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Federal Reserve Must Disclose Bank Bailout Records

by on March 19, 2010

By David Glovin and Bob Van Voris March 19 (Bloomberg) — The Federal Reserve Board must disclose documents identifying financial firms that might have collapsed without the largest ever U.S. government bailout, a federal appeals court said. The U.S. Court of Appeals in Manhattan ruled today that the Fed must release records of the unprecedented $2 trillion U.S. loan program launched primarily after the 2008 collapse of Lehman Brothers Holdings Inc. The ruling upholds a decision of a lower-court judge, who in August ordered that the information be released. The Fed had argued that it could withhold the information under an exemption that allows federal agencies to refuse disclosure of “trade secrets and commercial or financial information obtained from a person and privileged or confidential.” The U.S. Freedom of Information Act , or FOIA, “sets forth no basis for the exemption the Board asks us to read into it,” U.S. Circuit Chief Judge Dennis Jacobs wrote in the opinion. “If the Board believes such an exemption would better serve the national interest, it should ask Congress to amend the statute.” The opinion may not be the final word in the bid for the documents, which was launched by Bloomberg LP, the parent of Bloomberg News, with a November 2008 lawsuit. The Fed may seek a rehearing or appeal to the full appeals court and eventually petition the U.S. Supreme Court . David Skidmore, a Fed spokesman, didn’t immediately return a call seeking comment. Freedom of Information The court was asked to decide whether loan records are covered by FOIA. Historically, the type of government documents sought in the case has been protected from public disclosure because they might reveal competitive trade secrets. The Board of Governors of the Federal Reserve System had argued that disclosure of the documents threatens to stigmatize lenders and cause them “severe and irreparable competitive injury.” Bloomberg, majority-owned by New York Mayor Michael Bloomberg , sued after the Fed refused to name the firms it lent to or disclose loan amounts or assets used as collateral under its lending programs. Most of the loans were made in response to the deepest financial crisis since the Great Depression. Lawyers for Bloomberg argued in court that the public has the right to know basic information about the “unprecedented and highly controversial use” of public money. Wall of Secrecy “Bloomberg has been trying for almost two years to break down a brick wall of secrecy in order to vindicate the public’s right to learn basic information,” Thomas Golden , an attorney for the company with Willkie Farr & Gallagher LLP, wrote in court filings. Banks and the Fed warned that bailed-out lenders may be hurt if the documents are made public, causing a run or a sell- off by investors. Disclosure may hamstring the Fed’s ability to deal with another crisis, they also argued. Much of the debate at the appeals court argument on Jan. 11 centered on the potential harm to banks if it was revealed that they borrowed from the Fed’s so-called discount window. Matthew Collette , a lawyer for the government, said banks don’t do that unless they have liquidity problems. FOIA requires federal agencies to make government documents available to the press and public. An exception to the statute protects trade secrets and privileged or confidential financial data. In her Aug. 24 ruling, U.S. District Judge Loretta Preska in New York said the exception didn’t apply because there’s no proof banks would suffer. Payment Processors The Fed’s balance sheet debt doubled after lending standards were relaxed following Lehman’s failure on Sept. 15, 2008. That year, the Fed began extending credit directly to companies that weren’t banks for the first time since the 1930s. Total central bank lending exceeded $2 trillion for the first time on Nov. 6, 2008, reaching $2.14 trillion on Sept. 23, 2009. The Clearing House Association , which processes payments among banks, joined the case and sided with the Fed. The group includes ABN Amro Bank NV, a unit of Royal Bank of Scotland Plc, Bank of America Corp. , The Bank of New York Mellon Corp., Citigroup Inc. , Deutsche Bank AG, HSBC Holdings Plc, JPMorgan Chase & Co ., US Bancorp and Wells Fargo & Co. More than a dozen other groups or companies filed friend- of-the-court briefs. Those arguing for disclosure of the records included the American Society of News Editors and individual news organizations. The case is Bloomberg LP v. Board of Governors of the Federal Reserve System, 09-04083, U.S. Court of Appeals for the Second Circuit (New York). To contact the reporters on this story: David Glovin in New York at dglovin@bloomberg.net ; Bob Van Voris in New York at vanvoris@bloomberg.net .

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Federal Reserve Must Disclose Bank Bailout Records

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Kathryn Schulz: Michael Lewis’s The Big Short: What Does It Mean to Bet (Right) on Armageddon?

by on March 18, 2010

The story of the 2008 financial crisis is, overwhelmingly, a story of losses and losers. The losses include 5 million jobs in the United States alone, tens of millions more overseas, and some 40 percent of the world’s wealth. The losers include, at a conservative estimate, several billion human beings. Given those numbers, it takes a certain amount of chutzpah to tell the story of the financial crisis from the vantage point of the winners — the comparatively tiny number of people who saw the calamity coming and cashed in on it. That, however, is the story Michael Lewis chooses to recount in his new book, The Big Short . In lesser hands, that choice could easily come off as crass. Who, other than the jealous and the callous, gives a damn about the guys who made billions while the rest of us lost our shirts? Yet Lewis makes the choice look inspired. At the end of 2008, when the scope of the economic meltdown became clear, the question on everyone’s mind was: how come so many smart people failed to foresee the crisis? The usual answer, at least as provided by those same smart people, was that, for one reason or another, it was actually unforeseeable. The right information wasn’t made available to them at the right time. Or the information had become too opaque and unintelligible to piece it together into a big picture. Or the reigning model of how the market worked precluded the possibility of such a calamitous event. Or the crisis arose from a confluence of events too specific and improbable for anyone to have predicted it. It was the black swan — the huge, hungry, bad-tempered black swan — that ate Manhattan. The trouble with these hypotheses (like the trouble with many hypotheses, including those that brought down our economy) is that they all fail to take into account certain crucial pieces of evidence. In this case, those pieces of evidence are Lewis’s protagonists. “A small number of people — more than ten, fewer than twenty — made a straightforward bet against the entire multi-trillion-dollar subprime mortgage market and, by extension, the global financial system,” Lewis writes. The mere existence of those people proves his point: “The catastrophe was foreseeable, yet only a handful noticed.” The Big Short is Lewis’s effort to explain why. To do so, the book sticks close to that handful of people — who are indeed a handful, in every sense of the phrase. Among them: Steve Eisner, the compulsively honest, thoroughly tactless hedge-fund manager who starts his career as a Republican devotee of mortgage bonds and ends up about as close to a morally outraged lefty as Wall Street has ever seen. Also: Charlie Ledley, the thirty-year-old co-founder of a company called Cornwall Capital Management. A lot of what you need to know about Cornwall Capital you can glean from this: it was started in Berkeley and subsequently migrated to the East Village. (Ledley’s business partner calls it a “garage band hedge fund.”) Then there is Greg Lippman, who, in Lewis’s telling, has the fashion sense of a porn star, the oily sheen of a used-car salesman, the bank account of a bond trader (which he is) — and, starting sometime around 2005, a 42-page, meticulously documented presentation about everything that was wrong with the subprime mortgage market. Finally, there is Michael Burry, a one-eyed former neurology resident who discovers early in life that he has an uncanny ability to understand the stock market — and, late in life, that he has Asperger’s syndrome. In the land of the blind, the saying goes, the one-eyed man is king. Burry, Lippman, Ledley, and Eisner saw what precious few other people were able or willing to perceive: a fatal flaw in the early-twentieth-century global financial system. The subprime mortgage market — “the most powerful engine of profits and employment on Wall Street” — was a glorified Ponzi scheme. Millions of people with shaky or nonexistent credit histories were seduced into accepting adjustable-rate mortgages: tantalizingly low interest rates at first, terrifying consequences down the line. Traders then chopped those mortgages apart, stuck them back together in strange configurations, and sold the resulting financial Frankensteins to investors as triple-A rated bonds. That’s the same credit rating bestowed on U.S. Treasury bonds — and the only rating acceptable to places like your pension fund. At this point I need to pause to make two disclaimers. First, this is a radically simplified version of Lewis’s somewhat simplified version of the mind-bendingly complex events that actually transpired in the subprime mortgage market. Second, I am almost certainly getting some of it wrong. In general, Lewis has a knack for making difficult things look easy: sabermetrics, collateralized debt obligations, writing bestsellers. He’s as deft as ever in The Big Short , but the material he’s obliged to grapple with would make a particle physicist turn pale. Also, it makes financial dimwits like me liable to miss a few things. The main point, however, is unmissable: the whole thing was a castle built on a cesspool. Sooner or later, the adjustable interest rates on the subprime mortgages held by millions of not-terribly-solvent Americans were going to adjust — upward. For the whole system to collapse at that point, the housing market didn’t need to fail. It didn’t even need to fall . It just had to stop growing as fast as it had during the boom years. And that’s exactly what happened. The market slowed, the homeowners defaulted, and all the fancy financial Frankensteins fell through the basement. Lewis’s protagonists, who had bet against them all along, made a killing. *** You could argue that The Big Short is about a lot of different things — about finance, hubris, turn-of-the-century democratic capitalism, Wall Street culture, American culture. All of that is true. But I read it (perhaps inevitably, given my own work ) as, at heart, a story about the social, personal, and intellectual circumstances that can produce dazzling rightness or staggering wrongness. (Check out this sidebar to see how the guys in The Big Short got it right, and what the rest of us can learn from them.) For readers of Lewis’s other work, that story might be familiar. In the prologue to The Big Short , Lewis positions it as a sequel to Liar’s Poker , his account of his own stint on 1980s-era Wall Street. I suppose he would know best, but to me, this newest book seems, instead, to be the intellectual scion of Moneyball . That, too, was an astonishing story about rightness and wrongness : about the insight of outsiders and the intransigence of insiders; about the ability of those outsiders to recognize and exploit the inefficiencies of the insiders’ ossified convictions; and about the social and intellectual forces that made it difficult for the insiders to grasp what was going on. Steve Eisman, Charlie Ledley, Greg Lippman, Michael Burry: these guys are to Wall Street what Bill James was to baseball. The Big Short is as good as Moneyball , but it isn’t as fun. It’s tough to sit back and revel in other people’s idiocy when it cost you your house, or annihilated your IRA, or sent your entire job market up in smoke. And if you can’t gloat over the losers here, you can’t wholly cheer for the winners, either. In Moneyball , there was nothing to interfere with the pleasure of rooting for the hopelessly outclassed, out-of-shape, bottom-of-the-barrel Oakland A’s. But the underdogs in The Big Short aren’t really underdogs. They are millionaires growing up to be billionaires. So are the heroes of this book really the good guys? For that matter, are they really even good? Lewis lets the moral ambiguity keep sloshing around as the story unfolds, which is to his credit, since that’s how moral ambiguity generally behaves. We are alternately charmed by his characters and reminded that they are not so different from all the other Wall Street shmucks “getting rich shuffling bits of paper around to no obvious social purpose.” We are also reminded that even a shmuck, once you get to know him, is seldom exclusively shmucky. And we see, too, that, to one degree or another, these men did try (Eisman and Lippman especially, although the latter for complicated reasons) to alert Wall Street to the impending crisis. None of them could ever figure out if Wall Street was too greedy to care about the message or too stupid to understand it. Regardless, the result was the same. Wall Street didn’t listen. The SEC didn’t listen. And, as Lewis tells it, his own colleagues — journalists at the New York Times and the Wall Street Journal — didn’t listen either. So Lewis’s protagonists were Cassandras, sort of — but only if Cassandra had placed a multi-billion-dollar bet against Troy and lived to tell the tale. However corrupt, fraudulent, and repellent they found the financial system, these men grasped it well enough to game it. In doing so, they became complicit in the crisis. Eisman’s right-hand man, a guy named Vincent Daniel, put it well. “The way we thought about it, which we didn’t like, was, ‘By shorting the market we’re creating the liquidity to keep the market going.’” Eisman concurred: “It was like feeding the monster. We fed the monster until it blew up.” When it did, it took a vast swath of humanity with it. Those people — the real underdogs of the financial crisis — are seldom glimpsed in The Big Short before its final pages, when Lewis turns his gaze to the much-mythologized Main Street, whose denizens are about to learn that they are the victims of a spectacular failure. Actually, the people doing the gazing are Steve Eisman and his partners, who sit down together on the steps of St. Patrick’s Cathedral in Manhattan on September 18, 2008, to try to take in what has happened. It is a lovely ending, understated yet lasting, like the toll of a bell that spreads rather than fades. But it says something about the larger story that the Main Street they gaze upon is Madison Avenue.

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Kathryn Schulz: Michael Lewis’s The Big Short: What Does It Mean to Bet (Right) on Armageddon?

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Jim Luce: C.E.O. Brooke Partridge Helps Lead Technology Thought in Developing World

March 14, 2010

Despite our best efforts to meet in Barcelona, at the GSM World Congress , with 49,000 participants spread between 1,300 vendors, C.E.O. Brooke Partridge and I missed each other. We succeeded in connecting between New York and Palo Alto by phone a week later. It had been my impression that she was someone I had to interview, but I did not realize how integral she was to thought leadership on technology in the developing world until we spoke. Brooke Partridge of Vital Wave Consulting helps steer the direction of technology in emerging markets. She’s been moving in this space for a long time. Brooke started Vital Wave Consulting nearly five years ago after a decade at HP as a leader in emerging technologies and emerging markets. She was key in dragging the emerging-market focus from the realm of corporate social responsibility (CSR) into the business units. During that period, HP had a head start on emerging markets, and Brooke saw that other companies getting into the space were looking for strategic support and guidance. She started Vital Wave Consulting to serve a wider base of companies, and Brooke and the rest of her firm became advisors for some of the biggest tech companies in the world. This “wag the dog” approach had a strong impact on several multinational organizations that were able to maximize their impact on global business and the developing world with her firm’s advice. Brooke has been quietly moving behind the scenes for many years now helping technology companies strategize and tool up for successful revenue growth in emerging markets. Indeed, she counts Intel, Microsoft, and other Fortune 500 firms among Vital Wave’s customers. “One of the reasons our company has survived in this economy is because of this role. We go beyond talking about the size and importance of these markets. We really quantify and characterize the opportunity, creating specific plans to help companies capture it.” Initially, Brooke saw the need for a firm that would specialize in helping companies grow profitably in these countries. Up until then, technology corporations either ignored emerging markets or dealt with them in their philanthropic or CSR areas. Not always, anymore. Brooke Partridge and David Lehr with the Xian Province Ministry of Commerce in China. “But if you want financially sustainable investments in poor countries,” she says, “you have to talk about the P word.” Profitability, that is. Among many who work in the NGO and development communities, the idea of making money from people in poor countries remains taboo, but Brooke sees it as vital. “If you want companies to invest in these markets for the long term, you have to demonstrate that they can make money in them. And that’s what we help to do,” she says. Yet a funny thing happened along the way. “A few years ago, the development community came to us,” says Brooke. Leading foundations such as the Gates Foundation , the U.N. Foundation , the GSMA Development Fund , and the Cherie Blair Foundation for Women liked Vital Wave’s approach to the challenge of financially sustainable development – and began working with the company. It was organic growth. What Vital Wave Consulting does for the private sector has proved valuable for NGOs, and they reached out to Vital Wave Consulting themselves. The company has since authored several reports in collaboration with these foundations, on topics such as Mobile Healthcare , Health Information Systems , and Mobiles and Women in the Developing World. The reports stress multi-sector collaboration and highlight the need for the private sector to be involved in these solutions. A seasoned globe-trotter, Brooke enjoys a moment to relax with kids in Egypt. Brooke’s personal background, how she got here, is an integral piece of the picture. Brooke grew up in Silicon Valley as it grew up – when San Jose and Santa Clara were known for agriculture not computer chips. She was in one of the first middle schools to have an Apple Macintosh and a computer programming class (two computers shared among 30 programming students!). She grew up a few miles from Apple and HP offices in Cupertino. There were entrepreneurs all around. What Brooke calls “A heritage of entrepreneurship.” Then, when she was 15, she went to Peru for a summer – her first exposure to both poverty in the developing world and the innovative ways that poor people earn money. She watched what people do every day in low-income areas to creatively increase their income, utilize what assets they have to make extra revenue. People maximize and monetize whatever assets they have available. Own a wheelbarrow? Use it! Move things for people and charge money for it. Eventually, one has to ask, “How could someone make more money with a computer, a cell phone, a server?” Not long after, she found herself living in Mexico, and Chile, plus a year living in Madrid. Eventually, she was focused heavily on markets like South Africa, China, and India. With her unusual background, no wonder Brooke landed at the intersection of technology, entrepreneurship, business growth, and emerging markets. Brooke Partridge and China Specialist, David Lehr, visit the Rural China Rain Gold Junior Middle School. When Brooke Partridge was in high school, her guidance counselor asked her what she wanted to do as a career. When Partridge replied that she wanted to work internationally, the guidance counselor said “Oh, that just means you want to travel. But what do you want to do for work?” Little did he know just how serious Brooke was. Partridge’s early experiences led her to study international affairs and economics in her undergraduate and graduate studies, but her early corporate experiences left her wanting more. Brooke was nearly always working on new, “disruptive” technology solutions – for both developed and developing-country markets. Disruptive means that the new technological solution would disrupt existing but weaker solutions. Ultimately, she became the business director of HP’s Emerging Market Solutions organization where her passion for and experience in disruptive technology, international business and development came together. Brooke presents “Best Practices” at HOIT 2007, IIT in Madras, India. From her early days in developing countries, she had always been convinced of the connection between profitable business and economic development. This was her first opportunity to demonstrate it. And through Vital Wave Consulting, those opportunities keep coming. “That is really my guiding philosophy, and that of Vital Wave Consulting. I don’t apologize appealing to corporations’ profit motive. I think that even the development community is seeing that profit – i.e., sustainable business models – is essential for scaling their programs. “There is big money in making products for emerging markets, and it results in good development. People in emerging markets want choices, they spend their money wisely, and the market economy can work for them.” Paul Stevers, founder of CharityHelp International ( CHI ), agrees with the view that profitability is good for development. Paul told me, “Thought leaders like Brook Partridge and Muhammad Yunus ( Grameen Bank ) are leading the way on how to develop sustainable business models that can be scaled up significantly and benefit millions of people in developing countries.” Brooke’s vision stems from her total emersion in local cultures – here, in China. C.E.O. Brooke Partridge of Vital Wave Consulting does not believe in hand-outs. She is involved in developing the world hands-on. Through her global vision, multi-national corporations and international philanthropic organizations will be able to assist the developing world develop itself. That, my friends, is true leadership. Other Stories by Jim Luce : Peter Buffett and Angelique Kidjo Release Single to Support Girls in Africa (HuffPo) From Kansas to Cairo: Introducing Soliya’s World-Changing “Terana” (HuffPo) U.S. Congresmember Carolyn Maloney on Abhorrent Anti-Gay Legislation in Uganda (HuffPo) Goldman Sachs Helps 10,000 Women, Including Andeisha Farid (HuffPo) Chatting with UNICEF’s Director Ann Veneman (HuffPo) NBC’s Brian Williams: Changing the World for the Better (HuffPo) Sweden’s Queen on “Fire Souls” – Leaders in Child Protection (HuffPo) Asia Society’s Prez on Global Citizens Like Obama (HuffPo ) Interview with the Red Cross Secretary General in Geneva (HuffPo) Pending: Earth Institute at Columbia Takes Leading Role on Cell Phones for Social Change Pending: Gates Foundation’s Ignacio Mas on eFinance in the Developing World Pending:GSMA and the Cherie Blair Foundation for Women Publish Women & Mobile: A Global Opportunity Report Pending:mHealth: Alliance: Partnership Between the U.N. and Vodafone Pending:Queen Rania on the Role of Cell Communications in Advancing Education Around the World Pending:Rockefeller Foundation Leads Panel on Mobile Transformation of Developing World

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Raymond J. Learsy: Gary Gensler of the CFTC: Reformer or Wolf in Moth Eaten Sheep’s Clothing?

March 13, 2010

Much press has been dedicated these past few days to Gary Gensler, Chairman of the Commodity Futures Trading Commission (CFTC) and ex-Goldman Sachs partner. A New York Times article regales us over his apparent transformation from a hard-line acolyte of then Treasury Secretary and former Goldman Chairman Robert Rubin, long an advocate for a ‘hands off government’ over derivatives trading that was to grow to a $300 trillion (I repeat, trillion) runaway market and become an unsupervised, unregulated financial WMD. That, supposedly, was then and this is Gensler now: “Wall Streets interest is not always the same as the public’s interest.” Or, “Wall Street thrives and makes money in inefficient markets, and I am creating efficiencies in the market.” Really? Back in May 2009 Gensler took over the CFTC, an agency that in July 2008 organized an “Interagency Task Force on Commodity Markets” report and, with oil prices scaling $147/bbl, concluded that it “does not support the proposition that speculative activity has systematically driven changes in oil prices.” A conclusion I leave to the reader to determine whose interests were being taken into account. Apost concurrent to Gensler’s confirmation raised the issue that oil prices had increased dramatically from February 2009 lows of $32.70/bbl to $60/bbl in May 2009, causing the likes of the Financial Times to comment that the fundamentals are “weaker, much weaker than current prices imply.” The implications of speculation and/or manipulation were clear, and Gensler at the CFTC would now be in the hot seat. What has happened since? The price of oil has extended its rise from $60/bbl to over $80/bbl, and that with imports of oil down significantly, given that oil storage terminals are full, and having a surprisingly positive impact on our foreign trade balance. Yet irrespective of more than ample supply in the upside down world of oil prices: the more oil there is on the market, the more we pay per barrel. But then Gensler’s CFTC gave us a bright shining moment of an oil industry influenced government’s reversal in form and candor on issues oil. On July 27, 2009 the Wall Street Journal blazoned their headline, “Traders Blamed For Oil Spike,” advising that the CFTC was to issue a report ‘next’ month “suggesting that speculators played a significant role in driving wild price swings in oil prices — a reversal of an earlier CFTC position.” As well that month, the CFTC had announced that it was considering volume limits on energy futures by financial/proprietary traders and tougher information requirements. Almost immediately the good folks on Wall Street energized their K Street lobbying clan to stop the CFTC and their old work mate Gensler in their tracks. We are still waiting for that report! The outrageous dysfunction of the commodity markets and the tepid CFTC oversight continued blithely along. Late in the week of November 9th, 2009 the Energy Information Service announced that oil stocks had surged by 1.762 million barrels, much more than expected, and that the U.S. refineries processing rate sank to 79.7%, the lowest in more than two decades. Against all reason, instead of collapsing prices, the price of oil jumped by $2.50 on the very day of the announcement, eliciting a post , “The CFTC and Department of Energy Snore Away While the Oil Patch Makes Hay” 11.18.09. And so it continues. While Mr. Gensler and his CFTC Vaudeville act continue to fiddle away, the distortion in oil prices is burning a billion dollar hole a day in American consumers pockets (please see “The Billion Dollar Day Extortion: A Somnolent Administration and Dysfunctional Congress’ Gift to the American People” 02.22.10). As for Mr. Gensler, he is now, after all these months calling for some form of federally mandated limits on speculative trading on oil, gas and other energy futures. But don’t hold your breath. It will all be subject to a 90 day comment period. When all is said and done it will be a year or more since Mr. Gensler’s ascension that anything will have been accomplished, if at all, to rein in the distortions being promulgated on the commodity exchanges. In the meantime, billions are being transferred to oil interests from the pockets of American consumers and putting at risk the feeble economic recovery now underway! An apocryphal comment in the NYTimes article refers to Gensler’s time at the Treasury when asked to investigate derivatives held by South Korean Banks and being “amazed at how little information the banks could provide” “Knowing what we know now, we should have banged the table more forcefully” he now says. Well Mr. Gensler, as oil trading has become the litmus test of all commodity exchange based pricing, we are waiting to hear the loud bangs, especially when it comes to oil!

