lehman-brothers

`Extremely Active’ Atlantic Hurricane Season Set to Test Catastrophe Bonds

June 8, 2010

By Oliver Suess June 8 (Bloomberg) — As the U.S. enters this year’s hurricane season, the market for catastrophe bonds may face its biggest test since the collapse of Lehman Brothers Holdings Inc. in 2008 brought sales to a six-month standstill. Insurers and reinsurers sell cat bonds to investors such as hedge funds to help cushion potential claims from the most costly disasters, including earthquakes and U.S. hurricanes. Buyers demand yields above benchmark interest rates because they may lose their entire investment if a pre-defined disaster hits. The U.S. National Oceanic and Atmospheric Administration predicts 14 to 23 named storms during this year’s Atlantic hurricane season. The June-through-November period may be “comparable to a number of extremely active seasons since 1995,” and even reach a record, NOAA said. “A devastating U.S. hurricane season could be a real crash test for the cat bond market,” said Niklaus Hilti , who helps manage about $2.4 billion of debt as head of insurance-linked strategy at Credit Suisse Group AG. “Cat bonds with their collateralized structure could prove to be a much safer risk transfer for insurers.” American International Group Inc. ’s Chartis property- insurance unit, Swiss Reinsurance Co. and Allianz SE were among sellers of the 10 cat bonds sold so far this year. New sales of cat bonds stood at $2.4 billion, up 70 percent from the year- earlier period. That brings the volume of the investments outstanding to about $14 billion, according to Swiss Re. Chartis Cat Bond Chartis issued a $425 million cat bond last month through Lodestone Re, a special-purpose entity, to help protect it from U.S. hurricanes and earthquakes in its first purchase of reinsurance via capital markets. The bond’s $250 million slice will pay 8.25 percentage points more than three-month Treasury bills. The second slice yields 6.25 points above the benchmark. “An extraordinarily large event may impair traditional reinsurers’ ability to pay, but that’s not a concern with a cat bond,” said Dave Fields , chief reinsurance officer of New York- based Chartis. Proceeds from cat bond sales are invested in collateral such as government bonds that is used to pay interest to investors and payouts to the bond’s seller if a pre-defined disaster occurs. Buyers of Zurich Financial Services AG’s Kamp Re 2005 Ltd. cat bond were the first investors in these securities to lose money after Hurricane Katrina, the costliest storm in history, hit the U.S. Gulf Coast. Lehman Collapse One slice of the Avalon Re Ltd. cat bond, which covers energy-industry owned insurer Oil Casualty Insurance and matured on June 7, paid out parts of its principal to the insurer after losses, Standard and Poor’s said yesterday. The September 2008 collapse of Lehman brought new sales of cat bonds to a halt until February 2009 as it left the U.S. investment bank unable to meet commitments to guarantee minimum returns on assets held by some bonds, undermining investor confidence. Sellers of cat bonds have since agreed to invest the collateral’s funds in higher-rated assets. Munich Re and Swiss Re , the world’s biggest reinsurers, have both estimated that cat bond sales may climb 43 percent to $5 billion this year as maturing notes are replaced and new investors enter the market. Munich Re is sticking to that forecast because it expects bond sales tied to other disasters such as European windstorms during the second half of the year, said risk trading head Rupert Flatscher , even as Swiss Re is damping expectations. ‘Costly Disasters’ “While we are optimistic that the market will beat last year’s $3.5 billion, it remains to be seen whether it will reach $5 billion,” said Martin Bisping , head of non-life risk transformation at Swiss Re. This year already saw two major disasters in February, the earthquake in Chile and European storm Xynthia. “Despite the first quarter’s costly disasters, 2010 hasn’t yet become a costly year for insurers and reinsurers in general,” said Karsten Bromann , chief risk officer at Solidum Partners AG, a Zurich-based hedge fund that specializes in insurance-linked securities. That may change should the U.S. be hit by a major hurricane, so “cat bonds have been selling like hot cakes until a month ago,” he said. This year’s outlook for an Atlantic storm season with as many as 23 named storms compares with a total of nine last year. A record 28 named storms formed in 2005, including Katrina . Researchers at the Colorado State University boosted their forecast for the 2010 season last week, predicting 18 named storms, 10 of them becoming hurricanes. “While this year’s hurricane season could be a test to the market, it won’t be the first one,” said Michael Halsband , who helps develop and market cat bonds at Goldman Sachs Group Inc . “Cat bonds already passed the test of the 2005 record hurricane season as well as the test from the credit market side with the collapse of the broader credit markets and failure of Lehman.” To contact the reporter on this story: Oliver Suess in Munich at osuess@bloomberg.net

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RBS Said to Shorten List of Bidders for WorldPay Credit-Card Unit to Three

June 8, 2010

By Anne-Sylvaine Chassany and Andrew MacAskill June 8 (Bloomberg) — Royal Bank of Scotland Group Plc , Britain’s biggest government-owned bank, narrowed the list of bidders for its credit card-payment processing unit to three from five, three people with knowledge of the talks said. TPG, David Bonderman ’s private-equity firm, New York-based Clayton, Dubilier & Rice LLC and a group formed by Advent International Corp. and Bain Capital LLC have been allowed to continue due diligence after submitting indicative bids last week, said the people, who declined to be identified because the details of the sale process are private. TPG and Clayton, Dubilier may team up, they said. The unit, also called Worldpay, could fetch as much as 2.5 billion pounds ($3.6 billion), the people said. That would make the takeover the biggest leveraged buyout in Europe since the collapse of Lehman Brothers Holdings Inc. in September 2008. CVC Capital Partners Ltd. and Welsh, Carson, Anderson & Stowe, two private-equity firms that were making a joint bid, and Permira Advisers LLP, which had separately teamed up American Express Co., have dropped out of the auction, the people said. RBS is selling assets including WorldPay, 318 branches in the U.K. and its insurance division after receiving 45.5 billion pounds of funding from the U.K. government during the credit crisis, more than any other bank in the world. Chief Executive Officer Stephen Hester is shrinking the bank, which last year posted the biggest annual loss in U.K. corporate history. Michael Strachan, a spokesman at Edinburgh-based RBS, and officials at Advent, CVC, Permira, Clayton Dubilier and TPG declined to comment. Spokesmen for Bain, Welsh Carson and American Express weren’t immediately available to comment. To contact the reporters on this story: Anne-Sylvaine Chassany in Paris at achassany@bloomberg.net ; Andrew MacAskill in London at amacaskill@bloomberg.net

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India Ruling on Minimum Ownership May Generate $53 Billion of Share Sales

June 5, 2010

By Rajhkumar K Shaaw and Manish Modi June 5 (Bloomberg) — Oil & Natural Gas Corp. and Reliance Power Ltd. are among a sixth of the top 3,000 listed Indian companies that may need to sell $53 billion of shares after a new government rule raised the minimum public holding. Companies must increase shares held by the public to a minimum 25 percent by selling at least 5 percent annually, according to an e-mailed statement from the government’s Press Information Bureau yesterday. The rule may prompt equity sales of about 2.5 trillion rupees among companies including state-owned ONGC, India’s biggest energy explorer, and Reliance Power, owned by billionaire Anil Ambani , according to data compiled by Bloomberg. The step will also boost government efforts to reduce stakes in its companies and cut the budget deficit. “The aim of the government is to have a market that is efficient and liquid, and not susceptible to volatile movements due to thin volumes,” said Jitendra Sriram , who helps manage $800 million as head of equities at HSBC Asset Management (India) Pvt. in Mumbai. “A limited float is susceptible to manipulation. The government wants to encourage a wider minority participation to increase the depth of the market.” Budget Speech Finance Minister Pranab Mukherjee had proposed in his July 6, 2009, budget speech that a rule requiring a public float of at least 25 percent for listed companies should be enforced uniformly, including on state-run companies. “The move is good for the markets as it will lead to better price discovery and transparency,” said Tarun Bhatia , director of capital markets at Crisil Research in Mumbai. “I think the government has given companies a fair timeframe to increase public shareholding and the market should be able to absorb it.” Prime Minister Manmohan Singh ’s government is seeking to complete share sales in state companies such as Engineers India Ltd. and Steel Authority of India Ltd. to raise a record 400 billion rupees this year. Mukherjee has pledged to shrink the deficit to 5.5 percent of gross domestic product in the year that began April 1, from a 16-year high of 6.9 percent in the previous 12 months. Government Companies The top ten among the 526 companies that will need to sell shares are government owned. The shares, if sold at yesterday’s prices, will be worth 1.7 trillion rupees, according to data compiled by Bloomberg. “The government has put itself in a situation where follow-on public offers become the rule and norm,” said Jagannadham Thunuguntla , chief strategist at SMC Capitals Ltd. in New Delhi. “Until now, disinvestment plans have remained a choice for the government.” State-owned Coal India Ltd., the world’s biggest producer, plans to raise as much as 130 billion rupees in a share sale in July, two government officials said in April. The sale may now take place by September when market conditions improve, Coal Minister Sriprakash Jaiswal said June 2. “All I can say right now is that the Coal India offer won’t be affected,” Disinvestment Secretary Sumit Bose said yesterday after the announcement. For new share sales, if the post-issue capital calculated at offer price is more than 40 billion rupees, the company may be allowed to sell 10 percent of its equity and comply with the 25 percent public shareholding requirement by increasing the float by at least 5 percent a year, the government said in the statement. Delayed Sales At least 29 companies delayed or canceled equity sales worldwide in May as Europe’s debt crisis triggered the biggest decline in emerging-market stocks since October 2008. “It may be difficult for all share sales to go through as there will be tightening in liquidity,” said S. Thiagarajan , director finance at NMDC Ltd., India’s largest iron-ore producer. “With so many offers there may be erosion in share value.” NMDC, in which the government sold an 8.38 percent stake in March, has a 10 percent public holding. India’s Sensitive Index declined 3.5 percent last month, the first drop since January, as overseas investors sold a net 94.4 billion rupees of equities, the most since October 2008, following the collapse of Lehman Brothers Holdings Inc. To contact the reporters on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net ; Manish Modi in New Delhi at mmodi6@bloomberg.net

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Sotheby’s To Auction Lehman Brothers Art Valued At Over $10 Million

June 4, 2010

NEW YORK — Sotheby’s says some 400 works from the corporate contemporary art collection of the failed investment bank Lehman Brothers will go on sale at auction this fall. Sotheby’s New York announced Friday it will auction the works on Sept. 25, pending bankruptcy court approval. It says the collection is valued at more than $10 million. It includes works by some of the leading contemporary artists, including Damien Hirst, Takashi Murakami and Richard Prince. Sale proceeds will go to pay off creditors of Lehman Brothers Holdings Inc. Lehman filed for bankruptcy in September 2008, helping spark one of the worst financial crisis since the Great Depression. It was the largest bankruptcy filing in U.S. history. THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below. NEW YORK (AP) – Sotheby’s says some 400 works from the corporate contemporary art collection of the failed investment bank Lehman Brothers will go on sale at auction this fall. Sotheby’s New York announced Friday it will auction the works on Sept. 25, pending bankruptcy court approval. It says the collection is valued at more than $10 million. It includes works by some of the leading contemporary artists, including Damien Hirst, Takashi Murakami and Richard Prince. Sale proceeds will go to pay off creditors of Lehman Brothers Holdings Inc. Lehman filed for bankruptcy in September 2008, helping spark one of the worst financial crisis since the Great Depression. It was the largest bankruptcy filing in U.S. history.

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Switzerland’s Discontented Lawmakers to Tackle Rules on UBS, Credit Suisse

June 3, 2010

By Simone Meier and Paul Verschuur June 3 (Bloomberg) — Switzerland’s disgruntled lawmakers are set to turn against the country’s two largest banks in an unprecedented effort to toughen financial regulation. During their three-week session that started May 31, lawmakers in Bern probably will approve the handover of thousands of UBS AG account details to the U.S. In turn, they may today ask for measures to restrict bankers’ bonuses and limit lenders’ risk to shield the economy from a future banking collapse, according to comments from politicians, including Social Democrat Christian Levrat. UBS and Credit Suisse Group AG each have assets of more than 1 trillion Swiss francs ($863 billion), twice the size of the economy and a source of unease for a country that relies on the perception of stability to attract wealthy investors. Lawmakers have stepped up calls for tougher banking rules since UBS in 2008 was forced into a government-led bailout after piling up losses from subprime mortgage investments. “There’s a lot of discontent with UBS,” said Georg Lutz, a professor of political science at the University of Lausanne, Switzerland. “Previously, banks were left in peace as long as they earned astronomical profits. Now there’s a clear swing of opinion from the liberal dogma towards attempts to gain more control, but it will still be difficult to push through.” Bankers’ Pressure Upper-house lawmakers today are likely to bow to pressure from bankers by approving the government’s settlement with the U.S. over tax evasion. The agreement requires Switzerland to turn over details on as many as 4,450 UBS accounts to the Internal Revenue Service after the lender faced a lawsuit over aid to suspected tax evasion. Some lawmakers have linked their support to measures including changed taxation on bankers’ bonuses or threatened to ask for a public vote on the accord. Swiss Economy Minister Doris Leuthard said yesterday a referendum would be “embarrassing” for the country. Daniel Kuebler, a political science professor at the University of Zurich, said the near-collapse of UBS united political parties in their attempt to toughen financial rules and may force the government to give in to their demands or face the possibility of a referendum and more delays. “Lawmakers always thought that banks respect the rules,” Kuebler said. “The financial crisis and the dispute with the U.S. over tax evasion came as a bit of a rude awakening. They’re now asking themselves whether they were too lax.” A parliamentary panel on May 31 criticized the government’s handling of the UBS rescue and its client-data crisis, saying the seven-member Cabinet was badly informed and left the initiative to the financial-market regulators. Far-Reaching Consequences The government “underestimated the far-reaching consequences of this conflict for Switzerland as a financial center for too long and deprived itself of any scope of action whatsoever,” the panel said in the report. The political leaders “didn’t assume their collective responsibility.” Jean-Pierre Roth, then chairman of the Swiss National Bank, told the government in January 2008 that UBS was in serious trouble because of the U.S. subprime crisis, according to the account given by the panel. On Sept. 21 that year, days after the collapse of Lehman Brothers Holdings Inc., the SNB and the ministers were told that UBS needed public support “fast,” the committee said. “It took only a few days for the difficulties besetting UBS to become so serious that the bank’s survival was under threat,” it said. The lower house is scheduled to discuss the U.S. tax treaty on June 7 as both chambers try to find a compromise. Lawmakers are also scheduled to debate a proposal about the possible breaking up of banks in a crisis situation on the following day. “It’s still unclear what proposals will win a majority in parliament,” Lutz said. “The financial industry is very important to the economy. At the end of the day, there’s no interest in significantly weakening that position.” To contact the reporter on this story: Simone Meier in Zurich at smeier@bloomberg.net ; Paul Verschuur in Zurich at pverschuur@bloomberg.net .

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Switzerland’s Discontented Lawmakers to Tackle Rules on UBS, Credit Suisse

June 3, 2010

By Simone Meier and Paul Verschuur June 3 (Bloomberg) — Switzerland’s disgruntled lawmakers are set to turn against the country’s two largest banks in an unprecedented effort to toughen financial regulation. During their three-week session that started May 31, lawmakers in Bern probably will approve the handover of thousands of UBS AG account details to the U.S. In turn, they may today ask for measures to restrict bankers’ bonuses and limit lenders’ risk to shield the economy from a future banking collapse, according to comments from politicians, including Social Democrat Christian Levrat. UBS and Credit Suisse Group AG each have assets of more than 1 trillion Swiss francs ($863 billion), twice the size of the economy and a source of unease for a country that relies on the perception of stability to attract wealthy investors. Lawmakers have stepped up calls for tougher banking rules since UBS in 2008 was forced into a government-led bailout after piling up losses from subprime mortgage investments. “There’s a lot of discontent with UBS,” said Georg Lutz, a professor of political science at the University of Lausanne, Switzerland. “Previously, banks were left in peace as long as they earned astronomical profits. Now there’s a clear swing of opinion from the liberal dogma towards attempts to gain more control, but it will still be difficult to push through.” Bankers’ Pressure Upper-house lawmakers today are likely to bow to pressure from bankers by approving the government’s settlement with the U.S. over tax evasion. The agreement requires Switzerland to turn over details on as many as 4,450 UBS accounts to the Internal Revenue Service after the lender faced a lawsuit over aid to suspected tax evasion. Some lawmakers have linked their support to measures including changed taxation on bankers’ bonuses or threatened to ask for a public vote on the accord. Swiss Economy Minister Doris Leuthard said yesterday a referendum would be “embarrassing” for the country. Daniel Kuebler, a political science professor at the University of Zurich, said the near-collapse of UBS united political parties in their attempt to toughen financial rules and may force the government to give in to their demands or face the possibility of a referendum and more delays. “Lawmakers always thought that banks respect the rules,” Kuebler said. “The financial crisis and the dispute with the U.S. over tax evasion came as a bit of a rude awakening. They’re now asking themselves whether they were too lax.” A parliamentary panel on May 31 criticized the government’s handling of the UBS rescue and its client-data crisis, saying the seven-member Cabinet was badly informed and left the initiative to the financial-market regulators. Far-Reaching Consequences The government “underestimated the far-reaching consequences of this conflict for Switzerland as a financial center for too long and deprived itself of any scope of action whatsoever,” the panel said in the report. The political leaders “didn’t assume their collective responsibility.” Jean-Pierre Roth, then chairman of the Swiss National Bank, told the government in January 2008 that UBS was in serious trouble because of the U.S. subprime crisis, according to the account given by the panel. On Sept. 21 that year, days after the collapse of Lehman Brothers Holdings Inc., the SNB and the ministers were told that UBS needed public support “fast,” the committee said. “It took only a few days for the difficulties besetting UBS to become so serious that the bank’s survival was under threat,” it said. The lower house is scheduled to discuss the U.S. tax treaty on June 7 as both chambers try to find a compromise. Lawmakers are also scheduled to debate a proposal about the possible breaking up of banks in a crisis situation on the following day. “It’s still unclear what proposals will win a majority in parliament,” Lutz said. “The financial industry is very important to the economy. At the end of the day, there’s no interest in significantly weakening that position.” To contact the reporter on this story: Simone Meier in Zurich at smeier@bloomberg.net ; Paul Verschuur in Zurich at pverschuur@bloomberg.net .

