and political pressure for a rate hike in the near term,” said Ma Jun , chief China economist at Deutsche Bank AG in Hong Kong. “A growing number of households will now realize that their deposits in the banking system are losing purchasing power.” Since October, the government has highlighted the importance of managing inflation expectations as the nation rebounds from the global financial crisis and commodity costs rise. Eleven out of 15 economists surveyed yesterday said that interest rates may rise in March or April. Barclays Capital yesterday increased its projection for China’s inflation rate this year to 3.5 percent from a previous estimate of 3 percent. ‘Sooner or Later’ Premier Wen Jiabao aims to hold full-year inflation around 3 percent after banks flooded the financial system with money to drive an economic rebound. Gross domestic product grew 10.7 percent last quarter and Zhou said March 6 that anti-crisis policies, including the yuan’s peg to the dollar, must end “sooner or later.” Inflation above deposit rates may encourage people to spend, fueling gains in consumer and asset prices, said Brian Jackson , an emerging-markets strategist at Royal Bank of Canada in Hong Kong. He said last month’s 35 percent gain in M1, the measure of money supply that includes demand deposits, signals households’ intentions to buy “big-ticket items,” property or stocks. Lu Ting , an economist at Bank of America-Merrill Lynch in Hong Kong, said that year-on-year inflation numbers may be misleadingly high because of low bases for comparison and seasonal distortions. He said month-on-month and quarter-on- quarter calculations would show milder price gains, with bank deposits still giving positive returns. Snow Storms Inflation may slow in March on improved weather after snow and storms pushed up food costs at the start of the year, statistics bureau spokesman Sheng Laiyune told reporters at a briefing in Beijing yesterday. Food prices rose 6.2 percent in February from a year earlier. The data released yesterday showed that China’s industrial output rose 20.7 percent in the first two months of 2010, the most in more than five years. Banks extended 700 billion yuan ($103 billion) of new loans in February, central bank said. That compared with 1.39 trillion yuan in the previous month and 1.07 trillion yuan a year earlier. The median estimate was 600 billion yuan. M2 , a broad measure of money supply, rose 25.5 percent, compared with a 26 percent gain in January. The government target is 17 percent growth this year. Retail sales rose 17.9 percent in the first two months from a year earlier, and urban fixed-asset investment gained 26.6 percent. Rebounding Exports Trade data on March 10 showed exports rebounding faster than economists forecast and a property-market report said prices climbed in February by the most in almost two years. Economists often look at January and February numbers together to eliminate distortions caused by a one-week Lunar New Year holiday. China’s 2010 data is also boosted by comparisons with year-earlier levels depressed by the financial crisis. Commodity costs, reforms of China’s energy and resource pricing, and the effects of last year’s expansion of credit may add to inflation pressures this year, China’s top planning agency told lawmakers last week. Baoshan Iron & Steel Co. and spirits manufacturer Kweichow Moutai Co. are among companies to have pushed up prices. Producer-price inflation climbed to 5.4 percent in February from 4.3 percent in January, the statistics bureau said yesterday. Pegged Currency The People’s Bank of China hasn’t raised benchmark interest rates since December 2007, before the financial crisis deepened. The one-year lending rate is 5.31 percent. China has also effectively pegged the yuan at about 6.83 per dollar since July 2008 to help exporters. Non-deliverable yuan forwards rose for a sixth day yesterday, indicating that traders expect that the peg will break and the currency will gain 2.9 percent in the next year. The central bank has twice raised lenders’ reserve requirements this year. Deputy Governor Su Ning said this week that those moves were to prevent monetary conditions becoming “excessively loose” as the government continues to implement what it describes as a “moderately loose” stance. Policy makers are targeting lending of 7.5 trillion yuan, 22 percent less than last year’s actual figure, and pledging to crack down on property speculation. The government has tightened second-home mortgages and banks have reduced discounts on home- loan rates. — Li Yanping , Kevin Hamlin , Zhang Dingmin . Editors: Paul Panckhurst , Chris Anstey . To contact Bloomberg News staff for this story: Li Yanping in Beijing at +86-10-6649-7568 or yli16@bloomberg.net

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Household Wealth in U.S. Increases at a Slower Pace as Home Values Decline

March 11, 2010

By Timothy R. Homan March 11 (Bloomberg) — Household wealth in the U.S. grew in the fourth quarter at a slower pace, limited by a drop in home values that indicates the recovery in consumer spending will take time to gain speed. Net worth for households and non-profit groups rose by $700 billion to $54.2 trillion, marking a third consecutive gain, according to the Federal Reserve’s Flow of Funds report issued today in Washington. Wealth increased by $2.78 trillion in the third quarter. American consumers cut borrowing at a record pace last year, the figures showed, in a bid to repair the damage from overextended balance sheets and the loss of wealth during the recession. The need to replenish savings combined with the loss of 8.4 million jobs means spending, the biggest part of the economy, will be restrained. “We’re probably feeling a little bit of a hangover from the decline in real-estate markets,” Guy LeBas , chief fixed- income strategist at Janney Montgomery Scott LLC in Philadelphia, said before the report. “It’s hard to justify higher spending if you don’t have income coming in the door.” The Standard & Poor’s 500 Index increased 5.5 percent in the last three months of 2009, compared with a 15 percent gain the previous quarter. Household real-estate holdings fell in value by $109.8 billion in the last three months of 2009, the first decrease in three quarters, according to the Fed’s report. Stocks Fall The S&P 500 decreased 0.3 percent to 1,142.52 at 12:18 p.m. in New York, depressed by concern that faster inflation in China will lead to higher interest rates that will slow the global recovery. Since the recession began in December 2007, Americans have been constrained by periods of falling home and stock prices, tight credit and rising unemployment. While stocks have gained and home prices began stabilizing last year, borrowing standards have tightened and unemployment remains near a 26- year high. The jobless rate , which has not increased since October, held at 9.7 percent last month, according to a March 5 report from the Labor Department. The rate reached 10.1 percent in October, the highest level since 1982. Owners’ equity as a share of their total real-estate holdings increased to 38.1 percent last quarter from 37.6 percent in the third quarter, today’s Fed report showed. Less Borrowing Consumer debt dropped at a 1.2 percent annual pace in the fourth quarter, a seventh consecutive decline. For all of 2009, borrowing decreased 1.7 percent, the first decline since records began in 1952. Mortgage borrowing declined at a 0.8 percent pace from October through December, while other forms of consumer credit fell at a 5.8 percent rate, the Fed’s report showed. Total borrowing by consumers, businesses and government agencies increased at an annual rate of 1.6 percent last quarter, led by a 13 percent advance by the federal government. Borrowing by businesses decreased at a 3.2 percent rate. Borrowing by the federal government reflected, in part, spending linked to President Barack Obama ’s stimulus plan. State and local government borrowing climbed at a 4.7 percent pace. The economy grew at a 5.9 percent rate in the last three months of 2009, the fastest pace in six years. Economists surveyed by Bloomberg News this month forecast the expansion will slow to a 2.8 percent pace in the first quarter of 2010. To contact the report on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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Most U.S. Stocks Fall on China Inflation; Banks, Technology Companies Gain

March 11, 2010

By Rita Nazareth March 11 (Bloomberg) — Most U.S. stocks fell as higher- than-estimated inflation in China spurred speculation the nation will be forced to raise interest rates while technology companies and banks rallied. Deere & Co., AK Steel Holding Corp. and Caterpillar Inc. fell more than 0.8 percent on concern that demand from China will slow, curbing the global economic recovery. Google Inc. and International Business Machines Corp. advanced more than 1 percent. Citigroup Inc. climbed following a Financial Times report that Chief Executive Officer Vikram Pandit will say the bailed-out bank may earn $20 billion within a few years. More than three companies fell for every two that rose on U.S. stock exchanges. The Standard & Poor’s 500 Index lost 0.2 percent to 1,143.78 at 12:07 p.m. in New York. The Dow Jones Industrial Average slumped 8.31 points, or 0.1 percent, to 10,559.02. “It will be slower going into risk assets,” said Dan Greenhaus , chief economic strategist at Miller Tabak & Co. in New York. “People are concerned about whether or not globally there’s a little bit of a moderation in the pace of gains that we’ve seen economically speaking..” The S&P 500 surged 69 percent through yesterday during the past year, recovering most of its losses from the decline between Jan. 19 and Feb. 8. The three-week retreat was driven by concern some European countries will fail to pay back debt and speculation the Fed will need to rein in emergency stimulus measures as the economy improves. 16-Month High China’s inflation reached a 16-month high, industrial output climbed and new loans exceeded forecasts, putting pressure on the government to cool economic growth. Consumer prices rose 2.7 percent in February from a year earlier, the National Bureau of Statistics said today, compared with the 2.5 percent median estimate of 29 economists surveyed by Bloomberg News. Production rose 20.7 percent in the first two months of 2010, the most in more than five years. Premier Wen Jiabao aims to hold full-year inflation around 3 percent after banks flooded the financial system with money to drive a rebound from the global recession. Gross domestic product grew 10.7 percent last quarter and central bank Governor Zhou Xiaochuan said March 6 that anti-crisis policies, including the yuan’s peg to the dollar, must end “sooner or later.” ‘Too Far, Too Fast’ “Obviously, inflation is a concern on a global basis,” said Tom Wirth , senior investment officer at Chemung Canal Trust Co., which manages $1.6 billion in Elmira, New York. “That fear gets translated into stock prices. China has led us out of the global recession. If they raise rates too far, too fast, that’s going to slow the world down. I don’t think it’s a problem right now, but there’s always an overreaction from investors.” U.S. stocks extended losses today after the nation’s trade deficit unexpectedly narrowed in January as demand for foreign oil and automobiles dropped. The S&P 500 then rebounded as technology stocks and banks rallied. The trade gap decreased 6.6 percent to $37.3 billion from a revised $39.9 billion in December as Americans imported the fewest barrels of crude oil in a decade, Commerce Department figures showed today in Washington. Exports decreased 0.3 percent, the first decline since April, on fewer shipments of commercial aircraft and autos. To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net .

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Investors Picking Up Unfinished Condo Projects

March 10, 2010

LeaseFlorida LLC in Miami Lakes, FL, foreclosed on two failed residential condominium projects. In the first deal, Cypress Bay condo project in the Sunset Harbor area of Miami Beach. Cypress Bay was a planned 20-unit with ground floor retail at 1225…

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Barry D. Wood: Still No Recovery in Housing

March 10, 2010

Three and a half years into the worst home price decline in living memory, there is still no evidence that a bottom has been reached. Housing economist Bert Ely told the conference of business economists meeting in Arlington, Virginia Monday (March 8) that the housing market still hasn’t bottomed. Nationwide, home prices are down over 35% since the 2006 peak of the housing bubble. Ely calculates that the subsequent collapse has wiped out $7 trillion, or half of homeowners equity. Mark Zandi of economy.com predicts that home prices are likely to fall another 8% from here, bottoming sometime around the end of this year. Since 2007 home prices have fallen for three consecutive years, the first such downturn nationally since the Great Depression. There is some good news. At the same NABE (National Association of Business Economics) conference, Ajay Rajadhyaksha of Barclays Capital said the housing market is stabilizing. Sales of existing single family homes rose 8% in 2009 and there are expectations that the first-time home buyers credit, due to expire in April, will spur sales in the critical spring buying season. Lawrence Yun of the National Association of Realtors is cautiously optimistic even though he worries that weakness in the winter months “raises questions about the strength of the economic recovery.” Yun says there is still a large inventory of over three million homes on the market. What is most worrying is that foreclosures are still rising and an increasing number of homeowners are underwater on their mortgages, meaning that they owe more than what the home is currently worth. Rajadhyaksha said of the 57 million US home mortgages, 6 million are in the distressed category, meaning that they are either in actual foreclosure or payments are seriously delinquent. Foreclosed properties drive down prices. Foreclosures totaled 2.8 million in 2009 and are expected to rise to 3 million this year. They are rising despite the Obama administration’s much touted program to forestall them. As more homeowners find themselves underwater, the incentive to default by walking away increases. The Detroit Free Press reports that in Michigan, where one million manufacturing jobs have vanished in the past decade and unemployment exceeds 14%, a stunning 38% of homeowners are underwater. Strategic defaults, it says, have tripled in the past three years. Home prices in Michigan, where there was no housing bubble, are projected to decline a further 22% over the next five years. As if this wasn’t enough bad news, Rajadhyaksha told the business economists that the mortgage market remains broken with Fannie Mae and Freddie Mac essentially bankrupt. Mortgage finance, he says, is so constrained that “it is harder to get a loan or to refinance than at any time in the past 10 years.” Mortgage lenders, he says, are absorbing huge losses and thus tightening lending standards to avoid future losses. Given all this, should we be surprised that consumer confidence remains low and that homeowners, in particular, are skeptical about the durability of the economic recovery? As a number of experts, including Alan Greenspan, have observed, there can be no sustained economic recovery until there is a recovery in housing.