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

March 11, 2010

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

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EIM USA Chief Antonio Munoz Is Said to Leave Busson’s Fund of Hedge Funds

March 11, 2010

By Tom Cahill and Katherine Burton March 11 (Bloomberg) — Antonio Munoz , chief executive officer of EIM USA Inc., left the U.S. arm of Arpad Busson ’s $9 billion fund-of-hedge-funds firm, according to two people with knowledge of the move. Munoz became head of the New York-based unit four years ago, said the people, who declined to be identified because the information is private. Gary Yannazzo, chief operating officer of EIM USA, will take charge of the office. Munoz and Busson, chairman and founder of Nyon, Switzerland-based investment firm EIM SA, couldn’t be reached for comment. A spokesman for EIM in London declined to comment. Busson, 47, had his first losing year in 2008, with EIM’s accounts down from 8 percent to 19 percent. The firm, which creates tailor-made portfolios for its clients, invested $230 million with Bernard Madoff , who is serving a 150 year prison term for leading the largest-ever Ponzi scheme. The firm’s assets have fallen about $2.5 billion since the beginning of 2009. To contact the reporters on this story: Tom Cahill in London at tcahill@bloomberg.net ; Katherine Burton in New York at kburton@bloomberg.net

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

March 10, 2010

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

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AIG Leads Gains in Rescued Firms on Speculation It Will Divest More Assets

March 9, 2010

By Nick Baker March 9 (Bloomberg) — American International Group Inc. surged, leading gains by financial companies bailed out by the U.S. government, on speculation the insurer will sell more assets after raising $51 billion through deals. AIG jumped 13 percent to $32.77 at 4 p.m. in New York. Citigroup Inc. advanced 7.3 percent to $3.82 as Charles Gasparino of Fox Business Network said the U.S. may sell its stake in the bank within three months, without saying where he got the information. Fannie Mae climbed 5.9 percent to $1.07, and Freddie Mac increased 7.6 percent to $1.28. The government saved AIG, Citigroup, Fannie Mae and Freddie Mac after Lehman Brothers Holdings Inc.’s collapse intensified the credit crisis in September 2008. AIG sold two divisions in the past two weeks as it seeks to repay the U.S. Citigroup has returned some assistance, and the government plans to sell its remaining stake in the next year. President Barack Obama ’s administration is still trying to sort out what to do with Fannie Mae and Freddie Mac. “You don’t know what the government might do across the board, good or bad,” said Anton Schutz , who manages $225 million of financial stocks at Mendon Capital Advisors Corp. in Rochester, New York. “And anybody who chooses to short these things can really get squeezed.” Short Sales Short sellers closing their bearish bets may also be driving up the stocks. For AIG, 26 percent of its shares available for trading are sold short, according to data compiled by Bloomberg. If it were still in the Standard & Poor’s 500 Index , it would be the third most-shorted among the measure’s 500 companies. With Fannie Mae and Freddie Mac, short sales comprise more than 10 percent of their float. The ratio is 2.5 percent at Citigroup. Short selling is the sale of borrowed stock in the hope of profiting by buying the securities later at a lower price and returning them to the shareholder. Barclays Plc, based in London, is interested in purchasing a U.S. retail bank to obtain more deposits and expand Barclays Capital, the Wall Street Journal reported, citing unidentified people close to the situation. New York-based Citigroup is the third-largest U.S. bank by assets, trailing Bank of America Corp. and JPMorgan Chase & Co. Top Fund Manager Bruce Berkowitz , named money manager of the decade in the U.S. stock-fund category by Chicago-based research firm Morningstar Inc., recently bought $700 million worth of Citigroup shares, Fortune magazine reported on its Web site. Berkowitz said the worst is over for the bank. Fannie Mae of Washington and McLean, Virginia-based Freddie Mac both help provide liquidity for the U.S. mortgage market by purchasing loans. Shares of New York-based AIG reached $34.80, the highest intraday price since November. “If you’re a trader, the stock’s up 10 percent, almost 11 percent — why not day-trade this?” Robert Pavlik , who helps oversee $400 million as chief market strategist at Banyan Partners LLC, said before AIG extended its gain to 20 percent. “But for an investment, I wouldn’t go near it.” To contact the reporter on this story: Nick Baker in New York at nbaker7@bloomberg.net .

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Ireland Arrests Seven in Overseas Murder Plot Probe Linked to Cartoonist

March 9, 2010

By Dara Doyle and Colm Heatley March 9 (Bloomberg) — Irish police arrested seven people in Cork and Waterford in connection with an investigation into a conspiracy to murder an individual in another country. Irish police have “been working closely with law enforcement agencies in the United States and in a number of European countries,” the police said in a statement today, without giving additional details. The arrests, which took place in counties Waterford and Cork, are in connection with an investigation into a conspiracy to murder Swedish cartoonist Lars Vilks, RTE reported today, without saying where it got the information. Vilks depicted the Prophet Muhammad with the body of a dog and Al-Qaeda offered $100,000 for the murder of Vilks in 2007, the broadcaster said. All those arrested are being detained under section 50 of the criminal justice act, which allows them to be detained for as long as seven days, a police spokesman who declined to be identified, said by phone. The arrested includes four men and three women, RTE said. To contact the reporter on this story: Dara Doyle at ddoyle1@bloomberg.net Colm Heatley in Belfast at cheatley@bloomberg.net

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Ireland Arrests Seven in Overseas Murder Plot Probe Linked to Cartoonist

March 9, 2010

By Dara Doyle and Colm Heatley March 9 (Bloomberg) — Irish police arrested seven people in Cork and Waterford in connection with an investigation into a conspiracy to murder an individual in another country. Irish police have “been working closely with law enforcement agencies in the United States and in a number of European countries,” the police said in a statement today, without giving additional details. The arrests, which took place in counties Waterford and Cork, are in connection with an investigation into a conspiracy to murder Swedish cartoonist Lars Vilks, RTE reported today, without saying where it got the information. Vilks depicted the Prophet Muhammad with the body of a dog and Al-Qaeda offered $100,000 for the murder of Vilks in 2007, the broadcaster said. All those arrested are being detained under section 50 of the criminal justice act, which allows them to be detained for as long as seven days, a police spokesman who declined to be identified, said by phone. The arrested includes four men and three women, RTE said. To contact the reporter on this story: Dara Doyle at ddoyle1@bloomberg.net Colm Heatley in Belfast at cheatley@bloomberg.net

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EADS Says U.S. Air Force Tanker-Bid Retreat Final, Won’t Seek New Partner

March 9, 2010

By Andrea Rothman March 9 (Bloomberg) — European Aeronautics, Defense & Space Co. Chief Executive Officer Louis Gallois said his decision to abandon the $35 billion U.S. Air Force Tanker bid is final, as some European politicians suspected local favoritism. “I don’t see any opportunity to come back alone or with others,” Gallois told journalists at a press conference in Paris today, a day after partner Northrop Grumman Corp’s retreat from the process forced EADS to follow. “If Northrop makes the analysis that we cannot win, I don’t think we can say that we will do it alone.” EADS and Northrop won the order in 2008, only to see their victory unravel after Boeing Co. contested the process. The companies’ retreat likely leaves Boeing as the only bidder for the program unless another firm joins the contest. EADS had entered the competition with a variant of its Airbus SAS A330, which is larger and newer than the 767 model offered by Boeing. “It is highly regrettable that a major potential supplier would feel unable to bid for a contract of this type,” European Union Trade Commissioner Karel De Gucht said in a statement. “The European Commission would be extremely concerned if it were to emerge that the terms of tender were such as to inhibit open competition for the contract.” The U.S. government gave Boeing a clear advantage, and competition shouldn’t be hindered in defense contracts, German Economics Minister Rainer Bruederle said in another release. No Cooperation Gallois said he won’t discuss the political ramifications of the tanker bid, and that the company would continue to do business in the U.S. with partners. Working with Boeing on the contract isn’t going to happen, the executive said. EADS is in talks with the U.S. governments to recoup some costs incurred with the bid, Chief Financial Officer Hans Peter Ring said. Northrop had about 180 people working on the project, while EADS had a smaller group engaged, he said. Airbus’s A330 planes, the basis for the tankers, are now assembled in Toulouse, France. Airbus would have built an assembly line in the U.S. to provide tankers to the Air Force, and had said it would also use that line to build A330 freighters. Putting more work in the U.S. would have provided a natural hedge for the dollar’s decline against the euro. Gallois said today that the U.S. assembly line is off the table for now. For Related News and Information: Top Stories: TOP Top European Aerospace Stories: TNI ETOP ARO For EADS Earnings: EAD FP TCNI ERN Top Transportation Stories: TRNT

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EADS Posts Wider-Than-Estimated $1.04 Billion Loss, Cancels 2009 Dividend

March 9, 2010

By Andrea Rothman March 9 (Bloomberg) — European Aeronautic, Defence & Space Co. reported a full-year loss, its fourth annual deficit since the company was created in 2000, because of cost overruns on its two largest Airbus plane projects. The net loss was 763 million euros ($1.04 billion), after net income of 1.57 billion euros a year earlier, the Paris- and Munich-based company said in a statement today. EADS said March 5 that it would take additional charges on its A400M military plane, resulting in an operating as well as net loss for 2009. Revenue fell 1.2 percent to 42.8 billion euros, EADS said. The Airbus aircraft unit, which provides about two thirds of EADS’s sales, has grappled with spiraling costs on the A400M military plane as well as the A380 superjumbo, with both projects years behind schedule. Airbus reached a last-ditch accord with governments involved in the military plane last week, after threatening to walk away from the program. The loss before interest and tax last year was 322 million euros, compared with operating profit of 2.83 billion euros in 2008. EADS plans to pay no dividend for 2009, citing the loss. Revenue this year will be “roughly stable,” and EADS said it plans to increase production of its single-aisle planes. EADS has gained 7.2 percent since September, while Boeing Co. has increased 33 percent since then. EADS’s biggest shareholders include Daimler AG and the French state. For 2010, EADS predicted that research costs will rise as it moves toward production of the new A350 long-haul plane, which will compete with the Boeing 787. Production rates of its wide-body planes will remain at about 8 units a month. Renegotiating Contract EADS has sought to renegotiate with seven European countries a 2003 contract originally valued at 20 billion euros for 180 A400M units. After EADS failed to perform the first test flight by April 2009, the ordering governments had the right to cancel the entire project. Instead, they spent almost a year reworking the contract, agreeing in the end to inject another 3.5 billion euros in aid and export-related loans. The planemaker, which leapfrogged Boeing in delivery numbers in 2003, had previously planned to increase monthly production of its A380 plane to 4 units last year. It ended up making the jet at a rate of about one a month, blaming the complexity of the program and customers’ desire to customize. While the A380, which normally seats more than 500 passengers, has become a hit on routes where the super-jumbo operates, Airbus has failed to live up to its delivery promises. Airbus started last year with the aim of 18 A380 deliveries, and finished 2009 with just 10, fewer than the 12 shipped to clients the prior year. Airbus Chief Executive Officer Tom Enders has said the A380 won’t be profitable for several years. For Related News and Information: Top Stories: TOP Top European Aerospace Stories: TNI ETOP ARO For EADS Earnings: EAD FP TCNI ERN Top Transportation Stories: TRNT

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ICBC to Slow Lending, Capital Adequacy `Sound’, Chief Executive Yang Says

March 7, 2010

By Bloomberg News March 7 (Bloomberg) — Industrial & Commercial Bank of China Ltd. , the world’s largest lender by market value, said it has no fund-raising plan at the moment even as it boosted lending by 24 percent last year. ICBC’s capital adequacy ratio is “sound” and the highest among rivals, and pressure on capital raising is “not big,” President Yang Kaisheng said at a press conference in Beijing today. China’s banks doled out a combined 9.59 trillion yuan ($1.4 trillion) in new loans last year, helping the government engineer a turnaround in the world’s third- largest economy . The credit binge drained lenders’ capital and sparked concerns about asset bubbles, a higher number of bad loans and increased inflation pressure. China’s publicly-traded banks have already raised about 131 billion yuan from bond and share sales since the second half of last year to replenish capital drained by loan growth, and they have announced plans to raise a further 127 billion yuan, according to Bloomberg data. Beijing-based ICBC’s capital adequacy ratio , a measure of the bank’s financial strength, fell to 12.60 percent at the end of third quarter, from 13.06 percent at the end of 2008. The nation’s policy makers aim to avert asset bubbles and restrain inflation by limiting new credit at 7.5 trillion yuan this year. China’s growth accelerated to 10.7 percent in the fourth quarter, the fastest pace since 2007, and property prices climbed the most in 21 months. Boost Financing ICBC said it will boost financing to projects already under construction and to small-and-medium sized firms and cut loans to new projects that are not government-backed and if they’re energy-intensive or polluting. Loans would also be reduced to sectors with overcapacity, Yang said. Loans by the bank this year will be less than in 2009, Yang said. ICBC’s new loans advanced to 1.03 trillion yuan last year, Yang said. After a government bailout five years ago, ICBC is now the world’s biggest bank by value. The lender has more than doubled profit during the past three years and has more than 16,000 outlets nationwide and 112 branches outside China, and 190 million personal customers — equivalent to the populations of Russia and Canada combined. ICBC on March 4 submitted a tender offer to buy all shares in Thailand’s ACL Bank Pcl in a deal that would give ICBC a foothold in the southeastern Asian nation after acquisitions in Indonesia, Macau, South Africa and Canada since 2007. The bank aims to triple the share of profit coming from abroad to 10 percent. ICBC will be “active and prudent” with overseas expansion this year, Yang said. For Related News and Information: Top financial stories: FTOP Stories on China Banks: TNI CHINA BNK Banking industry debt and equity monitor: BANK Relative value comparison: 1398 HK RVC

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Mubarak Having Inflamed Gallbladder Removed, Temporarily Transfers Power

March 6, 2010

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

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Citadel Said to Lay Off Four Members on Noh’s Asian Merchant Banking Team

March 3, 2010

By Bei Hu March 4 (Bloomberg) — Citadel Investment Group LLC, the hedge fund company founded by Kenneth Griffin , cut the size of its Asia team in charge of special situations investments by 40 percent, said three people with knowledge of the matter. The hedge fund firm laid off four members of its Asian merchant banking division led by David Noh earlier this year, said the people who declined to be identified because the information is private. Katie Spring , a spokeswoman in the Chicago head office of Citadel, and Hong Kong-based Noh declined to comment. Citadel has indicated it is cutting holdings of infrequently traded assets and scaling back capital-intensive investments after the value of its two largest funds fell amid the global financial crisis in 2008. The company, which employed about 70 people in Hong Kong in August 2008, eliminated 37 jobs in Asia in December 2008. Six people remain on the Hong Kong-based team responsible for longer-term investments that often include private securities issued by companies and not traded on exchanges, including distressed companies. This year’s job cuts in the division came after assets it oversees fell to about a third of the size upon Noh’s arrival in mid-2008 as investments matured, were sold or lost value, said two of the people. Most of the investments managed by the team were made under Citadel’s former Asia head Tim Throsby and ex-special situations investment head Oliver Weisberg , the three people said. Weisberg is still on staff at Citadel, while Throsby left in 2008. Citadel asked Noh’s team to manage and sell existing assets in 2009 and it didn’t make fresh investments during the year, they added. Noh joined from Merrill Lynch & Co., where he had been head of corporate principal investments for the Pacific Rim, Citadel said in a statement when he was hired. Casualties in the latest round of Citadel Asian layoffs included at least one of the six people that Noh poached from his old Merrill Lynch team, the people said. Citadel still has about 40 employees in Hong Kong and intends to maintain its presence in the region, especially its equities business, one of the people said. To contact the reporter on this story: Bei Hu in Hong Kong at bhu5@bloomberg.net

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Chileans Endure Food Shortages, Looting as Earthquake Relief Comes `Late’

March 3, 2010

By Michael Smith, James Attwood and Sebastian Boyd March 3 (Bloomberg) — Four days after Chile was hit by its strongest earthquake in 50 years, victims are criticizing the government for failing to respond quickly enough to a disaster that left them drinking fetid water and scrounging for food. “No one from the government has even showed up to tell us what to do, much less give us any help,” said Julio Valle, a fisherman whose 12-meter trawler was destroyed when a wall of water generated by the Feb. 27 temblor crashed into the port of Talcahuano . “The government has abandoned us to our fate.” Chilean President Michelle Bachelet has dispatched thousands of troops to areas of the country hardest hit by the 8.8-magnitude quake and government officials have said that their sole focus is helping victims. Still, most of the 1 million people who live in Talcahuano and the nearby city of Concepcion don’t have access to drinking water, power or fuel. “We’re on our own,” Valle said, standing amid mud, dead fish, broken boats and a wasteland of buildings reduced to rubble. He, his wife and his two children are living under a plastic tarp on a hillside, searching for food amid the debris. Frustration is growing among Chileans from Concepcion, the country’s second-largest city, to the capital Santiago, where neighbors are banding together to guard against looters looking to take advantage of the disorder to steal. Bachelet isn’t acting fast enough to bring order to the chaos, said Concepcion Mayor Jacqueline Van Rysselberghe. There aren’t enough troops to restore calm and efforts to distribute food, water and temporary shelter have fallen short, she said. ‘Insufficient’ Aid “Help is starting to arrive in the area, but unfortunately it’s late,” she told ADN Radio Chile . “The amount of aid that’s arrived is insufficient.” The Navy shares the blame for deaths resulting from a tsunami in Talcahuano after residents, who had fled to higher ground, returned when an alert was lifted only to be hit by a massive wave, said Admiral Edmundo Gonzalez. “We were not very clear in the information that we delivered,” he said in a televised interview on TVN . “We weren’t precise enough in telling the president to maintain the alert or lift it. We share the blame.” Juan Soto, a 45-year-old sardine fisherman, says that error may have gotten people killed. “They drove around with loudspeakers telling people it was safe so a lot of folks went back to low ground,” said Soto, 45. Most people in his fishing village of Coliuma lost their homes and some were swept out to sea when a tsunami smashed the shoreline, he said. “The government shares the blame for people’s deaths,” he said. ‘Time for Action’ Chile’s president said the government is doing the best it can under the circumstances. “It’s not the time for analysis, it’s the time for action,” Bachelet said in a speech. “This is an earthquake of unprecedented proportions and we expect understanding.” World Vision International workers cannot enter some of the hardest hit areas because of damaged roads, and supplies are being delivered by boats and helicopters, slowing their arrival, said David Dickler, a spokesman for the Los Angeles-based relief organization. “It’s not the government’s fault, it’s just nature’s force,’ he said. The government put more army troops and marines on the streets of Concepcion and Talcahuano after thieves pillaged and torched businesses over the past three days. Officials instituted a nighttime curfew in a bid to prevent looting. Satellite Phones Efforts to provide relief are hampered by a lack of electricity, spotty communication and severed highways. Secretary of State Hillary Clinton delivered 25 satellite phones to Bachelet yesterday and said the U.S. would provide water purification plants, a field hospital and mobile bridges. Pledges of assistance have also come from the United Nations, Brazilian President Luiz Inacio Lula da Silva and Peruvian President Alan Garcia . Clinton yesterday praised the government’s response to the earthquake that released hundreds of times more energy than the temblor that left more than 200,000 dead in Haiti in January. “Your leadership and the extraordinary efforts of your government and the people of Chile are responding with resilience and strength,” Clinton said in Santiago. The perception among some Chileans was different. Wrecked Boat “We have gotten nothing, nothing from the government to help,” said Capt. Fernando Cartes, commander of the main fire brigade in Talcahuano. Near Valle’s wrecked boat, dozens of people took gasoline from the tanks of a destroyed service station yesterday while another group looted sacks of flour from a warehouse within sight of troops stationed at the gates of Chile’s biggest naval base. A military patrol sped by without stopping, images broadcast on CNN Chile showed. In Santiago, which wasn’t hit as hard as towns and cities closer to the quake’s epicenter in south-central Chile, reports of bands of thieves roaming the capital’s wealthiest areas stirred fear among residents. In some areas, people spent the night outside their houses armed with clubs and other weapons to ward off intruders. “It’s collective psychosis,” said Gonzalo Barrientos, 22, a university student who stood guard outside his home. “There is just fear.” Bachelet will leave office March 11, when President-elect Sebastian Pinera takes over. Pinera said late yesterday that he’s considering expanding the area of the country covered by a “state of catastrophe” declaration made by Bachelet. ‘Finding Solutions’ “I don’t want to grade the government’s response to the crisis,” he told reporters. “I’m committed to finding solutions, especially in public security that clearly has been a weak spot, and water and electricity supply. The time for evaluations hasn’t arrived yet.” The total economic cost from the quake may be as much as $30 billion, or about 15 percent of the country’s gross domestic product, according to estimates by disaster-scenario modeler Eqecat Inc. Insured losses may amount to $3 billion to $8 billion, Eqecat said. Damages at the high end of that range would make the quake the second-costliest for insurers in history, following the 1994 Northridge, California, temblor. Stock Market Chile’s IPSA stock index has declined 1.8 percent since the quake, including a 0.6 percent fall yesterday. Vina Concha y Toro SA, Chile’s largest winemaker, fell the most in eight months yesterday after the company had to suspend production. Other companies benefitted. Lafarge Chile SA, a cement maker, jumped the most on record on bets that demand would increase. Chile’s peso rose 1.1 percent yesterday, the biggest gain among emerging-market currencies, after closing little changed yesterday. Traders are betting the government will repatriate overseas savings to fund reconstruction, increasing demand for local currency. Codelco, the world’s largest copper miner, said it was on track to reach full output yesterday after the quake had knocked out power to two mines supplying more than a third of its production. Most of Chile’s copper deposits and port facilities are in the northern half of the country and had no reports of damage. Concerns about supply caused copper for May delivery to climb 6.15 cents, or 1.8 percent, to close at $3.4115 a pound yesterday on the New York Mercantile Exchange’s Comex unit. The Feb. 27 earthquake was the world’s fifth strongest since 1900, carrying a force 500 times stronger than the magnitude 7.0 earthquake that last month devastated Haiti, in terms of the energy released, according to the USGS. To contact the reporters on this story: Michael Smith in Concepcion at mssmith@bloomberg.net ; James Attwood in Santiago at jattwood3@bloomberg.net ; Sebastian Boyd in Santiago at sboyd9@bloomberg.net

