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Bank of America May Name Temporary CEO to Allow Board More Time for Search

November 22, 2009

By Bradley Keoun, David Mildenberg and Ian Katz Nov. 22 (Bloomberg) — Bank of America Corp. ’s board may extend its search for a new, permanent chief executive officer into 2010 if directors can’t settle on a candidate in the next four days, according to people familiar with the matter. The directors , who met Friday, may be willing go past their Nov. 26 target and the Dec. 31 retirement of CEO Kenneth D. Lewis if it means getting a better choice, according to a person familiar with the deliberations. At least four external candidates, including Citigroup Inc. director Michael O’Neill , rebuffed approaches. Options include an interim chief or a delay in Lewis’s retirement. Bank of America faces pressure to pick someone in a short period who’s acceptable to regulators and whose pay would be low enough to win approval from the Treasury Department paymaster, the people said. Politics also has influenced the choice at the biggest U.S. bank, the people said. House Oversight Committee Chairman Edolphus Towns said last week Brian Moynihan , one of two internal candidates, may lack the needed leadership. That’s narrowing the field and giving the board “an incredibly tough job,” said Michael Holland , who oversees more than $4 billion as chairman of Holland & Co. in New York. “For people who have choices, it’s hard to figure out why someone would take this job.” The people familiar with the matter spoke before any board meetings this weekend. They declined to be identified because CEO selection is confidential at the Charlotte, North Carolina- based bank, the biggest in the U.S. Decision Nears Bank of America representatives have said the bank was aiming for a decision by the Nov. 26 Thanksgiving holiday, calling it a target rather than a deadline. “The board has been talking to a number of candidates, both internal and external, and expects to have a decision in the very near future,” spokesman Robert Stickler said in a Nov. 20 e-mail. Holland said director Charles K. “Chad” Gifford , a former CEO of FleetBoston Financial Corp., which was bought by Bank of America in 2004 , could step in on an interim basis. Some candidates are reluctant to wade into disagreement between board members and the government over the bank’s future strategy , said Rochdale Securities LLC analyst Richard Bove , citing large shareholders briefed on the matter. “The government and perhaps some of the new directors want the bank cut back in size , while the old core Bank of America people don’t want to do that,” Bove said. Dropping Out O’Neill, a former chief financial officer of predecessor BankAmerica Corp., withdrew from consideration after talking with search-committee members because he felt they didn’t fully grasp how serious regulators are in their demands for change, the people said. O’Neill told the committee members that the company needed to increase the size of its banking operations and shrink its trading business, one person briefed on the talks said. The committee members responded that such a shift would be unproductive because it would abandon the strategy set when Lewis bought Merrill Lynch & Co., the person said. Compensation is another obstacle, because Bank of America’s $45 billion bailout puts the CEO under the purview of paymaster Kenneth Feinberg . Lewis agreed in October to forgo any pay for 2009 after being advised to do so by Feinberg. Feinberg probably wouldn’t approve a package big enough to lure PNC Financial Services Group Inc. Senior Vice Chairman William Demchak , who was among 18 candidates on a list provided Nov. 3 by Finger Interests Ltd., a Houston-based investment fund with 1.1 million Bank of America shares. As of August, Demchak owned about 219,000 shares, currently worth about $12 million, data compiled by Bloomberg show. Finger Candidates At least four of those on the Finger list subsequently said they weren’t interested. They are O’Neill; former JPMorgan Chase & Co. investment-banking co-head William Winters ; U.S. Bancorp CEO Richard Davis ; and Eugene McQuade , a former Freddie Mac president who now oversees Citigroup’s largest banking subsidiary, according to people familiar with the matter. Two executives not on the list, Bank of New York Mellon CEO Robert Kelly and BlackRock Inc. CEO Laurence Fink , have told colleagues and friends they’re not interested. Ex-GMAC LLC CEO Alvaro de Molina , a former Bank of America chief financial officer who also made the list, was never contacted, people said. Charles Scharf , head of retail banking at JPMorgan, was contacted, people familiar with the matter said. Scharf and de Molina declined to comment. Aside from Moynihan, 50, other internal candidates include Chief Risk Officer Gregory Curl , 61. Lewis, 62, favors Curl, one person familiar with the matter said earlier this month. Outside Candidates Federal Reserve officials, who questioned Lewis’s judgment when he considered backing out of the bank’s $29 billion purchase of Merrill Lynch, are pressing for an outsider because they want more drastic change, a different person said. “B of A would really benefit from a fresh set of eyes and a fresh management approach,” said William Atwood , executive director of the Illinois State Board of Investment, which holds 2 million Bank of America shares . “It would be a bad thing if they’re focusing their attention internally.” Lewis has indicated to associates that he would remain as CEO on an interim basis if asked by the board , according to a person familiar with his thinking. Rochdale’s Bove wrote in a Nov. 20 note that several large investors support the idea. “That would give the board time to get their ducks in a row and they would have more breathing room,” said Marc Oken , a former Bank of America chief financial officer who left in 2005. It also would be a discouraging sign of how poorly the search is going, Atwood said. “If that’s their best option, they’re really not doing very well,” Atwood said. To contact the reporters on this story: Bradley Keoun in New York at bkeoun@bloomberg.net ; David Mildenberg in Charlotte at dmildenberg@bloomberg.net ; Ian Katz in Washington at ikatz2@bloomberg.net

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Bank of America May Name Temporary CEO to Allow Board More Time for Search

November 22, 2009

By Bradley Keoun, David Mildenberg and Ian Katz Nov. 22 (Bloomberg) — Bank of America Corp. ’s board may extend its search for a new, permanent chief executive officer into 2010 if directors can’t settle on a candidate in the next four days, according to people familiar with the matter. The directors , who met Friday, may be willing go past their Nov. 26 target and the Dec. 31 retirement of CEO Kenneth D. Lewis if it means getting a better choice, according to a person familiar with the deliberations. At least four external candidates, including Citigroup Inc. director Michael O’Neill , rebuffed approaches. Options include an interim chief or a delay in Lewis’s retirement. Bank of America faces pressure to pick someone in a short period who’s acceptable to regulators and whose pay would be low enough to win approval from the Treasury Department paymaster, the people said. Politics also has influenced the choice at the biggest U.S. bank, the people said. House Oversight Committee Chairman Edolphus Towns said last week Brian Moynihan , one of two internal candidates, may lack the needed leadership. That’s narrowing the field and giving the board “an incredibly tough job,” said Michael Holland , who oversees more than $4 billion as chairman of Holland & Co. in New York. “For people who have choices, it’s hard to figure out why someone would take this job.” The people familiar with the matter spoke before any board meetings this weekend. They declined to be identified because CEO selection is confidential at the Charlotte, North Carolina- based bank, the biggest in the U.S. Decision Nears Bank of America representatives have said the bank was aiming for a decision by the Nov. 26 Thanksgiving holiday, calling it a target rather than a deadline. “The board has been talking to a number of candidates, both internal and external, and expects to have a decision in the very near future,” spokesman Robert Stickler said in a Nov. 20 e-mail. Holland said director Charles K. “Chad” Gifford , a former CEO of FleetBoston Financial Corp., which was bought by Bank of America in 2004 , could step in on an interim basis. Some candidates are reluctant to wade into disagreement between board members and the government over the bank’s future strategy , said Rochdale Securities LLC analyst Richard Bove , citing large shareholders briefed on the matter. “The government and perhaps some of the new directors want the bank cut back in size , while the old core Bank of America people don’t want to do that,” Bove said. Dropping Out O’Neill, a former chief financial officer of predecessor BankAmerica Corp., withdrew from consideration after talking with search-committee members because he felt they didn’t fully grasp how serious regulators are in their demands for change, the people said. O’Neill told the committee members that the company needed to increase the size of its banking operations and shrink its trading business, one person briefed on the talks said. The committee members responded that such a shift would be unproductive because it would abandon the strategy set when Lewis bought Merrill Lynch & Co., the person said. Compensation is another obstacle, because Bank of America’s $45 billion bailout puts the CEO under the purview of paymaster Kenneth Feinberg . Lewis agreed in October to forgo any pay for 2009 after being advised to do so by Feinberg. Feinberg probably wouldn’t approve a package big enough to lure PNC Financial Services Group Inc. Senior Vice Chairman William Demchak , who was among 18 candidates on a list provided Nov. 3 by Finger Interests Ltd., a Houston-based investment fund with 1.1 million Bank of America shares. As of August, Demchak owned about 219,000 shares, currently worth about $12 million, data compiled by Bloomberg show. Finger Candidates At least four of those on the Finger list subsequently said they weren’t interested. They are O’Neill; former JPMorgan Chase & Co. investment-banking co-head William Winters ; U.S. Bancorp CEO Richard Davis ; and Eugene McQuade , a former Freddie Mac president who now oversees Citigroup’s largest banking subsidiary, according to people familiar with the matter. Two executives not on the list, Bank of New York Mellon CEO Robert Kelly and BlackRock Inc. CEO Laurence Fink , have told colleagues and friends they’re not interested. Ex-GMAC LLC CEO Alvaro de Molina , a former Bank of America chief financial officer who also made the list, was never contacted, people said. Charles Scharf , head of retail banking at JPMorgan, was contacted, people familiar with the matter said. Scharf and de Molina declined to comment. Aside from Moynihan, 50, other internal candidates include Chief Risk Officer Gregory Curl , 61. Lewis, 62, favors Curl, one person familiar with the matter said earlier this month. Outside Candidates Federal Reserve officials, who questioned Lewis’s judgment when he considered backing out of the bank’s $29 billion purchase of Merrill Lynch, are pressing for an outsider because they want more drastic change, a different person said. “B of A would really benefit from a fresh set of eyes and a fresh management approach,” said William Atwood , executive director of the Illinois State Board of Investment, which holds 2 million Bank of America shares . “It would be a bad thing if they’re focusing their attention internally.” Lewis has indicated to associates that he would remain as CEO on an interim basis if asked by the board , according to a person familiar with his thinking. Rochdale’s Bove wrote in a Nov. 20 note that several large investors support the idea. “That would give the board time to get their ducks in a row and they would have more breathing room,” said Marc Oken , a former Bank of America chief financial officer who left in 2005. It also would be a discouraging sign of how poorly the search is going, Atwood said. “If that’s their best option, they’re really not doing very well,” Atwood said. To contact the reporters on this story: Bradley Keoun in New York at bkeoun@bloomberg.net ; David Mildenberg in Charlotte at dmildenberg@bloomberg.net ; Ian Katz in Washington at ikatz2@bloomberg.net

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Bank of America May Name Temporary CEO to Allow Board More Time for Search