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Hedge Funds Post Biggest Monthly Losses Since Lehman Aftershock

June 1, 2010

By Katherine Burton and Saijel Kishan June 1 (Bloomberg) — John Paulson , Louis Bacon and Andreas Halvorsen navigated the global market turmoil of 2008 with little or no damage. They weren’t as successful last month as the Dow Jones Industrial average had its worst May since 1940. Hedge funds lost an average of 2.7 percent through May 27, according to the HFRX Global Hedge Fund Index , as the sovereign debt crisis in Europe triggered declines in stocks, the euro and commodities, and the gap in yields between U.S. short-term and long-term debt narrowed. It was the biggest decline since November 2008, when hedge funds lost 3 percent in the wake of Lehman Brothers Holdings Inc.’s bankruptcy two months earlier. Almost every strategy lost money in May, according to Hedge Fund Research Inc. in Chicago, as the Dow index of 30 big stocks sank 7.6 percent including dividends amid speculation that Greece’s debt problems would spread to nations such as Spain and Portugal. Some of the best-known funds saw their gains for this year erased. “Attempting to manage risk in an environment where everything that could go wrong does go wrong seems like a fruitless endeavor,” said Brad Balter , who runs Balter Capital Management LLC, a Boston firm that invests in hedge funds for clients. “The only defense that seems to work in months like these is being in cash.” Paulson’s Advantage fund dropped 6.9 percent through May 21, dragging it to a year-to-date loss of 3.3 percent, according to investors with knowledge of the results, who asked not to be named because the information is private. Halvorsen’s Viking Global fund fell 3.4 percent in the same span and 2.9 percent for the year. Bacon’s Moore Global declined 7.7 percent as of May 20 and 4.8 percent in 2010, investors said. 2008 Performance Representatives of Paulson & Co., Viking Global Investors LP and Moore Capital Management LLC, the New York-based firms that oversee the funds, declined to comment. Paulson, Halvorsen and Bacon have among the best long-term returns in the industry, each with average gains of 20 percent or more since they started. Paulson Advantage fund climbed 25 percent in 2008 while the S&P 500 slumped 37 percent including dividends, its largest setback since the Great Depression. Viking rose 0.1 percent that year and Moore Global slid 4.6 percent, offering investors the type of bear-market shelter they look for in hedge funds. Many of the wagers that hedge funds put on to protect against falling markets didn’t work, Balter said. Their bets on falling stocks didn’t make enough money to counter losses in shares the managers expected to climb. Commodities retreated 8.2 percent in May, as measured by the UBS Bloomberg CMCI Index. Traders who positioned themselves for the U.S. yield curve to steepen, a sign of expected economic growth, suffered losses when the difference between payouts on two-year and 10-year Treasury notes narrowed instead. The spread shrank from 269 basis points at the end of April to 252 on May 28. A basis point is one-hundredth of a percent. SAC, Citadel SAC Capital Advisors LLC, the hedge-fund firm run by Steven Cohen in Stamford, Connecticut, with about $12 billion under management, lost 2.9 percent last month through May 21 with its SAC Capital International fund, trimming this year’s gain to about 4 percent, according to people familiar with the firm. Citadel Investment Group LLC, the $12 billion hedge-fund firm run by Ken Griffin , lost about 2 percent with its biggest funds last month through May 21, said people familiar with the Chicago firm. The funds soared as much as 62 percent last year as markets rebounded after losing as much as 55 percent in 2008. Brevan Howard Asset Management LLP in London, Europe’s largest hedge-fund firm, lost 0.1 percent for the month through May 21 with its Brevan Howard Fund Ltd., leaving it with a decline of 0.3 percent this year, according to an investor. Caxton Gains Some funds made money last month. Caxton Associates LLC, the New York-based firm founded by Bruce Kovner , rose 1 percent through May 21 with its largest fund as currency trades paid off, an investor said. The fund is up 4.5 percent for the year. Autonomy Capital Research LLP, based in London, climbed 0.7 percent through May 21 and about 12.5 percent for the year, according to people with knowledge of the fund. Robert Gibbins , manager for the $1.5 billion firm, said his trades were based on the forecast that global economies won’t improve until currencies are better aligned, and in particular Chinese officials agree to let the yuan strengthen, he said. “That people were looking for new highs on equities didn’t make sense to us,” Gibbins said in a telephone interview. Before last month, the S&P 500 had soared 80 percent from its 12-year low in March 2009, including dividends. Volatility Surge Gibbins said his profitable trades included wagers that the S&P 500 would fall and that interest rates in a number of countries would slide. BAM Capital LLC, a $300 million hedge-fund firm in New York that bets on price volatility, returned 7.7 percent last month through May 21 with its main BAM Opportunity Fund LP, bringing its gain for the year to 8.2 percent, according to an investor. The VIX , an index measuring volatility, jumped about 45 percent last month. Spokesmen for SAC, Citadel, Brevan Howard, Caxton and BAM Capital declined to comment. The price swings in May haven’t changed managers’ views on whether global economies are rebounding or shrinking. “Managers who are positive are still positive, and negative managers are still negative,” said Charles Krusen, head of Krusen Capital Management LLC, a New York-based firm that invests in hedge funds for clients. To contact the reporters on this story: Katherine Burton in New York at kburton@bloomberg.net ; Saijel Kishan in New York at skishan@bloomberg.net .

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Paulson Drops 6.9% as Hedge Funds Post Biggest Monthly Losses Since Lehman

May 31, 2010

By Katherine Burton and Saijel Kishan June 1 (Bloomberg) — John Paulson , Louis Bacon and Andreas Halvorsen navigated the global market turmoil of 2008 with little or no damage. They weren’t as successful last month as the Dow Jones Industrial average had its worst May since 1940. Hedge funds lost an average of 2.7 percent through May 27, according to the HFRX Global Hedge Fund Index , as the sovereign debt crisis in Europe triggered declines in stocks, the euro and commodities, and the gap in yields between U.S. short-term and long-term debt narrowed. It was the biggest decline since November 2008, when hedge funds lost 3 percent in the wake of Lehman Brothers Holdings Inc.’s bankruptcy two months earlier. Almost every strategy lost money in May, according to Hedge Fund Research Inc. in Chicago, as the Dow index of 30 big stocks sank 7.6 percent including dividends amid speculation that Greece’s debt problems would spread to nations such as Spain and Portugal. Some of the best-known funds saw their gains for this year erased. “Attempting to manage risk in an environment where everything that could go wrong does go wrong seems like a fruitless endeavor,” said Brad Balter , who runs Balter Capital Management LLC, a Boston firm that invests in hedge funds for clients. “The only defense that seems to work in months like these is being in cash.” Paulson’s Advantage fund dropped 6.9 percent through May 21, dragging it to a year-to-date loss of 3.3 percent, according to investors with knowledge of the results, who asked not to be named because the information is private. Halvorsen’s Viking Global fund fell 3.4 percent in the same span and 2.9 percent for the year. Bacon’s Moore Global declined 7.7 percent as of May 20 and 4.8 percent in 2010, investors said. 2008 Performance Representatives of Paulson & Co., Viking Global Investors LP and Moore Capital Management LLC, the New York-based firms that oversee the funds, declined to comment. Paulson, Halvorsen and Bacon have among the best long-term returns in the industry, each with average gains of 20 percent or more since they started. Paulson Advantage fund climbed 25 percent in 2008 while the S&P 500 slumped 37 percent including dividends, its largest setback since the Great Depression. Viking rose 0.1 percent that year and Moore Global slid 4.6 percent, offering investors the type of bear-market shelter they look for in hedge funds. Many of the wagers that hedge funds put on to protect against falling markets didn’t work, Balter said. Their bets on falling stocks didn’t make enough money to counter losses in shares the managers expected to climb. Commodities retreated 8.2 percent in May, as measured by the UBS Bloomberg CMCI Index. Traders who positioned themselves for the U.S. yield curve to steepen, a sign of expected economic growth, suffered losses when the difference between payouts on two-year and 10-year Treasury notes narrowed instead. The spread shrank from 269 basis points at the end of April to 252 on May 28. A basis point is one-hundredth of a percent. SAC, Citadel SAC Capital Advisors LLC, the hedge-fund firm run by Steven Cohen in Stamford, Connecticut, with about $12 billion under management, lost 2.9 percent last month through May 21 with its SAC Capital International fund, trimming this year’s gain to about 4 percent, according to people familiar with the firm. Citadel Investment Group LLC, the $12 billion hedge-fund firm run by Ken Griffin , lost about 2 percent with its biggest funds last month through May 21, said people familiar with the Chicago firm. The funds soared as much as 62 percent last year as markets rebounded after losing as much as 55 percent in 2008. Brevan Howard Asset Management LLP in London, Europe’s largest hedge-fund firm, lost 0.1 percent for the month through May 21 with its Brevan Howard Fund Ltd., leaving it with a decline of 0.3 percent this year, according to an investor. Caxton Gains Some funds made money last month. Caxton Associates LLC, the New York-based firm founded by Bruce Kovner , rose 1 percent through May 21 with its largest fund as currency trades paid off, an investor said. The fund is up 4.5 percent for the year. Autonomy Capital Research LLP, based in London, climbed 0.7 percent through May 21 and about 12.5 percent for the year, according to people with knowledge of the fund. Robert Gibbins , manager for the $1.5 billion firm, said his trades were based on the forecast that global economies won’t improve until currencies are better aligned, and in particular Chinese officials agree to let the yuan strengthen, he said. “That people were looking for new highs on equities didn’t make sense to us,” Gibbins said in a telephone interview. Before last month, the S&P 500 had soared 80 percent from its 12-year low in March 2009, including dividends. Volatility Surge Gibbins said his profitable trades included wagers that the S&P 500 would fall and that interest rates in a number of countries would slide. BAM Capital LLC, a $300 million hedge-fund firm in New York that bets on price volatility, returned 7.7 percent last month through May 21 with its main BAM Opportunity Fund LP, bringing its gain for the year to 8.2 percent, according to an investor. The VIX , an index measuring volatility, jumped about 45 percent last month. Spokesmen for SAC, Citadel, Brevan Howard, Caxton and BAM Capital declined to comment. The price swings in May haven’t changed managers’ views on whether global economies are rebounding or shrinking. “Managers who are positive are still positive, and negative managers are still negative,” said Charles Krusen, head of Krusen Capital Management LLC, a New York-based firm that invests in hedge funds for clients. To contact the reporters on this story: Katherine Burton in New York at kburton@bloomberg.net ; Saijel Kishan in New York at skishan@bloomberg.net .

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Libor for Dollars Snaps 13-Day Advance as Banks Less Wary of Lending Cash

May 28, 2010

By Keith Jenkins May 28 (Bloomberg) — The rate banks say they pay for three-month loans in dollars fell, snapping 13 days of gains, as financial institutions became less wary of lending cash. The London interbank offered rate , or Libor, for such loans slipped to 0.536 percent today, from 0.538 percent yesterday, according to data from the British Bankers’ Association. The last time if declined was on May 10. The dollar Libor-OIS spread, a gauge of banks’ reluctance to lend, also dropped. “Tensions have definitely eased and that usually indicates that Libor will come down,” said David Keeble , head of fixed- income strategy at Credit Agricole Corporate and Investment Bank in London. “The Libor-OIS spread has also narrowed, which allays some of the fears over the availability of dollars to European institutions.” Central banks are offering more cash to reduce tensions in money markets that caused Libor to more than double this year as the European sovereign debt crisis deepened. The European Union announced an almost $1 trillion backstop to aid its most indebted members on May 10. The same day, the Federal Reserve reopened dollar currency swaps with major central banks to alleviate funding pressures among euro-region lenders. “There is not a universal shortage of dollars because the Fed’s balance sheet now amounts to $2.4 trillion instead of around $930 billion in mid-2008,” Keeble said. “The blockage is due mainly to European institutions finding it hard to get dollars.” Libor-OIS Spread The dollar Libor-OIS spread narrowed to 30.6 basis points from 30.7 basis points. The spread, which compares three-month dollar Libor and the overnight indexed swap rate, surged to 364 basis points, or 3.64 percentage points, after the collapse of Lehman Brothers Holdings Inc. in September 2008. Three-month Libor is a benchmark for about $360 trillion of financial products worldwide, ranging from mortgages to student loans. Rates are determined by groups of banks in a daily survey by the BBA before 11 a.m. in London. Members provide estimates on how much it would cost to borrow in 10 currencies for periods ranging from a day to a year. Royal Bank of Scotland Group Plc contributed the highest dollar Libor rate today, at 0.60 percent. Rabobank NA and Deutsche Bank AG gave the lowest, at 0.49 percent. The BBA strips out the four highest and lowest rates received, calculating the average of the middle eight. The three-month rate for euros , or euro Libor, slipped to 0.634 percent today, from 0.635 percent yesterday. The three- month euro interbank offered rate, or Euribor, was unchanged today at 0.699 percent, according to the European Banking Federation. That matches the highest level since Jan. 5. To contact the reporter on this story: Keith Jenkins in London at kjenkins3@bloomberg.net

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Stocks Extend Rebound From Nine-Month Low; U.S. Futures Advance, Oil Gains

May 28, 2010

By Stuart Wallace May 28 (Bloomberg) — Stocks advanced for a third day, led by emerging markets, extending the rebound from a nine-month low. Oil rallied above $75 a barrel and the South Korean won strengthened. The MSCI Emerging Markets Index rose 1.8 percent as of 9:36 a.m. in London, poised for the biggest three-day rally in a year. The MSCI World Index, a gauge of equities in 24 developed nations, added 0.7 percent. Futures on the Standard & Poor’s 500 Index advanced 0.1 percent. Crude increased for a third day. South Korea’s won gained 2.4 percent against the dollar and the euro strengthened 0.5 percent against the dollar. This week’s advances in stocks and commodities pared a rout in May that’s the deepest since October 2008, the month after the collapse of Lehman Brothers Holdings Inc. U.S. consumer spending probably rose in April for a seventh consecutive month as incomes improved, economists said before a Commerce Department report scheduled for later today. “I’m an optimist,” James Bevan , chief investment officer at CCLA Investment Management, said in a Bloomberg Television interview. “The economic fundamentals are rather better than some suspect and that’s certainly coming through in terms of the corporate earnings numbers. Companies are demonstrating better profits than many people had dared anticipate.” The Stoxx Europe 600 Index rose 0.4 percent as Travis Perkins Plc rallied. The owner of Wickes home-improvement stores surged 8.3 percent after offering to buy BSS Group Plc to create the U.K.’s largest plumbing and heating materials chain. BP Declines BP Plc slid 1.9 percent after Europe’s second-largest oil company said the “top kill” procedure to plug a leaking well in the Gulf of Mexico may last another 24 to 48 hours. The MSCI Asia Pacific Index climbed for a third day, surging 1.5 percent. The MSCI emerging-markets index headed for its highest closing level in eight days. South Korea’s Kospi Index advanced 1 percent as foreign investors added to stock holdings for the first time in 10 days and a central bank report showed manufacturers’ confidence stayed near a seven-year high. The nation’s equities and currency tumbled earlier this week amid mounting tension with North Korea over the sinking of one of the South’s warships. The ruble in Russia, the world’s largest energy exporter, strengthened 1.1 percent versus the dollar. The euro rose for a second day against the dollar, strengthening 0.5 percent to $1.2430. It appreciated 0.8 percent compared with the yen, which declined against all 16 of its most-traded counterparts. The U.S. Dollar Index , which tracks the currency against six trading partners, slid 0.2 percent. U.S. Futures Futures on the S&P 500 rose 0.2 percent before reports on U.S. personal spending, business activity and consumer confidence. Spending probably increased in April for a seventh consecutive month as incomes improved, economists said before a report due at 8:30 a.m. in Washington. Other data today may show the Institute for Supply Management-Chicago Inc.’s business barometer, due at 9:45 a.m., fell to 61 from a five-year high of 63.8 in April. At 9:55 a.m., a report from Thomson Reuters/University of Michigan may show its consumer sentiment index climbed to 73.3 this month from 72.2 in April. Crude oil for July delivery gained 1.4 percent to $75.61 a barrel in New York trading. Copper for delivery in three months was 0.1 percent higher at $6,992 a metric ton on the London Metal Exchange. Aluminum and zinc also rose. Gold for immediate delivery added 0.2 percent to $1,214.90 an ounce, rising for a fifth consecutive day. Bonds Rise Government bonds rose, with the yield on the 10-year Treasury falling four basis points to 3.33 percent. The yield on the German bund, Europe’s benchmark government security, also dropped three basis points, to 2.69 percent. The cost of protecting against a default on European corporate bonds fell, with the Markit iTraxx Crossover Index of credit-default swaps on 50 mostly junk-rated companies declining 13.1 basis points to 547.1, according to Markit Group Ltd. Contracts tied to Greece’s government debt dropped 15.5 basis points to 670.5, after climbing as high as 941 on May 6 at the height of the country’s debt crisis, CMA DataVision prices show. Credit markets froze this month, with global companies selling the smallest amount of bonds in a decade, according to data compiled by Bloomberg. Borrowers issued $61.1 billion of notes in currencies from dollars to yen, a third of April’s tally and the least since December 2000. The extra yield investors demand to hold the securities instead of benchmark government debt widened 44 basis points to 193, Bank of America Merrill Lynch index data show, the biggest increase since the aftermath of Lehman Brothers Holdings Inc.’s collapse. To contact the reporter on this story: Stuart Wallace in London at swallace6@bloomberg.net