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Chileans Endure Food Shortages, Looting as Government Relief Comes `Late’

March 3, 2010

By Michael Smith, James Attwood and Sebastian Boyd March 3 (Bloomberg) — Four days after Chile was hit by its strongest earthquake in 50 years, victims are criticizing the government for failing to respond quickly enough to a disaster that left them drinking fetid water and scrounging for food. “No one from the government has even showed up to tell us what to do, much less give us any help,” said Julio Valle, a fisherman whose 12-meter trawler was destroyed when a wall of water generated by the Feb. 27 temblor crashed into the port of Talcahuano . “The government has abandoned us to our fate.” Chilean President Michelle Bachelet has dispatched thousands of troops to areas of the country hardest hit by the 8.8-magnitude quake and government officials have said that their sole focus is helping victims. Still, most of the 1 million people who live in Talcahuano and the nearby city of Concepcion don’t have access to drinking water, power or fuel. “We’re on our own,” Valle said, standing amid mud, dead fish, broken boats and a wasteland of buildings reduced to rubble. He, his wife and his two children are living under a plastic tarp on a hillside, searching for food amid the debris. Frustration is growing among Chileans from Concepcion, the country’s second-largest city, to the capital Santiago, where neighbors are banding together to guard against looters looking to take advantage of the disorder to steal. Bachelet isn’t acting fast enough to bring order to the chaos, said Concepcion Mayor Jacqueline Van Rysselberghe. There aren’t enough troops to restore calm and efforts to distribute food, water and temporary shelter have fallen short, she said. ‘Insufficient’ Aid “Help is starting to arrive in the area, but unfortunately it’s late,” she told ADN Radio Chile . “The amount of aid that’s arrived is insufficient.” The Navy shares the blame for deaths resulting from a tsunami in Talcahuano after residents, who had fled to higher ground, returned when an alert was lifted only to be hit by a massive wave, said Admiral Edmundo Gonzalez. “We were not very clear in the information that we delivered,” he said in a televised interview on TVN . “We weren’t precise enough in telling the president to maintain the alert or lift it. We share the blame.” Juan Soto, a 45-year-old sardine fisherman, says that error may have gotten people killed. “They drove around with loudspeakers telling people it was safe so a lot of folks went back to low ground,” said Soto, 45. Most people in his fishing village of Coliuma lost their homes and some were swept out to sea when a tsunami smashed the shoreline, he said. “The government shares the blame for people’s deaths,” he said. ‘Time for Action’ Chile’s president said the government is doing the best it can under the circumstances. “It’s not the time for analysis, it’s the time for action,” Bachelet said in a speech. “This is an earthquake of unprecedented proportions and we expect understanding.” World Vision International workers cannot enter some of the hardest hit areas because of damaged roads, and supplies are being delivered by boats and helicopters, slowing their arrival, said David Dickler, a spokesman for the Los Angeles-based relief organization. “It’s not the government’s fault, it’s just nature’s force,’ he said. The government put more army troops and marines on the streets of Concepcion and Talcahuano after thieves pillaged and torched businesses over the past three days. Officials instituted a nighttime curfew in a bid to prevent looting. Satellite Phones Efforts to provide relief are hampered by a lack of electricity, spotty communication and severed highways. Secretary of State Hillary Clinton delivered 25 satellite phones to Bachelet yesterday and said the U.S. would provide water purification plants, a field hospital and mobile bridges. Pledges of assistance have also come from the United Nations, Brazilian President Luiz Inacio Lula da Silva and Peruvian President Alan Garcia . Clinton yesterday praised the government’s response to the earthquake that released hundreds of times more energy than the temblor that left more than 200,000 dead in Haiti in January. “Your leadership and the extraordinary efforts of your government and the people of Chile are responding with resilience and strength,” Clinton said in Santiago. The perception among some Chileans was different. Wrecked Boat “We have gotten nothing, nothing from the government to help,” said Capt. Fernando Cartes, commander of the main fire brigade in Talcahuano. Near Valle’s wrecked boat, dozens of people took gasoline from the tanks of a destroyed service station yesterday while another group looted sacks of flour from a warehouse within sight of troops stationed at the gates of Chile’s biggest naval base. A military patrol sped by without stopping, images broadcast on CNN Chile showed. In Santiago, which wasn’t hit as hard as towns and cities closer to the quake’s epicenter in south-central Chile, reports of bands of thieves roaming the capital’s wealthiest areas stirred fear among residents. In some areas, people spent the night outside their houses armed with clubs and other weapons to ward off intruders. “It’s collective psychosis,” said Gonzalo Barrientos, 22, a university student who stood guard outside his home. “There is just fear.” Bachelet will leave office March 11, when President-elect Sebastian Pinera takes over. Pinera said late yesterday that he’s considering expanding the area of the country covered by a “state of catastrophe” declaration made by Bachelet. ‘Finding Solutions’ “I don’t want to grade the government’s response to the crisis,” he told reporters. “I’m committed to finding solutions, especially in public security that clearly has been a weak spot, and water and electricity supply. The time for evaluations hasn’t arrived yet.” The total economic cost from the quake may be as much as $30 billion, or about 15 percent of the country’s gross domestic product, according to estimates by disaster-scenario modeler Eqecat Inc. Insured losses may amount to $3 billion to $8 billion, Eqecat said. Damages at the high end of that range would make the quake the second-costliest for insurers in history, following the 1994 Northridge, California, temblor. Stock Market Chile’s IPSA stock index has declined 1.8 percent since the quake, including a 0.6 percent fall yesterday. Vina Concha y Toro SA, Chile’s largest winemaker, fell the most in eight months yesterday after the company had to suspend production. Other companies benefitted. Lafarge Chile SA, a cement maker, jumped the most on record on bets that demand would increase. Chile’s peso rose 1.1 percent yesterday, the biggest gain among emerging-market currencies, after closing little changed yesterday. Traders are betting the government will repatriate overseas savings to fund reconstruction, increasing demand for local currency. Codelco, the world’s largest copper miner, said it was on track to reach full output yesterday after the quake had knocked out power to two mines supplying more than a third of its production. Most of Chile’s copper deposits and port facilities are in the northern half of the country and had no reports of damage. Concerns about supply caused copper for May delivery to climb 6.15 cents, or 1.8 percent, to close at $3.4115 a pound yesterday on the New York Mercantile Exchange’s Comex unit. The Feb. 27 earthquake was the world’s fifth strongest since 1900, carrying a force 500 times stronger than the magnitude 7.0 earthquake that last month devastated Haiti, in terms of the energy released, according to the USGS. To contact the reporters on this story: Michael Smith in Concepcion at mssmith@bloomberg.net ; James Attwood in Santiago at jattwood3@bloomberg.net ; Sebastian Boyd in Santiago at sboyd9@bloomberg.net

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Hedge Funds Said to Get U.S. Demand to Retain Records of Bets Against Euro

March 3, 2010

By Katherine Burton and David Scheer March 3 (Bloomberg) — The U.S. is asking hedge funds not to destroy trading records on euro bets, according to a person with knowledge of the requests, as Europe and the U.S. step up scrutiny of the funds’ role in the Greek debt crisis. The Department of Justice sent requests to save the records to at least some of the hedge funds whose executives attended a dinner hosted by New York-based research and brokerage firm Monness, Crespi, Hardt & Co. on Feb. 8, said the person, who declined to be identified because the information is private. The European Commission said yesterday it will investigate trades in sovereign credit-default swaps in the wake of the Greek crisis, which has pushed the euro lower and prompted officials to warn hedge funds they shouldn’t try to profit from the woes of the region’s nations. One of 23 themes discussed at the Feb. 8 dinner was a wager that the euro would fall against the dollar, according to an agenda obtained by Bloomberg News. “It is clear in the current environment, and likely for a long time going forward, any entity that profits from another’s misfortune, in this case hedge funds versus Greece and the euro zone, risks being the target of public backlash, or worse, government retaliation,” said Kirby Daley , a senior strategist in Hong Kong with Newedge Group’s prime brokerage business. Aaron Cowen , an executive at SAC Capital Advisors LP, David Einhorn , head of Greenlight Capital LLC, and Don Morgan , who runs Brigade Capital Management LLC, attended the dinner, as did a representative from Soros Fund Management LLC, the Wall Street Journal said Feb. 25. Greece’s Woes Spokespeople for the hedge funds declined to comment or didn’t return calls seeking a comment. Neil Crespi , president of Monness Crespi, couldn’t be reached for comment. Gina Talamona , a Department of Justice spokeswoman, declined to comment. The requests were reported earlier yesterday by CNBC. The premium investors demand to buy Greek government debt over comparable German bonds, the European benchmark, rose to 396 basis points on Jan. 28, the highest level since the start of the euro in 1999, making it more expensive for the country to sell new bonds. Sovereign credit-default swaps, used to insure against default, rose to a record last month. European official have said the contracts can fuel speculation that may distort market perceptions. The German Finance Ministry said this week the over-the-counter products must be reviewed following the reaction of financial markets to the Greek debt crisis. French Finance Minister Christine Lagarde has said she wanted politicians to take a united approach against “speculators” betting on government bond defaults. Record Bets U.S. politicians plan to hold a hearing on the role that investment banks including Goldman Sachs Group Inc. may have played in Greece’s debt crisis. Federal Reserve Chairman Ben S. Bernanke said on Feb. 25 that the U.S. central bank is reviewing derivatives contracts arranged between Goldman Sachs other investment banks with Greece. The woes of Greece, which has to finance the euro region’s largest budget shortfall, and concern they may spread to other countries have dragged down the euro, which has tumbled 11 percent since Nov. 25. It traded at $1.3613 at 8:09 a.m. in Tokyo. Futures traders last week placed the biggest bets on record that the euro will fall against the dollar. The number of wagers by hedge funds and other large speculators for a decline in the 16-nation currency rose on Feb. 23 to 71,623 contracts more than those anticipating a gain, according to Commodity Futures Trading Commission data. It was the fourth consecutive week that the amount climbed to a record. Even if the Department of Justice decides to request the records it has asked the hedge funds to save, that doesn’t necessarily mean that the managers will be investigated, said Jedd Wider , a partner at law firm Morgan, Lewis & Bockius LLP. Bullish on Canada Other ideas discussed at the dinner, which took place at the Townhouse, a private facility run by restaurant Park Avenue Winter, were bullish bets on the Canadian dollar and Philip Morris International and bearish wagers on Wells Fargo & Co. and Bank of America Corp. “The big issue is whether the meeting was informational, and these various traders were simply responding in a parallel way to a common set of facts,” which would be legal, said Herbert Hovenkamp , who teaches antitrust law at the University of Iowa College of Law in Iowa City. “What’s not legal is for people to agree to trade at a particular price or against the euro to devalue it and start a stampede that devalues it further.” Rejecting Speculation Louis Bacon ’s $14.6 billion Moore Capital Management LP and Brevan Howard Asset Management LLP, Europe’s largest hedge-fund firm, have rejected speculation they’re trying to benefit from Greece’s woes. Bacon told investors in a Feb. 19 letter that he isn’t betting on a Greek default because European authorities will probably bail out the country. Moore has a net long duration position in Greek bonds, meaning it will benefit from a uniform decline in interest rates across the yield curve. Brevan Howard said in an investor letter for the $22 billion Brevan Howard Master Fund that it hasn’t been betting against Greek debt since mid-December and has “no meaningful positions” through bonds or credit default swaps in Greece, Italy or Portugal. To contact the reporters on this story: Katherine Burton in New York at kburton@bloomberg.net ; David Scheer in New York at dscheer@bloomberg.net .

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

March 1, 2010

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

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Germany Considering Buying Greek Bonds Through State’s KfW, Lawmakers Say

February 28, 2010

By Brian Parkin and Rainer Buergin Feb. 26 (Bloomberg) — Germany is considering buying Greek bonds through state-owned lender KfW Group, German lawmakers said today. KfW is preparing measures that are part of a European plan to grant Greece as much as 25 billion euros ($34 billion) in aid should the need arise, said four lawmakers, who spoke on the condition of anonymity because the information is confidential. KfW’s purchase of Greek bonds, backed by German government guarantees, would be an emergency measure as it risks inviting investors to speculate against other euro region countries, the lawmakers said. No decisions have been taken yet, they said. Greece needs to raise 53 billion euros this year and faces more than 20 billion euros of bond redemptions by the end of May, according to data compiled by Bloomberg. Greece has the cash it needs until the middle of March, Prime Minister George Papandreou told the British Broadcasting Corp. on Feb. 21. EU leaders ordered Greece on Feb. 11 to get the 27-nation bloc’s highest budget deficit under control and promised “determined” action to protect the euro, without offering specific steps to help Greece handle its debt load. EU finance ministers who met on Feb. 15 and 16 also didn’t give specifics. An official from the Berlin-based Finance Ministry presented options available to Germany and other euro-region nations in a briefing of the German Parliament’s Budget Committee yesterday, according to lawmakers who attended the meeting. No decision has been made on the options, they said. Assistance to Greece should flow through the International Monetary Fund, the most suitable body to offer financial help that’s tied to stringent conditions, the lawmaker said. The IMF should provide more than technical assistance, the lawmaker said, citing aid given to Hungary and Baltic states as examples. A lawmaker who’s on the budget committee said KfW is the vehicle Germany would use to help Greece. Germany’s share in the potential rescue effort would be around 5 billion euros, a fifth of the euro region total, lawmakers said. To contact the reporters on this story: Brian Parkin in Berlin at bparkin@bloomberg.net ; Rainer Buergin in Berlin at rbuergin1@bloomberg.net .

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Mukherjee Budget Offers India Scope to Raise Rates Without Choking Lending

February 27, 2010

By Cherian Thomas Feb. 27 (Bloomberg) — India’s pledge to enact the biggest budget-deficit reduction in 19 years may offer the central bank more scope to rein in inflation without choking off lending growth. Finance Minister Pranab Mukherjee yesterday unveiled plans to cut the deficit to 5.5 percent of gross domestic product in the year starting April 1 from 6.9 percent the previous year. Tax increases and 400 billion rupees ($9 billion) of state asset sales will shrink a debt burden equivalent to about 82 percent of the economy. Prime Minister Manmohan Singh ’s government will need to tap less of the nation’s savings than anticipated, lessening the impact on private credit growth from higher interest rates. The Reserve Bank of India may start boosting its benchmark rates at or before the next policy gathering in April, according to Goldman Sachs Group Inc. “By cutting the deficit, the finance minister has made room for monetary tightening without crowding out” lending to private businesses, said K. Ramanathan, who helps manage the equivalent of 22 billion rupees ($477 million) at ING Investment Management in Mumbai. Low Borrowing Cost The reduction in the budget deficit will also check borrowing costs from rising in the economy, Montek Singh Ahluwalia , deputy chairman of Planning Commission, an agency that sets India’s growth and investment targets, said in an interview in New Delhi today. “I would not assume that you’ll see that big a rise in the interest-rate structure in the course of the year,” Ahluwalia said. “As a percentage of GDP, the deficit is significantly lower than earlier.” Stocks rose after yesterday’s budget release, with the Sensitive Index gaining 1.1 percent in Mumbai, helping pare losses since the start of the year that were spurred in part by global investor concern about sovereign debt quality. Bonds at first rallied, then closed lower on concern a rise in the tax on fuels will boost energy costs and worsen inflation. Fitch Ratings analyst Andrew Colquhoun said “we are marginally less encouraged to go for a downgrade” in India’s sovereign debt rating after the budget proposal. Standard & Poor’s said in a statement that it may raise its rating outlook to stable should finances improve, echoing similar remarks by Moody’s Investors Services before the release. Fiscal Consolidation Moody’s ranks India’s rupee-denominated debt at Ba2, two levels below investment grade, while Fitch and S&P have a BBB- rating, the lowest investment grade. That puts India below its BRIC counterparts, which include China, Russia and Brazil. Central banks are urging governments to curb deficits after the global recession ended and after Greece’s debt downgrade hit the euro. Federal Reserve Chairman Ben S. Bernanke this week said high deficits may cause “crowding out” of investment and Bank of Japan Governor Masaaki Shirakawa last week called for a “path for fiscal consolidation.” In India, where policy makers aim to achieve the fastest- growing economy in the world within four years, fiscal stimulus measures saw the deficit climb from 2.7 percent of GDP two years ago. The finance ministry yesterday said public debt sales will rise by 1.3 percent, less than the 2 percent median forecast in a Bloomberg News survey, to 4.57 trillion rupees in the next fiscal year. Monetary Policy Focus Governor Duvvuri Subbarao had last month warned that fiscal stimulus, worth more than 4 percent of GDP given since 2008, must be withdrawn to ensure companies have access to funds. “With fiscal policy in train, the focus will now shift to monetary policy to remove its massively accommodative stance,” Tushar Poddar , chief economist at Mumbai-based Goldman Sachs India Securities Ltd., said in a report. He said the RBI may raise interest rates by 3 percentage points this year to slow “rising domestic demand and inflationary pressures.” Yesterday’s budget numbers are counting on a smooth series of asset sales, wireless license auctions and increase in tax revenue as the economy expands, JPMorgan Chase & Co. analysts said in a note. Should the deficit objective be reached, there will be “space for a strong pick up in investment and credit growth.” ‘Shaky’ Budget “If a few things go wrong, the budget will look shaky,” Mumbai-based JPMorgan analysts Jahangir Aziz and Gunjan Gulati said in the note. “The global recovery can turn up nasty surprises and create enough anxiety to keep domestic financial markets volatile.” Policy makers are working to unwind 7.5 trillion rupees of tax and interest rate cuts to curb consumer-price inflation that’s the highest in the Asia-Pacific region, according to data compiled by Bloomberg. While India’s inflation has been stoked mainly by shortages in food supply after last year’s worst monsoon rainfall in 37 years, officials are concerned a surfeit of cash in the economy will spur excessive demand for services and industrial goods. Prices paid by industrial workers in India rose almost 15 percent in December from a year earlier, the most in 11 years. Industrial production grew 16.8 percent in December, the quickest pace since at least 1994, prompting the central bank to say manufacturers are nearing capacity. Mukherjee raised the excise tax on almost all products to 10 percent from 8 percent in his budget to help trim the deficit. Prices Rise Indian oil retailers including Indian Oil Corp., Bharat Petroleum Corp. and Hindustan Petroleum Corp. increased gasoline prices after the levies were announced. Gasoline prices will be raised by 2.71 rupees a liter and diesel by 2.55 rupees a liter, Oil Secretary S. Sundareshan said. Tata Motors Ltd., India’s biggest truckmaker, will pass on the higher tax to consumers and may raise prices by as much as 70,000 rupees, Managing Director Prakash Telang said. Maruti Suzuki India Ltd. raised prices of various models by as much as 13,000 rupees with immediate effect, the company said in a statement on Feb. 26. Bharatiya Janata Party’s Sushma Swaraj , the main opposition leader in the lower house of parliament called the budget “inflationary” after higher taxes were imposed. Swaraj led a walk-out by her party during Mukherjee’s budget presentation. “Any kind of subsidy cut will require a trade-off between living with slightly higher inflation in the near term but with more sustainable growth dynamics over a medium term,” said Rajeev Malik , a Singapore-based regional economist at Macquarie Group Ltd. “I don’t think the move to tax fuel will mean a more aggressive tightening by the central bank.” Usha Thorat , a deputy governor at the central bank, told reporters in Mumbai yesterday that “the budget is positive for inflation reduction, in the sense it is in sync with the expectation that we outlined.” For Related News and Information: India Country Guide Page: COUN INR India Budget-Related Stories: INEL India industrial-output stories: INPIINDY CN India inflation: INWHOLEY HP Most-read India economy stories: MNI INDECO BN Benchmark interest-rate graph: INRPYLD GP M

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Mukherjee Budget Offers Indian Central Bank Scope to Raise Interest Rates