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Smart Banks With Dumb Customers Don’t Exist: Roger Lowenstein

March 7, 2010

Commentary by Roger Lowenstein March 8 (Bloomberg) — Republicans and Democrats in Congress have been squabbling about whether the new financial consumer-protection agency should be housed within the Federal Reserve or as part of an independent body. The new watchdog, wherever it goes, is the linchpin of the emerging financial-reform bill, and its premise is that greedy bankers exploiting dumb consumers essentially caused the credit crisis. Stop bankers from selling toxic mortgages and other harmful loans and we won’t have any more meltdowns. Even though bankers were greedy, and many borrowers were naive, this is a simplistic way of viewing the financial crisis and one that misses its underlying cause. Since mortgage bankers make money from loans, it’s tempting to think of them as parasites that prey on customers. But there is no such thing as a smart bank with a dumb customer; if the loan turns sour, the banker was dumb, too. And in the mid-2000s, scads of them were. Foreclosures by consumers heavily weighed on the economy, but what triggered the credit crunch was the failure (or near- failure) of the banks that issued (or acquired) the mortgages. In short, the root cause of the meltdown wasn’t that customers borrowed too much; it’s that banks lent too much. This isn’t to deny that many subprime loans were exploitative, and that customers often didn’t understand repayment terms. Nor is it a bad idea to police banks, preventing them, for instance, from charging unreasonable fees. Bank Self-Harm Yet a sound economy needs healthy financial institutions. Rather than stop lenders from hurting consumers, the first priority should be to keep the banks from harming themselves. In the short run, solvency is often at odds with what consumers want (or with what they think they want). We should remember that for every mortgage customer that was hosed, others were willingly grabbing all the unsound mortgages they could get. Before the bust, champions of the new consumer agency, such as Representative Barney Frank , were consistent advocates of more loans to subprime borrowers. That’s hardly surprising; it’s in the nature of folks to want more credit. As Warren Buffett once reminded a person in his employ, it’s the job of the banker to screen out loans with a low probability of repayment. The aim of regulators should be to force banks to do what is in their own and society’s interests: to practice sound banking. No consumer watchdog can do this because systemic risk aggregates at the level of the lender. The surest solution is to limit the leverage of financial institutions. Regulators have already moved against dicey products such as no-documentation mortgages (“liar loans”), and ones in which borrowers get 100 percent financing. And well they should. Next Bubble Those abuses were in the last bubble. Count on it: There will be a new speculative mania, with its own distinctive products, and the banks that lend against it will suffer. Rather than try to make banks perfect, the goal should be to minimize the damage when they prove imperfect. The way to do that is to limit financial leverage by restricting the banks’ use of debt. Leverage acts like an accelerator, magnifying and spreading losses, chain-reaction style, from one borrower to another. And in most meltdowns, this has played a leading role. In 1929, the stock-market bubble was inflated by unprecedented amounts of margin debt. When stocks fell, indebted speculators had to keep selling to pay back their loans, fueling a downward cycle and, ultimately, a crash. Silly Prices In the late 1980s, firms paid silly prices for corporate acquisitions until, in 1990, the mania stopped. Since almost every deal had been financed with boatloads of junk bonds, the crash left corporate America saddled with debt, and banks were stuck with sinking assets. The country went into a recession. By contrast, investment bubbles that aren’t associated with debt are far less lethal. The dot-com frenzy was easily the most flagrant episode of speculation in the last 75 years. Scores of companies with zero earnings sold stock; dozens of these initial public offerings soared in value on their first day of trading. The Nasdaq Composite Index rose 86 percent in 1999. By contrast, the recent real-estate bull market was tame. Home prices doubled over five or six years — impressive, but nothing like the IPOs that prompted stock values to double in a day. Yet when the dot-com bubble burst in 2000, the impact was modest. The country had a mild, brief recession. Unemployment topped out at 6.3 percent. People lost money on stocks, but since the meltdown was in equities, no great harm ensued. Brick by Brick The mortgage bubble , on the other hand, was built brick by brick with debt. And it led to the worst recession since the Great Depression, with unemployment exceeding 10 percent. That is why the most urgent remedy is restricting bank borrowing. U.S. regulators have been reluctant to raise capital requirements without an international agreement, lest American firms be put at a disadvantage. And the international Financial Stability Board in Basel, Switzerland, has been vowing to raise capital standards. However, the process is slow. Congress should make clear that if the board doesn’t act, it will. There can be no going back to the days of 30-to-1 leverage on Wall Street. Since much leverage today is kept off the balance sheet (via derivatives), any financial reform that doesn’t restrict the use of such instruments is sorely flawed. Congress should immediately raise the amount of margin capital required to place derivative bets — the equivalent of reducing leverage. Protecting consumers and breaking up large banks is fine. But neither will prevent banks from acting stupidly again. The surest safeguard is to ensure that, when they do, they aren’t up to their necks in debt. ( Roger Lowenstein , author of “When Genius Failed,” is a Bloomberg News columnist. The opinions expressed are his own.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the author of this column: Roger Lowenstein at elrogl@hotmail.com

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Turbines Blur Good View of U.S. Business Investment, Economist Feroli Says

March 4, 2010

By Courtney Schlisserman March 4 (Bloomberg) — Seasonal quirks in demand for turbines means the outlook for U.S. business investment isn’t as “dire” as implied by today’s factory orders report, according to economist Michael Feroli . Orders for non-defense capital goods excluding aircraft fell 4.1 percent in January and shipments, a measure used in calculating gross domestic product, declined 1.7 percent, a report today from the Commerce Department showed. The biggest component in both cases was turbines, which are expensive machines used to generate power. “The culprit here is turbines,” Feroli, an economist at JPMorgan Chase & Co. in New York, said in an interview. “You smooth it out and things weren’t as robust as they seemed in December, but maybe not as dire as they seemed in January.” Gains in manufacturing helped pull the economy out of the worst recession in seven decades last year, and continued strength is now needed to spur other parts of the economy. A report yesterday showed service industries expanded last month at the fastest pace in more than two years. The sheer size of turbine and generator orders may explain why they are the “most volatile” part of the factory orders report and therefore difficult to adjust for seasonal variations, said Chris Savage, an economist at the Census Bureau who works on the factory orders release. Each turbine can cost millions of dollars and companies may try to close deals at the end of the year, resulting in large increases in the measure in December followed declines in January, Savage said. The government’s figures show turbine and generator bookings have fallen in eight of the past 10 Januaries and shipments declined in every one of those years. Sustained Gains Excluding turbines and aircraft, another volatile component, shipments of capital goods climbed in the five months to January, when they increased 0.9 percent, Feroli said. The declines in orders and shipments of equipment reported today “don’t change our opinion that capital spending is recovering,” said Aaron Smith , an economist at Moody’s Economy.com in West Chester, Pennsylvania. “There’s always a tendency for the turbines and generator category to be weak in the first month of the quarter and stronger in the last month and that trend is particularly strong for the first part of the year.” The economy grew at a 5.9 percent annual pace in the fourth quarter of last year, the fastest in six years. Spending on equipment and software rose at an 18 percent annual pace during the period, the strongest rate of growth since 2000, according to Commerce Department data. Sentiment Measures Sentiment measures, which may not be as influenced as orders by the value of goods, are showing manufacturing has continued to prosper this year. The Institute for Supply Management’s manufacturing gauge showed expansion for a seventh straight month in February. Qualcomm Inc. , the world’s biggest maker of mobile-phone chips, said March 2 it expects second-quarter sales and profit to be at the higher end of its forecast range and cited improving handset shipments. The company’s customers are telling it that phone shipments are showing “respectable year-over-year improvements,” Chief Financial Officer Bill Keitel said at Qualcomm’s annual shareholder meeting. To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net .

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Emerging-Market Stocks Snap Four-Day Rally as Greek Bonds Decline on Sale

March 4, 2010

By David Merritt March 4 (Bloomberg) — Emerging-market stocks fell, snapping the longest rally in two months, on concern the global economic recovery may falter. Greek bonds slipped as the government started selling 10-year securities. The MSCI Emerging Markets Index dropped 0.6 percent at 10:32 a.m. in London, halting a four-day rally that was the longest since Jan. 6. The MSCI World Index of 23 developed nations’ stocks declined 0.2 percent. Futures on the Standard & Poor’s 500 Index were little changed. Copper and zinc fell for the first time in five days and oil retreated. With Greece’s financial crisis posing the biggest threat to the euro in its 11-year history, the European Central Bank meets today to decide whether to pare stimulus measures that helped revive growth. The Federal Reserve said yesterday that the U.S. expansion was “modest” in January and February. China’s Industrial Bank Co. said loan growth will halve this year as the government orders lenders to curb borrowing. “Two of the main engines of the Chinese economy, exports and investments, really have reached their point of maximum dynamism,” Stephen Roach , chairman of Morgan Stanley Asia Ltd., said in an interview in Hong Kong. He described the U.S. recovery as “lousy.” Shanghai Stocks The Shanghai Composite Index tumbled 2.4 percent, the biggest decline among world equity indexes, on concern bank lending may slow and interest rates will rise as inflation accelerates. Industrial Bank, part-owned by a unit of HSBC Holdings Plc, dropped 2.4 percent. Fifteen of 16 benchmark stock indexes in major emerging markets open for trading fell. The Stoxx Europe 600 Index was little changed. A.P. Moeller-Maersk A/S, the owner of the world’s largest container shipping line, slumped 4.3 percent in Copenhagen after posting its first annual loss since at least World War II. GDF Suez, the operator of Europe’ biggest natural-gas network, slid 2.5 percent in Paris after reporting results that missed analysts’ estimates. Greece’s ASE Index rallied 1.5 percent, the biggest gain among 18 western European benchmark indexes. The MSCI Asia Pacific Index lost 0.7 percent. Mitsubishi Motors Corp. slumped 11 percent in Tokyo after the carmaker and Paris-based PSA Peugeot Citroen said they won’t form an alliance. Greek Yields Greek bonds fell, pushing the yield on the 10-year security up 7 basis points to 6.05 percent. The difference in yield, or spread, between the securities and benchmark German bunds widened 7 basis points to 293 basis points. Credit-default swaps on Greek government debt rose for the first day this week, climbing 11 basis points to 305.5, according to CMA DataVision. Greece started selling new securities as more than 20 billion euros of debt is scheduled for repayment in April and May, while Prime Minister George Papandreou tries to reduce Europe’s biggest budget deficit by cutting salaries for civil servants and increasing taxes. “They obviously feel confident that they now can raise the funds,” said David Schnautz , a fixed-income strategist at Commerzbank AG in Frankfurt. “Time was running out for Greece so it was warranted for them to do the deal rather sooner than later. And demand looks solid.” U.S. futures were little changed, after the S&P 500 gained for three days. First-time filings for jobless benefits dropped by 26,000 to 470,000 last week, according to the median forecast of economists in a Bloomberg survey before a Labor Department report due at 8:30 a.m. Companies in the U.S. probably cut more jobs in February and the unemployment rate increased, indicating the labor market is still struggling to rebound, economists said before a government report due tomorrow. Euro Falls The euro fell for the first day in three against the dollar, weakening 0.2 percent before the ECB announces its decisions on monetary policy. The common European currency also slid 0.2 percent against the yen. The yen was little changed at 88.55 per dollar. Copper for delivery in three months fell 0.9 percent to $7,510 a metric ton on the London Metal Exchange and zinc retreated 0.6 percent to $2,306 a ton. Crude oil dropped 0.4 percent to $80.54 a barrel in New York trading. To contact the reporter on this story: David Merritt in London on dmerritt1@bloomberg.net .