November 22, 2009

By Bradley Keoun, David Mildenberg and Ian Katz Nov. 22 (Bloomberg) — Bank of America Corp. ’s board may extend its search for a new, permanent chief executive officer into 2010 if directors can’t settle on a candidate in the next four days, according to people familiar with the matter. The directors , who met Friday, may be willing go past their Nov. 26 target and the Dec. 31 retirement of CEO Kenneth D. Lewis if it means getting a better choice, according to a person familiar with the deliberations. At least four external candidates, including Citigroup Inc. director Michael O’Neill , rebuffed approaches. Options include an interim chief or a delay in Lewis’s retirement. Bank of America faces pressure to pick someone in a short period who’s acceptable to regulators and whose pay would be low enough to win approval from the Treasury Department paymaster, the people said. Politics also has influenced the choice at the biggest U.S. bank, the people said. House Oversight Committee Chairman Edolphus Towns said last week Brian Moynihan , one of two internal candidates, may lack the needed leadership. That’s narrowing the field and giving the board “an incredibly tough job,” said Michael Holland , who oversees more than $4 billion as chairman of Holland & Co. in New York. “For people who have choices, it’s hard to figure out why someone would take this job.” The people familiar with the matter spoke before any board meetings this weekend. They declined to be identified because CEO selection is confidential at the Charlotte, North Carolina- based bank, the biggest in the U.S. Decision Nears Bank of America representatives have said the bank was aiming for a decision by the Nov. 26 Thanksgiving holiday, calling it a target rather than a deadline. “The board has been talking to a number of candidates, both internal and external, and expects to have a decision in the very near future,” spokesman Robert Stickler said in a Nov. 20 e-mail. Holland said director Charles K. “Chad” Gifford , a former CEO of FleetBoston Financial Corp., which was bought by Bank of America in 2004 , could step in on an interim basis. Some candidates are reluctant to wade into disagreement between board members and the government over the bank’s future strategy , said Rochdale Securities LLC analyst Richard Bove , citing large shareholders briefed on the matter. “The government and perhaps some of the new directors want the bank cut back in size , while the old core Bank of America people don’t want to do that,” Bove said. Dropping Out O’Neill, a former chief financial officer of predecessor BankAmerica Corp., withdrew from consideration after talking with search-committee members because he felt they didn’t fully grasp how serious regulators are in their demands for change, the people said. O’Neill told the committee members that the company needed to increase the size of its banking operations and shrink its trading business, one person briefed on the talks said. The committee members responded that such a shift would be unproductive because it would abandon the strategy set when Lewis bought Merrill Lynch & Co., the person said. Compensation is another obstacle, because Bank of America’s $45 billion bailout puts the CEO under the purview of paymaster Kenneth Feinberg . Lewis agreed in October to forgo any pay for 2009 after being advised to do so by Feinberg. Feinberg probably wouldn’t approve a package big enough to lure PNC Financial Services Group Inc. Senior Vice Chairman William Demchak , who was among 18 candidates on a list provided Nov. 3 by Finger Interests Ltd., a Houston-based investment fund with 1.1 million Bank of America shares. As of August, Demchak owned about 219,000 shares, currently worth about $12 million, data compiled by Bloomberg show. Finger Candidates At least four of those on the Finger list subsequently said they weren’t interested. They are O’Neill; former JPMorgan Chase & Co. investment-banking co-head William Winters ; U.S. Bancorp CEO Richard Davis ; and Eugene McQuade , a former Freddie Mac president who now oversees Citigroup’s largest banking subsidiary, according to people familiar with the matter. Two executives not on the list, Bank of New York Mellon CEO Robert Kelly and BlackRock Inc. CEO Laurence Fink , have told colleagues and friends they’re not interested. Ex-GMAC LLC CEO Alvaro de Molina , a former Bank of America chief financial officer who also made the list, was never contacted, people said. Charles Scharf , head of retail banking at JPMorgan, was contacted, people familiar with the matter said. Scharf and de Molina declined to comment. Aside from Moynihan, 50, other internal candidates include Chief Risk Officer Gregory Curl , 61. Lewis, 62, favors Curl, one person familiar with the matter said earlier this month. Outside Candidates Federal Reserve officials, who questioned Lewis’s judgment when he considered backing out of the bank’s $29 billion purchase of Merrill Lynch, are pressing for an outsider because they want more drastic change, a different person said. “B of A would really benefit from a fresh set of eyes and a fresh management approach,” said William Atwood , executive director of the Illinois State Board of Investment, which holds 2 million Bank of America shares . “It would be a bad thing if they’re focusing their attention internally.” Lewis has indicated to associates that he would remain as CEO on an interim basis if asked by the board , according to a person familiar with his thinking. Rochdale’s Bove wrote in a Nov. 20 note that several large investors support the idea. “That would give the board time to get their ducks in a row and they would have more breathing room,” said Marc Oken , a former Bank of America chief financial officer who left in 2005. It also would be a discouraging sign of how poorly the search is going, Atwood said. “If that’s their best option, they’re really not doing very well,” Atwood said. To contact the reporters on this story: Bradley Keoun in New York at bkeoun@bloomberg.net ; David Mildenberg in Charlotte at dmildenberg@bloomberg.net ; Ian Katz in Washington at ikatz2@bloomberg.net

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Video: Jerome Kenney Discusses Funding Ivy League Athletics: Video

November 20, 2009

Nov. 20 (Bloomberg) — Jerome Kenney, a senior adviser at BlackRock Inc. and former vice chairman at Merrill Lynch & Co., talks with Bloomberg’s Matt Miller about funding for Ivy League athletics. Kenney also discusses Yale University’s Kenney Center, a three-story athletic building financed with donations from his family that will be dedicated tomorrow before Yale’s football game with Harvard. Kenney earned his bachelor’s degree from Yale and played on the university’s football team. (Source: Bloomberg)

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Japanese Stocks Fall on Ratings, Commodities; Topix Drops for Eighth Day

November 19, 2009

By Akiko Ikeda and Toshiro Hasegawa Nov. 20 (Bloomberg) — Japan’s Topix index fell for an eighth day, its longest losing streak since July, after Merrill Lynch & Co. cut its outlook on the global semiconductor industry and commodities prices retreated. Advantest Corp. , the world’s biggest maker of memory-chip testers, lost 2.4 percent. Micronics Japan Co. , a rival, sank 3.1 percent as the company posted a full-year loss. Mitsubishi Corp. , Japan’s biggest commodities trader, declined 1.6 percent after oil and metal prices decreased. “Investors are rushing to sell off stocks,” said Juichi Wako , a senior strategist at Tokyo-based Nomura Holdings Inc. “Since sentiment is bad, any news could drag shares lower.” The Nikkei 225 Stock Average declined 0.8 percent to 9,471.41 as of 9:03 a.m. in Tokyo. The broader Topix index fell 0.7 percent to 831.48, on course for the lowest since April 28. In New York, the Standard & Poor’s 500 Index fell 1.3 percent yesterday as Intel Corp. and Texas Instruments Inc. lost at least 3.4 percent after Bank of America Corp.’s Merrill Lynch unit cut its ratings on the chipmakers. Crude oil for December delivery retreated for the fist time in four days yesterday, plunging 2.7 percent to $77.46 a barrel in New York. The London Metals Index , a measure of six metals including copper and zinc, sank 1.5 percent yesterday, the most this month. To contact the reporters for this story: Akiko Ikeda in Tokyo at iakiko@bloomberg.net ; Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net .

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Video: Former BofA Lawyer to Testify Before House Committee: Video

November 17, 2009

Nov. 17 (Bloomberg) — Timothy Mayopoulos, who was fired as general counsel at Bank of America Corp. in 2008, will testify today before the House Committee on Oversight and Government Reform. The committee is investigating how the lender’s rescue of Merrill Lynch & Co. led to a second government bailout for Bank of America, the biggest U.S. lender. Bloomberg’s Lizzie O’Leary reports. (Source: Bloomberg)

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Gross Says Overvalued High-Yield, Mortgage Debt Make Treasuries Attractive

November 13, 2009

By Thomas R. Keene and Susanne Walker Nov. 13 (Bloomberg) — Bill Gross , who runs the world’s biggest bond fund at Pacific Investment Management Co. , said value is diminishing in credit markets and that relative yields may rise. Mortgage and high-yield corporate debt is “overvalued,” making Treasuries and investment-grade company debt attractive, Gross, co-founder and chief investment officer of Newport Beach, California-based Pimco, said in a Bloomberg Radio interview. Emerging-market debt is appealing to “some extent,” he said. “That’s a limited menu, but it’s what we are presented with at the moment,” Gross said. The sustainability of the U.S. economic recovery by the private sector after government stimulus programs end remains in question, Gross said. Below-average growth may prompt yield spreads to increase on high-yield debt and the Federal Reserve’s plan to complete its mortgage purchase program will hurt returns on those securities, he said. High-yield, high-risk bonds have returned a record 52 percent this year, including reinvested interest, compared with 19 percent for investment-grade debt and a loss of 2.5 percent for Treasuries, according to Merrill Lynch & Co. index data. Speculative-trade bonds are rated less than BBB- by Standard & Poor’s and below Baa3 by Moody’s Investors Service. Yield Gaps Shrink Junk-rated debt on average yields 7.54 percentage points more than Treasuries and 5.38 percentage points more than investment-grade spreads. The gaps between the ratings groups are about the smallest since the week after Lehman Brothers Holdings Inc. filed for bankruptcy in September 2008, Merrill indexes show. The $192.6 billion Total Return Fund managed by Gross returned 17 percent in the past year, beating 57 percent of its peers, according to data compiled by Bloomberg. The one-month return is 0.94 percent, outpacing 59 percent of its competitors. Pimco is a unit of Munich-based insurer Allianz SE. Pimco bought government debt in September and cut mortgage bond holdings to the lowest level since 2005 after Gross warned this year that the U.S. recession will lead to a period of less- than-average growth. Fed Chairman Ben Bernanke is scheduled to speak on the economic outlook at a lunch sponsored by the Economic Club of New York on Nov. 16. The central bank last week reiterated its pledge to keep interest rates near zero for “an extended period.” ‘Always Want to Hear’ “What we always want to hear is ‘an extended period of time’ because that zero-percent interest rate promotes asset appreciation on the longer end of the curve and in risk assets,” Gross said. “To the extent the real economy requires low interest rates, we want to see that continue.” The Fed cut its target for overnight lending between banks to a range of zero to 0.25 percent in December. Central bank officials will change policy “when they begin to see steady and consistent nominal GDP of 4 to 5 percent,” Gross said. The U.S. economy grew in the third quarter for the first time in more than a year as gross domestic product increased at a 3.5 percent annual rate from July through September after shrinking the previous four quarters, a Commerce Department report showed on Oct. 29. Pimco has called for a “new normal” in the global economy that will include heightened government regulation, lower consumption, slower growth and a shrinking global role for the U.S. economy. Fed officials said in a statement on Nov. 4 that the central bank will purchase a total of $1.25 trillion of agency mortgage-backed securities through the first quarter of 2010. To contact the reporters on this story: Thomas R. Keene in New York tkeene@bloomberg.net ; Susanne Walker in New York at swalker33@bloomberg.net

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New Zealand’s Economy Recovering on Stimulus, Australia, Premier Key Says