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Stocks Extend Rebound From Nine-Month Low; U.S. Futures Advance, Oil Gains

May 28, 2010

By Stuart Wallace May 28 (Bloomberg) — Stocks advanced for a third day, led by emerging markets, extending the rebound from a nine-month low. Oil rallied above $75 a barrel and the South Korean won strengthened. The MSCI Emerging Markets Index rose 1.8 percent as of 9:36 a.m. in London, poised for the biggest three-day rally in a year. The MSCI World Index, a gauge of equities in 24 developed nations, added 0.7 percent. Futures on the Standard & Poor’s 500 Index advanced 0.1 percent. Crude increased for a third day. South Korea’s won gained 2.4 percent against the dollar and the euro strengthened 0.5 percent against the dollar. This week’s advances in stocks and commodities pared a rout in May that’s the deepest since October 2008, the month after the collapse of Lehman Brothers Holdings Inc. U.S. consumer spending probably rose in April for a seventh consecutive month as incomes improved, economists said before a Commerce Department report scheduled for later today. “I’m an optimist,” James Bevan , chief investment officer at CCLA Investment Management, said in a Bloomberg Television interview. “The economic fundamentals are rather better than some suspect and that’s certainly coming through in terms of the corporate earnings numbers. Companies are demonstrating better profits than many people had dared anticipate.” The Stoxx Europe 600 Index rose 0.4 percent as Travis Perkins Plc rallied. The owner of Wickes home-improvement stores surged 8.3 percent after offering to buy BSS Group Plc to create the U.K.’s largest plumbing and heating materials chain. BP Declines BP Plc slid 1.9 percent after Europe’s second-largest oil company said the “top kill” procedure to plug a leaking well in the Gulf of Mexico may last another 24 to 48 hours. The MSCI Asia Pacific Index climbed for a third day, surging 1.5 percent. The MSCI emerging-markets index headed for its highest closing level in eight days. South Korea’s Kospi Index advanced 1 percent as foreign investors added to stock holdings for the first time in 10 days and a central bank report showed manufacturers’ confidence stayed near a seven-year high. The nation’s equities and currency tumbled earlier this week amid mounting tension with North Korea over the sinking of one of the South’s warships. The ruble in Russia, the world’s largest energy exporter, strengthened 1.1 percent versus the dollar. The euro rose for a second day against the dollar, strengthening 0.5 percent to $1.2430. It appreciated 0.8 percent compared with the yen, which declined against all 16 of its most-traded counterparts. The U.S. Dollar Index , which tracks the currency against six trading partners, slid 0.2 percent. U.S. Futures Futures on the S&P 500 rose 0.2 percent before reports on U.S. personal spending, business activity and consumer confidence. Spending probably increased in April for a seventh consecutive month as incomes improved, economists said before a report due at 8:30 a.m. in Washington. Other data today may show the Institute for Supply Management-Chicago Inc.’s business barometer, due at 9:45 a.m., fell to 61 from a five-year high of 63.8 in April. At 9:55 a.m., a report from Thomson Reuters/University of Michigan may show its consumer sentiment index climbed to 73.3 this month from 72.2 in April. Crude oil for July delivery gained 1.4 percent to $75.61 a barrel in New York trading. Copper for delivery in three months was 0.1 percent higher at $6,992 a metric ton on the London Metal Exchange. Aluminum and zinc also rose. Gold for immediate delivery added 0.2 percent to $1,214.90 an ounce, rising for a fifth consecutive day. Bonds Rise Government bonds rose, with the yield on the 10-year Treasury falling four basis points to 3.33 percent. The yield on the German bund, Europe’s benchmark government security, also dropped three basis points, to 2.69 percent. The cost of protecting against a default on European corporate bonds fell, with the Markit iTraxx Crossover Index of credit-default swaps on 50 mostly junk-rated companies declining 13.1 basis points to 547.1, according to Markit Group Ltd. Contracts tied to Greece’s government debt dropped 15.5 basis points to 670.5, after climbing as high as 941 on May 6 at the height of the country’s debt crisis, CMA DataVision prices show. Credit markets froze this month, with global companies selling the smallest amount of bonds in a decade, according to data compiled by Bloomberg. Borrowers issued $61.1 billion of notes in currencies from dollars to yen, a third of April’s tally and the least since December 2000. The extra yield investors demand to hold the securities instead of benchmark government debt widened 44 basis points to 193, Bank of America Merrill Lynch index data show, the biggest increase since the aftermath of Lehman Brothers Holdings Inc.’s collapse. To contact the reporter on this story: Stuart Wallace in London at swallace6@bloomberg.net

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Asia Stocks Rise for a Third Day After U.S. Shares Rally; Euro Declines

May 27, 2010

By Nicolas Johnson and Masaki Kondo May 28 (Bloomberg) — Asian stocks rose for a third day, extending a rally that drove the U.S. benchmark equity index to its biggest gain in almost three weeks. The euro weakened on concern Europe’s fiscal crisis will lead to stricter regulations. The MSCI Asia Pacific Index climbed 1.8 percent as of 11:13 a.m. in Tokyo, heading for its longest streak of gains since April 7. Futures on the U.S. Standard & Poor’s 500 Index were little changed after the gauge’s 3.3 percent surge yesterday. The euro weakened against all 16 of its most-traded counterparts. This week’s advances in stocks and crude oil pared a rout in May that’s the deepest since October 2008, the month after Lehman Brothers Holdings Inc. collapsed. Equities, oil and metals climbed yesterday after China affirmed its commitment to investing in Europe, easing concern that the region’s fiscal crisis will stall a global economic recovery. “The market has priced in all the bad news for now,” said Tokyo-based strategist Ayako Sera at Sumitomo Trust & Banking Co., which manages $307 billion. “Stocks are undervalued, assuming Europe’s problems won’t spill over and cripple the global economy. Japan’s Nikkei 225 Stock Average gained 1.7 percent today, the steepest increase among equity benchmarks in the Asia- Pacific region. Canon Inc., a camera maker that counts Europe as its biggest market, climbed 2.7 percent. Mitsubishi Corp., Japan’s biggest commodities trader, rose 1.4 percent after yesterday’s gains in oil and metals. BHP Billiton Ltd. and Rio Tinto Group, the world’s No. 1 and No. 3 companies, climbed more than 0.9 percent in Sydney. Markets in Indonesia, Malaysia, Singapore and Thailand are closed today for a holiday. U.S. markets will be shut on May 31. To contact the reporters on this story: Nicolas Johnson in Tokyo at nicojohnson@bloomberg.net .

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Asian Shares Gain as Global Sell-Off Eases; Won, Kiwi Advance Against Yen

May 26, 2010

By Shiyin Chen May 27 (Bloomberg) — The New Zealand dollar and South Korean won rose against the yen after the two nations posted trade surpluses and as markets stabilized from a plunge that has depressed Asia’s benchmark stock index by 13 percent this month. New Zealand’s dollar climbed 0.4 percent to 59.83 yen at 12:15 p.m. in Tokyo. The won advanced 1.3 percent to 13.747 per yen, which fell against all 16 major counterparts. The MSCI Asia-Pacific Index rose 0.4 percent to 110.23, poised for the worst monthly performance since October 2008, after the collapse of Lehman Brothers Holdings Inc. Standard & Poor’s 500 Index futures added 0.5 percent. “Despite the fact that a lot of people think that we are entering into a bear market, we don’t believe so,” said Mark Mobius , who oversees about $34 billion in emerging markets as Templeton Asset Management’s Singapore-based executive chairman. “This is a correction in an ongoing bull market.” Mobius’s optimism is shared by Traxis Partners LP’s Barton Biggs , who said U.S. stock markets are oversold and may have a “big pop” over the next few days. Speculation that Europe’s sovereign debt crisis will spread has wiped out about $5.7 trillion in global stock market value this month, even as Asian economies including Japan, which today reported a fifth straight gain in exports, show signs of recovery. South Korea’s $1.49 billion current account surplus for April helped the won, the worst performer among Asia’s 10 most- used currencies this month, strengthen 1.3 percent to 1,235.60 against the dollar. New Zealand posted its first trade surplus since 2002. Yen Retreats The yen fell to 109.95 per euro, declining for the first time in four days, and slipped to 90 per dollar from 89.92. Japan’s Nikkei 225 Stock Average fell 0.6 percent and China’s Shanghai Composite Index retreated 0.4 percent. Australia’s S&P/ASX 200 Index gained 0.3 percent and the FTSE Bursa Malaysia KLCI Index advanced 0.4 percent, rising for the first time in 10 days. BHP Billiton Ltd. and Rio Tinto led gains among stocks, rising at least 1.8 percent after the Australian newspaper said the government may change the rate at which a proposed mining tax in the country takes effect. Poly Real Estate Group Co. lost 1.7 percent, pacing a decline among Chinese developers after the Oriental Morning Post said Shanghai may impose a property tax. Oil declined 27 cents to $70.67 a barrel in New York, paring a 4 percent gain yesterday after a government report showed a larger-than-forecast increase in crude inventories in the U.S. Copper was little changed at $6,784.75 a metric ton in London, while gold traded at $1,213.80 an ounce, near a one-week high. The cost of insuring Asia-Pacific bonds from non-payment rose, with the Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan climbing 4 basis points to 155.5 basis points, according to Royal Bank of Scotland Group Plc. Credit- default swap indexes also rose in Australia and Japan. To contact the reporter for this story: Shiyin Chen in Singapore at schen37@bloomberg.net .

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Morgan Stanley Purchases $1 Billion in Claims on Bankrupt Lehman Brothers

May 24, 2010

By Linda Sandler May 24 (Bloomberg) — Morgan Stanley bought about $1 billion in claims on bankrupt Lehman Brothers Holdings Inc. from Credit Industriel et Commercial , a holding company for French regional banks, and Banque Federative du Credit Mutuel, according to court filings. The purchase price wasn’t disclosed in the filings today in U.S. Bankruptcy Court in Manhattan. Claims on Lehman trade almost daily among banks and short- term or long-term debt investors at discounts from face value of 60 percent or more. The defunct investment bank, which received about $1 trillion in demands for payment, has said that many claims lack merit and that it aims to reduce them to about $260 billion. According to other filings today, Deutsche Bank AG bought two $60 million Lehman claims from CME Group Inc., a derivatives exchange, and more than $160 million in IOUs from Genworth Life Insurance Co. The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). To contact the reporter on this story: Linda Sandler in New York at lsandler@bloomberg.net .

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Libor for Three-Month Dollars Climbs Above 0.50% to Highest Since July 16

May 24, 2010

By Keith Jenkins May 24 (Bloomberg) — The rate banks say they pay for three-month loans in dollars rose above 0.5 percent for the first time in 10 months amid concern that the creditworthiness of financial institutions is deteriorating. The London interbank offered rate , or Libor, for such loans advanced today to 0.51 percent, the highest level since July 16, from 0.497 percent at the end of last week, according to data from the British Bankers’ Association. The dollar Libor-OIS spread, a gauge of banks’ reluctance to lend, widened to the most since July 30. Libor more than doubled this year as the European debt crisis fueled concern that the quality of banks’ assets used as collateral may be impaired. The three-month rate may climb to 0.54 percent by the end of the week as the trend “shows no sign of stopping just yet,” said Peter Chatwell , an interest-rate strategist at Credit Agricole Corporate and Investment Bank. “We’ve gone through the psychological level of 0.5 percent,” said Chatwell in London. “Some of the spreads which measure banking stress, although not scary, suggest a trend higher.” Three-month Libor is a benchmark for about $360 trillion of financial products worldwide, ranging from mortgages to student loans. Dollar Libor is set by 16 banks in a daily survey by the BBA before 11 a.m. in London. Contributing banks provide estimates on how much it would cost to borrow in 10 currencies for periods ranging from a day to a year. Libor-OIS Spread The dollar Libor-OIS spread increased to 27.9 basis points from 27 basis points. The spread, which compares three-month dollar Libor and the overnight indexed swap rate, surged to 364 basis points, or 3.64 percentage points, after the collapse of Lehman Brothers Holdings Inc. in September 2008. Evidence is mounting that some financial institutions are facing stress. The Bank of Spain put CajaSur, a lender based in Cordoba, under a provisional administrator two days ago. The bank lost 596 million euros ($748 million) on 426 million euros in revenue last year. “There’s some concern that things are moving away from the euro zone and may be moving into the banking side,” Chatwell said. “These are barometers of stress. Counterparty risks are rising, banks are showing some strain and that increases concern in the market, which exacerbates the problem.” The three-month rate increased for the 12th consecutive week last week even as the European Union announced an almost $1 trillion backstop to aid its most indebted members. Among the measures announced, the U.S. Federal Reserve reopened dollar currency swaps with major central banks to alleviate funding pressures facing the euro-region lenders. Euro Rate Falls WestLB AG contributed the highest dollar Libor rate today, at 0.565 percent. The German state-owned lender , which was bailed out during the financial crisis, said last week its first-quarter profit slumped 82 percent after a decline in the value of European government bonds hurt trading results. HSBC Holdings Plc gave the lowest rate, at 0.44 percent. The BBA strips out the four highest and lowest rates received, calculating the average of the middle eight. The three-month rate for euros , or euro Libor, slipped to 0.634 percent today, from 0.636 percent on May 21. The three- month euro interbank offered rate, or Euribor, advanced to 0.697 percent, from 0.695 percent, according to the European Banking Federation. That’s the highest since Jan. 5. To contact the reporter on this story: Keith Jenkins in London at kjenkins3@bloomberg.net

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Hedge Funds Sell Oil Fastest in 8 Months as Prices Plunge: Energy Markets

May 23, 2010

By Asjylyn Loder May 24 (Bloomberg) — Hedge funds sold oil at the fastest pace in almost eight months, cutting their bullish bets by 32 percent as crude prices plunged on concern a crisis in Europe will hurt energy demand. The speculative net-long position in crude oil futures and options combined on the New York Mercantile Exchange fell to 89,335 in the week ended May 18, the biggest percentage decline since Sept. 29, according to the U.S. Commodity Futures Trading Commission’s Commitments of Traders Report on May 21. Crude dropped 20 percent from a 19-month high of $87.15 a barrel May 3 on concern the European sovereign debt crisis will undermine a recovery from the worst financial downturn since World War II. Supplies of oil and all petroleum-based fuels jumped to 1.81 billion barrels in the week ended May 14, the highest stockpiles on a seasonal basis based on Energy Department data back to 1990. “Wall Street was bailing out of the market,” said Stephen Schork , president of the Schork Group Inc. in Villanova, Pennsylvania. “The latest sell-off is confirmation that money managers are exiting. I expect next week’s report will show another significant sell-off.” Crude oil for July delivery dropped 76 cents, or 1.1 percent, on May 21 to settle at $70.04 a barrel on the Nymex. The July contract fell for nine consecutive days, losing 13 percent since May 10. Gasoline Positions In other markets, hedge funds, commodity trading advisers and commodity pool operators, classified as managed money by the CFTC, decreased net-long positions in gasoline by 16 percent to 33,157. Gasoline prices fell 15.21 cents, or 6.9 percent, to $2.0431 per gallon on the Nymex from May 11 to May 18. Since then, gasoline has fallen to $1.9612 a gallon. The price hasn’t gained since May 12. Net-long positions held by managed money in heating oil futures and options dropped 12 percent to 17,331 contracts. Heating oil for June delivery declined 8.3 percent in the week ended May 18 to $1.9615 a gallon. The euro lost 12 percent against the dollar this year amid concern the Greek fiscal crisis will spread to other nations as governments work to reduce deficits. German lawmakers approved their country’s share of a $1 trillion euro-region bailout in a May 21 vote, allaying market concern that they would balk at approving a second emergency aid package in as many weeks. Debt Crisis Chancellor Angela Merkel called for regulation to stem Europe’s debt crisis and forbid some types of short-selling last week. The U.S. banned naked short-selling for about a month after Lehman Brothers Holdings Inc. filed for bankruptcy in September 2008 with debt of $613 billion. “There is a tipping point that has occurred that would suggest that the economic recovery has lost momentum, and that the European crisis is taking the momentum out of this market,” said Peter Beutel , president of Cameron Hanover Inc., the trading adviser in New Canaan, Connecticut. Demand growth in North America was little changed for the first three months of the year, according to preliminary figures this month from the International Energy Agency in Paris. Demand for gasoline sank to a six-week low in the week ended May 14, according to data from the Energy Department. If hedge funds and other large speculators can push prices below so-called support at $67 to $68 a barrel, then oil may plunge as low as $60 to $62 a barrel, Schork said. If crude fails to get below $67, then prices may rebound into the mid $70s a barrel, he said. “We know that fund managers are liquidating length,” Schork said. “The question now is will they start building up a short position and try to push this market down further.” To contact the reporter on this story: Asjylyn Loder in New York at aloder@bloomberg.net .