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Lockheed’s Delays on F-35 Fighter Bring Lowest Performance Fee Since 2007

March 3, 2010

By Tony Capaccio March 3 (Bloomberg) — Lockheed Martin Corp. ’s latest performance fee from the government on the F-35 Joint Strike Fighter, its largest program, is the lowest since late 2007 because of delays in production and aircraft deliveries. Lockheed, the world’s largest defense contractor, earned 69.9 percent of the available fee for the six-month period ending Oct. 31 — $48.5 million of a potential $69.4 million. Lockheed can’t earn back the remaining $20.9 million because it will be used to reduce program costs, Cheryl Limrick, Pentagon spokeswoman for the program, said. The fee for performance is Lockheed’s only profit in the program’s development phase, which has now been extended 13 months to November 2015. Defense Secretary Robert Gates said Feb. 1 that all fees remaining on this phase, $614 million, will be withheld because “key goals and benchmarks were not met.” “The taxpayer should not have to bear the entire burden of getting the JSF program back on track,” he said. Some of the money will be used to get the program back on schedule. To earn the rest, Lockheed will have to meet a revised program milestone. The F-35 is the military’s next-generation fighter. It is designed for missions including bombing and air-to-air combat, and it will be used by the Air Force, the Navy and the Marine Corps. It will replace aircraft including F-16s and A-10s, as well as Harrier aircraft flown by the Marines and the U.K. Bethesda, Maryland-based Lockheed’s lowest previous award was 67.3 percent in October 2007. The company earned its highest fees — 90 percent or more — before 2006. Cost Increase The program’s projected $298 billion cost may increase, Air Force Secretary Michael Donley told lawmakers last week. An increase of 15 percent would force the Pentagon to review the program and certify to Congress that it’s essential to national security. Donley also said the delays mean the service won’t field its first combat-ready unit of F-35s until 2015, two years late. Planned delivery of the first units to the Marine Corps in 2012 and the Navy in 2014 are still projected to be on time. The Pentagon — with prodding from Congress — has tightened performance fee payments since the U.S. Government Accountability Office in a December 2005 report criticized it for rewarding substandard performance. Gates has ordered officials to sharpen scrutiny of weapons programs and hold contractors more accountable. Six Months of Delays Lockheed’s reduced fee came after a six-month period when production delays led to late plane deliveries that resulted in test jets flying only about 10 percent of their planned flights, according to an October assessment by the Defense Contract Management Agency and the Pentagon’s testing office. The agency’s monthly reports last year are a chronicle of the woes the program has faced: April: “Late parts have been extremely disruptive to assembly operations.” May: Shortages of parts are “resulting in a massive amount” of work that should have been completed early in the assembly process is being transferred to the final stage. July: The test-flight schedule, which has been extended six times since the development program began in October 2001, “is significantly behind” and “does not appear to be achievable.” Lockheed Martin spokesman John Kent said “production trends indicate that we will be back on schedule during 2011.” “Labor hours required to complete each aircraft have dropped by half and the time required to manufacture an F-35 has dropped by one third,” he said in an e-mailed statement. “Parts shortages have gone from 300 on the first aircraft to 16 on the most recent plane rolled out and parts availability continues to improve as the supply chain gears up for higher production rates,” Kent said. Fee History Lockheed Martin’s fees in the four grading periods since the October 2007 low fluctuated from 77.1 percent to 87.5 percent to 79.5 percent and 69.9 percent, according to the figures. Overall, Lockheed Martin since 2002 has been paid 82.1 percent of eligible fee, or $1.528 billion of $1.862 billion, according to the figures. Lockheed Martin is the lead contractor on the program. Major subcontractors include BAE Systems Plc and Northrop Grumman Corp. To contact the reporter on this story: Tony Capaccio at acapaccio@bloomberg.net .

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Canada’s Economy Grows at Fastest Pace Since 2000, Adding to Rate Pressure

March 1, 2010

By Greg Quinn March 1 (Bloomberg) — Canada’s economy expanded at a 5 percent annualized rate in the fourth quarter, faster than predicted by the Bank of Canada, raising pressure on policy makers to increase interest rates later this year. Gross domestic product grew at the fastest pace since the third quarter of 2000, Statistics Canada said today in Ottawa. The median estimate of 23 economists surveyed by Bloomberg News was for a 4.2 percent expansion, and the Bank of Canada had projected a 3.3 percent gain. The figures come a day before Bank of Canada Governor Mark Carney will keep his key lending rate at 0.25 percent, all 21 economists surveyed by Bloomberg predict. Today’s report will lead Carney to raise the key policy rate after his conditional commitment to keep it unchanged through June expires, said Mark Chandler , a fixed income strategist at RBC Capital Markets in Toronto. “It’s considerably stronger” than the central bank had expected, Chandler said in a telephone interview from Toronto, adding policy makers may “cool the jets in the second half of this year” with rate increases. The bank could start with a half a percentage point increase in the third quarter, he said. The Canadian currency strengthened 0.3 percent to C$1.0482 per U.S. dollar at 8:45 a.m. in Toronto, from C$1.0517 on Feb. 26. One Canadian dollar buys 95.40 U.S. cents. Growth Widespread The economy’s fourth-quarter growth was supported by consumer spending, capital investment and trade, Statistics Canada said. Government spending also contributed to growth. Consumer spending increased 0.9 percent in the quarter, led by durable goods such as furniture and cars. Investment in housing rose 6.5 percent. Exports rose 3.7 percent in the October-through-December period, led by a 13 percent jump in automotive products, while imports rose 2.2 percent. Fixed-capital investment rose 1.6 percent. On a monthly basis, the economy grew 0.6 percent in December, the fastest in three years. Economists predicted output would grow 0.4 percent on the month, according to the median estimate of 21 economists surveyed by Bloomberg News. Statistics Canada revised its estimate of the third-quarter growth rate to 0.9 percent from the earlier reading of a 0.4 percent pace. The agency also revised its earlier figures to show the country’s first recession since 1992 was deeper than thought, with a 7 percent annualized contraction in the first quarter of last year. Annual Contraction The economy shrank 2.6 percent in 2009, the most since 1982 and the third annual contraction in figures dating back to 1961. Carney cut the benchmark lending rate in April to the lowest since the bank was founded in 1934 and pledged to keep it there through the first half of this year unless the inflation outlook shifted. “Monetary policy has worked very well,” said Sebastien Lavoie , an economist at Laurentian Bank Securities in Montreal. The Bank of Canada estimates consumers will account for more than half of a 2.9 percent expansion this year. When the bank raises rates “it won’t be baby steps; it will be major jumps,” Lavoie said. The first increase could be three-quarters of a percentage point, he said, and the rate could reach 3 percent next year, he said. Jobless Still High The return of growth still hasn’t brought unemployment down much from the highest in more than a decade and exporters are still struggling with a strong currency and weak U.S. orders. The economy “is nowhere near recovery” said Louis Lepine, operations manager at TPG Pritchard Metalfab Inc. in Winnipeg, Manitoba, a contract manufacturer to agricultural, mining and transport companies. “We have seen quite a decline in business, but we have been fortunate enough to retain most of our staff,” he said. “We will be doing some cautious expansion this year, some capital expenditures.” Lepine said he’s also struggling with a high Canadian dollar. Canada’s dollar appreciated 21 percent against the U.S. dollar over the past 12 months to about 95 U.S. cents. The currency traded at about 63.6 U.S. cents at the end of 2002, and manufacturers have been squeezed by its gain, along with increased competition from emerging markets such as China. The strength of the currency and weak U.S. orders will slow economic growth this year, the Bank of Canada said in January . Consumer Strength Companies tied to consumers are more optimistic. Wal-Mart Stores Inc., the world’s largest retailer, said Feb. 23 it plans to open 35 to 40 stores in Canada in 2010, adding to the current total of 317. “Even with excess capacity in some industries, there are enough that are going to be ramping up that there will be pinched areas in the economy,” said Warren Jestin , chief economist at Bank of Nova Scotia. “Those are signs the Bank of Canada will be paying quite close attention to.” In a separate report, Statistics Canada said that factory prices rose 0.3 percent in January from December, and manufacturers’ raw materials costs increased 3.3 percent. Economists predicted factory prices would rise 0.5 percent, and material costs would gain 2.2 percent, according to the median estimates of economists surveyed by Bloomberg News. To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net .

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iSOFT Group Limited (ASX:ISF) Interview With CEO Mr Gary Cohen Explaining Various Impacts From The First Half Result

February 27, 2010

iSOFT Group Limited (ASX:ISF) Interview With CEO Mr Gary Cohen Explaining Various Impacts From The First Half Result

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Crab Soup Shows U.S. Airlines Wooing Premium Fliers as Travel Slump Abates

February 26, 2010

By Mary Jane Credeur and Mary Schlangenstein Feb. 26 (Bloomberg) — Delta Air Lines Inc. and AMR Corp.’s American Airlines , the world’s two largest carriers, are counting on lie-flat seats and Tahitian crab soup to help win back their most-profitable customers. With the easing of an 18-month global slump in first- and business-class travel, Delta’s seats that recline 180 degrees into beds and American’s Asian-fusion appetizers are lures for the corporate passengers whose ranks dwindled when the global recession ravaged budgets for international flying. Filling the premium seats at the front of airplane cabins is pivotal to U.S. airlines’ efforts to return to profit in 2010 after weak demand forced them into discounting to woo vacationers. Business fliers are prized because they typically pay the highest prices and take to the air more often. “If you’re flying to Japan or Seoul, it makes all the difference in the world to put your legs up and really sleep and arrive rested and ready to go,” said Chris McGinnis, editor of The BAT , a San Francisco-based newsletter and blog for frequent travelers. “You’re going to feel really taken care of.” U.S. airlines have been playing catch-up in recent years with overseas competitors such as Virgin Atlantic Airways Ltd. that moved more quickly to add amenities including seats that convert into beds. Shrinking Pool The recession shrank the pool of first- and business-class fliers for airlines worldwide, with December’s 1.7 percent increase in premium bookings the first for the global industry since May 2008, the International Air Transport Association trade group said on Feb. 16. While those passengers made up only 7.7 percent of 2009’s overseas total, they produced 26 percent of the revenue on those flights, IATA said. For example, Delta charges $4,998 for a walk-up, business-class ticket between New York’s Kennedy airport and London Heathrow. A discounted coach seat is $1,175 next month. International premium-ticket sales slid to $68 billion worldwide last year, down 20 percent from 2007. That contributed to losses at Delta, AMR, United Airlines parent UAL Corp. , Continental Airlines Inc. and US Airways Group Inc. Now, investor optimism is improving. The Bloomberg U.S. Airlines Index of 12 carriers has gained 9.7 percent this year, compared with a 46 percent plunge in the same period in 2009 as the economy weakened. Atlanta-based Delta fell 9 cents to $12.66 yesterday in New York Stock Exchange composite trading , while AMR rose 6 cents to $8.93. ‘Starting to Rebound’ “We continue to see signs that business travel trends are starting to rebound,” Matthew Jacob , an analyst at Majestic Research LLC in New York, told clients yesterday in a note. Delta is spending $1 billion on fleet upgrades through 2013, including lie-flat seats and quilted duvet comforters on 90 planes that fly international routes. Delta and Houston-based Continental both sought fliers’ input in designing new seats. “Seat comfort is among the highest factors in purchase drivers and satisfaction,” said Joanne Smith , Delta’s senior vice president of in-flight service and product development. Meals are important as well, as evidenced by Delta’s plans to add tarts to dessert options that include cheese and sundaes; the business-class menu at Continental revamped in December with help from New York chef James Canora of Delmonico’s restaurant; and American’s Asian cuisine unveiled Feb. 1. American flights between Tokyo and four U.S. airports, including Kennedy, offer first- and business-class fliers choices including the crab soup and gingered scallops with lobster sauce. The Fort Worth, Texas-based airline also improved its business-class seats and in-flight entertainment. Minimize Hassles The intent is to create “the best possible mix of things we can give to our customers to minimize their hassles and maximize their time,” Dan Garton , American’s executive vice president for marketing, said in an interview. At British Airways Plc , Chief Executive Officer Willie Walsh said Feb. 10 he is considering whether to add more U.S. destinations for his all-business-unit that serves Kennedy from London City Airport because the five-month-old route is “performing really well.” That would put pressure on carriers including Delta, because London-based British Airways already is the No. 1 operator of flights across the North Atlantic, the world’s biggest market for corporate travel. Qantas Airways Ltd. , Australia’s largest carrier, signaled its business-class strategy last week with a plan to drop first- class seats to some cities. Business First Qantas’ revamping of 29 wide-body jets to expand business- class cabins is “a commercial decision that you can generate more revenue allocating that space to business rather than first class,” said David Swierenga , president of aviation consultant AeroEcon in Round Rock, Texas. The affected routes include the 14-hour flight between Sydney and Johannesburg, for which Qantas now charges A$13,812 ($12,346) for the costliest round-trip ticket in first class. That’s almost twice as much as for business class. “Business class has become so luxurious with seats that lie flat and unlimited drinks and terrific food,” said Alan Bender , a professor of airline economics at Embry-Riddle Aeronautical University in Daytona Beach, Florida. “How can I justify another big sum of money for just a marginal increase in luxury for first class?” Bender said the industry standard for first-class service is still being set by the Asian carriers flying the longest intercontinental trips, including Singapore Airlines Ltd., Cathay Pacific Airways Ltd. and Japan Airlines Corp. ‘Greatest Wealth’ “Most of their routes are international business cities where there is the greatest wealth in the world, so naturally you have more people who want the very best service when they fly,” he said. Singapore Airlines is the first carrier to fly the double- decker Airbus SAS A380, which features private suites with sliding doors and the widest available business-class seats. The airline also spends S$11 million ($8 million) a year on wine and Dom Perignon champagne for first-class passengers. Delta and Continental are among the U.S. airlines that ditched their three-cabin configuration years ago in favor of plusher business seating along with coach, according to Bender. On United, one of the U.S. carriers still using three cabins on some routes, the menu developed by celebrity chef Charlie Trotter includes sea bass with a three-onion ragout in first class, while business-class choices include grilled mahi- mahi with a sweet-and-sour vegetable stir-fry. The trick for U.S. airlines is balancing that luxury service with the fare-cutting pressure on domestic routes from discounters such as Southwest Airlines Co., JetBlue Airways Corp. and AirTran Holdings Inc. , Bender said. “It’s very hard to do both well, so over time we’ve seen the U.S. carriers focus more on the middle ground of having a really nice business class,” he said. To contact the reporters on this story: Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net ; Mary Schlangenstein in Dallas at maryc.s@bloomberg.net .