November 8, 2009

By Angus Whitley Nov. 8 (Bloomberg) — New Zealand’s economy will continue a recovery in the second half of this year, helped by the government’s fiscal stimulus, Prime Minister John Key told TVNZ. Gross domestic product will be “quite good” in the fourth quarter, and the figure for the third quarter “won’t be bad either,” said Key, according to a transcript of the interview. Key said the economy is being buoyed by a recovery in Australia, which accounts for about 25 percent of New Zealand exports and avoided recession. New Zealand’s economy grew for the first time in six quarters in the second quarter after interest-rate cuts, tax reductions and extra government spending. A 48-year-old former Merrill Lynch & Co. trader, Key was elected a year ago, ending Helen Clark’s nine-year tenure. The government is reviewing tax rates on a range of income, investments, and goods and services, he told TVNZ. “It’s about a potential change in the mix,’ the prime minister said, according to the transcript. “That’s a possibility, but I wouldn’t put it any higher than that.” The government is also considering changing tax laws on about NZ$200 billion ($145 billion) worth of property investments that currently don’t yield tax revenue, Key said. Currency Gains New Zealand’s dollar has jumped 25 percent against the U.S. currency this year as the economy recovers from the global recession. That makes it the third-best performing currency in the world in 2009, behind Brazil’s Real and the Australian dollar. Amid concern that the surging currency will derail an export-led recovery, New Zealand Reserve Bank Governor Alan Bollard said last week that the rebound will be slower and more vulnerable than in Australia. He said financial markets hadn’t seemed to appreciate the difference. Bollard on Sept. 29 kept the official cash rate at a record-low 2.5 percent and said he doesn’t expect to raise borrowing costs until the second half of 2010 because the economy needs more support. New Zealand’s economy expanded 0.1 percent in the three months to June. Business confidence has climbed to a 10-year high and house prices have gained 7.9 percent from their low in January, buoying consumer confidence and spending. To contact the reporter on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net

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Buffett Seen as Same Credit Risk as Burlington Northern: Chart of the Day

November 5, 2009

By Bryan Keogh Nov. 5 (Bloomberg) — Warren Buffett’s Berkshire Hathaway Inc., which may lose its top rating from Standard & Poor’s, is as much of a credit risk as Burlington Northern Santa Fe Corp., the railroad ranked eight steps lower that it’s buying. The CHART OF THE DAY shows that Burlington Northern’s 5.75 percent notes due in March 2018 pay about the same yield relative to Treasuries as similar debt sold by Berkshire’s financing arm. Burlington’s securities pay a spread of 109 basis points, the least since they were sold in March 2008, compared with 107 basis points on Berkshire’s 5.4 percent notes due in May 2018, according to data compiled by Bloomberg. Spreads on the two securities have been converging since they were sold in 2008. Bonds of Omaha, Nebraska-based Berkshire trade where they do because of the company’s exposure to financial services, a risk that should diminish with the takeover of industrial companies with strong cash flows like Burlington, said B. Craig Hutson , senior bond analyst at Gimme Credit LLC in Chicago. “Most people are still wary of companies that are tied to finance,” he said in a telephone interview. The takeover will “provide them with a more stable source of cash. When the economy recovers it’s going to be a huge cash-flow generator for them.” Berkshire Hathaway reported $35.2 billion of revenue from insurance and other financial services out of total 2008 revenue of $107.8 billion. S&P said it may lower Berkshire’s AAA credit rating as much as two steps to AA a day after Buffett’s firm agreed to pay $26 billion to acquire the Fort Worth, Texas-based railroad, the largest in the U.S. At the same time, S&P put Burlington’s BBB ranking on review for an upgrade. Average bond spreads show both companies deserve to be rated about AA+, the second-highest ranking, according to Merrill Lynch & Co. index data. “Burlington Northern bondholders are going to feel a lot better being part of an AA+ credit than a BBB credit,” Hutson said. “Burlington’s cost of capital will end up being Berkshire’s cost of capital.” To contact the reporter on this story: Bryan Keogh in New York at bkeogh4@bloomberg.net

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Roubini Says U.S. Banking Mergers May Create `Bigger Monster’ After Crisis

November 5, 2009

By Ian Guider and Louisa Fahy Nov. 5 (Bloomberg) — Nouriel Roubini , the New York University professor who predicted the financial crisis in 2006, said mergers between U.S. banks may create institutions that pose too great a risk to financial stability. “We had a too-big-to-fail problem in the past, but now- the-too-big-to-fail problem has become bigger,” Roubini, chairman of New York-based Roubini Global Economics, said at an event in Dublin today. “We are creating a bigger monster.” Roubini said there’s been “massive consolidation” among U.S. banks after a series of mergers during the worst economic crisis since the Great Depression. Bank of America Corp ., purchased Merrill Lynch & Co and Countrywide Financial Corp, while Wells Fargo & Co. took over Wachovia Corp. last year. “We have no way to deal with insolvency in an orderly way,” Roubini said during a panel discussion at a conference on financial services. “If a financial institution is too big to fail, it’s too big. If it’s too big, we should break it up.” Roubini predicted in July 2006 the financial crisis that spurred more than $1.6 trillion of credit losses and asset writedowns at global financial companies. He said “financial supermarkets” combining commercial banking, investment banking, insurance and asset management have proved a “disaster”, citing Citigroup Inc ., which has received $45 billion from the U.S. government. “Banks should be banks, providing credit to the real economy,” he said. “Investment banks should be involved in what broker-dealers do and that is underwriting. There is no reason why a shareholder should be taking a bundled risk.” To contact the reporter on this story: Ian Guider in Dublin at iguider@bloomberg.net ; Louisa Fahy at lnesbitt@bloomberg.net

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New York Tobacco Bond Refinancing Might Produce $500 Million, Bankers Say

October 30, 2009

By Michael Quint Oct. 30 (Bloomberg) — Tobacco bonds that helped New York close a budget deficit in 2003 could be refinanced and provide $500 million to help eliminate this year’s $3.2 billion spending gap, according to a plan bankers presented to state officials. The proposal by Morgan Stanley and Bank of America Corp. ’s Merrill Lynch & Co. would have the state sell new bonds with the double-barreled backing of annual payments from cigarette makers, and state appropriations if needed, said Travis Proulx , a spokesman for Democratic Senate leader John Sampson of Brooklyn. The existing bonds have such a dual guarantee. “Refinancing of tobacco bonds could provide for immediate revenue to the state — upwards of $500 million,” Sampson said in a statement yesterday. “We must explore that option” to help avoid Governor David Paterson ’s proposed cuts in education and health care, he said. States and municipalities sold $37 billion in tobacco bonds to cash in on their shares of a 1998 settlement with cigarette makers. The bonds have been one of the strongest sectors of the municipal bond market this year. Investors’ total return from interest payments and price gains on tobacco bonds was 31.9 percent in the first nine months, according to a Merrill Lynch index. The new bonds would have a thinner cushion of cigarette company payments than the existing $3.59 billion of bonds, allowing additional debt to be issued with proceeds to help close the budget gap, Proulx said. Paterson called the idea “dead” at a public meeting in New York City yesterday. Jennifer Sala , a spokeswoman for Morgan Stanley, and Kerrie McHugh , a spokeswoman for Merrill Lynch, declined to comment. Paterson Critical At an Oct. 21 meeting with Sampson and other legislative leaders, Paterson said the savings might be only $25 million. The governor said that wouldn’t provide the immediate cash needed by mid-December, when the state faces payments of $5.1 billion to schools and local governments and expects to have only $2 billion in cash on hand. Questions to Paterson about the discrepancy between his description of savings and Sampson’s were referred to the Division of Budget. “We are not currently exploring the proposal as a viable option at this time given Governor Paterson’s stated position that we need to focus on recurring spending reductions,” said Matt Anderson , a spokesman for the Division of the Budget . The state’s 2003 tobacco bond sale helped lead to a reduction in its general obligation bond rating to AA-, which has since been raised to AA, Anderson said. ‘Appetite in the Market’ “Given the appetite in the market, we could go down in coverage a little bit and still attract investors at rates that would be lower than for existing bonds,” said Larry Soule, deputy secretary of the Senate Finance Committee and a former public finance banker and municipal bond analyst at Moody’s Investors Services. The state’s potential gain declines as interest rates rise, he said. Payments from tobacco companies would equal about 1.2 times the interest and principal payments on new bonds, compared with 1.5 times for those sold in 2003. The bonds would be backed by fewer of the cigarette company payments, meaning the state would face an increased risk that in future years it would have to provide money if tobacco payments aren’t enough to pay bondholders, Soule said. That risk isn’t “significant,” he said. Declining numbers of smokers, partly the result of higher cigarette taxes, have led tobacco companies to reduce their payments and to dispute the amounts they owe, according to the state’s July 29 updated annual information statement. Bankers say there is still enough projected revenue to support a new, larger bond sale, according to Soule. AA- Rated New York’s existing tobacco bonds are rated AA- by Standard & Poor’s, the fourth highest rating and one level lower than bonds backed by the state’s full faith and credit, according to the budget office. Spending cuts of $480 million for aid to schools and $287 for Medicaid are part of Paterson’s two-year, $5 billion plan . Since he became governor in 2008, Paterson has often criticized previous bond sales that are now part of the state’s $54 billion of debt, and said New York “can’t afford” to sell more bonds to pay for budget gaps. Other states and local governments have squeezed cash from old tobacco bonds to help balance their budgets. Wisconsin collected $309 million in March when it sold $1.54 billion of bonds backed by state appropriations to refinance debt issued by Badger Tobacco Asset Securitization Corp. New Jersey, Virginia, California, and Westchester County in New York are among other governments that have sold new tobacco-backed bonds to take advantage of lower interest rates and raise cash. To contact the reporter on this story: Michael Quint in Albany, New York, at mquint@bloomberg.net .