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Treasuries Advance Amid Concerns About European Debt, Inflation Outlook

May 22, 2010

By Cordell Eddings and Susanne Walker May 22 (Bloomberg) — Treasuries climbed, pushing the benchmark 10-year note yield to the lowest level in a year, as a drop in stocks, a plunging euro and U.S. data showing a lack of inflation damped investor appetite for higher-yielding assets. Thirty-year bond yields touched the lowest level in seven months amid speculation Europe won’t be able to contain its sovereign-debt crisis. Treasuries pared weekly gains yesterday as stocks and the 16-nation currency rose on speculation riskier assets may have fallen too much. The U.S. will sell $113 billion of notes next week. “This week’s move was driven by fear,” said Larry Milstein , managing director in New York of government and agency debt trading at RW Pressprich & Co., a fixed-income broker and dealer for institutional investors. “The risk trade is being unwound and feeding on itself to the benefit of the dollar and U.S. Treasuries. There is no inflation, and any other economics have taken a backseat.” The yield on the 10-year note dropped 22 basis points, or 0.22 percentage point, to 3.24 percent in New York, from 3.45 percent on May 14, according to BGCantor Market Data. It touched 3.10 percent yesterday, the lowest since May 18, 2009. The 30-year bond yield tumbled 24 basis points to 4.10 percent after falling yesterday to as low as 3.98 percent, the least since October. Four-Year Low The Standard & Poor’s 500 Index fell 4.2 percent this week. The euro touched $1.2144 on May 19, its lowest level since 2006, before ending the week at $1.2570, up 1.7 percent. Government data showed unexpected drops in U.S. consumer and producer price indexes in April, fueling speculation the Federal Reserve won’t raise interest rates this year. Both gauges declined 0.1 percent from the previous month. It was the consumer price index’s first fall in more than a year. European Union finance ministers pledged yesterday at a meeting in Brussels to stiffen sanctions on high-deficit countries and ruled out setting up a mechanism to manage state defaults, saying no euro country will be allowed to renege on its debts. It was their fifth meeting in five weeks. Germany’s parliament approved the country’s share of an almost $1 trillion bailout European leaders put together to backstop the region’s debt problem. ‘Double Dip’ “Looking at the longer-term economic impact of the problem in Europe shows that there is an increased risk of a worldwide double-dip recession,” said Guy Lebas , chief fixed-income strategist and economist at Janney Montgomery Scott LLC in Philadelphia. “There is no way to predict or explain the shifting perceptions of risk in this environment.” Fed Governor Daniel Tarullo said the debt crisis may pose a threat to the world economy. “A deeper contraction in Europe associated with sharp financial dislocations would have the potential to stall the recovery of the entire global economy, and this scenario would have far more serious consequences for U.S. trade and economic growth,” Tarullo told a congressional panel on May 20. The crisis has triggered a surge in demand for the safety of U.S. government securities. Treasuries due in 10 years and longer returned 8 percent in the past month after accounting for gains in the dollar, according to data compiled by Bloomberg. That’s the most of 174 bond indexes around the world. The 18 primary dealers that trade with the Fed reported the highest volume of trading in Treasuries since October 2008, after the collapse of Lehman Brothers Holdings Inc., for the week ended May 12, the latest data. It was $679.7 billion. Volatility Surges Volatility in the Treasury market surged over the past week, Bank of America Merrill Lynch’s Move index shows. The gauge rose to 110.9 on May 20, approaching this year’s high of 116.7 set on May 6, when U.S. stocks crashed. The index measures price swings in Treasuries based on over-the-counter options “This looks like a mess,” Kevin Giddis , head of fixed- income sales, trading and research at brokerage firm Morgan Keegan Inc. in Memphis, Tennessee, wrote in a note to clients. “As soon as the euro zone becomes ‘coordinated‘ and ‘orderly,’ the sooner the markets will get back to the fundamentals, which are blossoming in the United States.” The gap between Treasury 2- and 10-year note yields narrowed to the lowest level in six months as investors shed risk. It decreased to 2.47 percentage points yesterday, after closing at 2.91 percentage points April 2, the widest this year. Low 2-year rates spurred demand for higher-yielding longer- term Treasuries, strategists said, as the European crisis cut inflation expectations, boosting longer-term securities’ appeal. “The dynamic is likely to continue,” said David Ader , head of U.S. government bond strategy at CRT Capital Group LLC in Stamford, Connecticut. “We have fundamental support for flattening.” The U.S. will auction $42 billion of two-year notes, $40 billion of five-year debt and $31 billion of seven-year securities on three consecutive days next week, starting May 25. The amounts are $2 billion lower than last month’s offerings of both the two- and the five year notes and $1 billion lower than the seven-year sale. To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net ; Susanne Walker in New York at swalker33@bloomberg.net

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Three-Month Libor Rises to Highest Since July as Crisis Erodes Confidence

May 21, 2010

By Keith Jenkins May 21 (Bloomberg) — The rate banks say they pay for three-month loans in dollars rose to the highest level in almost 10 months as Europe’s sovereign-debt crisis made institutions reluctant to lend. The London interbank offered rate , or Libor, for such loans rose for a ninth straight day to 0.497 percent today, from 0.484 percent yesterday, according to data from the British Bankers’ Association, the steepest rate since July 24. The dollar Libor- OIS spread, a gauge of banks’ reluctance to lend, was almost the widest since Aug. 13. Libor has risen as banks become more hesitant to lend to potentially risky counterparties on concern the quality of financial institutions’ collateral is deteriorating as a result of the euro-region’s financial crisis. “We’re seeing risk aversion intensifying, as well as a widening of risk aversion across asset classes,” said Peter Chatwell , an interest-rate strategist at Credit Agricole SA in London. “That raises concern over counterparty risk and is pushing rates higher in the interbank market.” Three-month Libor is a benchmark for about $360 trillion of financial products worldwide, ranging from mortgages to student loans. Dollar Libor is set by 16 banks in a daily survey by the BBA before 11 a.m. in London. Contributing banks provide estimates on how much it would cost to borrow in 10 currencies for periods ranging from a day to a year. Libor-OIS Spread The dollar Libor-OIS spread was 25 basis points, little changed from yesterday. The spread, which compares three-month dollar Libor and the overnight indexed swap rate, surged to 364 basis points, or 3.64 percentage points, after the 2008 collapse of Lehman Brothers Holdings Inc. The three-month rate had its 12th straight week of increases even after the European Union announced an almost $1 trillion backstop to assist its most indebted members. Among the measures announced, the Federal Reserve reopened dollar currency swaps with major central banks to ease funding pressure facing the euro-region lenders. WestLB AG contributed the highest dollar Libor rate today, 0.555 percent. The German state-owned lender , which received state aid during the financial crisis, said yesterday its first- quarter profit slumped 82 percent after a decline in the value of European government bonds hurt trading results. HSBC Holdings Plc submitted the lowest dollar Libor rate, at 0.42 percent. The BBA strips out the four highest and lowest rates received, calculating the average of the middle eight. The three-month rate for euros , or euro Libor, was unchanged at 0.636 percent today, the highest level since Jan. 11. The three-month euro interbank offered rate, or Euribor, advanced to 0.695 percent, from 0.692 percent, according to the European Banking Federation. That’s the highest since Jan. 5. To contact the reporter on this story: Keith Jenkins in London at kjenkins3@bloomberg.net

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Bank of America Plans First U.K. Offer of Non-Conforming MBS Since Crisis

May 20, 2010

By Esteban Duarte May 20 (Bloomberg) — Bank of America Corp. , the largest U.S. lender by assets, plans to issue 744 million pounds ($1.1 billion) of bonds backed by high-risk U.K. mortgages in the first public deal of its kind since August 2007. The bonds will be issued through Moorgate Funding 2010-1, a company set up to package home loans into securities, according to three people familiar with the matter. The deal includes 618 million pounds of top-rated notes with an expected life of 6 1/2 years, said the people, who declined to be identified before the sale is completed. The Moorgate bonds pool so-called non-conforming mortgages, which don’t meet standard bank lending rules and include buy-to- let and self-certified loans. Yields on the securities have fallen to 3.5 percentage points over benchmark rates on average, compared with 12 percentage points a year ago, according to JPMorgan Chase & Co. data. “A year ago, nobody would consider buying non-conforming debt,” said Alexander Fagenzer, who helps to manage 22 billion euros of fixed-income assets at Union Investment GmbH in Frankfurt. “This will show if there’s real risk appetite by investors.” Bank of America expects the deal to be priced by June 22, according to a presentation sent to investors. The Moorgate transaction is backed by loans originated by Bank of America affiliates Mortgages Plc, Wave Lending and Edeus Group, according to the presentation. Most of the loans are in England and have an average loan-to-value ratio of 80.53 percent. The sale is the first of its kind since Lehman Brothers Holdings Inc. sold 730 million of pounds of bonds from its Eurosail-UK 2007-4BL issuance program in August 2007, JPMorgan data show. To contact the reporter on this story: Esteban Duarte in Madrid at eduarterubia@bloomberg.net

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`Bubble’ in Taipei Home Prices Raises Risks for Investors After 29% Rally

May 19, 2010

By Weiyi Lim May 20 (Bloomberg) — Investors should sell Taipei property now, taking advantage of a 21-month rally in prices before the government acts to make real estate more affordable, according to the Taiwan Real Estate Research Center and the island’s largest real-estate brokerage. “Sell them now or at least in the second half of the year,” said Chin-Oh Chang , director of the Taiwan Real Estate Research Center at the National Chengchi University in Taipei. “The market is relatively unstable now.” Prices in Taiwan’s capital have risen 29 percent to a record since September 2008, when the collapse of Lehman Brothers Holdings Inc. deepened the global credit crisis. The gain has increased voter anger over prices and prompted the island’s central bank to pledge to prevent asset bubbles, triggering a 12 percent slump in construction shares from their high last month. Taipei is “an asset bubble,” Lee Jain-Ming, a researcher at Sinyi Realty Co. , told a Bloomberg Real Estate Forum in Taipei yesterday. The government may try to lower prices before municipal elections in December, he said. The Financial Supervisory Commission in March asked bankers to tighten lending procedures and ensure the quality of loans after banks on the island of 23 million people last year cut mortgage lending rates to the lowest since records began. The same month, Bank of Taiwan Governor Perng Fai-nan said he would impose “prudent” measures to prevent the emergence of asset bubbles. Market Risk In the past three months, state-owned Land Bank of Taiwan and Bank of Taiwan have raised mortgage rates and cut the amount of loans for buyers of luxury homes and property investors. Farglory Land Development Co. , the island’s largest construction company by value, has dropped 9.6 percent in 2010 after surging 196 percent last year, when average home prices in Taipei rose 20 percent. While the property market may still see increases in prices in the second half of the year, Chang said there are risks ahead of the elections, in which the ruling Nationalist party will try to defend its hold on Taipei and gain the mayoralty of both Kaohsiung and Tainan. “The government may take some action before the elections that may cool prices,” Chang said. “Don’t sell when prices are already low. Sell before that.” Goldman Sachs Group Inc. and Barclays Plc have also forecast the central bank will raise interest rates next month. Barclay’s Singapore-based economist Wai Ho Leong has predicted a 12.5 basis-point increase in rates at the central bank’s June meeting. A basis point is 0.01 percentage point. “The central bank may raise rates soon,” Lee said. “If the central bank raises rates by 12.5 basis points, prices may go down in the following two to three months.” To contact the reporter on this story: Weiyi Lim in Taipei at Wlim26@bloomberg.net

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Dubai Shares Lead Gulf Slump on European Credit Crisis, Oil

May 16, 2010

By Zahra Hankir May 16 (Bloomberg) — Dubai shares fell, leading Gulf markets lower, on concern Europe’s sovereign debt crisis will hurt the global economic recovery and as companies including Kuwait’s Agility posted lower earnings. Crude oil declined. Agility lost 3.5 percent as the storage and logistics company said profit fell 52 percent. Vodafone Qatar fell to the lowest this month after the phone company reported a loss. Emaar Properties PJSC, developer of the world’s tallest skyscraper, also slid. The DFM General Index retreated 1.5 percent to 1,692.4, the lowest since March 11. The Bloomberg GCC 200 Index of stocks in the Gulf decreased 0.7 percent and in North Africa, Egypt’s EGX 30 Index tumbled 3.2 percent. “Concern about the long-term impact of Greek and European spending cuts on global growth is weighing on oil and equity markets,” said Rabih Sultani , a fund manager at Duet Mena Ltd. in Dubai, a unit of Duet Group, which oversees $2.1 billion. In Europe, the Stoxx Europe 600 Index sank 3.4 percent on May 14. The euro fell to its lowest level since the collapse of Lehman Brothers Holdings Inc. in 2008 on concern the shared currency may be headed for disintegration. Oil tumbled to $71.61 a barrel, a three-month low, on concern that Europe’s crisis may reduce energy consumption. The six nations of the Gulf Cooperation Council supply about a fifth of the world’s oil. Vodafone Qatar Aabar Investments PJSC, the Abu Dhabi fund and largest shareholder in Daimler AG, rose 1.5 percent to 2.10 dirhams after posting a first-quarter profit of 1.58 billion dirhams ($430 million) after derivatives and foreign-exchange gains. Agility retreated to 560 fils, the lowest since April 22. The company’s first-quarter net income fell to 17.6 million dinars ($61 million). Agility said it’s in talks with the U.S. government to reach an agreement over alleged overbilling on military supplies. Emaar fell 2.1 percent to 3.75 dirhams, the lowest since March 24. Egyptian builder Orascom Construction Industries lost the most in a week, dropping 3.6 percent to 242.52 Egyptian pounds. Vodafone Qatar slumped 2.8 percent to 8.80 riyals, the lowest since April 26. The venture between Vodafone Group Plc and state-controlled Qatar Foundation posted a full-year loss of 673.4 million riyals ($185 million). Qatar’s QE Index dropped 1.8 percent to 7,211.24. Abu Dhabi’s gauge and the Kuwait Stock Exchange Index decreased 0.6 percent. Bahrain’s measure lost 0.9 percent to the lowest since March and Oman’s MSM30 Index slid 0.8 percent. Saudi Arabia’s Tadawul All Share Index fell 0.2 percent, extending yesterday’s 2.3 percent slump. To contact the reporter on this story: Zahra Hankir in Dubai at zhankir@bloomberg.net or

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Dubai Shares Lead Gulf Slump on Europe Crisis, Earnings Decline, Oil Drop

May 16, 2010

By Zahra Hankir May 16 (Bloomberg) — Dubai shares fell, leading Gulf markets lower, on concern Europe’s sovereign debt crisis will hurt the global economic recovery and after companies including Kuwait’s Agility posted lower earnings. Crude oil declined. Agility dropped 3.5 percent as the storage and logistics company said profit fell 52 percent. Vodafone Qatar decreased to the lowest since April 21 after the mobile-phone company reported a loss. Emaar Properties PJSC, developer of the world’s tallest skyscraper, also slid. The DFM General Index declined 1.9 percent to 1,686.35, the lowest in a week, as of 12:58 p.m. in Dubai. The Bloomberg GCC 200 Index of stocks in the Gulf fell 1.3 percent and Egypt’s EGX 30 Index tumbled 2.7 percent. “Concern about the long-term impact of Greek and European spending cuts on global growth is weighing on oil and equity markets,” said Rabih Sultani , a fund manager at Duet Mena Ltd. in Dubai, a unit of Duet Group, which oversees $2.1 billion. In Europe, the Stoxx Europe 600 Index sank 3.4 percent on May 14. The euro fell to its lowest level since the collapse of Lehman Brothers Holdings Inc. in 2008 on concern the shared currency may be headed for disintegration. Oil tumbled to $71.61 a barrel, a three-month low, on concern that Europe’s crisis may reduce energy consumption. The six nations of the Gulf Cooperation Council supply about a fifth of the world’s oil. Vodafone Qatar Agility retreated to 560 fils, the lowest in a week. The company’s first-quarter net income fell to 17.6 million dinars ($61 million). Agility said it is in talks with the U.S. government to reach a settlement over alleged overbilling on military supplies. Vodafone Qatar slumped as much as 6.1 percent to 8.50 riyals and last traded at 8.90 riyals. The venture between Vodafone Group Plc and state-controlled Qatar Foundation posted a full-year loss of 673.4 million riyals ($185 million). Emaar fell 2.6 percent to 3.73 dirhams, the lowest since May 9. The Kuwait Stock Exchange Index decreased 0.8 percent, the most in a week, and Qatar’s QE Index dropped 1.7 percent. Abu Dhabi’s index retreated 0.9 percent, Bahrain’s measure and Oman’s MSM30 Index lost 0.7 percent. Saudi Arabia’s Tadawul All Share Index fell 0.5 percent, extending yesterday’s 2.3 percent slump. To contact the reporter on this story: Zahra Hankir in Dubai at zhankir@bloomberg.net or

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Trichet Wants a `Quantum Leap’ in Way Euro-Area Nations Determine Budgets

May 15, 2010

By Richard Weiss and Mark Deen May 15 (Bloomberg) — European Central Bank President Jean- Claude Trichet called for a “quantum leap” in the way euro- area nations set their budgets and defended his decision to buy bonds from debt-saddled countries such as Greece and Portugal. “There is a need for a quantum leap in the governance of the euro area,” Trichet said in an interview with Spiegel magazine published on the ECB website . “There need to be major improvements to prevent bad behavior, to ensure effective implementation of the recommendations made by peers and ensure real and effective sanctions in the case of breaches,” he said. Trichet, who said the current crisis may be worse than the Great Depression, is fending off critics who say the ECB caved into political pressure as the sovereign-debt crisis stirred speculation that Europe’s single currency may break up. While the 16 members of the euro share a common monetary policy, members are responsible for their own fiscal decisions. That allowed Greece’s budget deficit to reach almost 14 percent of its gross domestic product, exceeding the EU’s 3 percent limit without penalty. Germany’s is 3.2 percent of its GDP. Trichet’s move came in tandem with a decision by European Union nations to push through a $1 trillion aid package to support members of the club who face the highest borrowing costs. The ECB’s debt purchases helped push down two-year bond yields over the course of the past week, making it less expensive for indebted nations to finance themselves. ‘Weak’ Governments The euro fell to its lowest level since the 2008 collapse of Lehman Brothers Holdings Inc . this week, depreciating 3.1 percent to $1.2358 from $1.2755 on May 7. Trichet rejected the suggestion that the ECB gave up its independence when it agreed to buy government bonds. “That is ridiculous,” Trichet said in the interview. “Just who has been weak over the past few months? It was not the ECB. The governments with their high debts were weak.” The ECB plans to “sterilize” all bond purchases by withdrawing liquidity elsewhere in the system, thereby limiting the overall money supply, he said. Trichet criticized Greece for being too slow to cut its budget deficit and said the Frankfurt-based central bank’s actions were justified by the crisis in financial markets. “It is clear that since September 2008 we have been facing the most difficult situation since the Second World War, perhaps even since the First World War,” Trichet said. “We have experienced and are experiencing truly dramatic times.” Greek Prime Minister George Papandreou , who more than doubled the estimate of the budget shortfall when he took office last year, has pledged to cut the gap to 3 percent by 2014 in order to win aid from other euro countries and the IMF. The Greek government currently has debts equivalent to 115 percent of gross domestic product, and that ratio will rise to about 150 percent before it starts falling, economists say. To contact the reporter on this story: Richard Weiss in Frankfurt at rweiss5@bloomberg.net . Mark Deen in Paris at markdeen@bloomberg.net

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Trichet: Europe’s Economy In Deepest Crisis Since World War II

May 15, 2010

BERLIN — The President of the European Central Bank is quoted as saying that he still sees Europe’s economy in its deepest crisis since World War II or even World War I. German News weekly Der Spiegel on Saturday reported that Jean-Claude Trichet said that since the beginning of the financial crisis in 2008 “we have experienced and we are experiencing really dramatic times.” In an interview to be published Monday, Trichet linked the recent exacerbation of the eurozone’s debt crisis to the 2008 collapse of the U.S. investment bank Lehman Brothers, saying “the markets didn’t work anymore.” Trichet was further quoted as saying that there was no doubt the economy “is in its most difficult situation since World War II or perhaps even since World War I.”