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Video: Gahbauer Says U.K. House Price Gains May Stall in 2010

February 26, 2010

Feb. 26 (Bloomberg) — Martin Gahbauer, chief economist at Nationwide Building Society, talks with Bloomberg’s Rishaad Salamat about U.K. house prices, which fell in February for the first time in 10 months as winter weather and higher taxes on transactions deterred buyers. Gahbauer speaks in Swindon, England. Bloomberg’s Maryam Nemazee also speaks.

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Lloyds Full-Year Loss Falls Short of Estimates; Loan Impairments Increase

February 26, 2010

By Andrew MacAskill and Jon Menon Feb. 26 (Bloomberg) — Lloyds Banking Group Plc , Britain’s biggest mortgage lender, posted a full-year loss that missed analyst estimates and said loan impairments rose in 2009. Lloyds’s pretax loss narrowed to 6.3 billion pounds ($9.6 billion) from 6.7 billion pounds in 2008, the London-based bank said in a statement today. That missed the 6.1 billion-pound median loss estimated by 22 analysts surveyed by Bloomberg. Total impairments were “significantly higher” at 24 billion pounds, the lender said today. They declined 21 percent in the second half compared with the first six months. “The financial performance of the group’s continuing businesses is expected to improve significantly in 2010,” Chief Executive Officer Eric Daniels , 58, said in the statement. “Although we are forecasting a slow, below trend, economic recovery, the group is successfully addressing the near term challenges.” Lloyds completed the U.K.’s biggest rights offering last year to raise 13.5 billion pounds, enabling it to shun a government program capping losses on toxic assets. The bank, which is 41 percent owned by the government, has taken about 20.5 billion pounds in taxpayer-funded support since buying HBOS Plc in January 2009, a deal that left the bank saddled with bad loans. “The results were overall positive with an improvement in the net interest margin which is a very important development,” said Joe Dickerson , an analyst at Execution Noble in London who has a “buy” rating on the stock. They are cautious on the economy in respect of their impairment outlook.” Loan Impairments The bank said it saw “further significant reductions” in impairments in 2010 and beyond, “assuming current economic expectations.” Lloyds said it had focused on the loan portfolio from HBOS Plc, which it took over in January 2009, with “the greatest attention paid to the over-concentration in real estate related lending and those portfolios that fall outside the Lloyds TSB risk appetite.” That led the bank to “prudent and material impairment charges especially in the first half of the year.” Royal Bank of Scotland Group Plc , Britain’s biggest government-owned lender, yesterday reported a narrower-than- expected full-year net loss buoyed by profit at its investment bank and slowing impairments. Barclays Plc, the U.K.’s second biggest bank, more than doubled profit to 7.5 billion pounds the bank said last week. HSBC Holdings Plc reports results March 1. At the end of last year, Lloyds said it had gained 157 billion pounds of funding support from the government and central bank. A reduction in the bank’s balance sheet “will avoid the necessity to refinance much of this funding,” Lloyds said. The bank announced about 15,000 job cuts during the year, it said. To contact the reporters on this story: Andrew MacAskill in London at amacaskill@bloomberg.net ; Jon Menon in London at jmenon1@bloomberg.net

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A1 Minerals set to pour first gold next week

February 25, 2010

A1 Minerals set to pour first gold next week

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Eagles Pinch Concert Scalpers as Live Nation Raises Prices for Best Seats

February 24, 2010

By Adam Satariano Feb. 24 (Bloomberg) — The Eagles were the first band to charge $100 for a concert ticket 16 years ago. Now the group with the all-time best-selling album is raising prices on prime seats, making the cheap ones cheaper and squeezing scalpers. The band’s April 27 show in Sacramento, California, uses Live Nation Entertainment Inc. ’s “dynamic” ticketing service that mimics airlines’ approach — a first for a major group. By setting 10 prices based on anticipated demand, instead of the usual two to four, the Eagles are selling seats closer to what they fetch on resale sites such as EBay Inc. ’s StubHub. The aim is to make tickets affordable for more fans and to fill seats, according to Marc Robbins, who helped design the system for the Eagles’ manager, Live Nation’s Front Line. The result lifts food and merchandise sales while slicing into the markup of scalpers who profit from tickets initially priced too low in the $4.4 billion worldwide concert market. “The idea is to shift the economic value from the brokers, who get the difference between the face value and the resale value, to the primary market where it can go to the artists, promoters and venue operators,” said Brett Harriss , an analyst with Gabelli & Co. in Rye, New York, which owns the shares. Concerts are increasingly important for the music industry. Worldwide ticket sales more than doubled in 2009 from $1.7 billion in 2000, while compact disc sales fell 65 percent, according to Billboard magazine. The average ticket price rose 54 percent to $62.57 from 2000 to 2009, according to Pollstar, which tracks the concert business. More Clout The Eagles test highlights ticketing changes made possible by Live Nation’s merger last month with Ticketmaster Entertainment, a deal opposed by consumer groups. As the world’s largest concert promoter, venue operator, ticket seller and manager of artists, the Beverly Hills, California-based company has more leverage to make changes that drive revenue and profit. Dynamic pricing has been tried by professional baseball teams including the San Francisco Giants. It uses technology to continually adjust ticket prices for some seats based on demand. At the 17,000-seat Arco Arena, the Eagles are testing a limited version that set prices in advance. Aisle seats are worth more than those in the middle of a row, for example. In some systems, changes can be made in real time. The band and show organizers are keeping total ticket revenue comparable to other stops on the tour, said Robbins. Eagles tickets priced as high as $250 are being used to reduce others to as little as $32, the lowest for the band since 1980. Industry’s ‘Gain’ Tickets went on sale Feb. 8 and more than half sold for less than $52, the lowest price on other stops, according to Robbins. He declined to say how many seats were involved in the public sale and said the system needs additional testing. The $32 seats in Sacramento use a paperless system that limits ticket transfers and further shuts out resellers. “We’re pricing the tickets, not just at what the market will bear, but according to people’s budgets,” Robbins said. Demand will determine the revenue at future concerts using dynamic pricing, according to Robbins. Getting more people in the door addresses a longstanding problem in the live concert business: empty seats. Live Nation CEO Michael Rapino told Congress last year 40 percent of seats go unsold. Ancillary sales average $12 to $14 per concertgoer, Rapino said then. More ticket sales also add to commissions. “If you can put somebody in there for $20 where it would have been empty, it’s a gain for the industry,” said Harriss. ‘Maximum’ Prices As with other shows, some seats are separately sold to fans paying as much as $995 for a VIP package that includes a ticket in the first four rows, a pre-show party and other perks, according to Live Nation’s I Love All Access , which organizes the packages. The band and concert organizers also experimented by auctioning 50 seats, with $360 the highest winning bid, according to Robbins. “The ultimate goal is to price the tickets at the maximum amount of what the consumers will pay,” said Don Vaccaro, chief executive officer of TicketNetwork , a Vernon, Connecticut-based resale Web site with 240 employees and sales above $120 million. Forty percent of concert tickets sell for less than face value on resale sites, Vaccaro said. Glenn Lehrman, a spokesman for San Francisco-based StubHub, said ticket sales are “extremely volatile” and the secondary market is necessary to capture fluctuations after the original sale. On the company’s Web site, two tickets for the Sacramento show are being sold for $1,500 each. Stubhub provides a Web-based platform, collecting fees from transactions, and doesn’t own the tickets. A 2008 study by Forrester Research Inc. said the U.S. resale market will reach $4.5 billion by 2012. First to $100 Live Nation fell 6 cents to $12.48 at 9:38 a.m. in New York Stock Exchange composite trading. The shares gained 48 percent in 2009. This month, Live Nation announced an agreement to sell tickets in 500 Wal-Mart Stores Inc. outlets. In 1994, the Eagles became the first rock band to charge more than $100 for a concert ticket, according to Gary Bongiovanni , editor-in-chief of Pollstar. “Their Greatest Hits (1971-1975)” has sold more than 29 million copies and is tied with Michael Jackson’s “Thriller” as all-time best-seller, according to the Recording Industry Association of America . Eagles shows over the past decade have averaged $1.8 million in ticket revenue, according to Pollstar . The 14-date tour runs from April 16 to May 18. Live Nation also owns TicketsNow , a resale Web site used by brokers. The company last week settled a complaint brought by U.S. regulators, agreeing to pay refunds to Ticketmaster customers who sought seats to Bruce Springsteen shows and were routed to the TicketsNow site, where prices were higher. The Eagles event may presage future changes. Technical advances allow prices for live entertainment to be adjusted in real-time, said Barry Kahn, CEO of Qcue Inc. , an Austin, Texas- based ticketing company that works with baseball’s Giants. “Tickets in the concert industry have been very poorly priced, and there is no better evidence than seeing what tickets get sold for on the secondary market,” said Kahn. To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

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China IPOs in U.S. Suffer Longest Slump in Five Years as Buyers Evaporate