February 26, 2010

By Cherian Thomas Feb. 27 (Bloomberg) — India’s pledge to enact the biggest budget-deficit reduction in 19 years may offer the central bank more scope to drain money from the economy and rein in inflation . Finance Minister Pranab Mukherjee yesterday unveiled plans to cut the deficit to 5.5 percent of gross domestic product in the year starting April 1 from 6.9 percent the previous year. The effort, which relies on tax increases and 400 billion rupees ($9 billion) of state asset sales, is aimed at shrinking a debt burden equivalent to about 82 percent of the economy. The commitment means Prime Minister Manmohan Singh’s government will need to tap less of the nation’s savings than anticipated, lessening the impact on private credit growth from higher interest rates. The Reserve Bank of India may start boosting its benchmark rates at or before the next policy gathering in April, according to Goldman Sachs Group Inc. “By cutting the deficit, the finance minister has made room for monetary tightening without crowding out” lending to private businesses, said K. Ramanathan, who helps manage the equivalent of 22 billion rupees ($477 million) at ING Investment Management in Mumbai. Stocks rose after yesterday’s budget release, with the Sensitive Index gaining 1.1 percent in Mumbai, helping pare losses since the start of the year that were spurred in part by global investor concern about sovereign debt quality. Bonds at first rallied, then closed lower on concern a rise in the tax on fuels will boost energy costs and worsen inflation. Ratings Impact Fitch Ratings analyst Andrew Colquhoun said “we are marginally less encouraged to go for a downgrade” in India’s sovereign debt rating after the budget proposal. Standard & Poor’s said in a statement that it may raise its rating outlook to stable should finances improve, echoing similar remarks by Moody’s Investors Services before the release. Moody’s ranks India’s rupee-denominated debt at Ba2, two levels below investment grade, while Fitch and S&P have a BBB- rating, the lowest investment grade. That puts India below its BRIC counterparts, which include China, Russia and Brazil. Central banks are urging governments to curb deficits after the global recession ended and after Greece’s debt downgrade hit the euro. Federal Reserve Chairman Ben S. Bernanke this week said high deficits may cause “crowding out” of investment and Bank of Japan Governor Masaaki Shirakawa last week called for a “path for fiscal consolidation.” In India, where policy makers aim to achieve the fastest- growing economy in the world within four years, fiscal stimulus measures saw the deficit climb from 2.7 percent of GDP two years ago. The finance ministry yesterday said public debt sales will rise by 1.3 percent, less than the 2 percent median forecast in a Bloomberg News survey, to 4.57 trillion rupees in the next fiscal year. Subbarao Warning Governor Duvvuri Subbarao had last month warned that fiscal stimulus, worth more than 4 percent of GDP given since 2008, must be withdrawn to ensure companies have access to funds. “With fiscal policy in train, the focus will now shift to monetary policy to remove its massively accommodative stance,” Tushar Poddar , chief economist at Mumbai-based Goldman Sachs India Securities Ltd., said in a report. He said the RBI may raise interest rates by 3 percentage points this year to slow “rising domestic demand and inflationary pressures.” Yesterday’s budget numbers are counting on a smooth series of asset sales, wireless license auctions and increase in tax revenue as the economy expands, JPMorgan Chase & Co. analysts said in a note. Should the deficit objective be reached, there will be “space for a strong pick up in investment and credit growth.” ‘Nasty Surprises’ “If a few things go wrong, the budget will look shaky,” Mumbai-based JPMorgan analysts Jahangir Aziz and Gunjan Gulati said in the note. “The global recovery can turn up nasty surprises and create enough anxiety to keep domestic financial markets volatile.” Policy makers are working to unwind 7.5 trillion rupees of tax and interest rate cuts to curb consumer-price inflation that’s the highest in the Asia-Pacific region, according to data compiled by Bloomberg. While India’s inflation has been stoked mainly by shortages in food supply after last year’s worst monsoon rainfall in 37 years, officials are concerned a surfeit of cash in the economy will spur excessive demand for services and industrial goods. Prices paid by industrial workers in India rose almost 15 percent in December from a year earlier, the most in 11 years. Industrial production grew 16.8 percent in December, the quickest pace since at least 1994, prompting the central bank to say manufacturers are nearing capacity. Excise Tax Mukherjee raised the excise tax on almost all products to 10 percent from 8 percent in his budget to help trim the deficit. Indian oil retailers including Indian Oil Corp. , Bharat Petroleum Corp. and Hindustan Petroleum Corp. increased gasoline prices after the levies were announced. Gasoline prices will be raised by 2.71 rupees a liter and diesel by 2.55 rupees a liter, Oil Secretary S. Sundareshan said. Tata Motors Ltd. , India’s biggest truckmaker, will pass on the higher tax to consumers and may raise prices by as much as 70,000 rupees, Managing Director Prakash Telang said. Maruti Suzuki India Ltd. raised prices of various models by as much as 13,000 rupees with immediate effect, the company said in a statement on Feb. 26. Bharatiya Janata Party’s Sushma Swaraj , the main opposition leader in the lower house of parliament called the budget “inflationary” after higher taxes were imposed. Swaraj led a walk-out by her party during Mukherjee’s budget presentation. “Any kind of subsidy cut will require a trade-off between living with slightly higher inflation in the near term but with more sustainable growth dynamics over a medium term,” said Rajeev Malik , a Singapore-based regional economist at Macquarie Group Ltd. “I don’t think the move to tax fuel will mean a more aggressive tightening by the central bank.” Usha Thorat , a deputy governor at the central bank, told reporters in Mumbai yesterday that “the budget is positive for inflation reduction, in the sense it is in sync with the expectation that we outlined.” For Related News and Information: India Country Guide Page: COUN INR India Budget-Related Stories: INEL India industrial-output stories: INPIINDY CN India inflation: INWHOLEY HP Most-read India economy stories: MNI INDECO BN Benchmark interest-rate graph: INRPYLD GP M

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Madoff Operations Director Bonventre Arrested by FBI Agents in Manhattan

February 25, 2010

By David Glovin, David Scheer and Patricia Hurtado Feb. 25 (Bloomberg) — Daniel Bonventre , the ex-director of operations for Bernard L. Madoff, helped hide the diversion of $750 million from Madoff’s investors to his brokerage, the U.S. said in new criminal and civil complaints that claim even the legitimate trading business was propped up by fraud. Bonventre today became the sixth person charged in the largest ever U.S. Ponzi scheme. Prosecutors and U.S. regulators said he was a key aide to Frank DiPascali , the Madoff lieutenant who is helping the government unravel a fraud that cost investors as much as $65 billion. “As Bernard Madoff’s director of operations, Daniel Bonventre allegedly authored the fraudulent books that for years effectively hid the doomed state of an investment firm founded in fraud,” U.S. Attorney Preet Bharara in New York said in a statement. Bonventre’s arrest this morning by the Federal Bureau of Investigation follows charges against Madoff, DiPascali, Madoff accountant David G. Friehling , and two computer operators. Bonventre, who faces up to 77 years in prison, is scheduled to appear today in Manhattan federal court. He lived in Queens, New York, while working at Manhattan-based Bernard L. Madoff Investment Securities LLC. Andrew Frisch, a lawyer for Bonventre, declined to comment. ‘Coordinated Effort’ “A fraud of this magnitude requires a coordinated effort,” George S. Canellos , director of the Securities and Exchange Commission’s New York office, said in a statement. “Bonventre played an essential part by creating bogus financial records to give BMIS the appearance of legitimacy, when in fact the firm lost money and could not have survived without the fraud.” Bonventre worked for Madoff from 1968 to 2008. He faces charges of conspiracy, securities fraud, falsifying books, making false filings with U.S. regulators and filing false tax returns, prosecutors said. In his guilty plea on March 12, Bernard Madoff said that the market-making and proprietary trading side of his firm was “legitimate.” Peter Madoff was its chief compliance officer, while Madoff’s sons, Andrew and Mark Madoff , were co-directors of trading. They have not been accused of criminal wrongdoing. John Wing, a lawyer for Peter Madoff, and a spokesman for Andrew and Mark Madoff didn’t immediately return calls. Liability Bonventre directed that entries be made in the firm’s general ledger that hid the scope of the investment advisory business and understated liabilities by billions of dollars, authorities said. From 1997 to 2008, more than $750 million in investor money was used to fund the market-making and proprietary trading operations, and records supervised by Bonventre didn’t reflect the firm’s liability to its investors, they said. Bonventre is also accused of using $154 million from investor accounts as collateral for $145 million in loans from an unidentified bank to Madoff Securities, enabling Madoff to hide a severe liquidity crisis from November 2005 to June 2006, prosecutors said. “During this same period, Bonventre monitored lines of credit, which BLMIS drew down by more than $340 million and used to meet” investor withdrawals, Bharara said. Bonventre is accused of creating phony records to hide the source of payments to investors and of misleading the SEC. He backdated purported trades in his own account to pocket more than $1.8 million and lied to the Internal Revenue Service, prosecutors said. London Affiliate In its complaint, the SEC said the market-making and proprietary trading operations didn’t directly draw on investor funds. Instead, firm employees used three types of multi-step transactions to shift money from investor accounts to the firm’s operating accounts, in most recent years pumping funds through a London affiliate, the SEC said. Bonventre worked on one of those strategies from 1998 to 2005, and he improperly booked incoming money from all three as trading revenue and commissions, the SEC said. He knew, or was reckless in disregarding, that the money actually originated from investor accounts, the agency said. The injections allowed the firm to report fiscal year profits every year between 2001 and 2008, and helped it weather the liquidity crisis, the agency said. If not for the $750 million, Madoff’s brokerage would have broken federal capital requirements, requiring the firm to halt operations. DiPascali Information The regulator didn’t accuse anyone else in the market- making and trading businesses of wrongdoing. “At least portions” of those divisions “appear to have been legitimate, although unprofitable,” the SEC said. Information from DiPascali was used to bring the charges against Bonventre, as it had been in earlier cases against Madoff computer operators Jerome O’Hara and George Perez , prosecutors say. In court documents made public last week, prosecutors said DiPascali’s assistance has been “extraordinary.” Madoff, 71, is serving a 150-year prison term after pleading guilty last year to the largest Ponzi scheme. New York- based Madoff Investment Securities is being liquidated by the Securities Investor Protection Corp. The case is U.S. v. Bonventre, 10-mag-385, U.S. District Court, Southern District of New York (Manhattan). To contact the reporters on this story: Patricia Hurtado in New York at phurtado@bloomberg.net ; David Glovin in New York at dglovin@bloomberg.net ; David Scheer in New York at dscheer@bloomberg.net .

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Jobless Claims in U.S. Unexpectedly Increased 22,000 Last Week to 496,000

February 25, 2010

By Timothy R. Homan Feb. 25 (Bloomberg) — The number of Americans filing first-time claims for unemployment insurance unexpectedly increased last week, a sign that the economic recovery will be uneven as the labor market struggles to rebound. Initial jobless applications rose by 22,000 to 496,000 in the week ended Feb. 20, the highest level in three months, Labor Department figures showed today in Washington. The total number of people receiving unemployment insurance gained and the four- week moving average of weekly claims jumped close to a three- month high. Companies are waiting to see sustained sales before adding to payrolls, even as manufacturers help the country emerge from the worst recession since the 1930s. An unemployment rate that’s forecast to average 9.8 percent this year may restrain the housing market and gains in consumer spending, which accounts for about 70 percent of the U.S. economy. “There are signs of recovery, but there are still companies that need to cut costs,” said Jonathan Basile, an economist at Credit Suisse in New York, who forecast claims would rise to 500,000. “Once the money comes in on a sustained basis they can plan better, and part of that planning includes hiring.” Economists forecast weekly claims would fall to 460,000, from a previously estimated 473,000 for the week ended Feb. 13, according to the median of 43 projections in a Bloomberg News survey. Estimates ranged from 425,000 to 500,000. Snowstorms Harsh winter weather in parts of the U.S. in recent weeks has made weekly claims volatile. Initial claims have averaged almost 100,000 fewer per week this year than the average of 573,200 for all of last year. A Labor Department spokesman today said part of the reason for the increase in weekly claims was the processing of a backlog of applications in mid-Atlantic states and New England, where snowstorms hit earlier this month. The four-week moving average of claims, a less volatile measure than the weekly figure, increased to 473,750 last week, the highest level since late-November, from 467,750 the prior week, the report showed. Continuing claims rose 6,000 to 4.62 million in the week ended Feb. 13. The continuing claims figure does not include the number of Americans receiving extended benefits under federal programs. Extended Benefits Today’s report showed the number of people who’ve used up their traditional benefits and are now collecting extended payments decreased by about 318,000 to 5.5 million in the week ended Feb. 6. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 3.5 percent in the week ended Feb. 13, today’s report showed. Nine states and territories had an increase in claims for that same week, while 44 had a decrease. In testimony before lawmakers in Washington yesterday, Federal Reserve Chairman Ben S. Bernanke cited “tentative” signs of stabilization in labor markets, such as lower job losses, a rise in manufacturing employment and stronger demand for temporary help. The unemployment rate in the U.S. dropped to 9.7 percent in January, while payrolls declined by 20,000, Labor Department figures showed Feb. 5. Manufacturers last month added to payrolls for the first time in three years, and that may provide a boost to the rest of the labor market in coming months. Staff Reductions Some companies continue to cut staff. PepsiCo Inc., the world’s largest snack maker, said it will close a Gatorade plant in Pryor, Oklahoma, that employs 109 workers. “Based on economic conditions we determined we could not keep the plant open,” Pat Burke, a regional spokesman for the Purchase, New York-based company, said in an e-mailed statement Feb. 18. Other businesses are recalling laid-off workers. Caterpillar Inc., the world’s largest maker of bulldozers and excavators, is bringing back 100 technicians at an Indiana plant to meet increased demand. “Caterpillar may be recalling or hiring employees in business units at various facilities this year based on demand fluctuation,” Bridget Young, a spokeswoman for the Peoria, Illinois-based company, said in a Feb. 18 e-mail. Caterpillar previously laid off about 500 workers at the plant in Lafayette. For Related News and Information: News on the U.S. labor market: TNI US LABOR Stories on the U.S. economy: NI USECO Stories on U.S. consumers: TNI US CONS Labor market indexes LRIN

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France Telecom Full-Year Profit Beats Analysts’ Estimates on IPhone Demand

February 25, 2010

Feb. 25 (Bloomberg) — France Telecom SA , the country’s biggest phone company, posted better-than-expected full-year profit, aided by strong demand for Apple Inc.’s iPhone. Adjusted net income fell to 4.85 billion euros ($6.53 billion) from 5.18 billion euros a year earlier, the Paris-based company said in an e-mailed statement today. Analysts had predicted profit of 4.6 billion euros, the average of 31 estimates compiled by Bloomberg. Revenue declined to 45.94 billion euros from 47.7 billion euros. France’s largest phone company is looking to make peace with unions angered by a series of employee suicides and drive growth in emerging markets such as Africa. New Chief Executive Officer Stephane Richard , whose appointment has been welcomed by labor groups, takes over on March 1. “The group’s performance in 2009 confirms the strategy undertaken in 2005 to position the group as an integrated operator,” Chairman Didier Lombard said in the statement. This month, BT Group Plc, the U.K.’s biggest fixed-line operator, said earnings rose 11 percent in the fourth quarter before interest, taxes, depreciation, amortization and costs to cut jobs. On Feb. 4, Vodafone Group Plc, the world’s largest mobile-phone company, raised its full-year cash flow forecast, on cost cuts and rising sales in emerging markets. France Telecom said it is proposing an annual dividend of 1.4 euros per share. For Related News and Information: France Telecom relative value: FTE FP RVC France Telecom revenue breakdown: FTE FP PGEO Stories on European telecoms: TNI EUROPE TEL BN Today’s top technology stories: TTOP

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Anti-Taliban Campaign May Be Bolstered by Revival of India-Pakistan Talks

February 24, 2010

By Jay Shankar and Khalid Qayum Feb. 25 (Bloomberg) — India and Pakistan hold their first formal talks today since the 2008 terrorist assault on Mumbai, reviving regional peace moves the U.S. is counting on to support its strategy to defeat Afghanistan’s Taliban. After a 15-month impasse, the two sides’ senior foreign ministry officials meet in New Delhi far apart on an agenda India wants to focus on security and Pakistan insists must be broadened to include disputed Kashmir and water rights. Further attacks like the Feb. 13 bombing of an Indian cafe that killed 15 people may shatter even this new beginning. Terrorism is the priority, an official at India’s foreign ministry who asked not to be named said in a Feb. 18 interview, adding that the talks between Foreign Secretary Nirupama Rao and her Pakistani counterpart Salman Bashir aren’t a revival of the overall dialogue paused after the Mumbai killings. Ties must not become “hostage” to terrorists attacking both nations, Pakistan Prime Minister Yousuf Raza Gilani said the same day. A relationship bedeviled by 60 years of mistrust and three wars is a matter of concern to the U.S. as it seeks to prevail in a war with Afghan Taliban fighters in which 994 American troops have died. “The U.S. must have Pakistani cooperation if it hopes to gain an intelligence edge on al Qaeda and Taliban militants,” Stratfor , an Austin, Texas-based intelligence group, said in a report. “The last thing Washington needs is for Pakistan to be distracted from its counterterrorism obligations by a conflict with India.” ‘Indispensable Player’ For the U.S., Pakistan is an “indispensable player as far as a resolution in Afghanistan is concerned,” Zorawar Daulet Singh, an international relations analyst at the New Delhi-based Centre for Policy Alternatives , said. “This gives Pakistan a significant amount of leverage that they are trying to use to seek concessions” in disputes with India, he said. U.S. Defense Secretary Robert Gates last month praised India’s restraint after the Mumbai raid while saying a repeat attack would test its patience. “While we would like to see India and Pakistan reach a stable relationship, they will do so on their own terms at the appropriate time,” Robert Blake , the U.S. assistant secretary of state for South and Central Asia, said in a Feb. 18 speech to the Chicago Council on Global Affairs. Indian Prime Minister Manmohan Singh scrapped five years of peace talks after a rampage by 10 Pakistani gunmen killed 166 people in the November 2008 raid on India’s financial center. Singh demanded Pakistan close down militant groups plotting against India, including the Lashkar-e-Taiba organization India blamed for the three-day assault on Mumbai. Trade Boom Negotiations might help reignite growth in annual bilateral trade that had almost quadrupled to $2.24 billion four years after talks on Kashmir , economic and commercial cooperation, terrorism and drug trafficking began in 2003. Diplomatic, transport and sporting links between the two cricket-loving nations flourished. India is returning to talks despite making little progress in its efforts to get Pakistan to crack down on anti-India militants based there, Stratfor said Feb. 4. Pakistan has begun a secret trial of Lashkar members, one of the groups its military covertly used as proxies to destabilize India. “Under pressure and facing the threat of terrorism in its own country” Pakistan has taken some initiatives to “fight this scourge,” Indian Foreign Secretary Rao said in a Feb. 22 speech in London . “But these steps are selective.” She warned that drawing distinctions between the Taliban, al-Qaeda and terrorist groups like Lashkar was meaningless as the groups are “fused both operationally and ideologically.” Taliban Arrest Pakistan’s arrest of the Afghan Taliban’s No. 2 commander, Abdul Ghani Baradar , near Karachi may signal it’s ceding to U.S. pressure for tougher action against top guerrillas hiding there, analysts such as Michael Semple , who served as the European Union’s top political officer in Afghanistan, say. Still, banned militant groups are preaching their ideology with “full freedom” in their Punjab stronghold, Sherry Rehman , a lawmaker from Pakistan’s ruling party, said in Parliament on Feb. 23, the Daily Times reported. Today’s talks come almost two weeks after the bombing of a bakery popular with foreigners in the western Indian city of Pune triggered opposition calls to halt talks with Pakistan. Prime Minister Singh, who has stressed the inevitability of dialogue with Pakistan after meeting its leaders on the sidelines of regional summits, didn’t point fingers at India’s neighbor. Responsibility for deadly bombings in major Indian cities in 2008 was claimed by local militant group Indian Mujahideen, a group Rand Corp. analyst Christine Fair said has links with Lashkar. Beijing Postings Rao and Bashir are not strangers, overlapping as their countries’ respective ambassadors in Beijing for two years. “The two foreign secretaries go with different agendas and different approaches,” Lalit Mansingh , a former Indian foreign secretary and ambassador to the U.S., said in a phone interview from New Delhi. “Informal discussions outside the formal sessions,” will help develop relations. Not talking only “widens the communication gap and increases mistrust,” Rashid Ahmad Khan, former chairman of the Department of Political Science at Punjab University said in an interview. That will only benefit hardliners on both sides, he said. For Related News and Information: Regional News: TOP INDIA India’s General News: TNI INDIA GEN BN Stories on Pakistan and India: TNI INDIA PAK BN Stories on terrorism in India: TNI INDIA TERROR Stories on Mumbai attacks: STNI MUMBAIATTACKS

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SEC Approves Rule to Collect Securitized-Debt Trading Data Without Release

February 24, 2010

By Jody Shenn Feb. 24 (Bloomberg) — The U.S. Securities and Exchange Commission approved a plan that will initially withhold data on the trading of securities backed by loans and leases even as regulators start to collect the information. The SEC agreed to a proposal by the Financial Industry Regulatory Authority to expand its Trade Compliance and Reporting Engine system to cover the securities, according to a notice late yesterday on the agency’s Web site. The SEC said it “encourages” Finra, the U.S. brokerage industry’s main regulator, to follow through on its plan to study whether to publicly release trading prices and other data. Trace started in 2002, providing for the first time real- time data on most corporate bond trading to anyone with Internet access. Finra’s proposal for asset-backed bonds only calls for it to consider disclosing the information, which it says it may confuse investors or reduce liquidity, even after the opacity of the market contributed to the worst financial crisis since the 1930s. More disclosure “would go a long way toward helping ensure what occurred over the last couple of years didn’t occur again,” said Jeffery Elswick , the director of fixed income at San Antonio, Texas-based Frost Investment Advisors, which oversees $6.5 billion. “I personally have had a lot of conversations with broker-dealers where I say ‘I can’t believe the SEC hasn’t required something like this.’” In its request to the SEC, Finra said it decided against immediate public disclosure of prices because of the potential to confuse investors or make trades harder to execute. Collecting the information will allow the New York and Washington-based organization to assess the impact on specific markets and let regulators better detect fraud, market manipulation and other illegal activity, Finra said. Asset-backed debt was among the largest sources of more than $1.7 trillion of writedowns and credit losses at the world’s largest financial companies since the start of 2007, according to data compiled by Bloomberg. To contact the reporters on this story: Jody Shenn in New York at jshenn@bloomberg.net