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Futures Bets on Euro Decline Reach Record on Speculation Bailout May Fail

May 14, 2010

By Ben Levisohn May 14 (Bloomberg) — Futures traders increased bets to a record that the euro will fall against the dollar a day after European leaders announced a 750 billion-euro ($928 billion) bailout package in an effort to contain a sovereign-debt crisis that threatens to shatter confidence in the shared currency. The number of wagers by hedge funds and other large speculators for a decline in the 16-nation currency rose on May 11 to 113,890 contracts more than those anticipating a gain, according to Commodity Futures Trading Commission data. It was the third consecutive week that the amount climbed to a record. “No one wants to buy the euro,” said John Doyle , a strategist at currency-trading firm Tempus Consulting Inc. in Washington. “People looked at details of the plan and it wasn’t able to quell their concerns.” The euro fell to its lowest level since the collapse of Lehman Brothers Holdings Inc. today amid concern that the austerity measures required by the bailout may limit growth in the euro area and leave Europe’s debt woes unresolved. The euro fell 3.1 percent to $1.2365 this week, from $1.2755 on May 7. It traded as low as $1.2354 today, the weakest since October 2008. Each Friday the CFTC publishes aggregate numbers for long and short positions for speculators such as hedge funds and institutional investors that buy or sell futures to protect against price moves. Analysts and investors follow changes in speculators’ positions because such transactions can reflect an expectation of a change in prices. Futures are agreements to buy or sell assets at a set price and date. To contact the reporters on this story: Ben Levisohn in New York at blevisohn@bloomberg.net

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Properst Files for Bankruptcy as Madonna Ads Fail to Lure Japan Homebuyers

May 13, 2010

By Tomoko Yamazaki and Katsuyo Kuwako May 14 (Bloomberg) — Properst Co. , the Japanese property developer that had Madonna promote high-rise apartment sales in central Tokyo, filed for bankruptcy protection as the credit crisis pushed condominium sales to almost two-decade lows. Properst’s liabilities totaled 55.4 billion yen ($597 million) as credit dried up after Lehman Brothers Holdings Inc. collapsed, leading condominium prices lower and denting demand, the Tokyo-based firm said in a statement today. The company will maintain its stock listing on the Jasdaq market as it undergoes the bankruptcy process, in part through capital raisings via private placement and debt equity swaps, it said. New condominium sales in greater Tokyo last year fell to the lowest level in 17 years, commercial land prices declined to the lowest in at least 36 years, and real estate firms accounted for eight of the 10 biggest bankruptcies among listed Japanese firms in 2009. The filing marks the second by a listed real estate company this year amid a continued deterioration in Japan’s property market. “Mid-to-small sized real estate firms are still struggling to sell condominiums,” said Takashi Ishizawa , an analyst at Mizuho Securities Co. in Tokyo. “I expect further consolidation, especially among smaller property firms going forward.” Properst shares were poised to fall by their daily limit of 300 yen to 980 yen at the lunch break in Tokyo. The stock was untraded as offers outnumbered bids. It slid 24 percent yesterday. Madonna Established in 1987, Properst has focused its business on property developments in the metropolitan area ranging from small-sized apartments to condominiums in high-rise buildings. Madonna was in advertisements for the Brillia Mare Ariake luxury condominiums in Tokyo Bay that went on sale in 2007. Commercial RE Co. , a real estate management company whose largest stakeholder is Goldman Sachs Group Inc. , filed for bankruptcy protection on May 6 with 15 billion yen in liabilities. New condominium sales in the Tokyo area totaled 36,376 units in 2009, the lowest in 17 years, and compared with the peak of 95,635 units sold in 2000, according to the Real Estate Economic Research Institute. Japanese commercial land prices declined 6.1 percent in 2009, more than the 4.7 percent drop a year earlier, the Ministry of Land, Infrastructure, Transport and Tourism said in a report released in March. Values are at their lowest since the ministry began collecting comparable data in 1974. To contact the reporters on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net ; Katsuyo Kuwako in Tokyo at kkuwako@bloomberg.net

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EU Crafts $962 Billion Show of Force to Support Euro, Halt Global Crisis

May 9, 2010

By James G. Neuger and Meera Louis May 10 (Bloomberg) — European finance ministers put together an unprecedented loan package that may be worth 720 billion euros ($928 billion) for debt-swamped governments in a bid to restore faith in the euro and prevent Greece’s fiscal woes from unleashing a global crisis. Jolted into action by last week’s slide in the currency to a 14-month low and soaring bond yields in Portugal and Spain, the 16 euro governments pledged to make 440 billion euros available, with 60 billion euros more from the EU’s budget, said Spanish Economy Minister Elena Salgado at a press conference in Brussels today. The International Monetary Fund may provide a further 220 billion euros, she said. “We are placing considerable sums in the interests of stability in Europe,” Salgado told reporters in Brussels after chairing the 14-hour meeting. Under pressure from the U.S. and Asia to stabilize markets, the European governments gambled that the show of financial force would prevent a sovereign-debt crisis and muffle speculation that the 11-year-old euro might break apart. The European Central Bank will announce “intervention” in financial markets, Luxembourg Finance Minister Luc Frieden told reporters, without giving further details. Europe’s failure to contain Greece’s fiscal crisis triggered a 4.1 percent drop in the euro last week, the biggest weekly decline since the aftermath of Lehman Brothers Holdings Inc.’s collapse. It prompted President Barack Obama to call German Chancellor Angela Merkel and French President Nicolas Sarkozy yesterday to urge “resolute steps” in Europe to prevent the crisis from cascading around the world. To contact the reporters on this story: James G. Neuger in Brussels at jneuger@bloomberg.net ; Meera Louis in Brussels at Mlouis1@bloomberg.net

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Ellen Brown: Stock Market Collapse: More Goldman Market Rigging?

May 7, 2010

Last week, Goldman Sachs was on the congressional hot seat, grilled for fraud in its sale of complicated financial products called “synthetic CDOs.” This week the heat was off, as all eyes turned to the attack of the shorts on Greek sovereign debt and the dire threat of a sovereign Greek default. By Thursday, Goldman’s fraud had slipped from the headlines and Congress had been cowed into throwing in the towel on its campaign to break up the too-big-to-fail banks . On Friday, Goldman was in settlement talks with the SEC. Goldman and Wall Street reign. Congress appears helpless to discipline the big banks, just as the European Central Bank appears helpless to prevent the collapse of the European Union. . . . Or are they? Suspicious Market Maneuverings The shorts circled like sharks in the Greek bond market, following a highly suspicious downgrade of Greek debt by Moody’s on Monday. Ratings by private ratings agencies, long suspected of being in the pocket of Wall Street, often seem to be timed to cause stocks or bonds to jump or tumble, causing extreme reactions in the market. The Greek downgrade was suspicious and unexpected because the European Central Bank and International Monetary Fund had just pledged 120 billion Euros to avoid a debt default in Greece. Markets were roiled further on Thursday, when the U.S. stock market suddenly lost 999 points, and just as suddenly recovered two-thirds of that loss. It appeared to be such a clear case of tampering that Maria Bartiromo blurted out on CNBC, “That is ridiculous. This really sounds like market manipulation to me.” Manipulation by whom? Markets can be rigged with computers using high-frequency trading programs (HFT), which now compose 70% of market trading; and Goldman Sachs is the undisputed leader in this new gaming technique. Matt Taibbi maintains that Goldman Sachs has been “engineering every market manipulation since the Great Depression.” When Goldman does not get its way, it is in a position to throw a tantrum and crash the market. It can do this with automated market making technologies like the one invented by Max Keiser , which he claims is now being used to turbocharge market manipulation. Goldman was an investment firm until September 2008, when it became a “bank holding company” overnight in order to capitalize on the bank bailout, including borrowing virtually interest-free from the Federal Reserve and other banks. In January, when President Obama backed Paul Volcker in his plan to reinstate a form of the Glass-Steagall Act that would separate investment banking from commercial banking, the market collapsed on cue, and the Volcker Rule faded from the headlines. When Goldman got dragged before Congress and the SEC in April, the Greek crisis arose as a “counterpoint,” diverting attention to that growing conflagration. Greece appears to be the sacrificial play in the EU just as Lehman Brothers was in the U.S., “the hostage the kidnappers shoot to prove they mean business.” The Nuclear Option It is still possible, however, for the European Central Bank to snatch Greece from the fire and rout the shorts. It can do this with what has been called the nuclear option — “monetizing” the debt of Greece and other debt-laden EU countries by effectively “printing money” (quantitative easing) and buying the debt itself at very low interest rates. This is called the “nuclear option” because it would blow up the hedge funds and electronic sharks operated by Goldman and other Wall Street heavies, which specialize in bringing down corporations and whole countries for strategic and exploitative ends. Will the ECB proceed with this plan? Perhaps , say some experts. It could just be waiting for the German election on Sunday, which the ECB does not want to appear to be influencing.

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Ellen Brown: Stock Market Collapse: More Goldman Market Rigging?

May 7, 2010

Last week, Goldman Sachs was on the congressional hot seat, grilled for fraud in its sale of complicated financial products called “synthetic CDOs.” This week the heat was off, as all eyes turned to the attack of the shorts on Greek sovereign debt and the dire threat of a sovereign Greek default. By Thursday, Goldman’s fraud had slipped from the headlines and Congress had been cowed into throwing in the towel on its campaign to break up the too-big-to-fail banks . On Friday, Goldman was in settlement talks with the SEC. Goldman and Wall Street reign. Congress appears helpless to discipline the big banks, just as the European Central Bank appears helpless to prevent the collapse of the European Union. . . . Or are they? Suspicious Market Maneuverings The shorts circled like sharks in the Greek bond market, following a highly suspicious downgrade of Greek debt by Moody’s on Monday. Ratings by private ratings agencies, long suspected of being in the pocket of Wall Street, often seem to be timed to cause stocks or bonds to jump or tumble, causing extreme reactions in the market. The Greek downgrade was suspicious and unexpected because the European Central Bank and International Monetary Fund had just pledged 120 billion Euros to avoid a debt default in Greece. Markets were roiled further on Thursday, when the U.S. stock market suddenly lost 999 points, and just as suddenly recovered two-thirds of that loss. It appeared to be such a clear case of tampering that Maria Bartiromo blurted out on CNBC, “That is ridiculous. This really sounds like market manipulation to me.” Manipulation by whom? Markets can be rigged with computers using high-frequency trading programs (HFT), which now compose 70% of market trading; and Goldman Sachs is the undisputed leader in this new gaming technique. Matt Taibbi maintains that Goldman Sachs has been “engineering every market manipulation since the Great Depression.” When Goldman does not get its way, it is in a position to throw a tantrum and crash the market. It can do this with automated market making technologies like the one invented by Max Keiser , which he claims is now being used to turbocharge market manipulation. Goldman was an investment firm until September 2008, when it became a “bank holding company” overnight in order to capitalize on the bank bailout, including borrowing virtually interest-free from the Federal Reserve and other banks. In January, when President Obama backed Paul Volcker in his plan to reinstate a form of the Glass-Steagall Act that would separate investment banking from commercial banking, the market collapsed on cue, and the Volcker Rule faded from the headlines. When Goldman got dragged before Congress and the SEC in April, the Greek crisis arose as a “counterpoint,” diverting attention to that growing conflagration. Greece appears to be the sacrificial play in the EU just as Lehman Brothers was in the U.S., “the hostage the kidnappers shoot to prove they mean business.” The Nuclear Option It is still possible, however, for the European Central Bank to snatch Greece from the fire and rout the shorts. It can do this with what has been called the nuclear option — “monetizing” the debt of Greece and other debt-laden EU countries by effectively “printing money” (quantitative easing) and buying the debt itself at very low interest rates. This is called the “nuclear option” because it would blow up the hedge funds and electronic sharks operated by Goldman and other Wall Street heavies, which specialize in bringing down corporations and whole countries for strategic and exploitative ends. Will the ECB proceed with this plan? Perhaps , say some experts. It could just be waiting for the German election on Sunday, which the ECB does not want to appear to be influencing.

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S&P 500 Erases 2010 Gain as Global Rout Worsens; Dollar Rises

May 7, 2010

By Michael P. Regan and Rita Nazareth May 7 (Bloomberg) — Global stocks tumbled, with U.S. benchmark indexes erasing gains for the year, while Treasuries rallied after Europe’s debt crisis spurred a market rout yesterday that undermined confidence in financial trading mechanisms. The dollar strengthened and oil slid 2.5 percent. The Standard & Poor’s 500 Index fell as much as 3 percent to 1,094.15 as of 10:41 a.m. in New York, extending its tumble from this year’s high in April to more than 10 percent. The MSCI World Index sank 2.9 percent and the Stoxx Europe 600 Index plunged 4.5 percent to the lowest level since November. The 10- year Treasury note’s yield slipped six basis points to 3.33 percent. Greece led a drop in bonds of debt-laden nations, with the 10-year yield premium demanded to own the securities instead of benchmark German bunds rising to a record 944 basis points. “There’s lack of confidence,” said Keith Wirtz , who oversees $18 billion as chief investment officer at Fifth Third Asset Management Inc. in Cincinnati. “Who wants to go long over the weekend? Europe is suffering the consequences of a deterioration in confidence. And over here, when I read about the computer glitch, I just felt intimidated.” Yesterday’s selloff briefly erased more than $1 trillion in market value. U.S. regulators plan to examine whether securities professionals triggered yesterday’s stock-market plunge or exploited the turmoil to profit illegally, two people with direct knowledge of the matter said. The SEC aims to determine if market participants accidentally or maliciously entered orders that derailed normal trading, the people said, declining to be identified because the inquiry isn’t public. The agency will also examine if controls to prevent the rout from snowballing weren’t in place at exchanges and firms. Canceled Trades Nasdaq OMX Group Inc. said it will cancel trades of 286 securities that fell or rose more than 60 percent from their prices at 2:40 p.m. New York time yesterday, just before U.S. equities plummeted. The biggest U.S. fund managers say the bull market in stocks should weather Europe’s widening sovereign debt crisis even as it spurs the largest surge in volatility since the collapse of Lehman Brothers Holdings Inc. Employment in the U.S. increased in April by the most in four years and the unemployment rate unexpectedly rose as thousands of people entered the labor force, indicating the recovery is becoming self-sustaining. Payrolls jumped 290,000 last month, more than the median estimate of economists surveyed by Bloomberg News, after a revised 230,000 increase in March that was larger than initially estimated, the Labor Department said. The jobless rate rose to 9.9 percent last month from 9.7 percent. While equities may post more losses as countries from Greece to Spain struggle to cut deficits, managers at Birinyi Associates Inc. and First Citizens BancShares Inc. say declines are a buying opportunity. The biggest one-day retreat since April 2009 has made American stocks more attractive by reducing valuations as the economy and corporate profits recover, said Thomas Lee , chief U.S. equity strategist at JPMorgan Chase & Co. “Bulls are still bullish and bears are still bearish,” said Dan Greenhaus , chief economic strategist at Miller Tabak & Co. in New York. “The recent pullback wouldn’t be enough to change those views. Everything that’s going on reminds investors that the recovery is not going to be normal.” To contact the reporters on this story: Michael P. Regan in New York at Mregan12@bloomberg.net ; Rita Nazareth in New York at rnazareth@bloomberg.net .