February 24, 2010

By Michael Tsang and Nikolaj Gammeltoft Feb. 25 (Bloomberg) — Initial public offerings by Chinese companies in the U.S. are suffering their longest slump since at least 2004 after providing twice the return of American IPOs over the past five years. IPOs by Chinese companies on American exchanges fell 4.8 percent on average last quarter and 6.7 percent in January and February , the most consistent retreat since Bloomberg began tracking the data. Demand is waning after investors paid more than twice the so-called tangible net assets to buy shares of companies from China Nuokang Bio-Pharmaceutical Inc. , whose profits stagnated in 2009, to China Hydroelectric Corp., which has reported four straight years of losses. While the country’s economy is forecast to expand more than three times as much as the U.S. this year, the central bank is moving to rein in lending and growth just as a global slump in IPOs deepens. “If you’re looking to reduce risk it’s probably the first market to exit,” said Madelynn Matlock , the Cincinnati-based manager of the Huntington International Equity Fund at Huntington Asset Advisors, which oversees $15 billion. “Too many public offerings from China coming too quickly to market, combined with less risk appetite and the monetary tightening in China, have spooked investors.” Consumer Confidence The Bloomberg IPO Index of 63 companies on American exchanges has slipped 3.5 percent in 2010 as U.S. consumer confidence slumped to the lowest level since April and investors speculated that Europe’s widening budget deficits will slow the global economic recovery. The MSCI AC World Index of developed and emerging equity markets completed its longest stretch of weekly declines in almost a year this month and is down 3.4 percent in 2010. U.S. companies from Imperial Capital Group Inc. in Los Angeles to Fort Lauderdale, Florida-based Patriot Risk Management Inc. have postponed IPOs this year, while New York- based Blackstone Group LP’s Travelport Ltd. and New Look Group Plc of Weymouth, England, pulled London offerings this month. Moscow-based United Co. Rusal , the world’s largest aluminum producer, has retreated 24 percent since completing the first Hong Kong listing of a Russian company in January. The performance of Chinese IPOs in the U.S. began to deteriorate last quarter. Investors in five of the seven companies that completed deals suffered losses in the first month of trading, while buyers of 16 of the 24 offerings by American companies made money, data compiled by Bloomberg show. Snake Venom China Nuokang , based in Shenyang in China’s northeastern province of Liaoning, raised $45 million selling ADRs, according to a Dec. 9 filing with the U.S. Securities and Exchange Commission. The IPO valued the company at a 135 percent premium to its $3.83 in per share tangible book value, a measure of shareholder equity that excludes assets that can’t be sold in liquidation, the SEC filing and Bloomberg data show. The maker of blood coagulants derived from snake venom reported that net income in the first nine months of 2009 was little changed from the previous year at 41.6 million yuan ($6.1 million), the filing showed. The company’s ADRs, which represent eight common shares, fell 16 percent in the first month on the Nasdaq Stock Market. ADRs represent ownership stakes in overseas companies that are issued by U.S. banks and usually trade on American exchanges. ‘Speculative Money’ “There’s more risk in Chinese IPOs,” said Jim Porter , founder of Hinsdale, Illinois-based New Century Capital Management LLC. “You’re buying with less knowledge and less experience with IPOs from that country and a lot of the time people barely get a chance to see what’s in the prospectus. It’s more speculative money.” Losses have accelerated as China’s central bank increased banks’ reserve requirements twice this year to curb inflation and damp asset prices. The mandatory level will rise 50 basis points, or 0.5 percentage point, effective today, the People’s Bank of China said on its Web site on Feb. 12. Policy makers are reining in credit after banks extended 19 percent of this year’s 7.5 trillion yuan lending target in January and property prices climbed the most in 21 months. Record lending and a 4 trillion yuan stimulus package had helped China lead the recovery from the first global recession since World War II. The economy is forecast to expand 9.5 percent this year, according to economists surveyed by Bloomberg, after increasing 8.7 percent in 2009. The U.S. is projected to grow 3 percent. Daqo, JinkoSolar So far this year, only one of the four Chinese companies that have completed IPOs gained, Bloomberg data show. Chongqing, China-based Daqo New Energy Corp. and JinkoSolar Holding Co. of Shangrao in China’s southeastern province of Jiangxi have shelved plans to sell shares in the U.S. China Hydroelectric , the Beijing-based operator of small- scale hydropower plants on the mainland, raised $96 million selling ADRs and warrants at $16 per unit last month. The biggest of the Chinese offerings this year valued the company at a 188 percent premium to its tangible book value. The ADRs have since fallen 36 percent. Chinese offerings on U.S. exchanges from Baidu Inc. to Suntech Power Holdings Co. enriched investors over the past five years. Shares of 67 mainland and Hong Kong companies gained 22 percent on average in the first four weeks of trading during that period, beating the 11 percent advance for U.S. IPOs, Bloomberg data show. Baidu, Suntech ADRs of Beijing-based Baidu , the owner of China’s most popular Internet search engine, almost tripled in the month after its $122 million IPO in 2005. Suntech, the world’s largest maker of polysilicon solar- power modules, advanced 95 percent in its first month of trading after selling shares in December 2005. The company is located in Wuxi in eastern China’s Jiangsu province. “We’ve had a period where there has been a lot of talk about China being more restrictive from a spending and a monetary policy perspective,” said Thomas S. Caldwell , who oversees more than $1 billion as chairman of Caldwell Investment Management Ltd. in Toronto. “The perception right now is that the Chinese venue doesn’t look attractive in the short-term.” To contact the reporters on this story: Michael Tsang in New York at mtsang1@bloomberg.net ; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net .

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Asian Shares Fall for First Time in Three Days on U.S. Consumer Confidence

February 23, 2010

By Jonathan Burgos and Shani Raja Feb. 24 (Bloomberg) — Asian stocks declined, dragging down the MSCI Asia Pacific Index for the first time in three days, as U.S. consumer confidence decreased to a 10-month low and as the stronger yen hurt Japanese exporters. Sony Corp., an electronics maker that receives 23 percent of sales from the U.S., retreated 2.4 percent in Tokyo, and Nissan Motor Co., a carmaker that gets 35 percent of revenue in North America, lost 3.1 percent. BHP Billiton Ltd., Australia’s top oil producer and the world’s largest mining company, dropped 1.8 percent after oil and metal prices fell. “The U.S. consumer confidence report has again created nervousness about the fragility of the recovery and its sustainability,” said Nader Naeimi , an investment strategist in Sydney at AMP Capital Investors, which oversees about $90 billion globally. “Nevertheless, the fundamentals remain strong and we are still seeing good earnings coming through.” The MSCI Asia Pacific Index fell 1.1 percent to 117.70 as of 9:15 a.m. in Tokyo, snapping gains of 3.2 percent in the past two days. The gauge has lost 7.2 percent from a 17-month high on Jan. 15 on concern governments will start withdrawing stimulus measures, and that Greece, Spain and Portugal will struggle to curb deficits. Japan’s Nikkei 225 Stock Average dropped 1.7 percent to 10,180.95. Australia’s S&P/ASX 200 Index declined 1.2 percent in Sydney. South Korea’s Kospi Index slipped 1 percent. Futures on the Standard & Poor’s 500 Index fell 0.2 percent. The measure retreated 1.2 percent in New York yesterday after the Conference Board’s confidence index for February decreased to the lowest level since April 2009, a report from the New York-based private research group showed. Confidence, Commodities Decline In addition, the Ifo institute in Munich said its survey of German business confidence unexpectedly fell for the first time in 11 months in February as the coldest winter in 14 years damped retail sales and construction. Crude oil for April delivery lost 1.8 percent in New York yesterday, the steepest decline in two weeks. The London Metal Exchange Index of six metals including copper and zinc dropped for a second day yesterday, slipping 2.3 percent. The dollar weakened to as low as 89.92 yen in Tokyo from 91.08 at the 3 p.m. close of stock trading yesterday. Japanese companies consider an average level of 92.90 as the dividing line between losses and profits, the Cabinet Office said on Feb. 19. To contact the reporters for this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net ; Shani Raja in Sydney at sraja4@bloomberg.net .

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Stocks Fall, Euro Weakens on Surprise Plunge in German Business Confidence

February 23, 2010

By Justin Carrigan and Paul Sillitoe Feb. 23 (Bloomberg) — European stocks fell and the euro weakened after German business confidence unexpectedly declined for the first time in 11 months. Oil and copper dropped. The Dow Jones Stoxx 600 Index lost 0.6 percent at 12:01 p.m. in London, while futures on the Standard & Poor’s 500 Index retreated 0.3 percent. The euro fell against the yen and the dollar, reversing earlier gains, while the Swiss franc slipped on speculation of sales by the central bank. Crude oil dropped as much as 1.9 percent in New York trading. The Ifo institute’s business climate index dropped in January as the coldest winter in 14 years hurt retail sales and construction, adding to concern the global economic recovery is faltering. Fed Bank of San Francisco President Janet Yellen said yesterday the U.S. economy still needs “the support of extraordinarily low rates” as policy makers try to damp speculation that last week’s increase in the Fed’s discount rate signals a rise in borrowing costs. “Growth is recovering, but it’s not recovering too fast to have the major central banks tighten monetary policy,” Rajeev de Mello , the Singapore-based head of Asian investment at Western Asset Management Co., which oversees about $482 billion, said in an interview on Bloomberg Television. “We don’t think that the Fed’s going to tighten until very late this year, if at all. We don’t think the ECB is going to tighten.” Earnings Versus Economy The MSCI World Index of 23 developed nations’ stocks fell 0.2 percent as the German confidence report overshadowed earnings that beat analysts’ estimates. Wolseley Plc rose 12 percent in London after forecasting profit ahead of analysts’ estimates. Heineken NV , the world’s third-largest brewer, climbed 3 percent in Amsterdam and Carlsberg A/S surged 6.5 percent in Copenhagen after earnings topped forecasts. Commerzbank AG declined as much as 4 percent in Frankfurt after posting a wider-than-estimated loss. The retreat in U.S. futures indicated the S&P 500 may extend yesterday’s 0.1 percent drop. Home prices in the U.S. probably declined at the slowest pace since May 2007, the S&P/Case-Shiller index may show at 9 a.m. in New York. Consumer confidence probably slipped, a report at 10 a.m. may show. Home Depot Inc. raised its dividend for the first time since 2006 after reporting earnings that exceeded estimates. Of the more than 400 companies in the S&P 500 index that announced results since Jan. 11, about 76 percent have beaten forecasts for earnings on a per-share basis, according to Bloomberg data. Asian shares led emerging markets higher, with Thailand’s SET Index rising 1.2 percent and Indonesia’s Jakarta Composite Index up 0.8 percent. The MSCI Emerging Markets Index climbed 0.3 percent to a three-week high. Euro Drops The euro dropped against 10 of its 16 most-traded peers, while the dollar pared earlier losses to gain against 13 of the group. While U.S. the central bank increased its discount rate for direct loans to banks last week, Fed Chairman Ben S. Bernanke is likely to reassure U.S. lawmakers tomorrow that the target rate for federal funds will remain in the range of zero to 0.25 percent. The Swiss franc dropped as much as 0.4 percent versus the euro for the biggest decline since Feb. 5, snapping a four-day advance. The dollar lost 0.3 percent against the rand after South Africa said gross domestic product rose an annualized 3.2 percent in the fourth quarter, compared with 0.9 percent in the previous three months. German bonds advanced after the Ifo report, driving the yield on the 10-year security down by 3 basis points to 3.24 percent. Treasuries also gained, with the 10-year note yield down 2 basis points to 3.77 percent. Crude oil declined 0.9 percent to $80 a barrel in New York. White sugar fell 1.3 percent to $678.30 a ton in London, a two- month low, bringing its five-day drop to 8.2 percent. Buyers including Egypt scrapped or curbed purchases after prices last month reached the highest levels since at least 1989. Copper rose 0.3 percent in London, while aluminium, nickel and zinc advanced. To contact the reporter on this story: Justin Carrigan in London at jcarrigan@bloomberg.net

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Asian Stocks Drop on Valuation Concerns After Rally; Copper, Oil Decline