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Providence, Teachers, KDG May Raise $1.4 Billion in Kabel Deutschland IPO

February 23, 2010

By Elisa Martinuzzi and Ragnhild Kjetland Feb. 23 (Bloomberg) — Providence Equity Partners Inc. and other owners of Kabel Deutschland GmbH, Germany’s biggest cable company, may raise as much as 1 billion euros ($1.36 billion) in an initial public offering, a person involved in the deal said. Kabel Deutschland said today its shareholders plan an IPO in Frankfurt. The owners plan to sell between 30 percent and 40 percent of the company, the person said, declining to be identified because the talks are private. The IPO plan comes after a person familiar with the matter said Feb. 20 that Kabel Deutschland rejected bids of about 5.5 billion euros ($7.5 billion) from firms including BC Partners Ltd., CVC Capital Partners Ltd. and Advent International Plc. “The owners only want to dispose of a small share because they are convinced that Kabel Deutschland will create great value and wish to maintain a large exposure to the operating performance of the company,” said Insa Calsow , a spokeswoman, declining to give details on the timing or the size of the IPO. German cable companies have drawn investor interest amid indications they may be poised for growth. In November, billionaire John Malone’s Liberty Global Inc . paid BC Partners and Apollo Management LP about 2 billion euros for Cologne-based Unitymedia GmbH, Germany’s second-largest cable company. “The growth comes from the broadband market, where Kabel Deutschland has healthy customer growth as it benefits from its highly competitive Internet and phone offerings,” said Stephan Haber , a credit analyst at UniCredit in Munich. “Kabel Deutschland benefits from taking not only new broadband customers but also churners from competitors.” Providence Providence Equity Partners, based in Rhode Island, owns about 88 percent of Kabel Deutschland. The Teachers Pension Plan holds about 8 percent and KDG Management with others holds 4 percent. All the owners will reduce their stakes proportionately, Calsow said. She said no new shares will be sold, meaning none of the funds raised will flow back to Kabel Deutschland. Providence Equity Partners, which says on its Web site it is the world’s biggest media-focused private equity firm with $22 billion under management, took control of Kabel Deutschland in December 2005 when it bought stakes from Goldman Sachs Group Inc. and Apax Partners Worldwide LLP. Kabel Deutschland, which offers analog and digital television, broadband Internet and fixed-line phone services via cable, operates in 13 German states. In the three months ended December, the company’s adjusted earnings before interest, taxes, depreciation and amortization rose 9.5 percent to 164.5 million euros. Revenue rose 8 percent to 378.8 million euros. German Cable Growth Unterfoehring, Germany-based Kabel Deutschland had 8.9 million subscribers at the end of December. Unitymedia had 4.5 million subscribers at the end of September. Kabel Baden- Wuerttemberg GmbH & Co. KG in Heidelberg, is the third-largest, with 2.3 million subscribers at the end of 2008. Malone’s purchase of Unitymedia marked a comeback for the U.S. media baron after he was blocked by regulators from buying cable networks in Germany in 2002. With the deal, Liberty Global got the largest cable operator in the states of North Rhine- Westphalia and Hesse, among Germany’s most prosperous and densely populated regions. PricewaterhouseCoopers AG said in its entertainment and media outlook in October that Internet connections through cable companies will more than double between 2009 and 2013 in Germany, increasing by about 17 percent a year. That compares with an average growth rate of 6.4 percent a year for DSL and VSDL Internet connections. Cable’s share of the broadband Internet market is still small in Germany, PWC said in its report, at about 7 percent at the end of 2008. By 2013, it predicts cable will have a 13 percent share of the broadband market. For Related News and Information: Initial Public Offerings: NI INI Bloomberg stories on the media: NI MED BN Bloomberg stories on the cable industry: NI CAB BN Top Bloomberg stories on the media: TTOP For Top German news: TOPG

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Sears Holdings Rises as Fourth-Quarter Sales Exceeds Analysts’ Estimates

February 23, 2010

By Lauren Coleman-Lochner Feb. 23 (Bloomberg) — Sears Holdings Corp. , the largest U.S. department-store company, rose in early U.S. trading after sales declines slowed and fourth-quarter revenue topped some analysts’ estimates. Revenue for the quarter ended Jan. 30 fell less than 1 percent to $13.2 billion from a year earlier, the Hoffman Estates, Illinois-based company said today in a statement. The average estimate of four analysts surveyed by Bloomberg was $13 billion. Companywide, domestic comparable-store sales in the fourth quarter declined 2.5 percent, and dropped 5.1 percent for the year. Kmart same-store sales climbed 1.7 percent in the quarter, while domestic sales at Sears’s namesake locations fell 6.1 percent. For the year, sales at the Sears chain fell 8.7 percent domestically; Kmart’s fell less than 1 percent. Demand for the large appliances and home-and-garden products offered at Sears has declined during the housing slowdown, forcing the retailer to close locations and cut inventory. To buoy revenue , Sears is offering some of its brands at other retailers, including Craftsman tools, which start selling at Ace hardware stores later this year. Sears climbed $2.35 to $98.01 at 8:27 a.m., before the start of regular U.S. trading. The shares more than doubled last year on the Nasdaq Stock Market. For Related News and Information: Sears earnings surprises: SHLD US SURP Analysts’ estimates: SHLD US EE O Retail and consumer headlines: RTOP

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PCCW Shares Fall After Police Said to Begin Probe of Li’s Failed Buyout

February 21, 2010

By Nick Gentle and Mark Lee Feb. 22 (Bloomberg) — PCCW Ltd. shares fell in Hong Kong trading after people familiar with the matter said police began probing Chairman Richard Li ’s failed bid last year to buy out the city’s biggest phone company. PCCW fell 2.4 percent to HK$2.08, compared with a 2.3 percent gain on the benchmark Hang Seng Index. Offices of at least one of Li’s companies were searched on Feb. 10, the people said. Police also searched the offices of Fortis Insurance Co. (Asia), a Hong Kong insurer formerly controlled by Li’s Pacific Century Regional Developments Ltd. , the people said. “Nobody knows what else could be going on when the investigation continues,” said Marvin Lo , an analyst at Daiwa Institute of Research Ltd. in Hong Kong. “This could have uncertainties and put price pressure on the stock.” In April, Hong Kong’s Securities and Futures Commission won a court ruling to block Li’s $2.1 billion buyout of PCCW after the regulator alleged that hundreds of people, including Fortis Asia agents, were given shares in the phone carrier to boost support for the deal. According to the court ruling last year, the February 2009 shareholder ballot was manipulated and didn’t reflect the interests of PCCW minority investors. “We will cooperate fully with any investigation and wish to see it resolved as soon as practically possible,” Martin Rogers , a lawyer for Li at Clifford Chance LLP in Hong Kong, in an e-mailed statement. “We do not believe Richard Li is the target of any investigation or that any senior management of PCRD or PCCW has committed any wrongdoing.” Search Warrants Police had search warrants for Li’s residences as of Feb. 10, according to the people. Anita Choi , a spokeswoman for PCCW, and Ernest Kong, a spokesman at the commission, declined to comment. No charges have been filed and the investigation is ongoing, one of the people familiar with matter said. Li hasn’t been accused of any wrongdoing. The splitting and distribution of stock ahead of shareholder votes, while legal, may undermine the spirit of the law and amount to manipulation, Judges Anthony Rogers , Johnson Lam and Aarif Barma said in their May 12 written judgment for their April 22 decision to block the PCCW buyout. For Related News and Information: Top Stories: TOP Link to Company News: 8 HK CN

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Google Hacks From China Originated In Two Prominent Schools

February 18, 2010

SAN FRANCISCO — The Internet attacks that may end up driving Google Inc. out of China originated from two prominent schools in the country, according to a story published late Thursday. The New York Times reported security investigators have traced the hacking to computers at Shanghai Jiaotong University and Lanxiang Vocational School in China. The newspaper attributed the information to unnamed people involved in the investigation. Google didn’t immediately respond to requests for comment. The company revealed on Jan. 12 that digital thieves had stolen some of its computer code and tried to break into the accounts of human rights activists opposed to China’s policies. The sophisticated theft also targeted the computers of more than 30 other companies, according to security experts. A security weakness in Microsoft Corp.’s Internet Explorer Web browser is believed to have created an opening for the hackers. The digital assault was serious enough to prompt Google to confront China’s government about censorship rules that weed out politically and culturally sensitive topics from search results in the country. Google says it’s prepared to shut down its China-based search engine and possibly shut down all of its offices in the country unless the ruling party loosens its restrictions on free speech. Google and the government are still discussing a possible compromise. The threat to leave China triggered speculation that Google suspected the country’s government might have been involved in the computer attacks. Google has only said it believes the attack originated from within China. China’s government has denied any involvement while continuing to insist publicly that Google must obey its restrictions against showing links deemed to be subversive or pornographic. The National Security Agency and other specialists in digital forensics have been trying to identify the source of the attacks against Google and the other companies for weeks. The inquiry led to computers at the two schools, with some evidence suggesting the attacks may have started 10 months ago, the Times reported. Jiaotong University boasts one of China’s top computer science programs, according to the Times’ story. Lanxiang is a large vocational school that trains some computer scientists for the Chinese military, the Times said. Spokesmen for the two schools told the Times that they hadn’t heard U.S. investigators had implicated them in the attacks.

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Bill Gross Clone Might Tame China’s Inflation: William Pesek

February 18, 2010

Commentary by William Pesek Feb. 18 (Bloomberg) — Jim O’Neill is on the lookout for the great Chinese revaluation of 2010, and he’s not alone. “Something’s brewing,” Goldman Sachs Group Inc. ’s London- based chief economist told Bloomberg News. “It could happen anytime.” China’s first major increase in the value of the yuan in almost five years would cool price pressures in an economy some think will grow more than 11 percent this year. Overheating risks abound and efforts to restrain credit growth aren’t working. As this inflation fight accelerates, China is finding that it could use its own Bill Gross . China will soon be the second-biggest economy, yet its lack of a large and developed bond market is a big liability. As Beijing tries to tighten credit, it’s doing so without a primetime infrastructure of investors and dealers to help transmit policy moves to the broader economy. That’s where the absence of Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co ., and his ilk hurts the most. When China’s central bank raises interest rates, the lack of a sophisticated secondary market dampens the effect. In a sense, the People’s Bank of China lacks the people to influence monetary conditions. Federal Reserve Chairman Ben S. Bernanke altering rates in Washington means little unless bond dealers in New York, London and Tokyo act accordingly in the secondary market. It’s that multiplier effect that makes monetary policy so powerful, and China doesn’t have it. Market Development Granted, China has made progress. In April 2008 the government made it easier for companies to sell debt maturing in three to five years. It reduced an over-reliance on bank loans, cutting risks in the financial system. To strategists like Frances Cheung of Standard Chartered Plc in Hong Kong, the step was a “milestone.” Corporate-debt issuance has increased steadily. The government is working to create a yield curve, even issuing debt at times when it’s not pressed for cash to support the market. Bond sales could rise to 9 trillion yuan ($1.3 trillion) this year, from 4.9 trillion yuan in 2009. Auctions conform to international standards. And on Jan. 6 the central bank reaffirmed that it will allow foreign financial institutions to sell bonds in the domestic market , while it encouraged domestic companies to sell yuan-denominated bonds in Hong Kong. Hamstrung Central Bank The internationalization of China’s capital markets got a boost last month. The government approved stock index futures, margin trading and short selling. Good stuff all around. Yet China’s central bank remains hamstrung by the depth of the secondary market. A more liquid market would be a vital shock-absorber in times of crisis and offer investors clues about China’s outlook. Now that vast amounts of capital can be moved across the world with just a keystroke, functioning bond markets are more important than ever. So is having a group of influential, globally known bond buyers who can help remind the government its policies are wrong, either by dumping its debt or speaking out. Vital Information If traders felt, for example, that China’s stimulus efforts were too aggressive and inflation loomed, they could push yields higher. Or if they sensed deflation was afoot, they might buy debt. Either way, market rates would offer vital information for government officials and investors. The trouble is, China’s financial system is still more about transferring funds from one part of the economy to another rather than the pricing of risk, said Marshall Mays , director of Emerging Alpha Asset Management Ltd. in Hong Kong. “As such, the levels of interest have never mattered that much,” he said. That’s fine for Indonesia or the Philippines, less so for an economy as important as China’s. When it comes to the bond market, we can no longer give China a pass because of its status as a developing country. Financial strength in 2010 involves more than having $2.4 trillion of currency reserves. It comes from being able to borrow in the yuan and allow foreign companies to sell locally- denominated debt. Only then will China be able to let the yuan trade freely and take a crack at replacing the dollar as the reserve currency. Taming Hot Money A stronger currency might take the pressure off China as it raises its bond-market game. Not only would it clamp down on inflation, but it would reduce frantic speculation in markets. Bets on such a move are manifesting themselves in increased hot-money inflows that are wreaking havoc with the money supply. China could reverse the dynamic by announcing a revaluation with language that makes it clear it won’t act again for a while. China needs a multifaceted approach to slowing the economy and deflating asset bubbles . Administrative decrees to reduce credit creation aren’t enough in the long run. Building a bond market with a cadre of Gross-like players in the game is more important. ( William Pesek 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 writer of this column: William Pesek in Tokyo at wpesek@bloomberg.net

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BofA’s New Settlement With SEC Smells Even Worse: Jonathan Weil

February 18, 2010

Commentary by Jonathan Weil Feb. 18 (Bloomberg) — Here’s hoping Jed Rakoff hasn’t lost his nerve. The U.S. district judge from Manhattan became a folk hero for investors when he said no to a cozy settlement last year between the Securities and Exchange Commission and Bank of America Corp. He’ll get another chance this week, when he is scheduled to rule on the agency’s latest try at a deal. Last go around, the SEC proposed that Bank of America pay a $33 million fine for failing to disclose that it had authorized as much as $5.8 billion of bonuses for Merrill Lynch & Co. employees before shareholders voted in December 2008 to approve its purchase of Merrill. Now the commission wants Bank of America to pay a $150 million fine for the same purported violations, plus some additional allegations the agency has thrown into the mix. Rakoff should tell the SEC to get lost. Once again, the agency is saying it can’t find a single person who should be held liable for these alleged misdeeds. It’s as if the corporate person broke the rules, while the living, breathing people in charge of running Bank of America and Merrill had nothing to do with it. That shouldn’t fly today anymore than it did last September when Rakoff issued his first ruling, in which he said the initial settlement proposal was “neither fair, nor reasonable, nor adequate.” It’s when you dig through the weeds of the allegations that the absurdity of the commission’s case comes through. Two Strikes The rules that the SEC says Bank of America violated are known as 14a-3 and 14a-9 . The first specifies the information that must be furnished to shareholders in a proxy statement. The second one prohibits false or misleading statements in proxies, as well as omissions of material facts. The SEC says Bank of America violated both by failing to reveal the Merrill bonuses. Additionally, the agency says the company violated 14a-9 by failing to disclose billions of dollars of losses that Merrill sustained in October and November 2008, before shareholders voted. Here’s the rub. To prove violations of those rules, as the commission and the courts have said many times, all that the SEC would have to show is negligence, which is a fairly low hurdle to clear. It wouldn’t matter if a defendant acted in good faith, or if the lack of disclosure was unintentional. It would be just about impossible to believe that Bank of America violated these rules through its own negligence without also concluding that at least one of the bank’s bosses acted negligently, too. Yet, going solely on the SEC’s allegations , that supposedly is what happened. It’s enough to make you wonder whom the commission is trying to protect, or whether the agency’s lawyers are too chicken to sue people who might demand a trial. Make a Case If the SEC can’t or won’t make a case against any of the executives or board members who were in charge at the time, then it doesn’t make sense for the agency to be suing the company itself, let alone fining it $150 million. It’s not as if the SEC’s enforcement division never files claims against individual officers and directors for violating these particular rules. I found dozens of such complaints when I searched the commission’s Web site, including one settled in 2005 against Tyson Foods Inc.’s former senior chairman, Don Tyson . The SEC has tried to win Rakoff over by proposing a bunch of thumb-sucker corporate-governance requirements for Bank of America, including heightened independence rules for members of its board’s compensation committee. Additionally, to ease the stench of the $150 million fine — which punishes shareholders for management’s offense of misleading them — the SEC plans to sink the money into a separate fund and redistribute it to those Bank of America stockholders who were harmed. Cuomo Suit That’s window-dressing for a deal in which the SEC has shrunk from its duty to enforce the rules against the people who break them, assuming the agency is correct in saying they were broken. Meanwhile, New York Attorney General Andrew Cuomo ’s office has filed a lawsuit contending that Bank of America acted fraudulently — not merely negligently — and that its former chief executive officer, Ken Lewis , and former chief financial officer, Joe Price , did, too. (The defendants deny the claims.) Maybe when that suit is over we’ll have some better idea of what actually transpired here. At least Cuomo’s allegations have the semblance of being logically consistent. The SEC’s case is anything but. That alone should be reason enough for Rakoff to deny the commission’s wishes. The burning question is whether he’ll have the guts to do it twice. ( Jonathan Weil 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 writer of this column: Jonathan Weil in New York at jweil6@bloomberg.net

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Obama Meeting Dalai Lama Shows Pretense of U.S.-China Friendship Must Wane

February 17, 2010

By Peter S. Green and Edwin Chen Feb. 18 (Bloomberg) — President Barack Obama goes into today’s meeting with the Dalai Lama on notice that it will anger China’s leadership and add tension to an already strained relationship. That isn’t likely to fray economic ties secured by $366 billion of mutual trade and $755 billion in Chinese-held U.S. Treasury bills, according to analysts. And the path to a more constructive overall relationship may lie in both sides dropping any pretense at friendship and acknowledging they are competitors as much as partners, said Yan Xuetong , director of the Institute of International Studies at Tsinghua University in Beijing. “If China and the U.S. identified each other as rivals I don’t think they would be disappointed with each other,” Yan said. “Both sides pretend to be friends. Actually, they are not.” Relations have suffered recently as the U.S. announced a planned $6.4 billion arms sale to Taiwan, Google Inc. threatened to exit China on the grounds that user e-mail accounts were being hacked and China taxed American chicken imports after the U.S. imposed tariffs on Chinese tires. The two countries also have differed on steps to halt global warming and nuclear programs in North Korea and Iran. China’s Foreign Ministry on Feb. 4 rejected Obama’s call to strengthen the Chinese currency, saying that “accusations and pressure will not help solve the issue.” Cruising Altitude All this since U.S. Ambassador to China Jon Huntsman told reporters during Obama’s November visit that the relationship was at “a cruising altitude that is higher than any other time in recent memory.” Still, there is little chance that these differences will fundamentally damage the network of economic and political ties that China expert Orville Schell calls the “most important bilateral relationship” in the world today. He is director of the Asia Society’s Center on U.S.-China Relations in New York. “I don’t see anything that could destabilize the relationship right now,” said Elizabeth Economy , director of Asia studies at the Council on Foreign Relations in New York. “Leaders on both sides will ratchet this back down at an appropriate time, but not right now because a little chest- thumping serves domestic purposes.” Neither nation can afford to sabotage the economic relationship, said Carl Lantz , an interest-rate strategist at Credit Suisse Group AG in New York. Falling Holdings “We are kind of joined at the hip economically,” Lantz said. “People refer to it as Chimerica, and in general it’s worked out relatively well, where they finance our borrowing and consumption and we buy their exports to finance their social stability.” China’s holdings of U.S. Treasuries have increased more than 10-fold in the past decade, from $71.7 billion in 2000 to $755.4 billion in December. China surpassed Japan as the largest creditor abroad to the U.S. in September 2008, although it fell back to second place in December when its Treasury holdings declined for the second consecutive month, the Treasury Department said on Feb. 16. China allowed its short-term Treasury bills to mature and replaced them with a smaller amount of longer-term notes and bonds, the Treasury data showed. The December reduction in China’s holdings didn’t prompt a sell-off in U.S. bonds as investors focused instead on an overall increase in foreign holdings of U.S. Treasuries, which rose by a net $69.9 billion. The yield on the benchmark 10-year note fell three basis points, or 0.03 percentage point, to 3.66 percent on Feb. 16, according to BGCantor Market data. Administration View The Obama administration is also convinced that the recent tensions won’t fundamentally change the countries’ relationship, said an administration official who asked not to be identified out of concern for Chinese sensitivities. That hasn’t stopped both sides from trading rhetorical blows. China demanded last week that Obama cancel the meeting with the Dalai Lama, even though Obama informed Chinese President Hu Jintao during his Beijing visit that he planned to receive the Tibetan leader, according to the administration official. The U.S. also told China in advance of the Taiwan arms sale, the official said. Secretary of State Hillary Clinton said she expected China to conduct a “thorough investigation” of charges from Mountain View, California-based Google that hackers had entered e-mail accounts it hosted belonging to Chinese dissidents. Free access to information and protecting what she called the “basic rights” of Internet users is essential, Clinton said. Paradox Such exchanges may paradoxically allow both countries to pursue their own agendas and work together on larger issues without fear of domestic backlash, said Robert Barnett , director of Modern Tibetan Studies at Columbia University in New York. “We’re seeing a slightly more confident America, which is trying to communicate that distinction between interests and values,” Barnett said. Visits by the exiled Tibetan spiritual leader are a perpetual irritant to China. It has opposed any outside pressure on how the country runs Tibet , which was brought under its rule after a military invasion in 1950. The Dalai Lama has met with every U.S. president since George Bush in 1991. While China has exacted diplomatic punishment on leaders who met him — it canceled a China- European Union summit after French President Nicolas Sarkozy met the Dalai Lama in 2008 — trade relations have been little affected, said Schell. Received Envoys China received the Dalai Lama’s envoys at the first talks on Tibet in 15 months, which ended Feb. 1. China’s top negotiator rejected calls for greater autonomy for the region, the Tibetan exile administration said. Douglas Paal , vice-president of the Carnegie Endowment for International Peace in Washington, said the discussions probably were partly to prepare for the effect the Obama meeting could have on Chinese public opinion. “More is imputed to these meetings than actually occurs,” said Paal, who was at the White House National Security Council under George H.W. Bush from 1989 to 1993 . “Presidents have to check the political box of seeing the Dalai Lama.” For Related News and Information: Top China stories: TOP CHINA Stories on China’s economy: TNI CHINA ECO China’s economic-data watch indexes: ESNP CH