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S&P 500 Erases 2010 Gain as Global Rout Worsens; Dollar Rises

May 7, 2010

By Michael P. Regan and Rita Nazareth May 7 (Bloomberg) — Global stocks tumbled, with U.S. benchmark indexes erasing gains for the year, while Treasuries rallied after Europe’s debt crisis spurred a market rout yesterday that undermined confidence in financial trading mechanisms. The dollar strengthened and oil slid 2.5 percent. The Standard & Poor’s 500 Index fell as much as 3 percent to 1,094.15 as of 10:41 a.m. in New York, extending its tumble from this year’s high in April to more than 10 percent. The MSCI World Index sank 2.9 percent and the Stoxx Europe 600 Index plunged 4.5 percent to the lowest level since November. The 10- year Treasury note’s yield slipped six basis points to 3.33 percent. Greece led a drop in bonds of debt-laden nations, with the 10-year yield premium demanded to own the securities instead of benchmark German bunds rising to a record 944 basis points. “There’s lack of confidence,” said Keith Wirtz , who oversees $18 billion as chief investment officer at Fifth Third Asset Management Inc. in Cincinnati. “Who wants to go long over the weekend? Europe is suffering the consequences of a deterioration in confidence. And over here, when I read about the computer glitch, I just felt intimidated.” Yesterday’s selloff briefly erased more than $1 trillion in market value. U.S. regulators plan to examine whether securities professionals triggered yesterday’s stock-market plunge or exploited the turmoil to profit illegally, two people with direct knowledge of the matter said. The SEC aims to determine if market participants accidentally or maliciously entered orders that derailed normal trading, the people said, declining to be identified because the inquiry isn’t public. The agency will also examine if controls to prevent the rout from snowballing weren’t in place at exchanges and firms. Canceled Trades Nasdaq OMX Group Inc. said it will cancel trades of 286 securities that fell or rose more than 60 percent from their prices at 2:40 p.m. New York time yesterday, just before U.S. equities plummeted. The biggest U.S. fund managers say the bull market in stocks should weather Europe’s widening sovereign debt crisis even as it spurs the largest surge in volatility since the collapse of Lehman Brothers Holdings Inc. Employment in the U.S. increased in April by the most in four years and the unemployment rate unexpectedly rose as thousands of people entered the labor force, indicating the recovery is becoming self-sustaining. Payrolls jumped 290,000 last month, more than the median estimate of economists surveyed by Bloomberg News, after a revised 230,000 increase in March that was larger than initially estimated, the Labor Department said. The jobless rate rose to 9.9 percent last month from 9.7 percent. While equities may post more losses as countries from Greece to Spain struggle to cut deficits, managers at Birinyi Associates Inc. and First Citizens BancShares Inc. say declines are a buying opportunity. The biggest one-day retreat since April 2009 has made American stocks more attractive by reducing valuations as the economy and corporate profits recover, said Thomas Lee , chief U.S. equity strategist at JPMorgan Chase & Co. “Bulls are still bullish and bears are still bearish,” said Dan Greenhaus , chief economic strategist at Miller Tabak & Co. in New York. “The recent pullback wouldn’t be enough to change those views. Everything that’s going on reminds investors that the recovery is not going to be normal.” To contact the reporters on this story: Michael P. Regan in New York at Mregan12@bloomberg.net ; Rita Nazareth in New York at rnazareth@bloomberg.net .

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Discussing Oversight Failures, Federal Financial Regulators Do Little To Inspire Confidence

May 5, 2010

Former top officials at the Securities and Exchange Commission did little Wednesday to affect the overall perception that the agency failed in its mission to supervise large investment banks. For starters, Christopher Cox, the agency’s much-maligned former chairman during the George W. Bush administration, referred to the SEC’s Consolidated Supervised Entities program, with supervisory powers over large firms like Bear Stearns, Lehman Brothers and Merrill Lynch, as a “review” program Wednesday during testimony before the Financial Crisis Inquiry Commission . The CSE program was reliant on firms to provide data and documents, Cox said, which CSE examiners reviewed. This unit was designed to act as a “prudential regulator” over all the operations of firms like Goldman Sachs, Merrill, Bear, Lehman and Morgan Stanley, Donaldson told the FCIC. In other words, it was supposed to regulate the firms much like bank regulators oversee banks. But the unit — nor the SEC, for that matter — had the resources to do the job. The FCIC’s chairman, Phil Angelides, noted that the unit had between 12 to 15 staffers assigned to it when the program was first launched in 2004 under former SEC chairman William H. Donaldson, and rose to just 24 staffers by 2007 under Cox. Under questioning, Donaldson told the FCIC that the SEC was “tremendously understaffed.” The number of agency employees, Angelides noted, totaled about 3,000 before Donaldson took over. It subsequently rose to 4,000 before eventually dropping to about 3,500 during Cox’s tenure, he said. Cox told the commission that the agency’s primary oversight unit had “about 200 people” for “5,000″ firms. Asked if he ever requested more resources, Cox said no. Pressed further by Angelides, Cox admitted that he asked for more manpower “days after” Bear collapsed in March 2008 — but not before. Its collapse “caught the whole world by surprise,” Cox said. Short-sellers and investors buying insurance in case the firm collapsed in the form of credit default swaps may beg to differ. Donaldson told the panel investigating the roots of the worst financial crisis since the Great Depression that the SEC had “no experience” regulating large financial firms. Its experience lay in investor protection, he told panel commissioner Brooksley Born. He added that the CSE program failed to achieve its “architectural objective,” which was to serve as an “early warning system.” The examiner in charge of the Lehman Brothers bankruptcy, which occurred at the height of the financial crisis in September 2008, said in his March report this year that the SEC had the legal authority — and responsibility — to apply more stringent oversight to firms like Lehman and Bear. Current and former agency officials have argued that the agency’s hands were tied because the CSE program was viewed as being largely voluntary. Cox eliminated the program in 2008 after the agency’s internal watchdog listed numerous problems with it. Congress, at the prodding of the Obama administration, is looking to pass legislation mandating the creation of another such “early warning system” unit to oversee large, systemically-important financial firms. Members of Congress and administration officials promise that this unit will be different from the federal government’s previous attempts to regulate such institutions. Cox told the panel that supervisors tend not to be “enforcers” of rules and regulations, echoing a claim made by former Federal Reserve Chairman Alan Greenspan, who told the panel last month that the Fed didn’t have enforcement capabilities when regulating financial firms. Cox mentioned Greenspan’s claim in defending the SEC’s track record. At another point in the hearing, Donaldson told the panel that the agency never had the “authority” to limit a firm’s leverage. Bear Stearns’s assets ballooned from about $185 billion to nearly $400 billion in 2007 over just a few years, noted Commission chairman Phil Angelides. The firm had a 2007 year-end 38 to 1 ratio of tangible assets to tangible common equity (essentially it had just $1 to support every $38 in assets like loans and securities). Bear had a “significant concentration” of its assets locked into mortgages and mortgage-linked securities, much of it in the form of no-documentation and other crummy loans, Angelides continued. In fact, the value of those risky loans — more than $12 billion — was greater than the firm’s total equity. If the value of those assets slipped, the whole firm would be in jeopardy. In short, the firm was incredibly over-leveraged, a point conceded, in hindsight, by former longtime chairman and chief executive officer James “Jimmy” Cayne earlier in the day during testimony before the panel. Underscoring the SEC’s apparent failures, the former head of the agency’s oversight unit, Erik R. Sirri, said the firm “certainly” had the capability to judge firms’ risk management practices and exposures to various classes of assets, funding sources, counterparties and the like. It seems, though, that those tools weren’t used prior to the worst crisis in more than 70 years. To ensure the nation’s financial system never again experiences such a violent disruption, the Obama administration and Democrats in Congress propose to give regulators more authority. How they use it, though, is largely up to them.

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Ex-Bear Stearns Chief Splits With Wall Street, Endorses Regulating Derivatives

May 5, 2010

The former chief executive officer of failed investment bank Bear Stearns endorsed Congress’s push to mandate federal re-regulation of derivatives. Testifying Wednesday before the Financial Crisis Inquiry Commission, former Bear CEO Alan Schwartz said that moving derivatives onto clearinghouses and exchanges — something under debate in the Senate — would be a “very positive development,” particularly for those wishing to accurately assess financial firms’ balance sheets. The vast majority of derivatives are traded over the counter, meaning they’re essentially traded in the shadows between firms without government oversight or regulation. In fact, no one really has an accurage assessment of how big the market truly is. In December, the House of Representatives passed a measure calling for the majority of these derivatives to be moved onto clearinghouses — venues that act as a nexus for trades and require various safeguards to be in place — and exchanges, which function much like a stock exchange. The Senate’s version of the bill passed out of the chamber’s Banking and Agriculture committees, and is presently under consideration on the Senate floor. While many on Wall Street are actively fighting to weaken the derivatives proposal, the endorsement from one of the former heads of what was once a top five investment firm could give reformers added ammunition. Schwartz’s former competitors — those still standing, at least — are vigorously fighting the proposals. In March 2008, JPMorgan Chase acquired Bear Stearns in a sweetheart deal at the urging of the Treasury Department and Federal Reserve. The Fed’s regional bank in New York, then led by current Treasury Secretary Timothy Geithner, provided the taxpayer-supported financing to get JPMorgan to agree to the deal. Lehman Brothers failed six months later. Merrill Lynch was acquired by Bank of America. Goldman Sachs and Morgan Stanley converted from investment banks into bank-holding companies.

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AIG Borrows $2.2 Billion More, Pushing Fed Credit Draw to Five-Month High

April 30, 2010

By Hugh Son and Sapna Maheshwari April 30 (Bloomberg) — American International Group Inc. , the insurer rescued by the U.S., increased its Federal Reserve borrowing to the highest in five months as it drew about $2.2 billion from a credit line to repay maturing commercial paper. AIG owes $27 billion on the line, compared with $24.8 billion last week, according to Fed data released late yesterday. Curzon Funding LLC and Nightingale Finance LLC, vehicles tied to AIG’s Financial Products unit, had $2.3 billion in commercial paper expiring in April, AIG said in a regulatory filing in February. The affiliates, which invested in fixed- income holdings including asset-backed securities, needed to turn to the Fed’s commercial-paper program after AIG lost access to its usual sources of funding. “As of today, AIG has repaid in full all outstanding commercial paper” under the Fed program, said Mark Herr , a spokesman for the New York-based insurer. “We continue to make progress in repaying America’s taxpayers.”‬‪‬‪ The Fed commercial-paper program, made available to financial and industrial companies after the 2008 collapse of Lehman Brothers Holdings Inc. roiled money markets, was phased out this year. AIG’s debt on the five-year credit line was about $45 billion in November. The draw was reduced by about $25 billion in December when AIG handed over stakes in two life divisions. The company announced agreements in March to sell the non-U.S. life businesses, AIA Group Ltd. and American Life Insurance Co., for a total of about $50 billion. AIG said proceeds of the sales, which the company expects to be completed this year, will further reduce the insurer’s obligations to taxpayers. Treasury Aid AIG separately drew $2.2 billion from a Treasury Department facility in the first quarter to bolster property-casualty units . The firm used the cash to redeem securities held by insurance subsidiaries, improving liquidity and risk-based capital ratio, a measure of capital adequacy watched by rating firms and regulators, according to Herr. AIG, bailed out in September 2008 to prevent a U.S. economic collapse, got a rescue package that includes a $60 billion Fed credit line , up to $52.5 billion to buy mortgage- backed securities owned or backed by the insurer, and a Treasury investment of as much as $69.8 billion in two facilities. AIG owes more than $45 billion to the Treasury. To contact the reporters on this story: Hugh Son in New York at hson1@bloomberg.net ; Sapna Maheshwari in New York at sapnam@bloomberg.net

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Video: Vicky Ward Discusses Fuld’s Compensation at Lehman: Video

April 30, 2010

April 30 (Bloomberg) — Vicky Ward, author of “The Devil’s Casino,” talks with Bloomberg Betty Liu about the compensation of former Lehman Brothers Holdings Inc. Chief Executive Officer Richard Fuld and the claims by former Lehman lawyer Oliver Budde that Fuld understated his pay to Congress. (Source: Bloomberg)

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Milken Faults Companies Failing to Reduce Excess Debt as Markets Recover

April 28, 2010

By Gabrielle Coppola April 29 (Bloomberg) — Companies failing to exploit the recovery in bond and equity markets to pay down debt are making a mistake, according to Michael Milken , the junk-bond billionaire turned philanthropist. Near-zero interest rates in the U.S. and Europe have fueled demand for high-risk securities, providing companies with an opportunity to cut debt incurred during the excesses of the credit boom, Milken told an audience at the Milken Global Institute conference yesterday in Beverly Hills, California. “It’s the individual’s fault, the individual leadership of that organization, if they are not taking advantage of today’s markets to sell equity and debt, de-leverage and push out maturities,” he said during a panel moderated by Matt Winkler , editor-in-chief of Bloomberg News. Companies sold $98.9 billion of high-yield bonds in the U.S. this year, on pace to beat the record $162.7 billion issued in 2009 after government measures unlocked credit markets frozen by Lehman Brothers Holdings Inc.’s collapse. The extra yield investors demand to own junk bonds instead of Treasuries fell to 5.51 percentage points yesterday from a peak of 21.82 percentage points in December 2008, according to Bank of America Merrill Lynch’s U.S. High-Yield Master II index. The average junk bond traded at 99.5 cents on the dollar from a low of 54.9 cents on Dec. 15, 2008, Merrill data show. Risks ‘Exaggerated’ “Defaults were exaggerated, the risks were exaggerated,” Milken said of the recovery in high-yield bonds. “Those risks existed in mortgage-backed securities, but they didn’t exist in industrial companies, and that’s what the market is saying.” The debt has returned 4.8 percent this year, following a record 58 percent return in 2009, Merrill data show. High-yield, or junk, bonds are ranked lower than Baa3 by Moody’s Investors Service and below BBB- by Standard & Poor’s. Milken, 63, pioneered the junk-bond market in the 1970s as the high-yield bond chief at Drexel Burnham Lambert Inc. He was indicted on 98 counts of racketeering and securities fraud in 1989, ultimately serving about two years after a plea bargain and sentence reduction. For the past decade he has focused on philanthropy and running the research institute he founded, which seeks ways to generate capital for people around the world. To contact the reporter on this story: Gabrielle Coppola in New York at gcoppola@bloomberg.net

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Global Stocks $1 Trillion Loss on Greece No Reason to Sell for U.S. Funds

April 28, 2010

By Rita Nazareth and Whitney Kisling April 28 (Bloomberg) — The largest equity-market decline since February is failing to spur selling by the biggest U.S. money managers, who say losses will prove temporary as gains in earnings make stocks too cheap to pass up. Greece and Portugal’s credit downgrades yesterday are no reason to doubt forecasts for profit growth exceeding 50 percent at Standard & Poor’s 500 Index companies through 2011, said Kenneth Fisher , who oversees about $39 billion as chairman of Fisher Investments. Almost $1 trillion of global equity value was erased on concern rising public debt will spur defaults, derailing the global economy, data compiled by Bloomberg show. “It’s a little bit like yelling fire in a movie theater — it doesn’t mean the place is going to burn down ,” said Fisher, who favors mining companies, computer makers and retailers, in an interview from Woodside, California. “The quality of earnings is exceptional. Earnings are coming in overwhelmingly above expectations. I don’t see any signs that will stop.” While the global rally restored more than $21 trillion to equity markets since March 2009, investors are growing more skittish about the Euro region, which combined makes up the world’s second-largest economy behind the U.S. The Euro Stoxx 50 Index has fallen 4.3 percent this year on concern about growing deficits across the region. The MSCI Asia-Pacific Index gained 4 percent in 2010 and the S&P 500 increased 6.2 percent, according to data compiled by Bloomberg. Debt Downgrades The U.S. gauge lost 2.3 percent to 1,183.71 yesterday after S&P lowered Greek debt to junk status and Portugal was cut two steps. The Euro Stoxx 50 slid 3.7 percent and the euro dropped below $1.32 for the first time since April 2009. Greek two-year note yields surged to a record of almost 19 percent and Portugal’s jumped to 5.7 percent as credit-default swaps on Europe debt reached the highest ever. Companies in the S&P 500 may increase profits 29 percent this year and 19 percent in 2011, the biggest two-year advance since 1998, estimates from more than 1,500 analyst compiled by Bloomberg show. The index is priced at 14.8 times the average prediction for 2010 income. Should the forecasts prove accurate, the S&P 500 would be trading at its lowest multiple since the 1990s, excluding the six months after New York-based Lehman Brothers Holdings Inc. declared bankruptcy in September 2008. Yesterday’s plunge, which came during congressional testimony by executives of Goldman Sachs Group Inc. over the marketing of subprime mortgage securities, follows eight weeks of gains for the Dow Jones Industrial Average, the longest streak since 2004. Rising Caution “I have been cautious since the third week of April, thinking that we were setting up for a correction of somewhere between 5 and 10 percent,” said Jeff Saut , the chief investment strategist at Raymond James & Associates, which manages $230 billion in St. Petersburg, Florida. “Greece, Goldman don’t change my long-term view at all. We’re in a profit cycle recovery. Profits are exploding at the biggest ramp rate in decades and we’re playing to that tune.” The cost of options to insure against losses in the S&P 500 as measured by the Chicago Board Options Exchange Volatility Index climbed 31 percent yesterday, to 22.8 from 17.5, the biggest increase since October 2008. DuPont Co., the Wilmington, Delaware-based chemical maker, Atlanta-based United Parcel Service Inc. , the largest package- delivery company, and Dearborn, Michigan-based automaker Ford Motor Co. reported profits or sales yesterday that topped analyst estimates, and their shares fell 4.4 percent on average. The declines show Europe is investors’ focus, said David Rosenberg , chief economist for Gluskin Sheff & Associates. Earnings Reports “On the Greece file, the big concern now is contagion risks,” Rosenberg said from Toronto. “The headlines were all about Greece, but the real action was in Portugal — and it’s not pretty. So what we are talking about is heightened risk premiums at a time when a 17 VIX index was underscoring a very high level of confidence over the outlook for the economy.” Almost 80 percent of S&P 500 companies reporting results this earnings season have topped analysts’ forecasts, data compiled by Bloomberg show. While profits may be outstripping projections, sales are matching analysts’ predictions when bank and brokerage results are excluded, according to Rosenberg’s data. The International Monetary Fund last week raised its forecast for worldwide growth this year while cautioning that a failure to contain public debt may have “severe” consequences. Global economic expansion may reach 4.2 percent in 2010, the fastest rate since 2007, the Washington-based fund estimated. “Fiscal fragilities” pose the biggest threat to reaching the forecast, the IMF said April 22. “I’m not saying we’re out of the woods,” said John Lynch , who helps oversee $155.5 billion as chief market strategist at Evergreen Investments. “The recovery is real and profits are strong. The cyclical strength is still very powerful. We’ve just got to make sure that the long-term challenges don’t derail it.” To contact the reporters on this story: Whitney Kisling in New York at wkisling@bloomberg.net ; Rita Nazareth in New York at rnazareth@bloomberg.net