February 22, 2010

By Darren Boey and Anna Kitanaka Feb. 23 (Bloomberg) — Asian stocks fell following a rally that drove the MSCI Asia Pacific Index’s valuations to a three- week high yesterday. Copper fell on speculation increasing stockpiles may signal slowing global demand. The MSCI Asia Pacific Index sank 0.7 percent to 117.54 as of 12:05 p.m. in Tokyo, led by electronics and auto companies. Copper for three-month delivery dropped 1 percent to $7,255.50 a metric ton, down from $7,450 a ton on Feb. 19, the highest price since Jan. 26. Oil declined for the first time in six days, dropping below $80 a barrel. “There are a few speed humps on the recovery path,” said Jason Teh , who helps manage $3.2 billion at Investors Mutual in Sydney. “The market is expecting a recovery in earnings. Some companies have disappointed, and some have delivered.” The MSCI Asia Pacific Index climbed 2.6 percent yesterday as concerns the U.S. Federal Reserve will raise interest rates eased, taking the average price of the gauge’s companies to 1.55 times book value, the highest level since Feb. 3. Fed Chairman Ben S. Bernanke is due to deliver his semi-annual report on the economy and interest rates to House and Senate panels Feb. 24-25. Japan’s Nikkei 225 Stock Average declined 1.2 percent to 10,280.33. Australia’s S&P/ASX 200 Index lost 0.5 percent. South Korea’s Kospi Index slipped 0.5 percent. China’s Shanghai Composite Index dropped 1.6 percent. Futures on the U.S. Standard & Poor’s 500 Index fell 0.2 percent. The gauge declined 0.1 percent yesterday as lower metal prices dragged down commodity shares, overshadowing gains in banks on speculation the Fed will leave interest rates at a record low. U.S. Inflation New York Fed President William Dudley indicated on Feb. 19 that policy makers are more concerned about maintaining growth than fighting inflation, citing a smaller-than-forecast increase in the U.S. consumer-price index for January reported by the Labor Department the same day. Toyota Motor Corp. lost 1.1 percent to 3,305 yen. The company’s handling of recalls came under mounting criticism on the eve of the automaker’s U.S. congressional testimony, including charges that the lawmaker misled the public on the adequacy of its recalls. Aristocrat Leisure Ltd. tumbled 4 percent to A$4.28 in Sydney. The company posted a second-half loss A$124.5 million ($112 million) due to provisions for damages from a U.S. lawsuit. BHP Billiton Ltd. , the world’s largest mining company, slipped 1 percent to A$41.72. Newcrest Mining Ltd. , Australia’s biggest gold producer, dropped 1 percent to A$32.92. Mitsubishi Corp. , a trading house that gets about 40 percent of sales from commodities, declined 1.6 percent to 2,245 yen in Tokyo. Metal Stockpiles Copper futures for May delivery dropped 0.9 percent in New York after-hours trading. Gold futures fell 0.8 percent yesterday, while silver sank 1.2 percent, the biggest decline since Feb. 5. Stockpiles in warehouses monitored by the London Metal Exchange have climbed 10 percent this year after jumping 48 percent in 2009. Production outpaced demand by 144,000 tons in the first 11 months of last year, according to the International Copper Study Group. The LME’s index of six industrial metals fell 1 percent yesterday from its highest level since Jan. 20. Crude oil dropped as much as 0.6 percent to $79.86 a barrel in New York as analysts forecast that U.S. stockpiles probably rose 1.9 million barrels last week from 334.5 million, according to the median of seven estimates in a Bloomberg News survey. That would be the highest inventory level since November. Gasoline supplies probably also increased, analysts said. Bearish Signal “Given the fundamentals, they don’t justify crude prices above $80 a barrel,” said Ben Westmore , a minerals and energy economist at National Australia Bank Ltd. in Melbourne. “The trend in gasoline stocks has got to levels that are a lot higher in the U.S. than can be explained by a seasonal stock increase, and it probably is another bearish signal for the oil price.” The Treasury yield curve was near the steepest on record before a private report forecast to show U.S. consumer confidence fell, feeding speculation the Fed will refrain from raising interest rates. The difference between two- and 10-year yields was 2.90 percentage points, versus the high of 2.94 percentage points set Feb. 18. “People are more confident that a rate hike is not coming soon,” said Tomohisa Fujiki, an interest-rate strategist at BNP Paribas Securities Japan Ltd. in Tokyo. “Investors are buying short-term bonds. Supply concern is sending longer-term yields higher.” Consumer Sentiment Consumer sentiment dropped in February for the first time since October, according to a Bloomberg News survey of economists before the New York-based Conference Board reports the figure today. Home prices in the U.S. declined at the slowest pace since May 2007, a separate report may show. The government is scheduled to sell $44 billion of two-year debt today. It will also auction, $42 billion in five-year securities tomorrow and $32 billion of seven-year notes on Feb. 25. It sold $8 billion in 30-year Treasury Inflation Protected Securities yesterday. The euro traded near a nine-month low against the dollar as speculation that Greece’s fiscal woes will worsen damps demand for the 16-nation currency. Europe’s single currency traded at $1.3597 in Tokyo from $1.3596 in New York yesterday. It touched $1.3444 on Feb. 19, the lowest since May 18. The dollar fetched 91.09 yen from 91.14 yen. Japan’s currency was at 123.86 per euro from 123.92. “Details about any potential aid to Greece remain unclear, adding to uncertainty,” said Takeshi Tokita , vice president of foreign-exchange sales at Mizuho Corporate Bank Ltd. in Tokyo. “The euro will struggle.” The MSCI Asia Pacific Index has lost 7.3 percent from a 17-month high on Jan. 15 on speculation central banks will tighten monetary policy, and that Greece, Spain and Portugal will struggle to curb deficits. To contact the reporters for this story: Darren Boey in Hong Kong at dboey@bloomberg.net ; Anna Kitanaka in Hong Kong at akitanaka@bloomberg.net .

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Emerging Market Stocks, U.S. Financial Shares Advance, Treasuries Retreat

February 22, 2010

By Rita Nazareth and Justin Carrigan Feb. 22 (Bloomberg) — Emerging market stocks and U.S. financial shares rose on signs the economic rebound is gaining momentum and speculation the Federal Reserve will keep interest rates at a record low to protect the recovery. Crude oil fluctuated near $80 a barrel. The MSCI Emerging Markets Index gained 1.2 percent at 2:56 p.m. in New York as equity benchmarks for South Korea, Russia and Taiwan advanced more than 1 percent. The Standard & Poor’s 500 Index swung between gains and losses as lower natural gas and industrial metal prices weighed on commodity producers. Treasury 10-year note yields approached a six-week high after the first of four note and bond auctions totaling a record $126 billion this week. Bernanke may tell Congress Feb. 24 that last week’s increase in the discount rate isn’t intended to drive up borrowing costs amid a weak jobs market. Taiwan and Thailand exited recessions in the fourth quarter, expanding 9.2 percent and 5.8 percent respectively, government reports showed today. “The news on the global economy is generally better,” said Alan Gayle , a money manager at RidgeWorth Investments in Richmond, Virginia, which oversees $63 billion. “The Fed is gradually unwinding its emergency measures. But as inflation remains lower than we thought, there’s very little pressure for the Fed to raise interest rates in the near-term. Low interest rates are great for equities.” Bank of America Corp. and JPMorgan Chase & Co. led financial shares to the top gain among 10 industries in the S&P 500, while Chevron Corp. and Newmont Mining Corp. paced a retreat in commodity producers. Awaiting Bernanke Bernanke will probably assure Congress that the Fed is mindful of the lack of job growth in the U.S. and an increase in the benchmark interest rate isn’t imminent. The central bank chief will deliver his semi-annual report on the economy to House and Senate panels Feb. 24-25. Greek stocks and bonds climbed on optimism the nation will be able to find funding as it struggles to narrow a budget deficit that is more than four times the European Union limit. The ASE Index advanced for a third day, gaining 1.5 percent, and the yield on the government two-year note declined 16 basis points to 5.42 percent. The South Korean won rose the most against the dollar in almost seven weeks as sales at South Korea’s largest department stores increased in January for an 11th month. Korea’s Kospi stock index climbed 2.1 percent and Taiwan’s Taiex Index gained 1.6 percent, helping drive the rally in the MSCI Emerging Markets Index . Hungary’s BUX Index rose 0.6 percent after an economic-sentiment gauge advanced to the highest level in 17 months. Real-Estate Developers The MSCI Asia Pacific Index advanced 2.6 percent, its biggest gain since November. Suruga Bank Ltd. rallied 7.4 percent in Tokyo on stock-buyback plans. Hong Kong’s Hang Seng Index jumped 2.4 percent, led by real-estate developers after Sun Hung Kai Properties Ltd. won the city’s first land auction for the year. The Shanghai Composite Index fell 0.5 percent on the first day of trading after a weeklong break. Treasuries fell, with the yield on the 10-year note rising two basis points to 3.8 percent. This week’s sales of U.S. government securities started with $8 billion of 30-year inflation-protected bonds today. The Treasury Inflation Protected Securities, or TIPS, drew a yield of 2.229 percent in the first sale of the maturity in more than eight years. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of bonds offered, was 2.45. Copper, Oil Copper for delivery in three months fell 1.5 percent to $3.3295 a pound in New York. Nickel, lead and zinc also retreated. Crude oil for March delivery, which expires later today, added 0.4 percent to $80.16 a barrel on the New York Mercantile Exchange. Natural gas slid 2.9 percent, falling below $5 per million British thermal units for the first time in more than 10 weeks, as milder weather signaled reduced demand for the heating fuel. The cost to protect against defaults on U.S. corporate bonds fell to the lowest in a month amid better-than-estimated company earnings, spurring investors to wager that the economic recovery will be sustainable. Credit-default swaps on the Markit CDX North America Investment-Grade Index Series 13, which is linked to 125 companies and used to speculate on creditworthiness or to hedge against losses, dropped 0.8 basis point to a mid-price of 90.25 basis points as of 11:03 a.m. in New York, according to broker Phoenix Partners Group. The gauge typically falls as investor confidence improves. The Markit index has fallen five straight days as signs of a sustained U.S. recovery overshadowed investor concern that risks stemming from Greek and other sovereign European deficits could spread to other assets. To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net ; Justin Carrigan in London at jcarrigan@bloomberg.net .

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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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Miller Grabs First Olympic Gold; U.S. Beats Canada in Hockey

February 22, 2010

By Erik Matuszewski Feb. 22 (Bloomberg) — U.S. skier Bode Miller began the day at the Vancouver Winter Games by winning his first Olympic gold medal. The U.S. men’s ice hockey team finished it off by ending a 50-year winless drought against Canada. Miller, 32, claimed his third medal of the games yesterday in the men’s super-combined, less than a year after he considered retiring from the sport. “That’s what means a lot to me — to do it this way, at this point in my career, in the Olympics, in the super- combined in particular,” Miller said during a news conference in Whistler, British Columbia. “It was a challenge, and realizing that challenge is unbelievable.” The U.S. beat Canada 5-3 in a preliminary round game in the men’s hockey competition at Canada Hockey Place, where some tickets sold for as much as $5,000. The previous Olympic win for the U.S. over Canada came in 1960 in Squaw Valley, California, 38 years before the National Hockey League allowed its players to compete in the Games. “We know we can beat anybody now,” U.S. defenseman Brian Rafalski said after scoring two goals against the hosts and gold-medal favorites. “It’s a huge step for (our) confidence.” The U.S. finished the preliminary round undefeated in three games and Canada lost for the first time in Vancouver. The American team gets a bye into the quarterfinals of the medal round, while Canada will probably face Germany tomorrow. U.S. Tops Medals Miller’s gold was the eighth medal in Alpine events for the U.S., which tops the Winter Games standings with 23 overall, five better than Germany. The most successful Alpine skier in U.S. history with 32 World Cup victories, Miller won two silver medals at the 2002 Salt Lake City Games. He failed to win a medal in any of his five races at the 2006 Turin Games and took a hiatus from the sport while considering retirement last year. Miller decided to return to the U.S. ski team and won a silver medal and a bronze in his first two races of the Vancouver Games before yesterday’s gold in the super- combined, which features a downhill run and a slalom run. Miller had an overall time of 2 minutes, 44.92 seconds to beat Ivica Kostelic , 30, of Croatia and Silvan Zurbriggen, 28, of Switzerland. Miller had been seventh after the downhill portion of the event. “It’s a great feeling,” said Miller, whose five career Olympic medals are the most by a U.S. Alpine skier. “This is how I used to ski when I was little, the way I skied when I first came into the World Cup.” The U.S. has seven gold medals in Vancouver, one more than Germany, which won two events yesterday. Germany’s Gold Andre Lange captured his fourth Olympic gold medal by winning the two-man bobsled with brakeman Kevin Kuske , while Magdalena Neuner claimed her second gold of the Games in the women’s biathlon 12.5-kilometer mass sprint. Lange, 36, and Kuske, 31, gave Germany its third straight Olympic title in two-man bobsled. Ireen Wust, 23, of the Netherlands won the women’s 1,500-meter speedskating event, Russia’s Evgeny Ustyugov, 24, won the men’s 15-kilometer biathlon, and Switzerland’s Michael Schmid, 25, won the debut gold medal of the men’s ski cross. Four medal events are scheduled for today, including the conclusion of the ice dance competition. Gold medals also will be presented in team ski jumping and men’s and women’s cross-country skiing team sprints. Through nine days of competition at the Vancouver Games, Norway is third to the U.S. and Germany in total medals and gold medals, with 12 and five respectively. Canada has nine medals, including four golds. To contact the reporter on this story: Erik Matuszewski in Whistler, British Columbia, at matuszewski@bloomberg.net

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Emerging-Market Stocks, Won Rally as Fed May Keep U.S. Interest Rates Low