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Video: Harris Sees `Sustained’ Home Price Rebound in 3-5 Years: Video

October 27, 2009

Oct. 27 (Bloomberg) — Ethan Harris, head of North America economics at Bank of America-Merrill Lynch, talks with Bloomberg’s Mark Crumpton and Lori Rothman about the U.S. housing market. Harris also discusses the economy and the outlook for the government’s $8,000 first-time homebuyer tax credit. Home prices in 20 U.S. cities rose in August for a third consecutive month. The S&P/Case-Shiller home-price index climbed 1 percent from the prior month, seasonally adjusted, after a 1.2 percent increase in July, the group said today in New York. (Source: Bloomberg)

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Video: Housing Outlook- Artificial Strengths Amid Tax Credit Impact

October 27, 2009

Housing Trick or Treat? – Analysis and Discussion with Ethan Harris of Bank of America-Merrill Lynch (Bloomberg News)

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Bank of America Discussed Merrill Lynch Losses in November, E-Mails Reveal

October 21, 2009

By David Mildenberg Oct. 21 (Bloomberg) — Bank of America Corp. discussed losses at Merrill Lynch & Co. in early November, more than a month before telling regulators the lender needed U.S. help to complete its takeover, according to documents provided to congressional investigators. “Read and weep,” Chief Accounting Officer Neil Cotty wrote in a Nov. 5 e-mail to Chief Financial Officer Joe Price that included Merrill’s October financial report . The e-mail, which estimated markdowns and “other larger items” of $5.3 billion, was included in 1,000 pages of documents that Bank of America gave to the House Oversight Committee last week. The committee is investigating how the lender’s rescue of Merrill Lynch led to a government bailout for Bank of America, the biggest U.S. lender. Chief Executive Officer Kenneth D. Lewis didn’t tell his shareholders about Merrill’s losses before they voted to approve the deal on Dec. 5, and didn’t inform regulators until mid-December that the takeover was in danger. The bank has said Merrill’s losses didn’t accelerate until after the shareholder vote. Two days later, on Dec. 7, Merrill Corporate Controller Gary Carlin e-mailed the brokerage’s updated November report to Cotty. “What a disaster,” Carlin wrote. The New York-based brokerage’s fourth-quarter loss eventually swelled to $15.8 billion. Copies of the e-mails were provided to Bloomberg by a person close to the panel, who declined to be identified because the documents from the Charlotte, North Carolina-based bank haven’t been released. Hearing Delayed Jenny Rosenberg , spokeswoman for the House Oversight Committee, declined to comment. The panel is led by Edolphus Towns , a New York Democrat. An Oct. 22 hearing at which former General Counsel Timothy Mayopoulos and Federal Deposit Insurance Corp. Chairman Sheila Bair were to appear has been postponed until next week, Rosenberg said. “The strategic wisdom of the Bank of America-Merrill Lynch deal is now obvious to everyone,” bank spokesman Lawrence Di Rita said yesterday. “These documents and e-mails reveal the good-faith deliberations among those who understood that first.” Lewis, 62, has said that while the bank was aware Merrill was accumulating losses , they didn’t balloon until after the shareholders had already voted. “In mid-December, the forecast losses accelerated dramatically,” Lewis testified to the committee on June 11. “It wasn’t that we didn’t know about losses. The concern was the fact that these losses accelerated.” Lehman Collapse Merrill, the world’s biggest broker at the time, agreed in September to be acquired after more than $50 billion of losses and writedowns tied to the collapse of the subprime-mortgage market. Bank of America struck the agreement the same weekend that Lehman Brothers Holdings Inc. collapsed. The U.S. provided $20 billion in fresh capital and a $118 billion backstop on loans and mortgage-based securities to shore up the Merrill takeover. Public disclosure of Merrill’s losses came on Jan. 16 when the bank announced its first quarterly loss in 17 years and $20 billion in U.S. aid to absorb potential Merrill losses. To contact the reporter on this story: David Mildenberg at dmildenberg@bloomberg.net

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Bank of America Tells Congressional Panel Merrill Disclosures Were Proper

October 17, 2009

By David Mildenberg Oct. 17 (Bloomberg) — Bank of America Corp. told a congressional committee studying its purchase of Merrill Lynch & Co. that securities laws didn’t require the company to disclose rising losses at the brokerage or discussions about canceling the transaction before a shareholder vote. “A voluntary announcement that the bank was considering renegotiating or walking away form the deal could have led to the collapse of Merrill Lynch and made the ongoing financial crisis much, much worse — for the country and for Bank of America’s and Merrill Lynch’s shareholders,” according to an Oct. 16 letter to the House Oversight Committee. The letter was signed by Reginald Brown , a lawyer with Wilmer Cutler Pickering Hale & Dorr LLP representing the Charlotte, North Carolina-based bank. Bank of America provided more than 1,000 pages of documents to the committee yesterday after agreeing earlier this week to forego its right to keep discussions with its lawyers confidential. While the bank didn’t make the documents available to the public, committee staff members are going through them this weekend, said Kurt Bardella , a spokesman for Representative Darrell Issa , the committee’s ranking minority member. The committee plans an Oct. 22 hearing scheduled to include the chairmen of Federal Deposit Insurance Corp. and the Securities and Exchange Commission, two Bank of America directors and former General Counsel Timothy Mayopoulos . The SEC and New York Attorney General Andrew Cuomo are also probing the timing of disclosures about bonuses and Merrill’s $15.8 billion loss in the fourth quarter. Delayed Until January Bank of America delayed the announcement until Jan. 16, about six weeks after shareholders approved the acquisition. The bank never acted “in a manner inconsistent with the advice of counsel,” according to the cover letter, which was provided by the bank to Bloomberg News. The bank’s law firm, Wachtell, Lipton, Rosen & Katz, and Merrill’s adviser, Shearman & Sterling LLP, are “two of the most highly regarded law firms in the country and leaders in the field of mergers and acquisitions,” the letter said. Merrill’s forecast of a fourth-quarter loss before the Dec. 5 shareholder vote was consistent with “recent historical norms,” including $38 billion in losses in the previous five quarters, the letter said. “Merrill Lynch’s forecasted losses accelerated after Dec. 5 to an extent no one had predicted,” prompting the bank to consider canceling or repricing the transaction, the letter said. Lewis Retires After consulting with regulators, the bank moved ahead with the transaction and Merrill has become a “key contributor” of revenue this year, according to the letter. Chief Executive Officer Kenneth D. Lewis has been under fire for not disclosing losses at Merrill Lynch and plans to pay $3.6 billion in bonuses at the firm before shareholders voted to approve the takeover. Investors stripped Lewis of his chairman’s title in April, and he has agreed to retire as CEO on Dec. 31.      Bank of America reported a $1 billion loss yesterday as higher revenue from bond and stock trading failed to offset increasing losses from its credit-card, small-business and home- lending units. The bank’s shares declined 4.6 percent to $17.26 in New York Stock Exchange Composite trading. To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net

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Bank of America Will Turn Over Merrill Papers, Refueling Disclosure Probes

October 13, 2009

By David Mildenberg and Karen Gullo Oct. 13 (Bloomberg) — Bank of America Corp. will give regulators documents it tried to keep private about the Merrill Lynch & Co. takeover, refueling probes into why shareholders weren’t told about losses and bonuses at the brokerage. The lender agreed to forego its right to keep discussions with its lawyers confidential, spokesmen for the Securities and Exchange Commission and the Charlotte, North-Carolina-based bank said today. “We don’t have anything to hide,” said the bank’s Larry Di Rita . The information may persuade a federal judge to approve a settlement with the SEC over the bank’s decision to withhold information about Merrill’s fourth-quarter loss and plan to award $3.6 billion in bonuses before shareholders approved the takeover in December. The judge has rejected a $33 million accord, saying the bank may have lied to investors, and he demanded to know more about the advice given by company lawyers. The SEC, Congress and New York Attorney General Andrew Cuomo are probing the timing of disclosures about the bonuses and the loss, which totaled more than $15 billion. Cuomo had said the bank’s refusal to cooperate was hindering his probe, and he was considering charges against executives if the documents weren’t provided. “Attorney-client privilege is an important business principle, but the pressure in multiple inquiries to provide additional insight convinced us it is appropriate to waive in this instance to get the issue behind us,” Di Rita said. “We know we did the right thing throughout the discussions and deliberations involving the acquisition of Merrill Lynch.” Lewis Role Investigators have questioned whether Chief Executive Officer Kenneth D. Lewis , 62, deprived shareholders of information they needed before voting Dec. 5 to go ahead with the $29 billion takeover. Lewis told regulators on Dec. 17 he might call off the deal as the financial system teetered and losses at the brokerage spiraled higher. Lewis, who said last month he’s resigning at year-end, told investigators he relied on the advice of lawyers about what needed to be disclosed. The documents may detail the role played by the bank’s lawyers as well as executives named as potential successors to Lewis. The Finger family, which owns more than 1 million shares of the bank and campaigned against Lewis at this year’s annual meeting, has opposed internal candidates including Brian Moynihan and Gregory Curl , saying they may be “tainted” by the Merrill acquisition. The bank had blocked former General Counsel Timothy Mayopoulos and Chief Financial Officer Joe Price from answering questions, citing attorney-client privilege, according to a Sept. 8 letter sent by Cuomo to Lewis Liman , a Bank of America attorney. Cuomo’s ‘Victory’ “It’s a terrific victory for Cuomo to get the documents now, when this is fresh in the public’s mind, to see if there is anything actionable against the attorneys,” said James Cox, a securities law professor at Duke University Law School. Cox said the omissions were “material” that might have affected the outcome, and that the lawyers erred if they told Lewis he didn’t need to disclose the losses and bonuses. “This move by Bank of America puts a lot of heat on the attorneys and the enforcement staff at the Securities and Exchange Commission.” Bank of America was represented in the Merrill merger by Wachtell, Lipton, Rosen & Katz, while Merrill was represented by Shearman & Sterling LLP, both based in New York, according to court records. New Bailout The Merrill acquisition was completed on Jan. 1 only after the U.S. pledged $20 billion in new bailout funds, bringing the total to $45 billion, and guarantees on Merrill Lynch assets, which weren’t disclosed until the middle of the month. Senior bank officials didn’t give “material non-public information” to shareholders at least four times in the fourth quarter, Cuomo’s office said in a Sept. 8 letter. Bank of America will turn over documents regarding Merrill’s losses and its communications with the Federal Reserve Board, the U.S. Treasury Department, and other officials regarding federal aid provided in connection with its merger with Merrill Lynch. “Bank of America has reconsidered its position with regard to the waiver of the attorney-client privilege,” Liman said in letter released by Cuomo. “Our intention is to provide you with information and documents that will permit you to understand the contemporaneous communications with counsel during the time period that the events were taking place.” The waiver may be in effect by Friday, he wrote. Last month, U.S. District Judge Jed Rakoff in Manhattan rejected a proposed settlement between the SEC and the lender tied to the Merrill disclosures. Rakoff asked whether the bank had lied to shareholders and why executives haven’t been sued. Proxy Statement That case, in which the SEC alleged Bank of America issued a deceptive proxy statement that outlined the deal for shareholders, is scheduled for trial in March. Rakoff must approve the new agreement, according to the SEC statement. A separate investigation is also being conducted by the House Oversight Committee, which had demanded a list of documents that might be relevant to the case. Cuomo is unlikely to sue Lewis over Merrill Lynch & Co. bonuses this week as he gets documents about legal advice given prior to the Jan. 1 purchase of Merrill, a person familiar with the matter said. Bank of America has hired Paul Weiss Rifkind Wharton & Garrison LLP to represent the bank in the SEC lawsuit, the Cuomo investigation, Congressional investigation and shareholder and derivative litigation, according to a source close to the litigation. The bank hired the law firm in a strategy change as it seeks to strike a more cooperative tone with regulators, the source said. Liman, a partner at Cleary, Gottlieb, Steen & Hamilton, did not immediately respond to a phone call and e-mail requesting comment. Cleary spokeswoman Amy Deschodt had no immediate comment. To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net Karen Gullo in San Francisco federal court at kgullo@bloomberg.net .