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Oil Volatility Sinks to 3-Year Low as Supply Concern Fades: Energy Markets

April 27, 2010

By Alexander Kwiatkowski April 28 (Bloomberg) — Crude oil volatility is falling to the lowest level in almost three years as brimming stockpiles and rising OPEC investment in production capacity eases concern of shortages. Oil’s 50-day historical volatility, a measure of how much crude fluctuates around its average price during that period, declined to 23 percent yesterday, the lowest since July 2007. The measure rose to a record 108 percent at the beginning of 2009 as prices collapsed following the demise of Lehman Brothers Holdings Inc. and the onset of global recession. The Organization of Petroleum Exporting Countries said it is planning 140 oil projects over the next five years and that its 6 million barrels a day of unused production is enough to meet demand and avoid a repeat of the price swings of 2008. U.S. crude stockpiles rose to 356 million barrels on April 2, the highest since June, and inventories held on ships are climbing, according to Morgan Stanley. “When inventories go up, the precariousness of the market starts to fall as there is so much of this stuff sloshing around,” said Michael Lewis , head of commodity research at Deutsche Bank AG in London. “People are not so fearful of a supply event because spare capacity is higher.” BP Plc, the biggest oil producer in the Gulf of Mexico, said yesterday that crude’s declining volatility may limit profits from its trading this quarter. Oil has held between $69 and $88 a barrel in New York this year and is up 3.9 percent amid speculation the global economic recovery will spur demand. Prices slumped from a record $147 a barrel in July 2008 to $32 in December that year. Creeping Higher Crude oil for June delivery traded near $82 a barrel yesterday on the New York Mercantile Exchange. Volatility has weakened as prices have moved “gently” through successively higher price ranges during the past few months, said Paul Horsnell , head of commodities research at Barclays Capital in London, unlike the rapid price swings of 2008. Oil’s declining volatility also reflects increased liquidity, a phenomenon seen across most asset classes, Lewis said. Governments and central banks provided an estimated $11 trillion to rescue financial institutions and cut interest rates to spur the economy. In stock markets, volatility has decreased for the Standard & Poor’s 500 index, falling as low as 9.6 percent earlier this week on the same 50-day historical basis, the lowest since June 2007. “Volatility looks far too low,” Lewis said. “This enormous liquidity which has come into the market through central banks has been something that has been driving it lower.” Goldman’s View Volatility is rising in natural gas, where the measure increased to 41.7 percent yesterday after falling to an eight- month low of 35.3 percent on March 29. Gas futures traded in New York, prone to swings during the summer hurricane season as storms threaten to halt offshore production, traded near $4.22 per million British thermal units yesterday. Goldman Sachs Group Inc. analysts Jeffrey Currie and David Greely said in a March 31 report that commodity markets are set for “violent price spikes,” as investment constraints on new supplies and emerging market demand threaten shortages. Volatility may increase as global oil demand grows faster than supply and spare production capacity diminishes, according to Horsnell. Barclays Capital estimates that West Texas Intermediate crude will average $85 a barrel in New York this year, then rise to $97 in 2011. Recipe for Volatility “Volatility is going to be related to the amount of slack there is in the system,” Horsnell said. Barclays sees “a steady erosion of spare capacity and that is a recipe for high volatility.” Traders attempt to profit from rising or falling volatility by purchasing or selling options contracts. When volatility is expected to rise, investors may use a strategy known as a long straddle, whereby they buy both a call option and a put option on the same commodity, at the same strike price. Saudi Arabia, OPEC’s biggest producer, has sought to rein in oil, expecting that more predictable prices will allow producers to invest the billions needed to meet future demand. The nation has spare capacity of about 4 million barrels a day, Khalid al-Falih , the chief executive of state-run Saudi Aramco, said in an April 19 speech. OPEC’s Capacity OPEC, supplier of 40 percent of the world’s oil, pumped 29.2 million barrels a day in March, with another 5.6 million barrels idle, according to data compiled by Bloomberg . The group’s spare capacity was as low as about 2 million barrels a day in July 2008, when oil prices peaked. Saudi Arabia’s spare capacity acts as a “bridging loan” to meet future demand, said Lawrence Eagles , head of commodities research at JPMorgan Chase & Co. in New York. While OPEC has been increasing production, “it has been behind the curve in adding supply to meet demand,” Eagles said in an e-mail. “OPEC’s failure to respond to higher prices with higher output today has market implications that could result in a much more serious thrust higher,” he said. OPEC Secretary General Abdalla El-Badri said on Feb. 1 that the group will add 12 million barrels a day of capacity over five years. The extra oil more than offsets field declines and is enough to “satisfy demand and provide a cushion of spare capacity,” he said. To contact the reporter on this story: Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net ;

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Most U.S. Stocks Decline as Financial-Legislation Concern Offsets Earnings

April 26, 2010

By Whitney Kisling April 26 (Bloomberg) — Most U.S. stocks declined, pulling the Standard & Poor’s 500 Index down from a 19-month high, as concern proposed legislation will hurt banks overshadowed improving earnings at Caterpillar Inc. and Whirlpool Corp. JPMorgan Chase & Co. and Goldman Sachs Group Inc. helped lead financial shares lower as Congress prepared to vote on whether to open debate on the financial overhaul. Citigroup Inc. tumbled 5.1 percent on the Treasury Department’s plan to sell as many as 1.5 billion shares. Caterpillar gained 4.2 percent after posting its first earnings increase in seven quarters and raising its full-year forecast. Whirlpool rallied 10 percent as the appliance maker boosted its forecast. About seven stocks fell for every six that rose on U.S. exchanges. The Standard & Poor’s 500 Index dropped 0.4 percent to 1,212.06 at the 4 p.m. close in New York. The Dow Jones Industrial Average gained 1.13 points, less than 0.1 percent, to 11,205.41, led by Caterpillar. Stocks in Europe and Asia rose. “The market’s got plenty of reasons to be choppy and down,” said Stephen Wood , who helps manage $176 billion as chief market strategist for Russell Investments in New York. “We are on the eve of an overhaul with Congress, we don’t know what the details are. That’s probably contributing to the move.” Earnings Season Stocks advanced earlier as earnings reports signaled the economic recovery is gaining momentum. Profit estimates for S&P 500 companies climbed 9.1 percent on average in April, twice the gain in their prices and the largest monthly increase since at least 2006, data compiled by Bloomberg show. The S&P 500 started today trading at 14.2 times forecasts for its companies’ profits, lower than any time since 1990, except for the six months after Lehman Brothers Holdings Inc. collapsed. JPMorgan fell 2.3 percent to $43.89. A gauge of financial companies lost the most among 10 groups in the S&P 500, dropping 1.7 percent. Goldman Sachs retreated 3.4 percent to $152.03. Executives and traders from the most profitable Wall Street firm in history will be questioned tomorrow by a Congressional panel about trading in the U.S. mortgage market, less than two weeks after the company was sued for fraud by the U.S. Securities and Exchange Commission. U.S. Senate negotiators plan to include a provision that would force JPMorgan, Bank of America Corp. and rival banks to wall off swaps trading desks in a financial-regulation bill that may be debated this week, according to a Democratic Senate aide briefed on the talks. ‘More Vulnerable Than Ever’ Michael Barr , the assistant Treasury secretary for financial institutions, said the U.S. is “more vulnerable than ever” to another crisis. He spoke at an independent community bankers summit from Washington. To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net .

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Goldman Sachs Director Gupta Said to Be Suspected of Leaking Buffett Deal

April 23, 2010

By Joshua Gallu and David Scheer April 23 (Bloomberg) — Goldman Sachs Group Inc. director Rajat Gupta is suspected by U.S. investigators of tipping off a hedge fund billionaire to a $5 billion investment in the bank by Warren Buffett ’s Berkshire Hathaway Inc., a person with direct knowledge of the inquiry said. Gupta, 61, who has said he won’t stand for re-election to Goldman Sachs’s board, told Galleon Group founder Raj Rajaratnam about Buffett’s plan before it was announced in September 2008, the person said, declining to be identified because the inquiry isn’t public. Rajaratnam, who was arrested Oct. 16, is fighting criminal charges and U.S. Securities and Exchange Commission civil claims that he used inside information to trade shares of companies including Advanced Micro Devices Inc. In a March 22 letter to Rajaratnam’s lawyers, made public April 9, prosecutors said they had an interest in his trading in Goldman Sachs stock in 2008. Three days before the letter was sent, Goldman Sachs announced Gupta was leaving its board. “Rajat has neither violated any law nor done anything else improper,” his attorney, Gary Naftalis of Kramer, Levin, Naftalis & Frankel LLP, said in a statement. “He has always conducted himself with integrity in his business, philanthropic and personal life.” Goldman Sachs spokesman Samuel Robinson , SEC spokesman John Nester and Janice Oh , a spokeswoman for U.S. Attorney Preet Bharara in New York, declined to comment. Gupta hasn’t been formally accused of any wrongdoing. The Wall Street Journal reported the news earlier today. Goldman Sachs , the most profitable firm in Wall Street history, agreed to sell $5 billion in preferred shares that paid 10 percent interest to Buffett, after the Lehman Brothers Holdings Inc. bankruptcy and Bank of America Corp.’s purchase of Merrill Lynch & Co. Gupta was McKinsey’s worldwide chief from 1994 to 2003, and a senior worldwide partner until 2007. He withdrew from the consulting firm and joined the boards of American Airlines parent AMR Corp., Procter & Gamble Co., Harman International Industries Inc. Genpact Ltd., the business outsourcing company, and Russia’s OAO Sberbank. To contact the reporters on this story: Joshua Gallu in Washington at jgallu@bloomberg.net ; David Scheer in New York at dscheer@bloomberg.net .

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Lehman Failed to Disclose Repo 105 Transactions, Investors Claim in Suit

April 23, 2010

By Thom Weidlich and Linda Sandler April 23 (Bloomberg) — Lehman Brothers Holdings Inc., which filed the biggest bankruptcy in U.S. history, was accused in a lawsuit of failing to disclose Repo 105 transactions, making false statements about its liquidity and overstating real estate values. To contact the reporter on this story: Linda Sandler in New York at lsandler@bloomberg.net

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Obama Challenges Financial Industry to Join Push for Regulatory Overhaul

April 22, 2010

By Roger Runningen and Hans Nichols April 23 (Bloomberg) — President Barack Obama challenged the financial industry yesterday to join rather than fight the effort to overhaul market regulations as he sought to close the deal for enactment of his proposals. Speaking to an audience in New York that included Lloyd Blankfein , chairman and chief executive officer of Goldman Sachs Group Inc. , which is being sued by federal regulators over alleged fraud linked to derivatives, Obama said the industry will benefit under stronger oversight, and so will the nation. “Ultimately, there is no dividing line between Main Street and Wall Street,” Obama said in his speech at Cooper Union , about two miles from the financial district. “We will rise or we will fall together as one nation.” Obama gave the address as Senate negotiators sought to agree on a compromise that would get legislation encompassing the president’s objectives through Congress. The effort has been helped by the administration’s ramped- up lobbying campaign and last week’s announcement by the Securities and Exchange Commission that it is suing Goldman Sachs, alleging the firm misled investors in a collateralized debt obligation. The company is contesting the SEC’s claims. While Obama criticized the “reckless risk-taking” that led to the worst financial crisis since the Great Depression and the “battalions of financial industry lobbyists” trying to influence the pending legislation, he sought to enlist support from those he wants to regulate. Wider Interests “I urge you to join me not only because it is in the interest of your industry, but also because it’s in the interest of your country,” he said. Financial industry executives interviewed after the speech generally approved of Obama’s address and its tone. Robert Nichols , president of the Financial Services Forum, an industry group based in Washington, said Obama’s “rhetoric was a lot more conciliatory” than in the past remarks. Part of the reason, he said, may be that movement has occurred toward a compromise in Congress. “We’re getting closer to agreement,” he told Bloomberg Television after the speech. “So elevated rhetoric really doesn’t do any good in terms of getting there.” Second Anniversary Charlie Cook , publisher of the independent Cook Political Report in Washington, said Obama’s tone reflects the administration’s attempt to get the legislation signed into law before second anniversary in September of the Lehman Brothers Holdings Inc .’s collapse in the biggest bankruptcy filing in history. That also would have it finished before the November congressional elections. “The White House desperately needs a bill,” Cook said. “And hostile rhetoric makes it more difficult to get something to go through.” Robert Diamond , president of Barclays Plc , said the administration, Congress and the banking industry are “working very closely, and very constructively” on the legislation Obama is seeking. “Strong banks want strong regulation,” he said in a Bloomberg Television interview outside Cooper Union. Whatever emerges from the negotiations in Congress, Peter Solomon , founder of investment bank Peter J. Solomon Co. and a former vice chairman of Lehman Brothers, said the financial industry will adapt. “Wall Street is smarter than any regulation or laws, and they’ll figure out how to make profits and they’ll figure out how to adjust,” he said after the speech. He called the regulatory legislation “a very constructive bill.” Obama’s Audience Other executives and officials who attended the speech included former Federal Reserve Chairman Paul Volcker , who is an Obama adviser; Gary Cohn , president of Goldman Sachs; Barry Zubrow , chief risk officer for JPMorgan Chase & Co. ; and Tom Nides , executive vice president and chief operating officer of Morgan Stanley , according to the White House. The audience also included labor leaders, local officials and students and faculty of Cooper Union. Republicans kept up criticism of the Democratic-sponsored legislation. House Republican leader John Boehner of Ohio said the bill will “provide permanent bailouts for Wall Street.’” In his remarks, Obama sought to rebut such criticism. He said it wasn’t legitimate “to suggest that somehow the legislation being proposed is going to encourage future taxpayer bailouts, as some have claimed. That makes for a good sound bite, but it’s not factually accurate.” Dodd, Shelby Scott Reed , a Republican strategist, said Obama’s speech “did nothing to move the needle” in getting the legislation passed. That work is being done by Democratic Senator Christopher Dodd of Connecticut, chairman of the banking committee, and Alabama Senator Richard Shelby , the panel’s ranking chairman, he said. “Dodd and Shelby are driving this,” Reed said. The legislation, which may come to the Senate floor as early as next week, would set up a new regulator within the Federal Reserve to guard consumers against abuse and deception in such instruments as mortgages, credit cards or loans. It would also create the mechanism to dismantle systemically important financial firms when they fail, and strengthen oversight of derivatives and hedge funds. The House has already passed its version of the regulatory legislation, and the House and Senate would have to merge their bills. To contact the reporters on this story: Roger Runningen in Washington at rrunningen@bloomberg.net Hans Nichols in New York at Hnichols2@bloomberg.net

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Blackstone to Remain `Major Client’ of Goldman Sachs, CEO Schwarzman Says

April 22, 2010

By Jason Kelly and Christine Harper April 22 (Bloomberg) — Blackstone Group LP ’s chief executive officer said his company will remain a “major client” of Goldman Sachs Group Inc. and that he’s never doubted the firm’s ethics in his 40-year career. “We’ve never had any circumstance where there’s been a question about their ethical character,” CEO Stephen Schwarzman said today on a conference call. “We’re a major client of Goldman’s and will continue to be a major client of Goldman’s.” Blackstone, the world’s biggest private-equity company, follows Goldman Sachs clients including Ford Motor Co. and Macy’s Inc. in saying it will stick with the firm after it was sued for fraud by the U.S. Securities and Exchange Commission last week. New York-based Goldman Sachs has called the allegations “unfounded in law and fact” and vowed to “vigorously contest” them. Schwarzman, 63, who said he worked with Goldman Sachs for 40 years, helped found Blackstone 25 years ago. Before Blackstone, Schwarzman was employed by Lehman Brothers Holdings Inc., a rival to Goldman Sachs that went bankrupt in 2008. Blackstone and Goldman Sachs also compete when it comes to private-equity investments, with Goldman Sachs raising a $20 billion leveraged-buyout fund — the company’s sixth — in 2007. The SEC said that in early 2007, as the U.S. housing market teetered, Goldman Sachs created and sold a collateralized debt obligation linked to subprime mortgages without disclosing that hedge fund Paulson & Co. helped pick the underlying securities and bet against the vehicle, known as Abacus 2007-AC1. “We are very disappointed that the SEC would bring this action,” Goldman Sachs’s co-general counsel, Greg Palm , told analysts and investors earlier this week. “We would never intentionally mislead anyone, certainly not our clients or our counterparties.” To contact the reporters on this story: Jason Kelly in New York at jkelly14@bloomberg.net Christine Harper in New York at charper@bloomberg.net