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Goldman Sachs Sues Seven Former Wealth Managers `Pirated’ by Credit Suisse

February 17, 2010

By Cary O’Reilly and David Beasley Feb. 17 (Bloomberg) — Goldman Sachs Group Inc. sued seven former members of its private-wealth management division who resigned this month to join a unit of rival Credit Suisse Group AG . Credit Suisse Securities USA offered the group of investment managers “tens of millions of dollars” to leave Goldman Sachs in an act of “pirating,” according to a complaint filed today in federal court in Atlanta. Several of the managers immediately began soliciting former clients in violation of their Goldman Sachs contracts, the investment bank said. Goldman Sachs seeks a court order against former employees David Greene, Craig Savage, Andrew Thompson, Sharran Srivatsaa, John Pitt, Stephanie Dennard and Kim Tyson to prevent them from disclosing proprietary information, and to block them from recruiting ex-clients. Zurich-based Credit Suisse isn’t named in the suit, though Goldman Sachs has filed an arbitration proceeding against its U.S. competitor, which has offices in the same Atlanta building, according to the complaint. The seven defendants were members of New York-based Goldman Sachs’s private-wealth management team that advised 140 clients. They resigned from the firm on Feb. 5. Some Goldman Sachs clients began getting solicitations from the defendants the next day, according to the complaint. Greene, a vice president at Goldman Sachs who earned more than $1 million in 2009, told David Fox , head of Goldman’s Atlanta office, that Credit Suisse offered him $11 million to leave Goldman Sachs, according to the lawsuit. The case is Goldman Sachs & Co. v. Greene, 10-cv-0453, U.S. District Court, Northern District of Georgia (Atlanta). For Related News and Information: Top legal stories: TLAW Bloomberg legal resources: BLAW Most read legal stories: MNI LAW For the Bloomberg Law Digest: BBLD For litigation issues: BLIT Stories by this reporter: BIO CARY O’REILLY Top verdicts: TVER

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Abby Cohen Sees S&P 500 Fair Value at 1,250 to 1,300 on Economic Recovery

February 17, 2010

By Rita Nazareth and Thomas R. Keene Feb. 17 (Bloomberg) — The Standard & Poor’s 500 Index may rise to between 1,250 and 1,300, said Abby Joseph Cohen , the Goldman Sachs Group Inc. strategist known for calling the bull market in the 1990s. The S&P 500 , which closed at 1,094.87 yesterday, would need to rise as much as 19 percent to reach the high end of Cohen’s prediction. The benchmark gauge for U.S. stocks has risen 62 percent from a 12-year low in March after governments around the world spent trillions of dollars to stimulate the economy. The index has retreated 4.8 percent from a 15-month high on Jan. 19 as widening fiscal gaps in Greece, Portugal and Spain spurred concern Europe faces another recession. “We do think the market overall is likely undervalued,” Cohen, 57, said on Bloomberg Radio. “The recession is over and has been over for several months. Not every sector recovers at the same pace. We’d be looking in some of those areas focusing on economic improvement.” Cohen said technology shares and commodities producers are attractive because of the prospects for revenue growth and improved demand. The industries have both gained 77 percent since the S&P 500 dropped to a 12-year low on March 9, 2009. The top-ranked strategist in Institutional Investor’s surveys in 1998 and 1999, Cohen stayed bullish on computer- related stocks for too long as the S&P 500 suffered a bear market from March 2000 to October 2002. She said in October 2000 that technology stocks would be a good investment in 2001. The S&P 500 Information Technology Index then tumbled 26 percent. Cohen, a senior investment strategist, was replaced by David Kostin as Goldman Sachs’s chief forecaster for the U.S. stock market in March 2008. She had been the second most-bullish Wall Street strategist at the start of that year, when the S&P 500 tumbled 38 percent, its worst annual loss in seven decades. Cohen told Bloomberg Radio on Aug. 17 that the U.S. economy was “on the mend” and predicted that profit growth would be more “substantial.” To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net ; Thomas R. Keene in New York tkeene@bloomberg.net .

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Dan Solin: A 401(k) Plan with No Conscience

February 16, 2010

I recently reviewed a 401(k) plan adopted by an employer. They switched from their old provider to a major insurance company. In part, they were influenced by the “Fiduciary Warranty” the insurance company gave them. Here’s what I found: The plan had thirty-one investment options. All but four were actively managed funds, with expense ratios ranging from 1.82% to 2.19%. The real shocker was in the balance of the funds. The Money Market Fund had an expense ratio of 1.58%. The S&P 500 Index Fund had an expense ratio of 1.54%. The two other index funds had similar expense ratios. To put these expense ratios in perspective, I checked the expense ratios of comparable funds from Vanguard: The Vanguard Prime Money Market Fund (VMMXX) has an expense ratio of 0.25%; The Vanguard 500 Index Investor Fund (VFINX) has an expense ratio of 0.18%. What do the hapless participants in the plan get for paying 600% or more for the index funds in their plan? Funds that significantly underperform the lower cost funds. What about the much hyped “Fiduciary Warranty.” I obtained a copy. Here is an extract: “While [insurance company] is not acting as a fiduciary for the plan in selecting and monitoring the investment options in our offering, [insurance company] stands behind our products.” Translation: The misnamed “Fiduciary Warranty” absolves the insurance company from fiduciary liability for putting overpriced actively managed and index funds in the plan. The plan participants are the real victims. The difference in the amount of money they will have available at retirement will be measured in the hundreds of thousands of dollars, because the plan options are not only overpriced but confusing. What are the chances of the average employee being able to put together a low cost, globally diversified portfolio in a suitable asset allocation from these investment options? This plan is the poster child for the urgent need for legislative reform. Yet Congress can’t even pass legislation requiring 401(k) providers to give transparent information about their fees or to accept real fiduciary responsibility for their advice. Without massive reform, the gravy train will continue. Dan Solin is the author of The Smartest Retirement Book You’ll Ever Read. The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.

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Babcock International’s $1.79 Billion Offer to Purchase VT Group Rejected

February 15, 2010

By Peter Branton and Benedikt Kammel Feb. 15 (Bloomberg) — Babcock International Group Plc, which maintains Britain’s submarine fleet, said its offer to buy VT Group Plc for about 1.14 billion pounds ($1.79 billion) was rejected by the U.K. defense services company. Babcock bid the equivalent of 633.9 pence in cash and stock for each share of VT Group, or 25 percent more than VT’s closing price yesterday, according to a press release today. Babcock said it approached VT’s board on Feb. 3 with a letter laying out its purchase plans, after two approaches last year. “Babcock considers that a combination with VT has significant industrial and commercial logic and would bring together two highly complementary businesses to create a large and focused international engineering support services company,” the company said in the release. VT Group rose the most since at least 1991 after Babcock disclosed its approach for the company, rising as much as 92 pence, or 18 percent, to 600 pence. The shares traded at 590 pence at 3:31 p.m. local time. For Related News and Information: Top Stories:TOP Link to Statement:NSN KXW2EP3HBS3K Link to Company News:BAB LN CN Link to Company News:VTG LN CN

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Shinsei, Aozora Banks Call Off Merger on Strategy Differences, Nikkei Says

February 12, 2010

By Michael J. Moore and Finbarr Flynn Feb. 13 (Bloomberg) — Shinsei Bank Ltd. , the Japanese lender partly owned by U.S. investor Christopher Flowers , and Aozora Bank Ltd. have called off their merger after failing to agree on a business strategy, Nikkei English News reported. The deal, which the two Tokyo-based banks valued at $5.9 billion last July, will either be abandoned or postponed indefinitely, Nikkei reported, without saying how it got the information. Shinsei will work on a capital-raising plan while Aozora will seek alliances with local banks, Nikkei said. The banks agreed in July to merge after they posted a combined annual loss of $4.2 billion on soured investments in overseas bonds, hedge funds and U.S. mortgage assets. Aozora Chief Executive Officer Brian Prince said in a Jan. 15 interview that “areas of disagreement” had arisen in the talks. A Credit Suisse Group AG analyst said in a report this week that the merger planned for October may be called off. Combining Shinsei and Aozora , controlled by New York-based Cerberus Capital Management LP, would have created Japan’s sixth-largest listed lender with about 190 billion yen ($2.1 billion) in assets. Shinsei, which has fallen 34 percent on the Tokyo Stock Exchange since the deal was announced on July 1, declined 1.9 percent to 104 yen yesterday. Aozora, down 28 percent since July 1, was unchanged yesterday at 109 yen. Shinsei Chief Executive Officer Masamoto Yashiro , who returned to lead the bank in November 2008, told investors on Feb. 4 he aimed to “clean up” unprofitable investments on its books. Shinsei’s Forecast Shinsei posted profit of 22.3 billion yen for the nine months ended Dec. 31. The bank reiterated its full-year net income forecast of 10 billion yen, citing the potential for impairments and charges on real estate, consumer lending and other assets. Aozora last month raised its full-year profit forecast to 7 billion yen on higher fees and fewer costs for bad loans. The bank posted net income of 7.3 billion yen in the nine months ended Dec. 31, compared with a loss of 109.4 billion yen a year earlier. The two companies were created from failed long-term credit banks that were nationalized in 1998 after becoming insolvent. Flowers first invested in Shinsei’s forerunner in 2000. Cerberus took a controlling stake in Aozora in 2003. Flowers had “strongly requested” the merger, Yashiro said in July. Flowers didn’t return a call for comment. To contact the reporters on this story: Michael J. Moore in New York at mmoore55@bloomberg.net ; Finbarr Flynn in Tokyo at fflynn3@bloomberg.net .

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Regulators Hired by Toyota Helped Halt Probes

February 12, 2010

Feb. 12 (Bloomberg) — Former regulators hired by Toyota Motor Corp. helped end at least four U.S. investigations of unintended acceleration by company vehicles in the last decade, warding off possible recalls, court and government records show. Christopher Tinto , vice president of regulatory affairs in Toyota’s Washington office, and Christopher Santucci, who works for Tinto, helped persuade the National Highway Traffic Safety Administration to end probes including those of 2002-2003 Toyota Camrys and Solaras, court documents show. Both men joined Toyota directly from NHTSA, Tinto in 1994 and Santucci in 2003. While all automakers have employees who handle NHTSA issues, Toyota may be alone among the major companies in employing former agency staffers to do so. Spokesmen for General Motors Co., Ford Motor Co. , Chrysler Group LLC and Honda Motor Co. all say their companies have no ex-NHTSA people who deal with the agency on defects. Possible links between Toyota and NHTSA may fuel mounting criticism of their handling of defects in Toyota and Lexus models tied to 19 deaths between 2004 and 2009. Three congressional committees have scheduled hearings on the recalls. “Toyota bamboozled NHTSA or NHTSA was bamboozled by itself,” said Joan Claybrook , an auto safety advocate and former NHTSA administrator in the Jimmy Carter administration. “I think there is going to be a lot of heat on NHTSA over this.” ‘Discussed Scope’ In one example of the Toyota aides’ role, Santucci testified in a Michigan lawsuit that the company and NHTSA discussed limiting an examination of unintended acceleration complaints to incidents lasting less than a second. “We discussed the scope” of the investigation, Santucci testified. “NHTSA’s concerns about the scope ultimately led to a decision by the agency to reduce that scope. You say it worked out well for Toyota, I think it worked out well for both the agency and Toyota.” In an e-mailed response to questions about possible influence of former NHTSA employees on agency Toyota decisions, Transportation Department spokeswoman Olivia Alair said NHTSA “currently has three open investigations involving Toyota and is monitoring two major safety recalls involving Toyota vehicles. NHTSA’s record reflects that safety is its singular priority.” Toyota City, Japan-based Toyota on Jan. 21 recalled 2.3 million U.S. cars and trucks with a potentially defective accelerator pedals. That followed Toyota’s decision in November to recall 4.48 million vehicles in the U.S. and Canada because floor mats might trap gas pedals while they were depressed. Since that recall, Toyota’s shares have dropped 17 percent, wiping out $27.9 billion in market capitalization. The stock rose 2.4 percent to 3,470 yen as of 12:45 p.m. in Tokyo today. Electronics Probe Combined worldwide recalls for pedals, floor mats and a software fix to adjust brakes on the Prius and other hybrid models rose to more than 8 million vehicles as of Feb. 8. “A recall is bad for any automaker because they have to admit there’s a defect in their vehicle and the repairs can be expensive,” said Rebecca Lindland , a forecaster at IHS Global Insight Inc. in Lexington, Massachusetts. In Toyota’s case, “the company has built itself on pillars of safety, quality and reliability,” she said. “A defect in their product is appalling to them, sort of unthinkable.” All four of the probes the Toyota aides helped end were into complaints that the unintended acceleration was caused by flaws in the vehicles’ electronic throttle systems. Toyota has denied that the system is a problem. U.S. Transportation Secretary Ray LaHood said on Feb. 3 that NHTSA is reviewing the electronics. Toyota spokeswoman Martha Voss declined to make Santucci and Tinto available for comment. ‘Highest Standards’ “Anything Mr. Tinto and Mr. Santucci did was in the interest of full disclosure, transparency and openness with regulators and safety experts,” Voss said in an e-mailed statement. “Their actions have been consistent with our efforts to maintain the highest professional and ethical standards in all of our legal and regulatory practices. Their paramount concern was for the safety of every single owner of one of our vehicles.” The NHTSA decisions on Toyota weren’t necessarily biased just because former agency people were involved, said Sidney Shapiro, a law professor at Wake Forest University in Winston- Salem, North Carolina. “I’m not sure regulators set out to say ‘I’m going to give a special deal to my old friends in the auto industry,’” he said. “But what happens is it just sort of deteriorates because these are the only people you talk to.” Opposite Sides There are no waiting-period requirements for moves to a company from its regulator for lower-level positions like those of Tinto and Santucci, said Allan Kam, former NHTSA senior enforcement attorney, who retired in 2000 after 25 years and said he was a “mentor” to Tinto at the agency. Santucci came to NHTSA after Kam’s retirement. “They’re not supposed to deal with the agency about a matter they dealt with at the agency,” he said. Neither former NHTSA employee testified to any such conflicts when asked by attorneys. Tinto, 46, came to Toyota after about four years at NHTSA. He hired Santucci from NHTSA in 2003, after the two met on opposite sides of the table in defect investigation cases, Santucci said in a deposition in the Michigan lawsuit. Santucci, 39, works on most of the automaker’s recall petitions, he said in the deposition. In last year’s floor-mat recall, Santucci said he helped write Toyota’s explanation of the remedy and had phone calls and meetings with NHTSA to describe the automaker’s plans. Cases Closed NHTSA opened eight investigations of unintended acceleration of Toyota vehicles from 2003 to 2010, according to Safety Research & Strategies Inc. , a Rehoboth, Massachusetts, group that gathers data from NHTSA and other sources for plaintiff’s attorneys and consumers. Three of the probes resulted in recalls for floor mats. Five were closed, meaning NHTSA found no evidence of a defect. In four of the five cases that were closed, Tinto and Santucci worked with NHTSA on Toyota’s responses to the consumer complaints the agency was investigating, agency documents show. The first closed case where NHTSA records show the involvement of Tinto and Santucci dealt with unanticipated acceleration by 2002 and 2003 Toyota Camrys and Solaras. The case, opened in March 2004, was the one Santucci testified about when he discussed limiting the scope of the probe. He did so in a deposition for a lawsuit filed on behalf of a Michigan woman who was killed in an April 2008 accident. ‘Blew Past’ Intersection In that lawsuit, the family of Guadalupe Alberto, 76, says she died when her 2005 Toyota Camry sped out of control and crashed into a tree. The lawsuit blames a defect in the electronic throttle control, said attorney Edgar Heiskell, who represents the Alberto family. “She blew past an intersection, witnesses saw her with both hands on the wheel,” Heiskell said. “She appeared to be standing on the brake while steering.” On March 3, 2004, the agency told Toyota it was opening a preliminary investigation to determine “if the throttle control system could be the cause of vehicle surge or unwanted acceleration.” Santucci and Tinto worked with Santucci’s former NHTSA co- workers, Scott Yon and Jeffrey Quandt, on the investigation, Santucci testified in his deposition. Yon and Quandt weren’t available for comment, Alair of the Transportation Department said. ‘Certainly, We Talked’ Twenty days after the probe began, NHTSA investigator Yon determined that the agency wouldn’t investigate “longer duration incidents involving uncontrollable acceleration where brake pedal application allegedly had no effect,” according to a document provided in the Michigan lawsuit. “But that was after talking with you and Mr. Tinto, correct?” Heiskell asked during the deposition. “Certainly, we talked to them in that time period,” Santucci said. NHSTA opted to limit the investigation to unintended acceleration events that lasted less than a second and those where the brake could be used to control the vehicle, or about 11 incidents with 5 crashes. In Toyota’s initial response, Tinto identified 114 similar cases, according to NHTSA documents. The case was closed July 22, 2004, agency records show. The agency decided to limit the cases to eliminate instances where a driver may have used the wrong pedal, the Transportation Department’s Alair said. No Social Relationship Santucci didn’t work on unintended acceleration cases involving Toyota while at NHTSA and doesn’t have a social relationship with former co-workers, he said in his deposition. The second NHTSA-Toyota case settled with the automaker’s input was a 2005 investigation requested by the owner of a 2002 Toyota Camry who reported two instances of unintended acceleration, one involving a crash. The owner cited eight other complaints from other Toyota drivers about similar episodes, without identifying the vehicle make and model. Toyota said dealer representatives investigated 59 of 100 vehicles whose owners complained. “In each of these vehicles, no evidence of a system or component failure was found and the vehicles were operating as designed,” Tinto wrote in a Nov. 15 letter to NHSTA. He also cited the findings that ended the Camry investigation in 2004. Water Corrosion NHTSA ended its probe of the 2002 Camry in January 2006, citing lack of evidence of a problem and the agency’s need to allocate “limited resources” to other investigations. Tinto also weighed in on a broader August 2006 complaint about the Camry, this time covering model years 2002 to 2006. In that case, Tinto wrote that Toyota had found no abnormality in the throttle actuator, or controller, which the petitioner blamed. In the defect investigation notice, NHSTA noted 3,546 cases where Toyota had replaced throttle actuators under warranty terms. The automaker did find evidence that returned actuators had corroded due to water intrusion caused by circumstances “such as driving through a flooded road, in the heavy rain or a hurricane” and a drain hose was modified to prevent future water intrusion, Tinto wrote in a Dec. 20, 2006, letter to the agency. NHTSA decided not to pursue the investigation, telling the owner “after reviewing the concerns raised by the petitioner and other information, NHTSA has concluded that further expenditure of the agency’s investigative issues raised by the petition in not warranted.” Tacoma Pickups In the fourth case, in 2008, Tinto told NHTSA the automaker couldn’t find enough evidence to support allegations of unintended acceleration in 2006-2007 Toyota Tacoma pickup trucks. The owner reported two incidents of unintended acceleration in his 2006 Tacoma and pointed to 32 similar complaints in the NHTSA database. Toyota itself received complaints of 478 incidents involving 431 Tacomas, for model years 2004 to 2008, that allegedly increased engine speed when the accelerator pedal wasn’t pushed, according to an April 25, 2008, memo by Tinto. Of those incidents, 49 resulted in a crash and 9 had injuries, he said. After a review, Tinto said he disagreed that the complaints to NHSTA “in and of themselves justify opening an investigation” and said media attention to driver complaints contributed to the allegations. “In Toyota’s view, neither the consumer complaints nor the field study indicate the existence of any defect in the subject vehicles, much less a safety-related defect,” he wrote. Request Denied NHTSA closed the investigation on Aug. 27, 2008, after an eight-month review, saying that “we have been unable to determine a cause related to throttle control or any underlying cause that gave rise to the complaint.” Tinto also may have helped thwart an attempt by the owner of a 2007 Lexus ES350 to reopen a NHTSA investigation that resulted in a 55,000-unit recall for floor mat problems. The owner, Jeffrey Pepski of Plymouth, Minnesota, said he experienced an unintended acceleration incident in February 2009 and wanted the agency to probe other possible causes, such as the electronic throttle. Tinto’s response to NHTSA last May said the incident was Pepski’s fault because his floor mat wasn’t secured and that there was no need for a new investigation because the “limited number of such incidents does not suggest the existence of a safety-related defect in these vehicles.” Seeking Toyoda U.S. Transportation Department, NHTSA and Toyota officials have been asked to appear on Feb. 24 before the House Oversight and Government Reform Committee and Feb. 25 before the House Energy and Commerce Committee to talk about the recalls. The Senate Commerce Committee plans a hearing March 2. “At the heart of the matter is determining whether Toyota acted as quickly as possible to notify regulators there was a problem and whether or not government acted as quickly and diligently as possible to investigate and act,” Representative Darrell Issa , a California Republican and ranking member of the House Committee on Oversight and Government Reform, said in a statement this week. Issa called on Toyota President Akio Toyoda to appear before the Senate panel. “I would fully support the issuance of a subpoena” if Toyoda doesn’t cooperate, Issa said in a statement yesterday. For Related News and Information: Legal news about Toyota: 7203 JT TCNI LAW Automaker earnings stories: TNI ERN AUT Toyota financial analysis: 7203 JT FA AUTO U.S. auto-industry fundamentals: IFS3