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AP Source: Bank of America To Give Up Documents From Merrill Lynch Deal

October 12, 2009

SAN FRANCISCO — After months of resistance, Bank of America Corp. plans to turn over documents showing legal advice it received on its purchase of Merrill Lynch & Co. to the office of the New York attorney general, a person familiar with the matter said Monday. BofA’s board decided on Friday that it would waive its attorney-client privilege and hand over the papers, the person said, speaking on condition of anonymity because the New York AG’s investigation is ongoing. New York Attorney General Andrew Cuomo’s office is seeking to determine whether BofA misled shareholders about $3.6 billion in bonuses paid to Merrill employees and the investment bank’s mortgage lending losses, as well as whether BofA failed to tell shareholders that it considered backing out of the deal before it closed on Jan. 1. The attorney general’s office – and a U.S. district judge who is overseeing a separate Securities and Exchange Commission case – have questioned whether the bank knowingly hid details about the acquisition from shareholders ahead of a vote to approve the deal. Thus far, the bank had declined to provide details on legal advice it received on its disclosures to shareholders. But in a letter to New York Attorney General Andrew Cuomo obtained by The Associated Press, Bank of America said that following a “very constructive” meeting Oct. 6 between the bank and the AG’s office, it “reconsidered its position” with regard to waiving privilege, “in the hope of furthering a resolution.” A spokesman for Charlotte, N.C.-based BofA could not immediately be reached for comment late Monday. Bank of America agreed to acquire Merrill Lynch in a hastily arranged deal in September 2008, at the height of the financial crisis, just as Lehman Brothers was preparing to file for bankruptcy. When it asked shareholders to approve the takeover, Bank of America said Merrill would not pay year-end bonuses without its consent. But in August, the SEC said in court papers that BofA had already authorized Merrill to pay up to $5.8 billion in bonuses and didn’t share that information with shareholders. Merrill paid employees $3.6 billion in bonuses for 2008, a year in which it lost $27.6 billion, a record for the firm. Those losses hurt Bank of America, one of the largest recipients of U.S. government bailout funds. The bank received $45 billion in federal aid, including $20 billion to help offset Merrill’s losses. U.S. District Judge Jed Rakoff in Manhattan last month rejected a $33 million settlement between the SEC and Bank of America, saying the SEC’s accusations of inadequate disclosure by the bank over the bonuses must go to trial. The SEC has said it was impossible to establish whether Bank of America executives knowingly violated securities laws because the terms of the bank’s takeover of Merrill – including the bonus payments – were laid out in documents prepared by outside attorneys for the two companies. Bank of America was represented in the Merrill negotiations by New York-based law firm Wachtell, Lipton, Rosen & Katz. Merrill Lynch was represented by Shearman & Sterling LLP. The attorneys were mainly responsible for drafting the Bank of America disclosure filings. Bank of America has maintained that its disclosures to shareholders complied with securities laws. Company executives involved in the legal correspondence include Bank of America’s general counsel, Timothy Mayopoulos, who left BofA in December 2008, shortly before the Merrill deal closed. Brian Moynihan, the bank’s former president of global corporate and investment banking, took over the role. He is also head of the company’s largest division, consumer and small business banking. In its letter to the AG’s office, Bank of America said it will waive privilege with respect to communications about what bonus-related disclosures would be made in, or omitted from, the joint proxy statement issued by BofA and Merrill Lynch on Nov. 3, 2008 in connection with their merger. It will also waive privilege regarding BofA’s consideration about whether to back out of the deal under a material adverse change clause, and the disclosure or nondisclosure of Merrill’s 2008 fourth-quarter financial performance and potential goodwill impairment charges before the acquisition’s Jan. 1 closing. Lastly, BofA said in the letter that it will waive privilege pertaining to its communications with the Federal Reserve Board, the Treasury Department and other government officials regarding federal aid in connection with the Merrill Lynch takeover. Former Treasury Secretary Henry Paulson acknowledged in testimony to Congress in July that he pressured Bank of America CEO Kenneth Lewis to proceed with the deal despite Merrill’s mounting financial losses. At one point during the discussions, Paulson pledged government aid to help Bank of America absorb some of the losses from acquiring Merrill. BofA said in the letter it will not waive privilege or produce documents created before Sept. 12 or after Jan. 16, the time period which it says is of interest to Cuomo’s office. The bank also said that since it has reconsidered its position with respect to the New York AG’s investigation, it will also produce privileged information to federal regulators and to Congress.

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California Raises Preliminary Yields as Municipal Bonds Fall a Second Day

October 7, 2009

By Jeremy R. Cooke Oct. 7 (Bloomberg) — California raised the yields it may offer on part of a $4.5 billion bond offering after getting a weaker response than at a sale of short-term notes two weeks ago as investors balk at lower payouts for longer-term maturities. Municipal bonds fell for a second day. Benchmark yields on 10-year general obligation bonds rose four basis points, or 0.04 percentage point, to 3.01 percent today, the most since June 11, according to a daily survey by Municipal Market Advisors of Concord, Massachusetts. The deal from California, the largest borrower and the lowest rated among U.S. states, will push new municipal issues this week to a five-month high, according to data compiled by Bloomberg. The state raised preliminary yields by two to four basis points from yesterday’s levels on maturities ranging from 2015 through 2029. Tax-exempt bonds due in 20 years may yield 4.66 percent, and those due in 2025 might pay 4.42 percent, according to Dan Solender of Lord Abbett & Co. “These changes are pretty much reflecting the overall market moves, but it appears that they aren’t selling much to retail on the shorter ends,” Solender, who oversees $12.3 billion as director of municipal bond management at the firm in Jersey City, New Jersey, said in an e-mail. “With the overall market having a negative tone, it is probably more a market reaction than anything specific to the state.” Borrowing costs are rising even for the highest rated states. Virginia, one of seven U.S. states rated AAA by Moody’s, Fitch and S&P, auctioned 10-year bonds at a price to yield 2.65 percent today. Top-rated North Carolina paid 2.55 percent yesterday in another competitively bid sale. Priority Order Period Individual buyers yesterday asked for $423 million, or 27 percent of the $1.55 billion in California general obligation bonds offered to them during a priority order period before institutions such as funds tomorrow can buy the rest of the deal, the treasurer’s office said in an e-mail late yesterday. During the first day of California’s retail order period for $8.8 billion in short-term notes last month, investors sought $5.37 billion, or 61 percent. By the end of the deal, to boost cash flow during the fiscal year, retail orders made up 75 percent. State Treasurer Bill Lockyer said the drop may reflect investors’ reluctance to hold longer-dated securities. “It may reflect some anxieties with the retail investors in buying anything that’s longer,” Lockyer said today during a Bloomberg Television interview. “It may be pricing. It’s hard to tell. Mostly we’re depending on the institutional investors to make this work. We will not know that until tomorrow.” Tax-Exempt Debt The $4.5 billion deal includes $1.3 billion of tax-exempt debt and $3.2 billion of taxable securities including Build America Bonds. Underwriters led by Citigroup Inc., Goldman Sachs Group Inc. and JPMorgan Chase & Co. are marketing the sale, which will fund public works and refinance debt. California is rated A, the sixth-highest of Standard & Poor’s 10 investment grades; Baa1, two steps lower, by Moody’s Investors Service and BBB, another level lower, by Fitch Ratings. The state has already sold $14.1 billion of long-term general obligation bonds. Twenty-year bonds sold by the state in late March with a 5.75 percent coupon interest rate rose to 107 cents on the dollar today to yield 4.81 percent, compared with 5.85 percent at issue, Municipal Securities Rulemaking Board data show. Investors are balking at yields after they reached the lowest since the 1960s. The weekly Bond Buyer 20 index, which tracks yields on 20-year general obligation bonds with an average Aa2 rating from Moody’s Investors Service, fell to 3.94 percent last week, the lowest since August 1967. Institutional Demand Record demand for tax-exempt mutual funds, at a time when the Build America program has enticed local governments to sell taxable debt for public works, pushed municipal bonds to their best year-to-date returns in at least 20 years. Even with yesterday’s price declines, the Municipal Master Index, compiled by Bank of America Corp.’s Merrill Lynch & Co. since 1989, is up 16 percent for the year. Sales of Build America Bonds have totaled $36.1 billion since April, based on Bloomberg figures. Issuers get a 35 percent rebate on the taxable interest from the U.S. Treasury through the federal economic stimulus program approved in February. California is offering taxable debt at yields as high as 325 basis points more than comparable-maturity U.S. Treasuries, according to a person familiar with the sale who declined to be identified because terms aren’t set. Four-year taxable notes may pay 3.5 percent to 3.75 percent. Five-year debt may yield 225 to 237.5 basis points more than Treasuries. The 2019 maturity may offer a spread of 262.5 to 275 basis points. Bonds due in 2024 might be priced to yield 50 basis points higher than the 10-year securities. 30-Year Bonds The largest single California taxable maturity will be the $1.75 billion in 30-year bonds, which may yield 312.5 to 325 basis points more than the benchmark U.S. security. Indexes from Bank of America Corp.’s Merrill Lynch & Co. that track corporate bonds rated BBB and A show spreads of 232 basis points for bonds due in 15 years and longer and 259 basis points for debt set to mature in one to 10 years. California paid a spread of 365 basis points to Treasuries when it sold Build America Bonds due in 25 and 30 years in April. To contact the reporter on this story: Jeremy R. Cooke in New York at jcooke8@bloomberg.net .

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Ken Lewis Retiring: Bank Of America CEO To Step Down By End Of 2009

September 30, 2009

NEW YORK — Ken Lewis, the embattled CEO of Bank of America Corp., is leaving the company, succumbing to nearly a year of strife that followed his company’s acquisition of Merrill Lynch & Co. The bank said in a statement late Wednesday that Lewis, 62, would retire as CEO and also leave the company’s board by the end of the year. The company said his successor will be selected by the time he steps down Dec. 31. The news, coming after shareholders had stripped Lewis of his chairman’s title earlier this year, wasn’t surprising because of the intense pressure he came under after the Merrill deal. Lewis had said he would stay on as CEO until after the company’s financial problems were resolved, a process expected to take several years. However, with the bank also under heavy criticism from government officials, Lewis was increasingly seen as vulnerable. “He’s had a big target on his chest for the whole Merrill Lynch deal, and I can only imagine the emotional stress he’s endured ” said Alan Villalon, senior research analyst at Minneapolis-based First American Funds, which owns Bank of America stock. Since the Merrill deal closed Jan. 1, it was learned the investment bank with the knowledge of Bank of America executives gave billions of dollars in bonuses to employees even as it asked for more bailout money from the government. The deal was forged a year ago at the height of the financial crisis. New York Attorney General Andrew Cuomo this month subpoenaed five members of Bank of America’s board as part of an investigation into the Merrill deal. Bank of America had settled a separate investigation last month into disclosures about the Merrill bonuses with the Securities and Exchange Commission, but a federal judge threw out that $33 million settlement, saying it was unfair and needlessly penalized the bank’s shareholders. The judge ordered the case to go to trial Feb. 1. Shares of Bank of America rose 23 cents to $17.15 in after-hours trading, after falling 24 cents to end the regular session at $16.92. Investors may have some concerns over the lack of an immediate successor, but those will likely be temporary, Villalon said. “They probably won’t operate long without a CEO,” he said. “If somebody comes from the outside, or even internally, it gives a set of fresh eyes.” ___ AP Business Writer Sara Lepro contributed to this report.