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Sheldon Filger: Greek Debt and Fiscal Crisis Gets Steadily Worse Amid a Sea of Deception

April 22, 2010

If you thought the revised Greek government ‘s fiscal deficit projection for 2009 was disastrous at 12.3 percent of GDP, fasten your seat belt and hold onto your hat. As awful as that figure was when Prime Minster George Papandreou revealed that the previous government in Athens had deliberately lied about the deficit so that Greece would be admitted into the Eurozone, in retrospect the powers that be in Brussels, joined by the IMF, wish to God that 12.3 percent was the number. Now, we learn, the actual deficit figures are even worse, though nobody can be certain at this point how bad they really are. Eurostat, the statistical department of the EU, has released its own evaluation of Greece’s fiscal reality, and has concluded that, at a minimum, the actual deficit to GDP accrued by Athens in 2009 was 13.6 percent and might even be as high as 14.1 percent. Due to deliberate bookkeeping chicanery by previous Greek governments, apparently facilitated at least in some measure by the unique financial engineering of Goldman Sachs, the true state of Greek fiscal reality is hidden by a thick layer of artfully contrived opacity. In the light of this latest revelation, courtesy of Eurostat, yields on Greek government bonds continue their upward climb. For example, yields on ten-year Greek bonds now exceed nine percent, nearly 600 basis points higher than the equivalent bonds being offered by Germany. Clearly, the sovereign debt market is far from reassured by the latest version of the ever-changing Greek bailout package, which in its latest manifestation was cobbled together by the Euzozone countries and the IMF. In response to the ever-worsening truth now emerging about how dire the Greek debt crisis really is, the ratings agencies are again weighing in with a downgrade of Greek sovereign debt. Moody’s has lowered its rating on Greece by another notch, and likely the other ratings agencies will soon weigh in. This will inevitably further expand the spread in bond yields, and only add to the complication of even a short-term bailout. When Lehman Brothers collapsed in September of 2008, there was an immediate freeze in the global credit market, reflecting acute distrust by counterparties spooked by misleading financial representations by major investment firms, especially with regard to mortgage backed securities. The latest revelations concerning the Greek fiscal crisis point to a similar phenomenon that is increasingly likely. As the sovereign debt crisis currently afflicting Greece not only worsens but spreads to other countries with large deficit to GDP correlations, the risk of a type of Lehman Brothers scenario with respect to the sovereign debt market becomes increasingly probable, with one important difference. When Lehman Bothers collapsed and credit markets froze, sovereigns borrowed massively and bailed out their financial systems. However, if this time sovereigns are the actors frozen out of the credit market, who bails them out? Answer than one, Ben Bernanke and Timothy Geithner.

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U.K. Unemployment Falls More Than Forecast, Boosting Brown as Vote Looms

April 21, 2010

By Jennifer Ryan April 21 (Bloomberg) — U.K. unemployment fell more than economists forecast in March, providing a boost for Prime Minister Gordon Brown as he fights the tightest election for more than three decades. The number of people collecting jobless benefits fell 32,900 from February to 1.54 million, the Office for National Statistics said today in London. The median forecast in a Bloomberg News survey of 26 economists was for a 10,000 drop. Brown is trying to regain ground in a three-way race for the May 6 election by arguing the economic recovery is too fragile to tackle the record budget deficit this year. His Labour Party has lost support to David Cameron’s Conservatives, who want to cut spending this year, and a resurgent Liberal Democrat party led by Nick Clegg. The three leaders face each other tomorrow in the second of three live televised debates. “The government would seize on another fall in unemployment as evidence they’ve managed the downturn well,” Sarah Hewin, an economist at Standard Chartered in London, said before the report. “If it’s positive for Labour then the Conservatives and Lib Dems can’t claim credit for it, and they’ll try to downplay it.” The pound rose as much as 0.25 percent after the report and was trading at $1.5402 as of 9:31 a.m. in London. Polls published yesterday showed Labour slipping into third place after a surge in support for the Liberal Democrats following Clegg’s performance in the first debate on April 15. Seat Calculation The results mean Labour could win the most seats in Parliament and remain in power with the support of the Liberal Democrats. Economists at Citigroup Inc. said this week a minority government may find it hard to tackle the budget deficit, which rivals that of Greece at almost 12 percent of gross domestic product, leaving sterling and gilts at risk. In February, the number of jobless claims fell by 40,100 instead of the 32,300 drop originally reported. The decline was the largest since June 1997. Today’s report shows there’s still slack in the labor market. A wider survey-based measure of unemployment based on International Labour Organization counting methods rose 43,000 to 2.5 million in the three months through February, the highest level since 1994. The 8 percent jobless rate, up from 7.8 percent in the previous period, compares with 9.7 percent in the U.S. and 10 percent in the euro region. The number of people employed in the same period fell to 89,000 to 28.8 million, the lowest level since 2005. The number of inactive people, including students, those on long-term sick leave or people who have given up looking for work, rose 110,000 to 8.2 million, the highest since records began in 1971. Bonus Pay The statistics office said today weekly pay including bonuses climbed 2.3 percent in the three months through February from a year earlier. Regular pay rose 1.7 percent and bonus pay fell 0.7 percent. Bonuses in financial services rose 2.2 percent, the first gain since October 2008, the month after Lehman Brothers Holdings Inc. collapsed. Cheshunt, England-based Tesco Plc, the U.K.’s largest retailer, said yesterday it plans to create 9,000 jobs in the U.K. this year while it increases the pace of overseas store openings. Some workers are still feeling the strain of the recession. More than 2,000 employees at York, England-based Jarvis Plc lost their jobs once the company entered administration in March after more than 160 years in the building trade. The YouGov Plc daily poll for the Sun newspaper gave the Conservatives 33 percent, the Liberal Democrats 31 percent and Labour 27 percent. YouGov said 1,509 people were surveyed April 18-19. No margin of error was provided. To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net

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Dick Fuld: Former Lehman CEO To Claim ‘No Recollection’ Of Accounting Fraud

April 19, 2010

WASHINGTON — The former chief executive of Lehman Brothers said he has “absolutely no recollection whatsoever” about an accounting maneuver that a bankruptcy examiner says the company used to mask its perilous financial condition. Richard Fuld, Lehman’s former CEO, said he does not recall seeing any documents related to the so-called Repo 105 accounting gimmick, according to testimony prepared for a House hearing Tuesday. The report “distorted the relevant facts” and that the accounting complied with standard practices, Fuld said in the prepared remarks. “The result is that Lehman and its people have been unfairly vilified,” Fuld said. Last month, an examiner appointed by the bankruptcy court to investigate the Lehman debacle issued a 2,200-page report. It found that the firm masked $50 billion in debt by using the so-called Repo 105 accounting maneuver The examiner, Anton Valukas, discovered that Lehman put together complex transactions that allowed the firm to sell “toxic” securities _mainly those made up of mortgages – at the end of a quarter. That wiped them off its balance sheet, avoiding the scrutiny of regulators and shareholders. Then the bank quickly repurchased them – hence the term “Repo.” Since the report came out, interest has grown on Capitol Hill among lawmakers seeking to find out if the accounting gimmick was widely used by Wall Street firms to hide their debt. Tuesday’s hearing is the latest attempt to probe the matter and comes as the Obama administration is urging passage of a sweeping financial regulatory overhaul. Treasury Secretary Timothy Geithner will testify at the hearing that Lehman’s collapse highlights why the Obama administration’s proposal to reform the financial system is needed. “Lehman’s disorderly bankruptcy was profoundly disruptive,” Geithner said, according to excerpts of his prepared remarks. “It magnified the dimensions of the financial crisis, requiring a greater commitment of government resources than might otherwise have been required.” The chairman of the Securities and Exchange Commission, Mary Schapiro, also is scheduled to testify. She will say that after Lehman’s rival, Bear Stearns, nearly collapsed two years ago in a government-managed sale, the SEC had little ability to prevent Lehman from going under. She did, however, concede that the SEC “did not do enough” to oversee the five largest investment banks, even though it had authority over them since 2004. That oversight program, she said, was “insufficiently resourced, staffed, and managed from its inception.” Lawmakers are also likely to question Schapiro about the SEC’s case against Goldman Sachs. The agency filed civil charges Friday against the venerable Wall Street firm, claiming the bank misled investors about mortgage-linked securities. Federal Reserve Chairman Ben Bernanke, also scheduled to testify, said the central bank wasn’t aware that Lehman used the accounting move. And even if the Fed did know it was doing so, it wouldn’t have changed the Fed’s view that the company was in bad financial shape, according to Bernanke’s prepared remarks. Although the Securities and Exchange Commission was Lehman’s chief regulator, the Fed began to monitor the firm after trouble surfaced in the financial industry. Two Fed employees were placed at Lehman to keep tabs of the company’s cash position and its general financial condition, Bernanke explained. Beyond information gathering, the employees had no authority to regulate Lehman’s disclosures, capital standards, risk-management practices or other business activity, Bernanke pointed out. The Fed and other government agencies were unable to engineer a private-sector rescue of the failing firm or come up with some other solution. Lehman was forced to declare bankruptcy – the biggest in U.S. history – in the fall of 2008. That threw financial markets in the United States and around the globe into crisis. Bernanke said the case underscores the need for Congress to pass a sweeping financial overhaul. That legislation includes a mechanism to allow the government to safely wind down ailing financial companies whose collapse could take down the entire financial system and the broader economy.

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Carlyle Group Debt Specialist Steve Sterling Said to Be Hired by BlackRock

April 19, 2010

By Kristen Haunss April 19 (Bloomberg) — Carlyle Group’s Steve Sterling , who headed research for the U.S. leveraged finance group, is joining BlackRock Inc. in global capital markets, according to three people familiar with the move. Sterling, 46, will be based in New York and is expected to start as early as next week, said one of the people, who declined to be identified because the discussions are private. Sterling declined to be interviewed. Christopher Ullman , a Carlyle spokesman, confirmed Sterling has left the private equity firm. Bobbie Collins , a BlackRock spokeswoman, declined to comment. Carlyle announced Sterling’s hiring in December 2007, saying he would start in January 2008, according to a news release from that time. Sterling previously worked at Bear Stearns Cos., where he headed high-yield capital markets, which included bonds, loans and loan sales, and Lehman Brothers Holdings Inc., where he was in charge of loan capital markets, the person said. To contact the reporter on this story: Kristen Haunss in New York at khaunss@bloomberg.net

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Vicky Ward: Senior Goldman Exec Is Married to Former Head of ACA

April 18, 2010

Friday, as news of the allegations of fraud at Goldman Sachs spread, I got a call from someone who works in the insurance business. “Check out the former head of ACA” he said referring to the now-defunct and formerly down-graded bond insurer who asked the-not-so-omniscient hedge fund manager John Paulson to choose which securities to put into the CDO, Abacus, that Goldman Sachs subsequently sold to two big clients, the German bank IKB and the Royal Bank of Scotland — without disclosing that Paulson would be shorting his own hand-picked stocks on the other side of the trade. Now the SEC’s complaint states that ACA had no idea that Paulson was shorting the stocks he’d been asked to select, yet my deepthroat was not so convinced. “ACA had a horrible reputation,” he told me, which led me to ask the obvious question so why would Goldman want ACA’s stamp as selection manager on the CDO they were marketing? Fabrice Tourre, the 31-year-old named as the architect of Abacus, is quoted as insisting that Goldman wanted ACA’s brand name and “credibility” on the CDO. My source told me to check out who the head of ACA was married to. “I think you’ll find it’s a senior woman at Goldman Sachs,” he said. Well, yep, it is. Alan S. Rosenman took over ACA Capital as president and CEO in 2004 – because — wait for it — his predecessor Michael Satz had “personal income tax issues” — (how murky is this story going to get you must be asking?) According to a Business Week article dated April 3 by David Henry and Matthew Goldstein, Rosenman “immediately began to push ACA into CDO insurance, an area his predecessor, Satz, had only begun to explore.” Rosenman’s wife, or at least partner — they are listed as sharing a house together for which they paid $6.1 million in 2005 in New York — is Frances “Fran” R. Bermazohn, who is managing director and deputy general counsel at … Goldman Sachs. Hmmmn. I called Mr. Rosenman who gave me the illuminating statement: “I am not offering any comment at this time.” I asked him, did he ever disclose their relationship to buyers of Abacus? Did she? And Could ACA really therefore not have known about Paulson’s activities? “No comment.” One thing that is certainly puzzling is that if ACA did know, then why on earth would it have issued protection on the so-called “superior senior tranche” which turned out to be of course anything but ‘super senior,” thanks to Paulson betting against it — and ACA went bust in December last year? But, just as much as the SEC is claiming Goldman should have disclosed that John Paulson had hand-picked stocks he was choosing to short (which means, by the way, in case anyone has missed this point, that Mr. “supposed-good-guy ” Paulson just made one billion dollars off the back of the German tax payer who had to bail out the German bank IKB on the back of its collapse) so too this relationship should have been disclosed. That it is not mentioned in the SEC’s complaint strikes me as being very odd. I was still waiting for Goldman Sachs to respond as this article went to press. When I named my recent book on Lehman Brothers, The Devil’s Casino , I knew that Wall Street was rigged and that everyone on it was playing with loaded dice. Lehmanites told me they were no different from anyone else on the Street and just as Goldman is saying there is no fraud here with the rigged CDO (and they may be right — legally) so Lehmanites believe there was no fraud connected with Repo 105. The conundrum is that weak accounting rules enabled both Goldman and Lehman and no doubt every other gambler out there to get away with what they did legally. (I, for one, do not believe will the SEC will win their suit against Goldman because the law protects Goldman). That their actions were arguably immoral? Well, that’s a question no one on Wall Street wants to ask of themselves. Watch closely what happens Tuesday when former Lehman CEO Dick Fuld goes before Harry Reid’s committee to explain Repo 105. He will insist he did not break the law, just as Goldman will insist the same – and the problem is that technically they may be right. The bigger question is: how do we stop immoral acts that are technically legal? We need to change the law — and fast, but carefully. Things that are hidden need to be brought to light, and contorted complex accounting rules about disclosure needs to become far simpler. And people who are married and whose respective firms are doing business together need to disclose it to any third parties.

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Buffett’s Goldman Sachs Warrants Drop by More Than $1 Billion on SEC Suit

April 16, 2010

By Andrew Frye April 16 (Bloomberg) — The value of Warren Buffett ’s options to buy Goldman Sachs Group Inc. shares dropped by $1.02 billion after regulators sued the bank for misleading clients on the sale of securities tied to the subprime mortgage market. The warrants, which give Buffett’s Berkshire Hathaway Inc. the right to buy New York-based Goldman Sachs common stock for $115 a share, were worth about $1.99 billion at 4:01 p.m., down 34 percent from $3.01 billion yesterday. Goldman Sachs dropped $23.57, or 13 percent, to $160.70 in New York Stock Exchange composite trading. Buffett, Berkshire’s chief executive officer, got the warrants on $5 billion of Goldman Sachs stock as part of an agreement that extended financing to the bank during the depths of the 2008 credit crisis. The deal reflected Buffett’s belief in “not just the strength of Goldman but its integrity,” Ronald Olson , a Berkshire director said earlier this week in an interview. “Historically, Goldman has had distinguished leadership and has played by the rules,” Olson said in an e-mailed statement today. “Without prejudging the SEC lawsuit, if it hasn’t played by the rules in this case, I would be disappointed.” Berkshire fell $1,350, or 1.1 percent, to $118,400. Buffett didn’t respond to an e-mail request for comment sent to his assistant. Misstated and Omitted Goldman Sachs misstated and omitted key facts about a financial product tied to subprime mortgages as the U.S. housing market was starting to falter, the Securities and Exchange Commission said in a statement today. “The SEC’s charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation,” Goldman Sachs said in a statement today. The firm lost more than $90 million on the transaction, and is “disappointed” the SEC would bring this action in the face of an “extensive record which establishes that the accusations are unfounded in law and fact,” Goldman Sachs said in a separate statement. “We did not structure a portfolio that was designed to lose money,” the firm said. Buffett, a longtime Wall Street critic, has praised Goldman Sachs CEO Lloyd Blankfein for his stewardship during the recession. Buffett, 79, served as interim chairman and CEO of Salomon Inc. in 1991 and 1992 as the company sought to recover from involvement in a Treasury debt-auction scandal. Corporate Reputation “I’ll bet he’s not pleased,” said Gerald Martin , a finance professor at American University’s Kogod School of Business in Washington. “He wants to make sure the managers do the right thing.” Buffett’s firm rose to first place this month in Harris Interactive’s annual survey of corporate reputations as the financial crisis pushed the nation’s biggest banks toward the bottom of the list. Goldman Sachs came in 56th out of 60. “I don’t look at Wall Street as ‘evil,’” Buffett said in an interview last year conducted by the CEO of Business Wire, the Berkshire subsidiary that posts corporate press releases. “I look at Wall Street as given to huge excess sometimes.” Goldman Sachs turned to Buffett in September 2008, agreeing to sell $5 billion in preferred shares paying 10 percent interest, after the Lehman Brothers Holdings Inc. bankruptcy and emergency takeover of Merrill Lynch & Co. by Bank of America Corp. The investment amounted to an explicit endorsement of Goldman Sachs from Buffett, the so-called Oracle of Omaha who is celebrated for his investing savvy. To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net

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