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Regulators Hired by Toyota Helped Halt U.S. Safety Probes, Documents Show

February 11, 2010

Feb. 12 (Bloomberg) — Former regulators hired by Toyota Motor Corp. helped end at least four U.S. investigations of unintended acceleration by company vehicles in the last decade, warding off possible recalls, court and government records show. Christopher Tinto , vice president of regulatory affairs in Toyota’s Washington office, and Christopher Santucci, who works for Tinto, helped persuade the National Highway Traffic Safety Administration to end probes including those of 2002-2003 Toyota Camrys and Solaras, court documents show. Both men joined Toyota directly from NHTSA, Tinto in 1994 and Santucci in 2003. While all automakers have employees who handle NHTSA issues, Toyota may be alone among the major companies in employing former agency staffers to do so. Spokesmen for General Motors Co., Ford Motor Co. , Chrysler Group LLC and Honda Motor Co. all say their companies have no ex-NHTSA people who deal with the agency on defects. Possible links between Toyota and NHTSA may fuel mounting criticism of their handling of defects in Toyota and Lexus models tied to 19 deaths between 2004 and 2009. Three congressional committees have scheduled hearings on the recalls. “Toyota bamboozled NHTSA or NHTSA was bamboozled by itself,” said Joan Claybrook , an auto safety advocate and former NHTSA administrator in the Jimmy Carter administration. “I think there is going to be a lot of heat on NHTSA over this.” ‘Discussed Scope’ In one example of the Toyota aides’ role, Santucci testified in a Michigan lawsuit that the company and NHTSA discussed limiting an examination of unintended acceleration complaints to incidents lasting less than a second. “We discussed the scope” of the investigation, Santucci testified. “NHTSA’s concerns about the scope ultimately led to a decision by the agency to reduce that scope. You say it worked out well for Toyota, I think it worked out well for both the agency and Toyota.” In an e-mailed response to questions about possible influence of former NHTSA employees on agency Toyota decisions, Transportation Department spokeswoman Olivia Alair said NHTSA “currently has three open investigations involving Toyota and is monitoring two major safety recalls involving Toyota vehicles. NHTSA’s record reflects that safety is its singular priority.” Toyota City, Japan-based Toyota on Jan. 21 recalled 2.3 million U.S. cars and trucks with a potentially defective accelerator pedals. That followed Toyota’s decision in November to recall 4.48 million vehicles in the U.S. and Canada because floor mats might trap gas pedals while they were depressed. Since that recall, Toyota’s shares have dropped 17 percent, wiping out $27.9 billion in market capitalization. The stock rose 2.4 percent to 3,470 yen as of 12:45 p.m. in Tokyo today. Electronics Probe Combined worldwide recalls for pedals, floor mats and a software fix to adjust brakes on the Prius and other hybrid models rose to more than 8 million vehicles as of Feb. 8. “A recall is bad for any automaker because they have to admit there’s a defect in their vehicle and the repairs can be expensive,” said Rebecca Lindland , a forecaster at IHS Global Insight Inc. in Lexington, Massachusetts. In Toyota’s case, “the company has built itself on pillars of safety, quality and reliability,” she said. “A defect in their product is appalling to them, sort of unthinkable.” All four of the probes the Toyota aides helped end were into complaints that the unintended acceleration was caused by flaws in the vehicles’ electronic throttle systems. Toyota has denied that the system is a problem. U.S. Transportation Secretary Ray LaHood said on Feb. 3 that NHTSA is reviewing the electronics. Toyota spokeswoman Martha Voss declined to make Santucci and Tinto available for comment. ‘Highest Standards’ “Anything Mr. Tinto and Mr. Santucci did was in the interest of full disclosure, transparency and openness with regulators and safety experts,” Voss said in an e-mailed statement. “Their actions have been consistent with our efforts to maintain the highest professional and ethical standards in all of our legal and regulatory practices. Their paramount concern was for the safety of every single owner of one of our vehicles.” The NHTSA decisions on Toyota weren’t necessarily biased just because former agency people were involved, said Sidney Shapiro, a law professor at Wake Forest University in Winston- Salem, North Carolina. “I’m not sure regulators set out to say ‘I’m going to give a special deal to my old friends in the auto industry,’” he said. “But what happens is it just sort of deteriorates because these are the only people you talk to.” Opposite Sides There are no waiting-period requirements for moves to a company from its regulator for lower-level positions like those of Tinto and Santucci, said Allan Kam, former NHTSA senior enforcement attorney, who retired in 2000 after 25 years and said he was a “mentor” to Tinto at the agency. Santucci came to NHTSA after Kam’s retirement. “They’re not supposed to deal with the agency about a matter they dealt with at the agency,” he said. Neither former NHTSA employee testified to any such conflicts when asked by attorneys. Tinto, 46, came to Toyota after about four years at NHTSA. He hired Santucci from NHTSA in 2003, after the two met on opposite sides of the table in defect investigation cases, Santucci said in a deposition in the Michigan lawsuit. Santucci, 39, works on most of the automaker’s recall petitions, he said in the deposition. In last year’s floor-mat recall, Santucci said he helped write Toyota’s explanation of the remedy and had phone calls and meetings with NHTSA to describe the automaker’s plans. Cases Closed NHTSA opened eight investigations of unintended acceleration of Toyota vehicles from 2003 to 2010, according to Safety Research & Strategies Inc. , a Rehoboth, Massachusetts, group that gathers data from NHTSA and other sources for plaintiff’s attorneys and consumers. Three of the probes resulted in recalls for floor mats. Five were closed, meaning NHTSA found no evidence of a defect. In four of the five cases that were closed, Tinto and Santucci worked with NHTSA on Toyota’s responses to the consumer complaints the agency was investigating, agency documents show. The first closed case where NHTSA records show the involvement of Tinto and Santucci dealt with unanticipated acceleration by 2002 and 2003 Toyota Camrys and Solaras. The case, opened in March 2004, was the one Santucci testified about when he discussed limiting the scope of the probe. He did so in a deposition for a lawsuit filed on behalf of a Michigan woman who was killed in an April 2008 accident. ‘Blew Past’ Intersection In that lawsuit, the family of Guadalupe Alberto, 76, says she died when her 2005 Toyota Camry sped out of control and crashed into a tree. The lawsuit blames a defect in the electronic throttle control, said attorney Edgar Heiskell, who represents the Alberto family. “She blew past an intersection, witnesses saw her with both hands on the wheel,” Heiskell said. “She appeared to be standing on the brake while steering.” On March 3, 2004, the agency told Toyota it was opening a preliminary investigation to determine “if the throttle control system could be the cause of vehicle surge or unwanted acceleration.” Santucci and Tinto worked with Santucci’s former NHTSA co- workers, Scott Yon and Jeffrey Quandt, on the investigation, Santucci testified in his deposition. Yon and Quandt weren’t available for comment, Alair of the Transportation Department said. ‘Certainly, We Talked’ Twenty days after the probe began, NHTSA investigator Yon determined that the agency wouldn’t investigate “longer duration incidents involving uncontrollable acceleration where brake pedal application allegedly had no effect,” according to a document provided in the Michigan lawsuit. “But that was after talking with you and Mr. Tinto, correct?” Heiskell asked during the deposition. “Certainly, we talked to them in that time period,” Santucci said. NHSTA opted to limit the investigation to unintended acceleration events that lasted less than a second and those where the brake could be used to control the vehicle, or about 11 incidents with 5 crashes. In Toyota’s initial response, Tinto identified 114 similar cases, according to NHTSA documents. The case was closed July 22, 2004, agency records show. The agency decided to limit the cases to eliminate instances where a driver may have used the wrong pedal, the Transportation Department’s Alair said. No Social Relationship Santucci didn’t work on unintended acceleration cases involving Toyota while at NHTSA and doesn’t have a social relationship with former co-workers, he said in his deposition. The second NHTSA-Toyota case settled with the automaker’s input was a 2005 investigation requested by the owner of a 2002 Toyota Camry who reported two instances of unintended acceleration, one involving a crash. The owner cited eight other complaints from other Toyota drivers about similar episodes, without identifying the vehicle make and model. Toyota said dealer representatives investigated 59 of 100 vehicles whose owners complained. “In each of these vehicles, no evidence of a system or component failure was found and the vehicles were operating as designed,” Tinto wrote in a Nov. 15 letter to NHSTA. He also cited the findings that ended the Camry investigation in 2004. Water Corrosion NHTSA ended its probe of the 2002 Camry in January 2006, citing lack of evidence of a problem and the agency’s need to allocate “limited resources” to other investigations. Tinto also weighed in on a broader August 2006 complaint about the Camry, this time covering model years 2002 to 2006. In that case, Tinto wrote that Toyota had found no abnormality in the throttle actuator, or controller, which the petitioner blamed. In the defect investigation notice, NHSTA noted 3,546 cases where Toyota had replaced throttle actuators under warranty terms. The automaker did find evidence that returned actuators had corroded due to water intrusion caused by circumstances “such as driving through a flooded road, in the heavy rain or a hurricane” and a drain hose was modified to prevent future water intrusion, Tinto wrote in a Dec. 20, 2006, letter to the agency. NHTSA decided not to pursue the investigation, telling the owner “after reviewing the concerns raised by the petitioner and other information, NHTSA has concluded that further expenditure of the agency’s investigative issues raised by the petition in not warranted.” Tacoma Pickups In the fourth case, in 2008, Tinto told NHTSA the automaker couldn’t find enough evidence to support allegations of unintended acceleration in 2006-2007 Toyota Tacoma pickup trucks. The owner reported two incidents of unintended acceleration in his 2006 Tacoma and pointed to 32 similar complaints in the NHTSA database. Toyota itself received complaints of 478 incidents involving 431 Tacomas, for model years 2004 to 2008, that allegedly increased engine speed when the accelerator pedal wasn’t pushed, according to an April 25, 2008, memo by Tinto. Of those incidents, 49 resulted in a crash and 9 had injuries, he said. After a review, Tinto said he disagreed that the complaints to NHSTA “in and of themselves justify opening an investigation” and said media attention to driver complaints contributed to the allegations. “In Toyota’s view, neither the consumer complaints nor the field study indicate the existence of any defect in the subject vehicles, much less a safety-related defect,” he wrote. Request Denied NHTSA closed the investigation on Aug. 27, 2008, after an eight-month review, saying that “we have been unable to determine a cause related to throttle control or any underlying cause that gave rise to the complaint.” Tinto also may have helped thwart an attempt by the owner of a 2007 Lexus ES350 to reopen a NHTSA investigation that resulted in a 55,000-unit recall for floor mat problems. The owner, Jeffrey Pepski of Plymouth, Minnesota, said he experienced an unintended acceleration incident in February 2009 and wanted the agency to probe other possible causes, such as the electronic throttle. Tinto’s response to NHTSA last May said the incident was Pepski’s fault because his floor mat wasn’t secured and that there was no need for a new investigation because the “limited number of such incidents does not suggest the existence of a safety-related defect in these vehicles.” Seeking Toyoda U.S. Transportation Department, NHTSA and Toyota officials have been asked to appear on Feb. 24 before the House Oversight and Government Reform Committee and Feb. 25 before the House Energy and Commerce Committee to talk about the recalls. The Senate Commerce Committee plans a hearing March 2. “At the heart of the matter is determining whether Toyota acted as quickly as possible to notify regulators there was a problem and whether or not government acted as quickly and diligently as possible to investigate and act,” Representative Darrell Issa , a California Republican and ranking member of the House Committee on Oversight and Government Reform, said in a statement this week. Issa called on Toyota President Akio Toyoda to appear before the Senate panel. “I would fully support the issuance of a subpoena” if Toyoda doesn’t cooperate, Issa said in a statement yesterday. For Related News and Information: Legal news about Toyota: 7203 JT TCNI LAW Automaker earnings stories: TNI ERN AUT Toyota financial analysis: 7203 JT FA AUTO U.S. auto-industry fundamentals: IFS3

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Newport Digital Technologies, Inc. Announces the Appointment of Leonard Makowka M.D. Ph.D. to the Advisory Board

February 11, 2010

NEWPORT BEACH, CA–(Marketwire – February 11, 2010) – Newport Digital Technologies, Inc. ( OTCBB : NPDT ) announced today that Leonard Makowka M.D. Ph.D. has joined the NPDT Advisory Board. Dr. Makowka will direct NPDT in the integration and sales of wireless and paperless hospital solutions in North America. These solutions have been successfully developed and implemented in Taiwan through NPDT’s technology partners The Institute for Information Industry (III) and Industrial Technology Research Institute (ITRI). These hospital solutions leverage NPDT’s existing RFID and Wimax technologies.

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Haitian Commerce Revives as Entrepreneurs Restart Plants, Recycle Rubble

February 10, 2010

Feb. 10 (Bloomberg) — From his office off the floor of Interamerican Wovens SA, a garment factory in earthquake- stricken Port-au-Prince, Hector Soto watches 540 workers stitching pink and turquoise medical scrubs for the U.S. market. On an output chart hanging in his office, Soto, 41, draws a red line slashing downward. It’s dated Jan. 12, the day a magnitude 7.0 earthquake struck Haiti, killing about 230,000 people. Then, with a green marker, he adds a rising line that starts Jan. 25. Four weeks after the temblor collapsed the economy of the Western Hemisphere’s poorest country, Haiti is slowly stirring to life. Factories that produced garments, which accounted for about 8 percent of the economy, are running again, while new entrepreneurs seek opportunity amid the ruins by selling mobile- phone calls or recycling building materials from the rubble. “Haitians are very resilient,” said Eduardo Almeida, the Inter-American Development Bank’s representative in Haiti. “They are used to suffering all types of shocks, political and environmental. They get right up and find ways to keep on going.” The earthquake injured 300,000 people, according to a government estimate reported by the United Nations, and left 1 million of the county’s 9 million people homeless. It was the deadliest in the Western Hemisphere according to the U.S. Geological Survey. Informal Jobs Before the quake, about two thirds of the population lacked a formal job and 9 percent worked in manufacturing, according to the U.S. Central Intelligence Agency. Haiti had a per capita income of about $1,300 a year, the Hemisphere’s lowest, and a gross domestic product of $7.36 billion in 2008. Pre-quake exports totaled about $500 million annually, $450 million of which were textiles, according to the IADB. Garments made from local components accounted for $150 million of exports. The rest were assembled from foreign materials. Interamerican, owned by Haiti’s Apaid family, occupies one of 49 identical concrete block buildings arrayed in an industrial park off the road to downtown Port-au-Prince from the city’s Toussaint L’Ouverture airport. About 90 percent of its production goes to the U.S., Soto said, and clothing used to be shipped by sea from Port-au- Prince. The city’s port collapsed in the quake and the U.S. Army said it won’t reopen for months. New Seaports Now, seaports in the Dominican Republic handle half its shipments and the other half leaves from Les Cayes, a Haitian port 140 miles (225 kilometers) southwest of Port-au-Prince. Clients, including San Francisco-based The Gap Inc., New York-based Polo Ralph Lauren Corp., and Landau Uniforms Inc., an Olive Branch, Mississippi-based scrubs seller , have stuck with the factory, Soto said. “We are way below zero,” Soto said. The two-week shutdown set the factory’s output back a month, he added. “I had a target to step up production to 45,000 pieces a week by March from 35,000. Now, maybe I can achieve that goal in May or June.” After the “twelfth,” as many Haitians refer to the earthquake, roads were impassable to supply trucks and the generators had no fuel. In addition, most of the plant’s employees didn’t show up. ‘Lost Friends’ “Some of them were dead, we later learned,” said the Dominican-born Soto, who moved to Port-au-Prince in December 2008. “But most were dealing with the fact they were homeless and had lost friends and family.” Worried they would drop out of work en masse, Soto said he hired a psychotherapist for the plant. Haiti is a risky place so Haitians know how to manage risk, said the IADB’s Almeida. “You will see small entrepreneurs starting a business or selling a service from one day to the next,” he said. “The economy is very informal, so it fosters that kind of entrepreneurial spirit.” At a dusty Texaco service station on the Route de Tabarre, a major north-south road through the capital, Simon Esperance, 25, clutches a large beige cell phone, approaching drivers lined up for gas and people waiting for a bus amid street vendors pedaling food and toiletries. He bought the phone after his cashier’s job disappeared with his employer’s food market. He sells calls on the instrument, which resembles a table top phone without a cord, for 5 gourdes (13 cents) a minute. Cockfights “A lot of people lost everything, so they can’t afford to replace their cell phones yet,” Esperance said. “So I bought this so I can make money too.” Thirty kilometers north of Port-au-Prince, in Cabaret, a town known for its cockfights on Route Nationale 1, Haiti’s main highway, Michel Saint, 34, is dumping debris from his Toyota pickup truck onto his front yard. Unlike the tens of thousands of Haitians paid as much as $5 a day by the UN to clear the capital, Saint has opened a business of his own turning debris into building materials. His brother-in-law, Joseph Duperroy, 31, helps him unload chunks of broken buildings, concrete and scrap metal. Before the earthquake, Saint worked at putting up houses in Cabaret. “With so much rubble everywhere, this is going to be a goldmine!” Saint said. For Related News and Information: Top news from Latin America: TOPL News about Haiti: NI HAITI BN

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Galleon Tipper Goel Pleads Guilty, Says He Gave Rajaratnam Intel Secrets

February 9, 2010

By Bob Van Voris and David Glovin Feb. 9 (Bloomberg) — Rajiv Goel , a former managing director in Intel Corp. ’s treasury group, pleaded guilty in the Galleon Group LLC insider-trading case and will cooperate in the government’s prosecution of Galleon founder Raj Rajaratnam . Goel, 51, pleaded guilty yesterday to conspiracy and securities fraud in federal court in Manhattan and implicated Rajaratnam, whom Goel said he’d known for 25 years, in two insider trades. Goel told U.S. District Judge Alvin Hellerstein that he gave Rajaratnam inside information on Intel earnings and the company’s plan to invest in a publicly traded company in 2007 and 2008. “I gave Rajaratnam the information because of my friendship for him,” Goel said. “I cannot express how sorry I am. I come here to do the right thing.” Goel was the ninth person to admit wrongdoing and the third among them to incriminate Rajaratnam. The top penalty for insider trading is 20 years in prison, prosecutors said yesterday in court. Goel, who is no longer employed by Intel, was arrested Oct. 16 for passing tips to Rajaratnam about a firm that Santa Clara, California-based Intel invested in. Rajaratnam was also arrested that day and has been indicted for using confidential tips to earn millions of dollars in illegal stock trades. In court yesterday, Goel said he and Rajaratnam attended business school together and that Rajaratnam has loaned him money. Goel said he talked to Rajaratnam about Intel’s quarterly results before the numbers were made public. Rajaratnam’s lawyer, John Dowd , declined to comment. Wiretaps Anil Kumar , a former McKinsey & Co. director, pleaded guilty on Jan. 7 and told a judge that he leaked inside information to Rajaratnam. Also pleading guilty and agreeing to testify against Rajaratnam was Roomy Khan , a former Intel executive. Prosecutors say they will use secret government wiretaps in their case against Rajaratnam. According to court papers, Goel leaked news about Clearwire Corp. that he learned from investments made by Intel, and Rajaratnam made about $579,000 in profit. In return, Rajaratnam placed profitable trades for Goel’s benefit in Goel’s personal brokerage account at Charles Schwab Corp., prosecutors said. Another defendant in the case, Danielle Chiesi , has been indicted for trading on inside information and leaking secret tips to Rajaratnam. She has pleaded not guilty. Hellerstein set March 28 for sentencing and let Goel remain free on bail. The case is U.S. v. Goel, 09-mj-02306, U.S. District Court, Southern District of New York (Manhattan). To contact the reporters on this story: Bob Van Voris in New York at rvanvoris@bloomberg.net ; David Glovin in New York federal court at dglovin@bloomberg.net .