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New York City Sells $970 Million of Build America Bonds, Taxable Offerings

September 30, 2009

By Jeremy R. Cooke Sept. 30 (Bloomberg) — New York City sold $800 million of Build America Bonds and $170 million of additional taxable securities without a federal subsidy to fund public works, according to data compiled by Bloomberg. The Build America Bonds, for which the federal government pays 35 percent of the interest cost, were priced at face value with rates ranging from 4.589 percent on obligations due in October 2022 to 5.676 percent on October 2034 securities. The other taxable issue, not eligible for the subsidy, has interest rates ranging from 1.472 percent on two-year notes to 4.053 percent on securities due in 2017. A group of underwriters led by Morgan Stanley is handling the taxable portion of the city’s deal. Final pricing on a planned $900 million refinancing of tax-exempt debt, handled by Bank of America Corp.’s Merrill Lynch & Co., wasn’t available. To contact the reporter on this story: Jeremy R. Cooke in New York at jcooke8@bloomberg.net .

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Morgan Stanley’s Mack Proposes Single Regulator to Oversee Banks Worldwide

September 29, 2009

By Dakin Campbell Sept. 29 (Bloomberg) — Morgan Stanley Chief Executive Officer John Mack , who struggled to return the bank to profitability amid the financial crisis, said a regulator should oversee financial institutions worldwide. “A better system would be one uber-regulator,” Mack said today in an interview for Bloomberg Television’s “Conversations with Judy Woodruff ,” parts of which will air tomorrow. “We do need an overall systemic-risk management that everyone buys into. It’s not a U.S. systemic boundary — it’s a global systemic risk manager.” A global regulator would ensure that U.S. banks aren’t subject to tighter regulations than the rest of the world, Mack said. A push for regulation during the financial crisis has faded as the administration of President Barack Obama pursues other tasks, he said. Morgan Stanley and Goldman Sachs Group Inc. converted to bank holding companies one week after Lehman Brothers Holdings Inc. , Merrill Lynch & Co. and American International Group Inc. collapsed or were rescued in September of last year. Less than a month later, Morgan Stanley took $10 billion from the U.S. government as part of the Troubled Asset Relief Program. It has since paid back the government. The full interview will be shown on Bloomberg Television at 6 p.m. New York time on Oct. 2. To contact the reporter on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net

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London Stock Exchange Hires Morgan Stanley, Barclays Capital as M&A Banks

September 29, 2009

By Ambereen Choudhury and Nandini Sukumar Sept. 29 (Bloomberg) — London Stock Exchange Group Plc , Europe’s oldest independent bourse, hired Morgan Stanley and Barclays Capital to replace Bank of America-Merrill Lynch as its adviser on mergers and acquisitions, four months after Xavier Rolet took over as chief executive officer. JPMorgan Cazenove Ltd. and Nomura Holdings Inc. will remain corporate brokers to the exchange, LSE spokesman Patrick Humphris said today, declining to comment further. Bank of America Corp.’s Merrill Lynch unit has advised the London-based company since 2002. Former LSE CEO Clara Furse and Merrill Lynch fought off five takeover offers from 2004 to 2006, before buying the operator of the Milan stock exchange the following year. LSE rejected bids from companies including Frankfurt-based rival Deutsche Boerse AG , Euronext NV, Australia’s Macquarie Group and Nasdaq OMX Group Inc . On Sept. 16, LSE shares climbed the most in almost five months in London trading on speculation Deutsche Boerse may renew its takeover interest. Rolet, 49, succeeded Furse in May as head of Europe’s largest exchange by value of companies listed. The executive, head of Lehman Brothers Holdings Inc. in France until last year, has cut 12 percent of jobs, agreed to buy Sri Lanka’s MillenniumIT to gain a new trading system, appointed a new chief executive officer of LSE’s fixed-income unit, MTS SpA, and changed the way LSE charges for trading. “All avenues are open, all avenues are considered,” Rolet said on Feb. 13, the day his appointment was announced, when asked about consolidation. “We wouldn’t be doing our jobs otherwise.” Brokers liaise with investors on behalf of companies, and often manage stock and bond offerings. To contact the reporters on this story: Ambereen Choudhury in London at achoudhury@bloomberg.net ; To contact the reporters on this story: Nandini Sukumar in London at nsukumar@bloomberg.net .

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London Stock Exchange Hires Morgan Stanley, Barclays Capital as M&A Banks

September 29, 2009

By Ambereen Choudhury and Nandini Sukumar Sept. 29 (Bloomberg) — London Stock Exchange Group Plc , Europe’s oldest independent bourse, hired Morgan Stanley and Barclays Capital to replace Bank of America-Merrill Lynch as its adviser on mergers and acquisitions, four months after Xavier Rolet took over as chief executive officer. JPMorgan Cazenove Ltd. and Nomura Holdings Inc. will remain corporate brokers to the exchange, LSE spokesman Patrick Humphris said today, declining to comment further. Bank of America Corp.’s Merrill Lynch unit has advised the London-based company since 2002. Former LSE CEO Clara Furse and Merrill Lynch fought off five takeover offers from 2004 to 2006, before buying the operator of the Milan stock exchange the following year. LSE rejected bids from companies including Frankfurt-based rival Deutsche Boerse AG , Euronext NV, Australia’s Macquarie Group and Nasdaq OMX Group Inc . On Sept. 16, LSE shares climbed the most in almost five months in London trading on speculation Deutsche Boerse may renew its takeover interest. Rolet, 49, succeeded Furse in May as head of Europe’s largest exchange by value of companies listed. The executive, head of Lehman Brothers Holdings Inc. in France until last year, has cut 12 percent of jobs, agreed to buy Sri Lanka’s MillenniumIT to gain a new trading system, appointed a new chief executive officer of LSE’s fixed-income unit, MTS SpA, and changed the way LSE charges for trading. “All avenues are open, all avenues are considered,” Rolet said on Feb. 13, the day his appointment was announced, when asked about consolidation. “We wouldn’t be doing our jobs otherwise.” Brokers liaise with investors on behalf of companies, and often manage stock and bond offerings. To contact the reporters on this story: Ambereen Choudhury in London at achoudhury@bloomberg.net ; To contact the reporters on this story: Nandini Sukumar in London at nsukumar@bloomberg.net .

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Municipal Yields Plummet to 42-Year Low on Fewer Offerings, Fund Purchases

September 25, 2009

By Jeremy R. Cooke Sept. 25 (Bloomberg) — Benchmark borrowing costs for highly rated state and local governments dropped to a 42-year low this week, as the pace of new municipal-bond issues slowed and cash flowing into mutual funds accelerated to a record. Municipal issuers led by Ohio sold about $6.3 billion of fixed-rate bonds with final maturities longer than 18 months, down from $9.9 billion last week , according to data compiled by Bloomberg. California borrowed $8.8 billion, selling notes at yields of 1.5 percent and 1.25 percent, which will be paid off by the end of its fiscal year that began July 1. The weekly Bond Buyer 11 -Bond index, which tracks tax- exempt yields on 20-year general-obligation debt with an average Aa1 rating, fell 14 basis points, or 0.14 percentage point, to 3.79 percent, its sixth straight decline. That’s the lowest since May 1967, when Lyndon B. Johnson was U.S. president. “Even though absolute yields are quite low by historical standards, the municipal yield curve is still steep,” said Jamie Iselin, a senior portfolio manager on a team that oversees about $11 billion in municipal bonds at Neuberger Berman LLC in New York. “Investors are getting paid more than they historically would to move out on the curve.” Yield curves chart what investors are accepting to lend for different periods. The Bloomberg Fair Value yield indexes for top-rated general obligation bonds are at 0.75 percent for two- year issues and 4.41 percent for 30-year bonds. The gap is 153 basis points wider than its 10-year median. Out of Cash, Into Bonds Investors pulled out $8.46 billion from tax-free money- market funds yielding an average 0.06 percent during the week through Sept. 22, said iMoneyNet of Westborough, Massachusetts. Cash flowed into municipal bond mutual funds at a record four-week moving average of $2.7 billion through yesterday, topping the $2.6 billion high reached Sept. 16, Dow Jones Newswires reported, citing data compiled by Lipper FMI of Thomson Reuters. The single-week inflow of $1.8 billion also set a new high, beating the previous week’s $1.52 billion. The Municipal Master Index has returned 7.5 percent since the end of June, heading for the best quarterly performance since Merrill Lynch & Co. started compiling the total-return gauge in 1989. Treasuries are up 1.7 percent during the quarter and corporate bonds have gained 8 percent, according to other indexes from Merrill, now part of Bank of America Corp. Moving in a ‘Straight Line’ “Portfolio managers often get annoyed when a market moves in a straight line, with yields just dropping,” said Tom Dalpiaz , who manages municipal bonds for individuals at Advisors Asset Management in Melville, New York. “The bonds in your portfolio, they’re going up in value, that’s a great thing, but each day the merchandise gets more expensive.” Even with the record fund flows, this year’s rally in municipal bonds has an “artificial or manufactured feel” because of the creation of Build America Bonds, Dalpiaz said. The federal stimulus program created in February offers partial interest subsidies to states and localities selling taxable debt for otherwise tax-exempt government projects. BAB issuance reached $33.7 billion this week, Bloomberg data show. While tax-exempt bond yields have fallen to historic levels, “I wouldn’t suggest that people go to cash,” Dalpiaz said. “You’re better off just putting some to work bit by bit, steadily and deliberately, trying to stay invested.” Municipal bond sales are poised to rise next week to about $8 billion, led by New York City and the Los Angeles Unified School District, each planning to offer more than $1.5 billion in tax-exempt and Build America bonds. Following are descriptions of some pending sales of municipal bonds and notes. Timing is subject to change. LOS ANGELES UNIFIED SCHOOL DISTRICT plans to raise $1.6 billion by selling a mix of tax-exempt securities, Build America Bonds and additional taxable debt without federal subsidies. Underwriters led by Citigroup Inc. and Goldman Sachs Group Inc. will handle the deal, which will fund improvements and refinance debt of the second-largest U.S. public school system after New York City’s Department of Education. The Los Angeles district also intends to sell an undetermined amount of Qualified School Construction Bonds, which provide investors with federal tax credits and may or may not include supplemental interest payments, based on preliminary bond documents. (Added Sept. 25) CEDARS-SINAI MEDICAL CENTER plans to borrow $535 million by selling fixed-rate revenue bonds as soon as next week in a deal arranged by the California Health Facilities Financing Authority and Bank of America Corp.’s Merrill Lynch & Co. The Los Angeles- based hospital will use the money raised to fund construction of its Advanced Health Sciences Pavilion and other capital projects. The tax-exempt bonds will mature from 2010 through 2027 and carry Fitch Ratings’ fifth-highest A+ rating and Moody’s Investors Service’s sixth-highest A2 rating. The latest deal will increase the hospital’s long-term debt load by more than 70 percent to about $1.2 billion. (Added Sept. 25) VIRGIN ISLANDS PUBLIC FINANCE AUTHORITY plans to sell $476.1 million of bonds to fund public works in the U.S. Caribbean territory and refinance debt issued in 1998. Capital projects include improvements to emergency management services, schools, roads, parks, water lines, libraries, police stations and waste management. All except $6 million will pay interest exempt from federal, state and local taxes. A group of banks led by Citigroup Inc. will underwrite the deal. The bonds are backed by matching fund revenue derived from federal excise taxes collected on Cruzan rum exported to the U.S. from St. Croix. Moody’s Investors Service rates all of the bonds Baa2. Standard & Poor’s and Fitch Ratings rank the $102.6 million of debt with a subordinate lien on revenue BBB- and the senior bonds BBB, one level higher. (Added Sept. 25) NORTH CAROLINA, the 10th most-populous U.S. state, will sell $400 million of its top-rated general-obligation bonds through competitive interest-cost bidding among underwriters on Oct. 6, according to Fitch Ratings. The transaction will replace higher-interest debt. North Carolina has $5.2 billion in GO debt and $1.7 billion in appropriation-backed bonds outstanding. (Added Sept. 25) VIRGINIA will take bids Oct. 6 from investment banks seeking to underwrite $253 million of general-obligation bonds. The offering will raise almost $150 million for new capital projects as well as refinance debt. Virginia is one of seven U.S. states to carry top long-term ratings from Moody’s Investors Service, Standard & Poor’s and Fitch Ratings. The state had $8.7 billion in net tax-supported debt as of June 30, according to Fitch. (Added Sept. 25) NEW YORK CITY, the largest issuer among municipalities in the U.S., plans to sell $1.83 billion of fixed-rate general- obligation debt next week, including its first issue of Build America Bonds. The city wants to raise $800 million under the program that provides 35 percent interest-cost rebates from the U.S. Treasury. It also intends to offer $900 million of tax- exempt bonds to refinance debt and $130 million of taxable securities without federal subsidies. Underwriters led by Morgan Stanley will handle the taxable portion and Bank of America Corp.’s Merrill Lynch & Co. will lead those on the tax-exempt side. New York is rated Aa3 by Moody’s Investors Service, AA- by Fitch Ratings and AA by Standard & Poor’s. (Added Sept. 23) ARIZONA’S SALT RIVER PROJECT, the public power utility for almost 1 million Phoenix-area customers, plans to sell $375 million of long-term bonds via competitive interest-cost bidding among underwriters on Sept. 29. Maturities will range from 2013 through 2037. The proceeds will be used to pay off short-term commercial paper. Standard & Poor’s rates the bonds AA; Moody’s Investors Service grades them Aa1. (Added Sept. 23) To contact the reporter on this story: Jeremy R. Cooke in New York at jcooke8@bloomberg.net .