February 22, 2010

By Justin Carrigan Feb. 22 (Bloomberg) — High-yielding currencies rose, led by the South Korean won, and emerging-market stocks rallied on speculation Federal Reserve Chairman Ben S. Bernanke may signal that U.S. interest rates will stay near record lows. The won was the biggest gainer against both the yen and the dollar, increasing 1.1 percent against the U.S. currency at 10:27 a.m. in London, and the New Zealand dollar advanced. The MSCI Emerging-Markets Index advanced for the first time in three days, while Europe’s Dow Jones Stoxx 600 Index was little changed and futures on the Standard & Poor’s 500 Index gained 0.1 percent. Copper fell. Bernanke may tell Congress Feb. 24 that last week’s increase in the discount rate isn’t intended to drive up borrowing costs amid a weak jobs market. Taiwan and Thailand exited recessions in the fourth quarter, expanding 9.2 percent and 5.8 percent respectively, government reports showed today. “There are a few positive things for the market to grab hold of this morning, and that’s resulted in a correction at the expense of the dollar and the yen,” said Ian Stannard , a foreign-exchange strategist at BNP Paribas SA in London. The won rose the most in almost seven weeks, as sales at South Korea’s largest department stores rose in January for an 11th month. Korea’s Kospi stock index rose 2.1 percent and Taiwan’s Taiex Index increased 1.6 percent, helping lift the MSCI Emerging Markets Index 1.3 percent. Hungary’s BUX Index rose 1.2 percent after an economic-sentiment gauge advanced to the highest level in 17 months. Japan, China The MSCI Asia Pacific Index advanced 2.4 percent, its biggest gain since November. Suruga Bank Ltd. rallied 7.4 percent in Tokyo on stock-buyback plans. Hong Kong’s Hang Seng Index jumped 2.4 percent, led by real-estate developers after Sun Hung Kai Properties Ltd. won the city’s first land auction for the year. The Shanghai Composite Index fell 0.5 percent on the first day of trading after a weeklong break. Reliance Industries Ltd. rose 1 percent in Mumbai. The owner of the world’s largest oil-refining complex raised its offer for bankrupt LyondellBasell Industries AF to about $14.5 billion, according to two people with knowledge of the offer. European stocks fluctuated between gains and losses, with retailers and automakers declining. Inditex SA, the world’s biggest owner of clothing stores, fell 1.5 percent in Madrid after Exane BNP Paribas downgraded the shares. Bank of Ireland Plc slumped 7.1 percent in Dublin. The country’s biggest lender by market value said it will give the Irish government a stake of almost 16 percent instead of a dividend. Allied Irish Banks Plc slid 4 percent. U.S. Futures The gain in U.S. futures indicated the S&P 500 may advance for fifth straight day. Bernanke will probably assure Congress that the Fed is mindful of the lack of job growth in the U.S. and an increase in the benchmark interest rate isn’t imminent. The central bank chief will deliver his semi-annual report on the economy to House and Senate panels Feb. 24-25. Smith International Inc. rose as much as 16 percent in German trading after Schlumberger Ltd., the world’s largest oilfield-services provider, agreed to buy the company for $11 billion. Greek stocks and bonds rose on optimism the nation will be able to find funding as it struggles to narrow a budget deficit that is more than four times the European Union limit. The ASE Index advance for a third day, gaining 0.5 percent, and the yield on the government two-year note declined 4 basis points to 5.47 percent. Credit-Default Swaps Credit-default swaps on the Markit iTraxx Crossover Index of 50 European companies with mostly high-yield ratings dropped 12 basis points to a two-week low of 456, according to JPMorgan Chase & Co. prices. The index is a benchmark for the cost of protecting bonds against default and a decline signals improvement in perceptions of credit quality. Treasuries fell, with the yield on the 10-year note rising 2 basis points to 3.80 percent. The U.S. government will sell a record $126 billion of securities this week, starting with $8 billion of 30-year inflation-protected bonds today. Copper for delivery in three months fell 0.8 percent to $7,370.50 a metric ton on the London Metal Exchange, the first decline in three days. Aluminum, nickel and zinc also retreated. Gold for immediate delivery added 0.2 percent to $1,121.80 an ounce, for a third gain. Crude oil for March delivery, which expires later today, was unchanged at $79.81 a barrel on the New York Mercantile Exchange. To contact the reporter on this story: Justin Carrigan in London at jcarrigan@bloomberg.net

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Bode Miller of U.S. Wins His First Olympic Gold Medal

February 21, 2010

By Erik Matuszewski and Michael Buteau Feb. 21 (Bloomberg) — Bode Miller of the U.S., who considered retiring last year, claimed his first Olympic gold medal in the men’s super-combined Alpine skiing event at the Vancouver Winter Games. Miller, 32, finished in a time of 2 minutes, 44.92 seconds to beat Ivica Kostelic of Croatia and Silvan Zurbriggen of Switzerland. Miller was seventh after the downhill portion of the event before recording the third-fastest time in the slalom runs to fulfill his goal of becoming an Olympic champion. “I had to just get fully fired up to take maximum risk,” Miller told reporters. “When I crossed the line, I did my normal thing where I stood for a second. For my first Olympic gold, it’s perfect.” The most successful Alpine skier in U.S. history with 32 World Cup victories, Miller won two silver medals at the 2002 Salt Lake City Games. He then failed to medal in any of his five races at the 2006 Turin Games and took a hiatus from the sport while considering retirement last year. Miller decided to return to the U.S. ski team and won a silver medal and a bronze in his first two races of the Vancouver Games before today’s gold. His five Olympic medals are the most by a U.S. Alpine skier. “It feels great to have the freedom to ski the way I want without worrying about results,” Miller said in an interview broadcast on Canada’s CTV. “In Turin, I didn’t want to be there.” Eighth U.S. Alpine Medal Miller’s gold was the eighth medal in Alpine events for the U.S., which tops the Winter Games standings with 23 overall. The previous high for Alpine medals in a Winter Olympics for the U.S. was five at the 1984 Games in Sarajevo. The U.S. now has seven gold medals in Vancouver, two better than Germany, Norway and Switzerland, and three ahead of host Canada. Germany is second in the total medal standings with 16, followed by Norway with 12. Magdalena Neuner claimed her second gold medal of the Games for Germany in the women’s biathlon 12.5-kilometer mass sprint at Whistler Olympic Park. Russia’s Olga Zaitseva took the silver and Germany’s Simone Hauswald received the bronze. Russia’s Evgeny Ustyugov , 24, won the men’s 15-kilometer biathlon, the second gold medal of the Games for Russia. Martin Fourcade of France was second, while Pavol Hurajt took the bronze for Slovakia. Michael Schmid of Switzerland won the gold medal in the men’s ski cross, an event making its Olympic debt in Vancouver. Austria’s Andreas Matt was the silver medalist, with Norway’s Audun Groenvold taking bronze. Two More Medals Medals also will be awarded in women’s 1,500-meter speedskating and men’s two-man bobsleigh. The start time for the bobsleigh event was pushed back 2 1/2 hours to 4 p.m. due to warm weather at the track on Blackcomb Mountain. Canada will play the U.S. today in men’s preliminary round hockey, as the Americans look to end a 50-year drought against the Canadians in Olympic competition. The matchup, scheduled for 4:40 p.m. local time, precedes a game between Sweden, the defending Olympic champions, and Finland. Russia beat the Czech Republic 4-2 in an earlier game. Canada and the U.S. have faced each other 15 times in Olympic competition, with Canada winning 10 and tying three. The last U.S. victory came in 1960 in Squaw Valley, California. U.S. forward Chris Drury said his squad is relishing the chance to upset the Canadians on home ice. “Clearly no one is picking us to win,” Drury, who plays for the National Hockey League’s New York Rangers, said yesterday. “No one’s betting a nickel on us. U.S. hockey has come so far. Now, it doesn’t take a miracle for us to win.” To contact the reporters on this story: Erik Matuszewski in Whistler, British Columbia, at matuszewski@bloomberg.net Michael Buteau in Vancouver, at mbutea@bloomberg.net , and

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RBS Chief Hester Is Said to Forgo 2009 Bonus After Bailout From Government

February 21, 2010

By Simon Packard Feb. 21 (Bloomberg) — Royal Bank of Scotland Group Plc Chief Executive Officer Stephen Hester has decided to forgo any bonus awarded to him for 2009, according to a person familiar with the situation, who declined to be identified before a formal announcement. RBS spokeswoman Linda Harper declined to comment. Hester, 49, is scheduled to release 2009 results for the bank on Feb. 25, the first full-year since he took over as head of the 84 percent state-owned bank in November 2008. Hester joined Edinburgh-based RBS on a package entitling him to as much as 9.74 million pounds ($15 million) if he doubles the bank’s share price. The Sunday Times said today that while RBS will likely report a narrower loss for last year, Hester would be entitled to collect 1.6 million pounds in bonuses. That led U.K. Business Secretary Peter Mandelson to say in a television interview today that such a payment would be premature. “If further down the line, in years to come, he has done well and turned around RBS, he deserves something back for it — and I would be the first to say so, — but not now,” Mandelson said in an interview with BBC Television . Hester’s decision follows that of Barclays Plc Chief Executive John Varley and President Bob Diamond to refuse bonuses for 2009, the second year in a row. In return for a government bailout, RBS accepted that the U.K. Treasury gain oversight of its bonus pool, doubling the number of “high achievers” quitting the company, Hester said in December. Hester has an annual salary of 1.2 million pounds. RBS shares must rise to 70 pence each and outperform peers for Hester to receive the full amount of shares and options in his pay deal with the company, RBS said last June. RBS rose 2.3 percent to 34.5 pence on Feb. 19 in London trading. The stock has climbed 80 percent in the last 12 months, compared with the 89 percent increase in the Bloomberg Europe Banks and Financial Services Index . The bank has a market value of 19.5 billion pounds. To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net

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European Stocks Rise for Fifth Day, Posting Biggest Weekly Gain Since July

February 20, 2010

By Adam Haigh Feb. 20 (Bloomberg) — European stocks posted their biggest weekly gain since July after earnings at companies from BNP Paribas SA to Barclays Plc and Deutsche Boerse AG beat analysts’ estimates and higher metals prices boosted raw-material producers. Barclays surged 19 percent, BNP Paribas rallied 12 percent and Deutsche Boerse gained 7.7 percent. VT Group Plc soared 28 percent after rejecting an increased offer from Babcock International Group Plc. Rio Tinto Group and Xstrata Plc gained more than 6 percent as commodities advanced. “Earnings trends remain strong,” said Max King , a London- based strategist at Investec Asset Management, which oversees about $55 billion. “Macro factors remain firmly positive. There is considerably more upside in risky assets in the medium term and the downside looks limited.” The money manager has an “overweight” position on equities. Europe’s Dow Jones Stoxx 600 Index climbed 3.9 percent this week to close at 250.30. The benchmark gauge for European equities has risen as companies from Barclays to Swatch Group AG reported earnings that beat analysts’ estimates and as concern eased that Greece, Spain and Portugal will struggle to curb their deficits. Beating Forecasts Western European companies that have reported earnings since Jan. 11 have beaten analysts’ forecasts for net income by an average of 15 percent, according to Bloomberg data. In the U.S., about 73 percent of the companies in the Standard & Poor’s 500 Index that have posted quarterly results in the same period have topped net income estimates, the data show. National benchmark indexes rose in 16 of the 18 western European markets. The U.K.’s FTSE 100 increased 4.2 percent, Germany’s DAX gained 4 percent and France’s CAC 40 advanced 4.7 percent. The Federal Reserve this week unexpectedly raised its discount rate, the first step in withdrawing stimulus for the world’s biggest economy. The Fed lifted the discount rate charged to banks for direct loans for the first time since 2006. The cost of living in the U.S. rose in January less than anticipated and a measure of prices excluding food and fuel fell for the first time since 1982, indicating the recovery is generating little inflation. Barclays Profit Barclays surged 19 percent. The U.K.’s second-largest bank said 2009 profit more than doubled, lifted by investment banking and the sale of a fund management unit. Net income rose to 9.39 billion pounds ($14.8 billion) from 4.38 billion pounds a year earlier. That beat the 8.78 billion-pound estimate of 14 analysts surveyed by Bloomberg. BNP Paribas rose 12 percent after France’s largest bank posted its fourth straight quarterly profit. Net income in the fourth quarter reached 1.37 billion euros ($1.89 billion), from a 1.37 billion-euro net loss a year earlier. That beat the 1.06 billion-euro estimate of 15 analysts surveyed by Bloomberg. Deutsche Boerse climbed 7.7 percent after reporting a smaller-than-expected loss. Europe’s biggest exchange by market value posted a loss for the three months to Dec. 31 of 33 million euros, compared with a profit of 222.4 million euros for the same period in 2008, after taking a charge for its stake in International Securities Exchange. Analysts had estimated a loss of 66.3 million euros, according to the median of seven firms surveyed by Bloomberg. ABB, VT Group ABB Ltd. jumped 11 percent as the world’s largest builder of power grids said fourth-quarter profit more than doubled. ABB expanded its cost savings program by 50 percent. Fourth-quarter net income surged to $540 million, topping the $534 million average estimate of analysts surveyed by Bloomberg. VT Group soared 28 percent. The government services company bidding for Mouchel Group Plc said it rejected an increased offer from Babcock International Group Plc of as much as 1.29 billion pounds. “The rationale for a combination of the two businesses is compelling,” David Brockton , a London-based analyst at Arbuthnot Securities Ltd., wrote in a report to clients. The “proposal will place further pressure on the VT Group board (despite their prompt rejection) and makes the Mouchel bid look increasingly less likely.” Babcock Chairman Mike Turner said the company may now make a hostile approach for VT Group. Swatch, the maker of Omega and Longines timepieces, rose 5.4 percent. The company said it expects higher sales and profitability this year as improving economic growth leads consumers to buy more watches. Copper Rallies Rio Tinto, the world’s third-largest mining company, added 6.5 percent and Xstrata advanced 8.2 percent. Copper has rallied more than 9 percent this week. Atos Origin SA rose 7.1 percent after France’s second- biggest computer-services company reported operating margins at the higher end of its expectations for last year and said it expects margins to increase in 2010. Thales SA , Europe’s biggest military electronics maker, slumped 10 percent. The company proposed cutting its dividend for the first time in at least a decade, to 50 cents a share from 1.05 euros a year earlier, and reported a 2009 loss of 128 million euros. Royal BAM Group NV slumped 12 percent after the biggest Dutch builder cut its profit forecast. Akzo Nobel NV slumped 5.2 percent. The world’s largest maker of coatings reported a fourth-quarter loss of 60 million euros on restructuring charges and said a recovery will take time. Analysts surveyed by Bloomberg had predicted profit of 97 million euros. To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