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Toyota Extends Recalls to Hybrids to Repair Brake Defects

February 9, 2010

By Yuki Hagiwara and Makiko Kitamura Feb. 9 (Bloomberg) — Toyota Motor Corp. will recall 437,000 hybrid vehicles globally to fix faulty braking systems on its four models, including the Prius, adding to almost 8 million vehicles the company is repairing for separate defects. The world’s biggest carmaker will halt sales of SAI, HS250h and Prius plug-in hybrids, said President Akio Toyoda , speaking at a Tokyo press conference. The action threatens to further tarnish Toyota’s reputation in its home market , where the Prius was last year’s top-selling vehicle, as the company grapples with its worst recall crisis. Toyota has lost about $31 billion in market value since Jan. 21, when it began recalling millions of vehicles for defects linked to unintended acceleration. “So far Toyota’s recalls have been overseas, but this time it’s in its home market,” said Tatsuya Mizuno , director of Mizuno Credit Advisory in Tokyo. “The Prius has been a rising star for the company, and Toyota won’t be able to avoid a worsening image. Toyota raised its full-year earnings forecast the other day, but it’s far too optimistic.” The vehicles to be repaired include 199,666 2010 Prius hybrids, 10,820 SAIs, 12,423 Lexus HS250h cars and 159 Prius plug-in hybrids, according to the filing to the ministry. U.S. Recall Toyota also intends to recall the 2010 Prius in the U.S., according to a person familiar with the plans, who declined to be identified as the information isn’t yet public. The carmaker will brief the press about measures it will take regarding the Prius in Japan and overseas at 3:30 p.m. in Tokyo, company spokeswoman Ririko Takeuchi said by phone. Toyoda, 53, will meet with Japan’s Transport Minister Seiji Maehara at 5:30 p.m., according to the ministry. Toyota rose 2.9 percent to 3,375 yen at the close of trading in Tokyo. The stock has declined 19 percent since Jan. 21. “Toyota is finally taking measures,” said Mamoru Kato , an analyst at Tokai Tokyo Research Center in Nagoya, Japan. “This is fueling optimism that Toyota is moving in a clear direction to avoid further consumer anxiety.” The U.S. Transportation Department is also investigating reports of Prius brake failures. The department’s National Highway Traffic Safety Administration received 124 reports from consumers, including four saying crashes occurred with two “minor” injuries, according to an investigation document. Europe Toyota plans to recall a total of at least 270,000 Prius cars in Japan and the U.S., according to the person familiar with the plan. Juergen Stolze , a Toyota spokesman in Cologne, Germany, said yesterday the carmaker will decide whether to recall Prius cars in Europe by Feb. 10. The Toyota City, Japan-based carmaker said last week it modified braking software on newly built Priuses in late January. The latest Prius model is built in Japan. The model, driven by U.S. actor Leonardo DiCaprio and Apple Inc. co-founder Steve Wozniak , is the world’s best-selling hybrid car. Toyota has sold 197,000 units of the latest version in Japan and 103,200 in the U.S., according to the company. Toyota has been investigating reports that Prius owners driving at low speeds on bumpy or icy roads may experience moments where the car continues to coast for about a second after the brakes are applied, because of the anti-lock brake system. The carmaker has said it received complaints about Prius brakes through dealers starting in the last few months of 2009. Unintended Acceleration Toyota said today it stopped shipments of the Lexus HS250h and SAI hybrids from a factory in southern Japan to inspect their braking systems. The vehicles included in today’s recall are Prius hybrids built between April 20, 2009 and Jan. 27, plug-in Prius hybrids built between Nov. 25, 2009 and Feb. 5, SAI hybrids built between Oct. 2, 2009 and Feb. 8, and Lexus HS250h hybrids built between June 10, 2009 and Feb. 8. The brake problems aren’t related to incidents of sudden acceleration in the U.S., according Toyota’s Takeuchi. Toyota has recalled almost 8 million vehicles on five continents to repair defects that have been linked to unintended acceleration. Those recalls may cut demand for the company’s vehicles by 100,000 units, Toyota said last week. The company on Feb. 4 predicted a return to profit in the fiscal year ending March 31, even as it said recalls may cost 100 billion yen ($1.1 billion). The full-year net income forecast of 80 billion yen takes into account recalls for flaws linked to unintended acceleration, though it doesn’t include potential Prius recalls, Toyota said at the time. Toyota faces at least 34 lawsuits filed on behalf of customers in the U.S. and Canada seeking a range of damages from loss of car value to a return of profits. It also faces at least 12 lawsuits brought by individuals claiming deaths or injuries caused by uncontrollable acceleration. Sudden acceleration of Toyota vehicles has been linked to 19 deaths in the last decade, according to Henry Waxman , the U.S. House of Representatives’ Energy and Commerce Committee chairman. To contact the reporters on this story: Makiko Kitamura in Tokyo at mkitamura1@bloomberg.net

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Toyota Extends Global Recalls to 437,000 Hybrids to Repair Faulty Brakes

February 9, 2010

By Yuki Hagiwara and Makiko Kitamura Feb. 9 (Bloomberg) — Toyota Motor Corp. will recall 437,000 hybrid vehicles globally to fix faulty braking systems on its four models, including the Prius, adding to almost 8 million vehicles the company is repairing for separate defects. The world’s biggest carmaker will halt sales of SAI, HS250h and Prius plug-in hybrids, said President Akio Toyoda , speaking at a Tokyo press conference. The action threatens to further tarnish Toyota’s reputation in its home market , where the Prius was last year’s top-selling vehicle, as the company grapples with its worst recall crisis. Toyota has lost about $31 billion in market value since Jan. 21, when it began recalling millions of vehicles for defects linked to unintended acceleration. “So far Toyota’s recalls have been overseas, but this time it’s in its home market,” said Tatsuya Mizuno , director of Mizuno Credit Advisory in Tokyo. “The Prius has been a rising star for the company, and Toyota won’t be able to avoid a worsening image. Toyota raised its full-year earnings forecast the other day, but it’s far too optimistic.” The vehicles to be repaired include 199,666 2010 Prius hybrids, 10,820 SAIs, 12,423 Lexus HS250h cars and 159 Prius plug-in hybrids, according to the filing to the ministry. U.S. Recall Toyota also intends to recall the 2010 Prius in the U.S., according to a person familiar with the plans, who declined to be identified as the information isn’t yet public. The carmaker will brief the press about measures it will take regarding the Prius in Japan and overseas at 3:30 p.m. in Tokyo, company spokeswoman Ririko Takeuchi said by phone. Toyoda, 53, will meet with Japan’s Transport Minister Seiji Maehara at 5:30 p.m., according to the ministry. Toyota rose 2.9 percent to 3,375 yen at the close of trading in Tokyo. The stock has declined 19 percent since Jan. 21. “Toyota is finally taking measures,” said Mamoru Kato , an analyst at Tokai Tokyo Research Center in Nagoya, Japan. “This is fueling optimism that Toyota is moving in a clear direction to avoid further consumer anxiety.” The U.S. Transportation Department is also investigating reports of Prius brake failures. The department’s National Highway Traffic Safety Administration received 124 reports from consumers, including four saying crashes occurred with two “minor” injuries, according to an investigation document. Europe Toyota plans to recall a total of at least 270,000 Prius cars in Japan and the U.S., according to the person familiar with the plan. Juergen Stolze , a Toyota spokesman in Cologne, Germany, said yesterday the carmaker will decide whether to recall Prius cars in Europe by Feb. 10. The Toyota City, Japan-based carmaker said last week it modified braking software on newly built Priuses in late January. The latest Prius model is built in Japan. The model, driven by U.S. actor Leonardo DiCaprio and Apple Inc. co-founder Steve Wozniak , is the world’s best-selling hybrid car. Toyota has sold 197,000 units of the latest version in Japan and 103,200 in the U.S., according to the company. Toyota has been investigating reports that Prius owners driving at low speeds on bumpy or icy roads may experience moments where the car continues to coast for about a second after the brakes are applied, because of the anti-lock brake system. The carmaker has said it received complaints about Prius brakes through dealers starting in the last few months of 2009. Unintended Acceleration Toyota said today it stopped shipments of the Lexus HS250h and SAI hybrids from a factory in southern Japan to inspect their braking systems. The vehicles included in today’s recall are Prius hybrids built between April 20, 2009 and Jan. 27, plug-in Prius hybrids built between Nov. 25, 2009 and Feb. 5, SAI hybrids built between Oct. 2, 2009 and Feb. 8, and Lexus HS250h hybrids built between June 10, 2009 and Feb. 8. The brake problems aren’t related to incidents of sudden acceleration in the U.S., according Toyota’s Takeuchi. Toyota has recalled almost 8 million vehicles on five continents to repair defects that have been linked to unintended acceleration. Those recalls may cut demand for the company’s vehicles by 100,000 units, Toyota said last week. The company on Feb. 4 predicted a return to profit in the fiscal year ending March 31, even as it said recalls may cost 100 billion yen ($1.1 billion). The full-year net income forecast of 80 billion yen takes into account recalls for flaws linked to unintended acceleration, though it doesn’t include potential Prius recalls, Toyota said at the time. Toyota faces at least 34 lawsuits filed on behalf of customers in the U.S. and Canada seeking a range of damages from loss of car value to a return of profits. It also faces at least 12 lawsuits brought by individuals claiming deaths or injuries caused by uncontrollable acceleration. Sudden acceleration of Toyota vehicles has been linked to 19 deaths in the last decade, according to Henry Waxman , the U.S. House of Representatives’ Energy and Commerce Committee chairman. To contact the reporters on this story: Makiko Kitamura in Tokyo at mkitamura1@bloomberg.net

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Lloyd Chapman: Justice Department Pays Legal Fees To American Small Business League

February 8, 2010

The U.S. Department of Justice has been forced to pay the legal fees incurred by the American Small Business League (ASBL), after the ASBL substantially prevailed in a recent court case under the Freedom of Information Act (FOIA). The ASBL sued the Small Business Administration (SBA) after the agency refused to release the names of Fortune 500 firms and other large businesses that had received billions of dollars in federal small business contracts. During the course of litigation, the SBA tried to claim that it had no information regarding the specific names of firms that had received federal small business contracts. In the court’s ruling, United States District Judge Marilyn H. Patel ruled in favor of the ASBL and stated, “The court finds it curious the SBA’s argument that it does not ‘control’ the very information it needs to carry out its duties and functions.” ( www.asbl.com/documents/26-2.pdf ) The information the ASBL obtained through the litigation supported its assertion that billions of dollars a month in federal contracts earmarked for small businesses had been diverted to Fortune 500 firms such as: General Dynamics, Xerox, Boeing, Lockheed Martin, British Aerospace (BAE), Dell Computer and French giant Thales Communications. ( http://www.asbl.com/documents/20090825TopSmallBusinessContractors2008.pdf ) Previously, the SBA claimed that it was a “myth” that large firms received federal small business contracts. ( http://www.asbl.com/documents/sbamythvfact.pdf ) This spring, the 9th Circuit Court of Appeals will hear another case between the SBA and the ASBL in which the SBA is claiming that it does not have access to its own phone records. The ASBL requested the information under FOIA after several journalists complained that the SBA was aggressively contacting the media in an attempt to erode the credibility of the ASBL and myself. The ASBL is preparing to file up to 10 federal lawsuits against the Obama Administration within the next 60 days. The Obama Administration is refusing to release a wide variety of data related to small business contracting issues such as: contracting officer information, phone records, the specific names of individuals within Fortune 500 firms that have claimed small business status, and the names of domestic and foreign owned companies that received federal small business contracts. I think it is time for someone in the media to ask President Obama why his administration is giving small business contracts to Fortune 500 firms and then refusing to release the data that proves it.

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Tom Packert Has Joined CareCloud as Chief Technology Officer

February 8, 2010

MIAMI, FL–(Marketwire – February 8, 2010) – CareCloud today announced that Tom Packert has joined CareCloud as the Company’s Chief Technology Officer, reporting to CareCloud’s CEO, Albert Santalo. Packert was formerly Vice President of Information Management at Visible Assets, Inc. where he led the development of proprietary radio frequency ID (RFID) solutions to solve healthcare supply chain inefficiencies using open source software development tools. Previously, he was Vice President of Information Technology at Neighborhood Health Partnership, a UnitedHealth Group Company.

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Toyota Said to Plan Recall of Prius Hybrids in Japan This Week

February 8, 2010

By Tetsuya Komatsu and Yuki Hagiwara Feb. 8 (Bloomberg) — Toyota Motor Corp. will recall its 2010 model Prius hybrid car in Japan this week to repair a problem with the vehicle’s braking system, two people familiar with the matter said, adding to global recalls of almost 8 million autos for separate defects. The world’s largest automaker plans to recall at least 270,000 of the gasoline-electric hatchbacks in Japan and the U.S., one person said, declining to be identified as the information isn’t yet public. Juergen Stolze , a Toyota spokesman in Germany, said the carmaker will decide whether to recall Prius cars in Europe by Feb. 10. A Prius recall may further tarnish Toyota’s reputation after the Toyota City, Japan-based company lost about $33 billion in market value amid expanding global recalls of other models to repair defects linked to unintended acceleration. Those recalls have yet to include any vehicles in Japan , where the Prius was last year’s top-selling model. “It’s really shocking,” said Koichi Ogawa , chief portfolio manager at Daiwa SB Investments Ltd. in Tokyo. “The damage to Toyota will be big.” Ririko Takeuchi , a spokeswoman for Toyota in Tokyo, said the company hasn’t decided whether to recall the Prius. Stolze, speaking by phone from Cologne, Germany, declined to say what the carmaker’s decision will be regarding recalls in Europe. There haven’t been any proven cases of brake failures in the Prius in Europe, he said. ‘Kind of Scary’ Japan’s government ordered Toyota to investigate the Prius after receiving complaints from drivers. The company has been looking into reports that Prius owners driving at low speeds on bumpy or icy roads may experience moments where the car continues to coast for about a second after the brakes are applied, because of the anti-lock brake system. “It sounds kind of scary,” said Steve Wozniak , co-founder of Apple Inc., who drives a 2010 Prius. “You sure don’t want your car to continue on, on an icy road, when it’s supposed to be stopping.” The New York Times reported that Toyota will recall at least 311,000 Priuses. Toyota has sold at least 332,000 units of the 2010 Prius, including 197,000 in Japan and 103,200 in the U.S., spokesman Takanori Yokoi said. The model is built in Japan. Sai, Lexus Toyota also plans to recall Lexus HS250h and Sai hybrid models in Japan this month, one of the people said. The company is considering steps dealers can take for current Prius owners, including exchanging some parts, the person said. Toyota fell 1.1 percent to close at 3,280 yen in Tokyo trading today. The stock has declined 22 percent since Jan. 21, when the carmaker began recalling vehicles to fix gas pedals linked to unintended acceleration. Wozniak, 59, who said earlier this month he had also experienced incidents of unintended acceleration in his Prius, said he would probably take the car to a dealer to have the brake system checked, “but not right away.” He said the reports that have led to recalls of Toyota vehicles aren’t statistically significant and that he remains a fan of the Prius because of its environmental benefits. “All these problems should get fixed, but they shouldn’t stop people from buying the Prius,” Wozniak said in a phone interview. “There are bugs in every product.” U.S. Investigation Toyota said last week it had received complaints about Prius brakes through dealers starting in the last few months of 2009. Toyota changed the design of the brake software at the end of January, the company said. The U.S. Transportation Department is also investigating reports of Prius brake failures. The department’s National Highway Traffic Safety Administration received 124 reports from consumers, including four saying crashes occurred with two “minor” injuries, according to an investigation document. Toyota told U.S. dealers to expect an update early this week on steps the company plans to take to address the complaints, according to John Hanson , a spokesman for the carmaker’s sales unit in the country. The brake complaints aren’t related to the reports of unintended acceleration, according to Toyota’s Takeuchi. Toyota has recalled at least 7.8 million vehicles on five continents to repair defects that have been linked to unintended acceleration. Those recalls may cut demand for the company’s vehicles by 100,000 units, Toyota has said. Return to Profit The company last week predicted a return to profit in the fiscal year ending March 31, even as it said recalls may cost 100 billion yen ($1.1 billion). The full-year net income forecast of 80 billion yen takes into account recalls for flaws linked to unintended acceleration, though it doesn’t include potential Prius recalls, Toyota said at the time. Toyota faces at least 29 lawsuits filed on behalf of customers in the U.S. and Canada seeking a range of damages from loss of car value to a return of profits. It also faces at least 10 lawsuits brought by individuals claiming deaths or injuries caused by uncontrollable acceleration. Sudden acceleration of Toyota vehicles has been linked to 19 deaths in the last decade, according to Henry Waxman , the U.S. House of Representatives’ Energy and Commerce Committee chairman. To contact the reporters on this story: Tetsuya Komatsu in Tokyo at tekomatsu@bloomberg.net ; Yuki Hagiwara in Tokyo at yhagiwara1@bloomberg.net

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CIT Names Ex-Merrill Chief John Thain to Run Lender

February 8, 2010

By Christine Harper and Linda Shen Feb. 8 (Bloomberg) — John Thain , the ousted chief of Merrill Lynch & Co., was named to lead CIT Group Inc. , the commercial lender that emerged from bankruptcy in December, after almost a four-month search for a replacement. Thain, 54, becomes chairman and chief executive officer immediately, New York-based CIT said yesterday in a statement. The century-old lender had been led by Jeffrey Peek , another former Merrill Lynch executive, from July 2004 until Jan. 15, when Peek stepped down and board member Peter Tobin was named interim CEO. The job restores Thain to the top of a public company more than a year after he was pushed out by Kenneth D. Lewis , then CEO of Bank of America Corp. , which agreed to buy Merrill Lynch during the 2008 financial crisis. Thain inherits a company that was crippled by Peek’s foray into subprime lending before the bankruptcy. CIT still operates under constraints tied to a federal bailout in 2008 and is shut out from the commercial paper market, its traditional source of funding. “If he can pull this off, he’s going to be the king,” Brian Charles , a debt and equity analyst with R.W. Pressprich & Co., said in an interview. CIT rose 2.9 percent to $31.65 by 10:32 a.m. in German trading, after closing at $30.75 in New York Stock Exchange composite trading on Feb. 5. Need to Do Well CIT provides business loans to more than 3,000 companies and is the third-largest railcar-leasing and aircraft-financing firm in the U.S., according to its Web site. With 4,480 employees at the end of September, CIT is a fraction of the size of Merrill Lynch, which had a staff of more than 64,000 when Thain arrived. “This is a company that’s over 100 years old and its core business is lending to small- and medium-sized companies,” Thain said yesterday in an interview. “If we’re going to get the U.S. economy to continue to grow, if we’re going to create jobs, then we need to have this kind of a company do well.” Before joining Merrill Lynch in December 2007, Thain ran NYSE Euronext , the company that owns the New York Stock Exchange, and spent about 24 years at Goldman Sachs Group Inc. , the most profitable securities firm in Wall Street history. At CIT, Thain’s pay is subject to compensation restrictions imposed on management of companies that have received funds from the Troubled Asset Relief Program, or TARP. He will receive $500,000 in salary and $5.5 million in shares, of which $2.5 million is restricted for one year and $3 million is locked up for three years, according to a person familiar with the matter. The person declined to be identified because the information hasn’t yet been made public. Pay at Merrill Thain will also be eligible for a $1.5 million “discretionary” payment in restricted shares, contingent on his performance, that will vest after two years and can’t be sold for three years, the person said. CIT can claw back the $1.5 million payment under certain conditions, the person said. Merrill Lynch agreed to pay Thain $44 million in bonus, salary and stock when he took over that firm, which he arranged to sell less than a year later to Bank of America. Lloyd Blankfein , chairman and CEO of Goldman Sachs, was awarded $9.6 million in restricted stock and salary for his performance in 2009, while Jamie Dimon , chairman and CEO of JPMorgan Chase & Co. , got about $17 million in restricted stock and options. Thain said CIT could exit TARP within the next few months by extinguishing “contingent value rights” that the government received during the bankruptcy. Salt Lake City For CIT, Thain must find lower-cost sources of funding, lift restrictions on its banking unit and win over regulators wary after the bankruptcy filing wiped away a $2.3 billion Treasury Department stake. CIT, unable to win a second round of government assistance, was forced into bankruptcy after posting losses from subprime and student lending for 10 consecutive quarters totaling more than $6 billion. The company has been trying to move its small-business lending, trade finance and U.S. vendor finance operations to CIT’s Salt Lake City-based banking unit so it can use deposits as a source of cheaper funding for loans. Thain said in the interview that he wants to spend the first couple of months reviewing CIT’s businesses to figure out how they can be funded most effectively. Some units can fit into CIT’s Utah-based bank if Thain can get the Federal Deposit Insurance Corp. to lift a “cease and desist order” it has placed on that business, he said. He said it’s too early to speculate about whether the other businesses, which have traditionally relied on funding from the capital markets, should be sold. Asked if the entire company might be sold, Thain replied that he wouldn’t rule it out. The current plan is to run CIT as an independent entity, he said. CIT Reorganized “His experience at Goldman, his experience, particularly at the New York Stock Exchange, which was a restructuring of sorts, really helped us hold him in good stead in terms of what he has to accomplish at CIT,” Tobin said yesterday in an interview. CIT’s bankruptcy reorganization cleared away $10.5 billion in debt and pushed back bond maturities for three years. The firm recruited seven new independent directors and named Tobin as interim CEO after Peek’s exit. Egon Zehnder International was hired to find a replacement. The company will rely on Thain to “continue CIT’s transition to a more streamlined commercial lender,” CIT said. This month, Chief Operating Officer Alexander Mason became the fourth executive to announce a departure, saying he would step down Feb. 26. Earlier, CIT Chief Financial Officer Joseph Leone said he would retire in April, and Chief Risk Officer Nancy Foster stepped down Dec. 31. ‘Well-Respected’ Thain said naming new senior managers will be a priority. Nelson Chai , who was Thain’s CFO at Merrill Lynch and NYSE Euronext, will probably be a candidate for the CFO position at CIT Group, Thain said. “John is a well-respected financial services executive and proven leader who is uniquely qualified to lead CIT at this critical stage,” CIT lead director John Ryan said in a statement yesterday. “CIT and its customers will benefit enormously from his breadth of experience, industry acumen and deep knowledge of the financial services sector.” Thain’s departure from Merrill Lynch after Bank of America’s takeover was clouded by criticism about Merrill’s plan to pay $3.6 billion in bonuses even as the firm’s losses swelled to $27.6 billion. Thain has said Bank of America was aware of the bonuses and had been kept informed about the losses. Focused on CIT Last week, New York Attorney General Andrew Cuomo filed a civil fraud case against Bank of America, former CEO Lewis and the former Chief Financial Officer Joe Price . The case alleges that they deceived investors and taxpayers in 2008 by not disclosing losses at Merrill Lynch before shareholders voted on the firm’s pending takeover, and used those losses to extract more bailout funds from U.S. regulators. Bank of America, based in Charlotte, North Carolina, has called the charges “totally without merit” and lawyers for Lewis and Price have denied wrongdoing. The lawsuit “stands on its own and I’m glad that the truth has come out,” Thain said. “I’m focused on CIT and I’m focused on moving forward — that is history to me.” One lesson of his experience at Merrill Lynch will stick with him. Thain’s departure coincided with revelations that he’d spent $1.2 million to redecorate his office at the money-losing company when he joined in 2007. He later said the renovation was a mistake and reimbursed the firm. At CIT, “I think I’ll keep my office exactly the way it is,” he said. To contact the reporters on this story: Christine Harper in New York at charper@bloomberg.net ; Linda Shen in New York at lshen21@bloomberg.net .

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