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Emma Coleman Jordan: Passive Bank Directors Pose Systemic Risks

September 22, 2009

Inattentive regulators, swashbuckling CEO’s, greedy mortgage originators and misinformed borrowers have all been identified as contributing factors to the financial panic after the fall of Lehman Brothers a year ago. Each of these players did indeed make an important contribution to the meltdown and panic a year ago. But passive directors, especially those serving on the boards of systemically important firms have remained largely exempt from regular public criticism. I recently reviewed the boards of the top 17 recipients of TARP money. My research report for the Center for American Progress: A Fair Deal For Taxpayers, Public Directors Are Necessary to restore Trust and Accountability at Companies Rescued by the U.S. Government found that an amazing 92% of the directors who were in place before the financial crisis of 2008 are still in place. http://www.americanprogress.org/issues/2009/09/public_directorships.html This fact alone is cause for concern. How can directors who approved the decisions that led to the crisis be relied upon to steer a successful passage out of the turmoil? More importantly, how can they be expected to provide innovative leadership in the difficult post-crisis environment. The enforcement spotlight is now turning to the directors of large interconnected or systemically important financial firms. Three inquiries have focused on the role of Bank of America directors in the decision to acquire Merrill Lynch in December of last year. Andrew Cuomo, NY Attorney General, Judge Ned Rakoff of the NY Federal District Court , and Congressman Ed Towns, Chair of the House Government Oversight and Accountability Commitee have all sought to compel Bank of America to reveal more detail about which officers or directors approved the required disclosures First, last Friday, Andrew Cuomo, New York Attorney General, served subpoenas on 5 directors of Bank of America, members of the Audit Committee, as a part of his continuing probe of the failure to disclose to investors $8.98 billion of Merrill losses and 5.6 billion dollars of Merrill bonuses that emerged during the last quarter, just before the merger was approved by shareholders on December 5, 2008. The Wall Street Journal quotes Cuomo as asking whether the directors ” were misled, or were they little more than rubber stamps for management’s decision making.” Federal Judge Jed Rakoff, rejected the SEC settlement of its enforcement action against Bank of America for failure to disclose the bonuses. Rakoff wrote: B of A executives “effectively lied to their shareholders.” B of A was the recipient of 45 billion dollars in federal bailout money, the $3.6 billion in bonuses it paid out to executives was money “from Uncle Sam,”. Rakoff rejected the settlement, ordered a trial no later than February first in his courtroom and concluded that the settlement “does not comport with the most elementary notions of justice and morality.” Chairman Edolphus Towns has also been investigating the details of the Merrill Lynch acquisition. Most recently, Towns, gave B of A a noon deadline, which they missed, to deliver a response to his questions about attorney client communications. This effort to pierce the shield of attorney client privilege to determine whether securities or financial regulations were violated, is unusual, although not completely unheard of. Now that Bank of America directors are under the glare of the national spotlight, will the directors at other systemically important banks get the message: Wake up. http://http://www.americanprogress.org/issues/2009/09/pdf/public_directors.pdf

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New York City to Sell $1.83 Billion in Bonds, First Build America Offering

September 22, 2009

By Jeremy R. Cooke Sept. 22 (Bloomberg) — New York City plans to sell $1.83 billion of taxable and tax-exempt debt with fixed rates next week, including its first issue of federally subsidized Build America Bonds. The debt offerings by New York, the largest borrower among U.S. cities, will include $800 million of taxable Build America Bonds to fund public works, finance officials said in a news release today. State and local governments raised $33.1 billion under the Build America Bonds program since public offerings began in mid- April. The federal program provides a 35 percent interest-cost rebate created by February’s economic stimulus act. “The BAB market continues to grow and become a more integral part of the municipal bond market,” Chris Holmes , a fixed-income strategist at JPMorgan Chase & Co. in New York, said in a Sept. 18 report. Yield spreads over U.S. Treasuries for long-term BAB issues larger than $200 million have tightened by almost 200 basis points since late June, to about 150 basis points, according to JPMorgan. A basis point is 0.01 percentage point. “We expect no material change in this trend over the near term,” Holmes said. New York City also intends to sell $130 million of taxable securities without federal subsidies and $900 million of tax- exempt bonds to refinance debt. Build America Bonds, which can be issued through the end of 2010, can’t be used to refinance long-term debt or for projects that wouldn’t otherwise qualify for tax-exempt financing. A group of investment banks led by Morgan Stanley will underwrite the taxable deal. Underwriters led by Bank of America Corp.’s Merrill Lynch & Co. will handle the tax-exempt offering, which will begin Sept. 25, when individual investors can place orders for the bonds. New York City is rated Aa3 by Moody’s Investors Service and AA- by Fitch Ratings, each the fourth-highest of 10 investment grades. Standard & Poor’s rates the city one level higher at AA. To contact the reporter on this story: Jeremy R. Cooke in New York at jcooke8@bloomberg.net .

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Stocks in U.S. Overvalued After Six-Month Rally, Economist Rosenberg Says

September 21, 2009

By Eric Martin and Erik Schatzker Sept. 21 (Bloomberg) — U.S. stocks are overvalued after the Standard & Poor’s 500 Index rallied 58 percent from a 12- year low in March, the steepest advance since the Great Depression, economist David Rosenberg said. Rosenberg said the U.S. equity benchmark is priced at a level that should correspond to the third year of the recovery from a recession. Earnings for companies in the index have dropped for a record eight quarters and will probably decline 22 percent in the current period before growing 62 percent in the final three months, according to the average estimate of analysts surveyed by Bloomberg. “The market is being really fueled here by technicals and momentum,” Rosenberg, chief economist at Gluskin Sheff & Associates Inc. in Toronto, said in an interview on Bloomberg Television. “It’s overshot the fundamentals. I’m a little nervous, at least over the near-term.” The S&P 500 advanced for six months on growing optimism that the U.S. was pulling out of the longest economic slump since the 1930s. The climb pushed valuations in the index to almost 20 times the reported earnings from continuing operations of its companies, the highest level since 2004, according to weekly data compiled by Bloomberg. “The fair multiple for earnings should be 12 or 13,” Rosenberg said. “We’ve blown right through that.” Economy ‘Heavily Medicated’ Rosenberg is the former chief North American economist at Merrill Lynch & Co., the brokerage bought by Bank of America Corp. in January. It’s too early to know whether the economy will expand after government spending measures are exhausted, Rosenberg said. “All we can really say is the economy right now is so heavily medicated with government stimulus that there’s no way of really knowing, in terms of doing a full medical examination, what it looks like beneath the surface,” he said. Gains in stock prices, consumer confidence and homebuilding that are buoying the Conference Board’s leading economic index reinforce Federal Reserve Chairman Ben S. Bernanke’s view that the worst recession since the Great Depression has probably ended. At the same time, rising unemployment and tight credit are reminders that a rebound will be slow and gradual. Rosenberg said in July that economic growth will be “subdued” for at least a year and the economy may “relapse” into contraction in the fourth quarter. In May he said the S&P 500 may fall beneath the 12-year low reached on March 9 because consumer spending hasn’t recovered. To contact the reporters on this story: Eric Martin in New York at emartin21@bloomberg.net ; Erik Schatzker in New York at eschatzker@bloomberg.net

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Thain: I Should Have Furnished My Office At Ikea

September 18, 2009

John Thain, the former chief executive officer of Merrill Lynch & Co. who was accused of overspending on an office renovation as the broker teetered, said he should have bought less-expensive furniture at Ikea.