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U.S. Stocks Gain Most Since November as Manufacturing, Earnings Improve

February 20, 2010

By Nikolaj Gammeltoft and Jeff Kearns Feb. 20 (Bloomberg) — U.S. stocks advanced the most in more than three months as improving earnings and better-than- expected reports on manufacturing bolstered optimism that the economy is gaining momentum. The Standard & Poor’s 500 Index climbed for four straight days as manufacturing increased more than economists forecast. Technology companies increased for a third week after Hewlett- Packard Co., the largest personal-computer maker, boosted its profit forecast . Stocks maintained gains even after the Federal Reserve boosted the rate it charges for direct loans to banks for the first time since 2006. “Earnings continue to meet or beat expectations,” said Don Wordell , a fund manager for Atlanta-based RidgeWorth Capital Management, which oversees about $62 billion. “The majority of economic data coming out is more positive and creates an encouraging feedback loop back to the market.” The S&P 500 Index rose a second week, adding 3.1 percent to 1,109.17 as all 10 industry groups climbed at least 0.8 percent. The Dow average rose 303.21, or 3 percent, to 10,402.35 as Bank of America Corp. led gains by 29 of 30 constituents. The Philadelphia Fed’s general economic index rose to 17.6 in February from 15.2, its sixth straight advance. The median forecast in a Bloomberg survey was 17. The New York Fed’s general economic index rose to 24.9 this month, higher than anticipated, from 15.9 in January. Readings above zero in the so-called Empire State Index signal growth in the area covering New York and parts of New Jersey and Connecticut. The number of Americans filing first-time claims for unemployment insurance unexpectedly increased last week. Discount Rate The Fed raised the discount rate to 0.75 percent from 0.5 percent on Feb. 18 and said the move will encourage financial institutions to rely more on money markets, rather than the central bank, for short-term loans. It was the first increase in the discount rate in more than three years. “The weak employment data and inflation data are a bullish signal for the market,” Kevin Shacknofsky , who manages $2.5 billion for Alpine Mutual Funds in Purchase, New York. “It suggests there’s no real rush for the Fed to raise interest rates for a while.” Hewlett-Packard rose 4.8 percent to $50.79 after raising its 2010 sales forecast for the second time in three months. The company boosted its profit estimate to between $4.37 and $4.44 a share, excluding some costs, up from as much as $4.35 in November. Technology companies in the S&P 500 rose 2.7 percent. Industrials Gain The factory reports pushed industrial stocks 4.4 percent higher for the biggest gain among 10 industry groups in the S&P 500. Deere & Co. helped lead gains after climbing 7.9 percent to $57.28 for its biggest jump in four months. The world’s largest maker of farm machinery posted profit that topped analysts’ estimates and raised its 2010 forecast as projections improved for agricultural-equipment sales in the U.S. and Canada. Cliffs Natural Resources Inc. helped lead raw-materials producers to a 4.2 percent gain, the second-biggest industry gain. North America’s largest iron-ore producer climbed 17 percent to $53.60 after posting fourth-quarter profit excluding some items of 76 cents a share, almost double the average analyst estimate. Consumer Credit Bank of America gained 9.9 percent to $15.88 after the biggest U.S. lender said overdue credit card payments declined in January as the unemployment rate fell. Bank of America, JPMorgan Chase & Co. and American Express Co., three of the biggest U.S. card lenders, said late payments on credit-card loans fell to 7.35 percent, the lowest in a year, from 7.44 percent in December. Abby Joseph Cohen , the Goldman Sachs Group Inc. strategist known for calling the bull market in the 1990s, said Feb. 17 on Bloomberg Radio that the S&P 500 may rise to between 1,250 and 1,300, saying ”the market overall is likely undervalued.” The prediction calls for a rally of as much as 17 percent from yesterday’s close. Berkshire Hathaway Inc., Home Depot Inc. and Campbell Soup Co. are among the 61 companies in the S&P 500 scheduled to release quarterly results next week. The combined per-share earnings for the S&P 500 are $17.43 based on fourth-quarter reports by 423 companies, according to Bloomberg data, compared with a per-share loss of 9 cents in the year-earlier period, according to Standard & Poor’s. Per-share profit declined from the year-earlier figure in each of the past nine quarters, a record slump. To contact the reporters on this story: Jeff Kearns in New York at jkearns3@bloomberg.net . Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

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Elizabeth Warren: It’s Bank Lobbyists vs. American Families In Fight For Financial Reform

February 19, 2010

Elizabeth Warren appeared on “Real Time With Bill Maher” Friday evening to discuss financial reform. Warren, the chair of the Congressional Oversight Panel for TARP, explained that banks and their lobbyists are hammering Congress and fighting against the interests of American families by blocking financial reform. The problems are obvious and the solutions are too, but for some reason, we can’t seem to get the two together, Warren said. She admitted that during her first appearance on Maher’s show six months ago, she believed that the country was on “the brink” of financial reform. Maher promptly asked her what she smoked before that show. WATCH:

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Video: Gorant Says Tiger Woods’s Apology a `Good First Step’: Video

February 19, 2010

Feb. 19 (Bloomberg) — Sports Illustrated senior editor Jim Gorant talks with Bloomberg’s Matt Miller and Carol Massar about the world No. 1 golfer Tiger Woods’s apology for his marital infidelity.¶ In his first public appearance since a one-car accident outside his home on Nov. 27, golf’s 14-time major-tournament winner said he would return to therapy tomorrow. He did not specify when he might return to competitive golf. (Source: Bloomberg)

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U.S. Consumer Prices Increase Less Than Forecast in Sign Inflation Subdued

February 19, 2010

By Timothy R. Homan Feb. 19 (Bloomberg) — The cost of living in the U.S. rose in January less than anticipated and a measure of prices excluding food and fuel fell for the first time since 1982, indicating the recovery is showing few signs of inflation. The consumer-price index increased 0.2 percent for a fifth straight month, led by higher fuel costs, Labor Department figures showed today in Washington. Excluding energy and food, the so-called core index unexpectedly fell 0.1 percent, reflecting a drop in new-car prices, clothing and shelter. Companies may have little success raising prices with unemployment projected to end the year at 9.5 percent. The yield on the 10-year Treasury note fell after the report showed restrained inflation will allow Federal Reserve policy makers to keep interest rates close to zero to help support the recovery. “The broader picture remains one of subdued inflation, and this gives the Fed ample reason to stay on the sidelines until at least very late in the year,” said Aaron Smith, a senior economist at Moody’s Economy.com in West Chester, Pennsylvania, who forecast no change in the core index. Economists forecast the consumer-price index would rise 0.3 percent in January from a month earlier, according to the median of 78 projections in a Bloomberg News survey. Estimates ranged from no change to a gain of 0.6 percent. The core index was forecast to rise 0.1 percent, according to the Bloomberg survey. The decline in the core was the first since December 1982. Treasuries, Stocks Treasury prices rose, pushing down the yield on the 10-year note one basis point to 3.79 percent at 8:42 a.m. in New York. Stock-index futures maintained losses, with futures on the Standard & Poor’s 500 Index expiring in March declining 0.4 percent to 1,100.7. Energy costs jumped 2.8 percent in January, led by higher prices for fuel oil and gasoline. The cost of crude oil on the New York Mercantile Exchange averaged $78.40 last month, up from $74.60 in December. Gasoline prices increased 4.4 percent, the most since August. The cost at the pump rose 10 cents to $2.71 a gallon on average in January, from $2.61 the previous month, according to AAA. The price has since retreated. Compared with January 2009, the CPI rose 2.6 percent after climbing 2.7 percent the previous month. The year-over-year gains in the consumer price index have been getting bigger as crude oil prices increase from an almost five-year low in December 2008. Food, Shelter Food costs, which account for about 15 percent of the CPI, increased 0.2 percent in January, reflecting higher prices for dairy products, meat and fruits and vegetables. Shelter costs that include lodging away from home and rental properties fell 0.5 percent. Owners-equivalent rent, one of the categories used to track rental prices, fell 0.1 percent last month after no change. New-car prices fell 0.5 percent in January, the most since August, and apparel costs dropped 0.1 percent. Medical-care costs rose 0.5 percent in January, the most in two years. The Fed’s long-term forecast for its preferred measure of inflation, the Commerce Department’s index tied to consumer spending and excluding food and fuel, calls for gains in a range of 1.5 percent to 2 percent. That gauge, which is typically lower than the CPI, was up 1.5 percent in the 12 months ended in December. ‘Subdued Inflation’ Fed Chairman Ben S. Bernanke said last week that the central bank expects economic conditions, including “subdued inflation trends,” that may warrant an “exceptionally low” benchmark interest rate “for an extended period.” Central bank policy makers last month “agreed that underlying inflation currently was subdued and was likely to remain so for some time,” according to minutes of the Jan. 26- 27 meeting released this week. Consumers in the Reuters/University of Michigan preliminary survey, released Feb. 12, said they expect an inflation rate of 2.8 percent over the next five years. Those figures are tracked by Fed policy makers. The CPI is the broadest of the three monthly price gauges from the Labor Department because it includes goods and services. Reports this week showed 1.4 percent gains in both the cost of imported goods and wholesale prices in January. Both increases were more than anticipated. Almost 60 percent of the CPI covers prices consumers pay for services ranging from medical visits to airline fares and movie tickets. Airline fares fell 2.5 percent in January, the most since February 2009. Companies Reluctant Even with higher production and material costs, U.S. companies are reluctant to pass on the expenses to consumers. Wal-Mart, the world’s largest retailer, reported fourth-quarter sales yesterday that trailed its projection after cutting grocery and electronic prices. The Bentonville, Arkansas-based company reduced the cost of laptop computers, along with turkeys and cranberry sauce for holiday meals, to attract shoppers living paycheck to paycheck. “We see the influence of the paycheck cycle as pronounced now as it’s been in the past,” Chief Financial Officer Tom Schoewe said on a call with reporters. To contact the reporters on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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Video: Consumer Prices in U.S. Rise Less Than Anticipated: Video

February 19, 2010

Feb. 19 (Bloomberg) — The cost of living in the U.S. rose in January less than anticipated and a measure of prices excluding food and fuel fell for the first time since 1982, indicating the recovery is showing few signs of inflation. Bloomberg’s Betty Liu reports. (Source: Bloomberg)

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Video: Buteau Would Ask Woods `Why?’ If He Were Allowed to Ask: Video

February 19, 2010

Feb. 19 (Bloomberg) — Bloomberg’s Mike Buteau, one of a selected number of journalists invited to attend Tiger Woods’s public statement today in Florida, reports on what he expects to hear and what he would like to ask the embattled golfer. Woods, in his first public appearance since his car accident and admission of marital infidelity, is expected to apologize for his behavior and possibly announce when he will return to golf. He will not take any questions. (Source: Bloomberg)

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