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Video: Inside Look – The State of Wealth Management

September 18, 2009

Live! From Global Irish Economic Forum in Dublin, Ireland: Interview with Robert McCann, Former Head of Merrill Lynch Global Banking (Bloomberg News)

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Merrill Lynch: Nervous investors pause for breath

September 16, 2009

Merrill Lynch: Nervous investors pause for breath

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Max Wolff: Things Are Getting Better

September 12, 2009

The first and best response to this statement is always a series of questions. The first two inquiries should be, which things and for whom? We are not in the habit of asking these two questions, and it shows. To see why these questions are not asked, let’s ask them. Let us also acknowledge that many things have gotten better. What is getting better? Our remaining financial institutions are more profitable and less subject to public and business suspicion. These firms are also bigger and face significantly less competition. Many financial firms have used new legal options, special programs, government handouts and reduced competition to begin to rebuild. This is a marked improvement over the dire circumstance of one year ago. As you read this, we are in the middle of the one-year anniversary of the nine days that shook the financial world. The period between September 7, 2008 and September 16, 2008 witnessed the collapse of much of the US investment banking and home mortgage lending systems. We lost Freddie Mac, Fannie Mae, Lehman Brothers, AIG and independence for Merrill Lynch in just over a week. Today, we are not all seized by panic as the financial world collapses atop our heads. It remains to be seen and tested how many of our deep structural problems have been fixed. I am skeptical. Who is benefiting? Public sentiment is better than it was one year ago and asset markets have done very well. The S&P 500 is about 125 points, 12%, below where it was one year ago. This masks the reality that asset prices plunged from September 2008-March 2009 and have spent the last 6 months surging back. On the close of business, Wednesday 09 September 2009 we are 40% and over 290 points, above the lows reached in February and early March 2009. Corporate profits have also begun the process of rebounding from their recent crash. Corporate profits rose 5.7% even as the economy contracted by 1% in the second quarter of 2009. Profits and assets have done well. Thus, the commanding heights of America’s stratified income structure have begun to heal themselves across the last few months. The three graphics included here offer a valuable view. What we call recovery is a return to the structural economic conditions that created the problems that came to a head in 2001 and 2007. We are getting back on trends that have created the consumer debt problems and the bubble, boom and bust cycle that has defined the US economy for more than a decade. The great mass of Americans live on income earned from employment. Here, the story is very, very different. The number of hours worked presently hovers near a 40-year low. America’s average work week has fallen to 33.1 hours. We have only kept these numbers for 45 years. The Bureau of Labor Statistics provides multiple measures of unemployment. The official unemployment rate, widely reported at 9.7%, is too narrow to speak to the extent of job weakness in America. The most inclusive measure, called U-6, includes involuntary part time workers and people out of work and desiring jobs who have given up looking. The inclusive U-6 unemployment rate in America is 16.8%. Perhaps this more inclusive unemployment rate helps to explain our 350,000 foreclosure filings a month and the one million homeless school children starting the new school year? American consumption is 69% of the US economy and 14% of world GDP. Let’s ask one last question. How did we get here? The two charts below, all data from the Bureau of Labor Statistics, illustrate the challenges facing the bottom 80% of Americans. These problems have been a long time building. Figure 1 Average Weekly Hours of Production Workers 1964-2009 Figure 2 Average Hourly Earnings in 1982 Dollars 1964-2009 Look closely at the vertical axis in each graph. The range of values is fairly small. This is particularly crucial in Figure II, Average Hourly Earnings in 1982 Dollars. Our average hourly earnings – corrected for inflation – have been stuck between $7.50 and $9.00 for 45 years. Only real and sustained wage and job growth will allow most Americans to announce recovery. We have not seen either yet.

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Brevan Howard Adds Morgan Stanley, Merrill Executives as Pay Lures Traders

September 10, 2009

By Tom Cahill Sept. 10 (Bloomberg) — Brevan Howard Asset Management LLP, Europe’s largest hedge-fund manager, added three partners from Wall Street firms including Morgan Stanley and Merrill Lynch & Co. as pay and trading constraints drive traders to hedge funds. Fabrizzio Gallo , 43, who oversaw proprietary trading at Morgan Stanley until April, joined the firm this month, along with Danny Bernheim , 39, who left Merrill Lynch in June, and Richard Chau , 41, according to filings from Companies House and the U.K.’s Financial Services Authority. The three follow Mark Hillery , formerly head of emerging- markets investments at Tudor Investment Corp., in joining Brevan Howard in the past month. The London-based firm manages about $24 billion and was one of the few hedge funds to post a profit in 2008 as hedge funds had their biggest losses in two decades. Brevan Howard “managed to get through the storm in pretty good shape while their competitors on Wall Street and at rival hedge funds have suffered,” said Jason Kennedy , chief executive officer of Kennedy Associates, a London-based financial recruitment firm. “If you’re in that position of strength you can approach people who had previously been untouchable, and that’s what they’ve done.” Brevan Howard’s macro fund has returned 14 percent this year after a 20 percent gain in 2008, according to company filings. Overall, hedge funds have gained 14 percent this year after a loss of 19 percent in 2008, according to Hedge Fund Research Inc.’s fund weighted composite index. Anthony Payne , a Brevan Howard spokesman, wasn’t available for comment. Alan Howard , a former proprietary trader at Credit Suisse Group, started Brevan Howard in 2003 and has since expanded beyond his roots trading government bonds. Macro funds seek to profit from economic trends by trading stocks, bonds, currencies and commodities. To contact the reporter on this story: Tom Cahill in London at tcahill@bloomberg.net

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Barclays, JPMorgan Lead Fixed-Income Ranks in Greenwich Associates Survey

September 9, 2009

By Christine Richard Sept. 9 (Bloomberg) — Barclays Capital and JPMorgan Chase & Co. were ranked highest for fixed-income market share and quality of debt sales, trading and research by institutional investors in a Greenwich Associates survey. Barclays Capital received 14.8 percent of overall fixed- income market share while JPMorgan took 14.2 percent. The results were based on interviews between February and April with 1,096 institutions active in U.S. fixed-income markets. Interviewees were asked to name and rate the sell-side firms they conduct business with in markets including government bonds, interest-rate derivatives, and corporate bonds. “As a result of this strong performance, these two firms have separated themselves from other competitors and established themselves as the clear market leaders in terms of market share and quality,” wrote Greenwich Associates, a research firm located in Stamford, Connecticut. The two firms posted top rankings after major acquisitions. In 2008, Barclays Capital, a unit of Barclays Plc, acquired Lehman Brothers’ U.S. fixed-income business and JPMorgan integrated Bear Stearns’s fixed-income franchise. Banc of America Securities data didn’t include Merrill Lynch franchise data. Other firms that increased their market share included Citigroup Inc., Deutsche Bank AG and Credit Suisse, according to the Greenwich report. To contact the reporter on this story: Christine Richard in New York at Crichard5@bloomberg.net

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Corporate Bond Market `On Fire’ in Europe as Debt Sales Top $1.23 Trillion

September 8, 2009

By Paul Armstrong and Esteban Duarte Sept. 8 (Bloomberg) — Corporate bond sales surged in Europe, driving this year’s record issuance above $1.23 trillion, as borrowers from Italian automaker Fiat SpA to Dutch phone provider Royal KPN NV tapped credit investors. Issuance is now 11 percent ahead of the total for all of 2008 and demand for risk assets has driven the extra yield buyers demand to hold investment-grade corporate bonds down to 2.02 percentage points, from as high as 4.63 percentage points in March, Merrill Lynch & Co.’s EMU Corporate Index shows. “The market is back on fire after its usual summer lull,” said Juan Esteban Valencia , a credit analyst at Societe Generale SA in London. “Appetite for credit remains unabated.” Turin-based Fiat is selling 1.25 billion euros ($1.8 billion) of five-year bonds at a yield of 7.75 percent, according to SocGen, one of the managers of the issue. KPN in The Hague is issuing 850 million pounds of 20-year bonds priced to yield 175 basis points more than similar-maturity U.K. government bonds, a banker involved in the deal said. Bayerische Motoren Werke AG , the world’s biggest maker of luxury cars, is offering 1.5 billion euros of bonds, according to a banker involved in the deal. The notes will be priced to yield 133 basis points over the benchmark mid-swaps rate. A basis point is 0.01 percentage point. Investor Demand “A number of non-financial deals are coming to market this week,” analysts at Barclays Capital wrote in a note to clients today. “We believe these will do well as investors continue to demand corporate credit.” Governments across Europe are turning to banks to underwrite bond sales to ensure demand as they borrow record amounts to pull their economies out of the deepest recession in decades. Italy is syndicating a 30-year deal, its longest benchmark note, that attracted orders of more than 4 billion euros, bankers involved in the transactions said. Italy’s bonds will be priced to yield between five basis points and eight basis points more than the country’s existing debt maturing in 2039. The market for covered bonds was also active with Deutsche Pfandbriefbank offering a 1.5 billion-euro issue of five-year notes priced to yield 50 basis points more than swaps, according to a banker involved in the transaction. To contact the reporter on this story: Esteban Duarte in Madrid at eduarterubia@bloomberg.net

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Pimco Says Asian Financial Company Bonds `Attractive’ as Economies Rebound

August 27, 2009

By Garfield Reynolds and Wes Goodman Aug. 28 (Bloomberg) — Asian bank bonds “look attractive” as markets recover from the financial crisis, said Koyo Ozeki , head of credit research for the region at Pacific Investment Management Co. , which runs the world’s biggest bond fund. “The worst is over,” Tokyo-based Ozeki said in a telephone interview today. “Asian countries managed to maintain stability in the banking system. Banks are still facing headwinds but the risk of systemic crisis seems to be behind us.” The difference between yields on financial company bonds in Asia and benchmark government securities widened to desirable levels because of the financial crisis, Ozeki wrote in an article on Pimco’s Web site. In the U.S. and Europe, the potential for credit spreads to narrow “is limited,” according to the report. The extra yield investors demand to hold Asian financial company bonds rather than government securities stands at 512 basis points, down from 1,065 points on Dec. 12, according to JPMorgan Chase & Co.’s Asia Financial Bond Index . The spread is averaging 356 basis points in the U.S. and 271 basis points in Europe this year, Merrill Lynch data show. A basis point is 0.01 percentage points. “During the first half of this year Pimco has invested actively in bonds and securities of issuers whose credit qualities remained high and stable in our opinion, even as the sovereign risk premium widened,” Ozeki said in his report. Narrower Spreads Still, investors should “make rigorous and prudent bond selection” since, though Asia financial bond spreads have narrowed since April there is a chance that the market may reverse, Ozeki said in the report. The crisis, which started with the collapse of the U.S. property market in 2007, has triggered $1.61 trillion of writedowns and credit losses at financial institutions and sent the global economy into its first recession since World War II, according to data compiled by Bloomberg. Pimco, based in Newport Beach, California, is a unit of Munich-based insurer Allianz SE. To contact the reporter on this story: Garfield Reynolds in Sydney at greynolds1@bloomberg.net ; Wes Goodman in Singapore at wgoodman@bloomberg.net .

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Fed Asset-Backed Loan Plan Gets $2.3 Billion Commercial Mortgage Requests

August 20, 2009

By Jody Shenn Aug. 20 (Bloomberg) — Investors asked the Federal Reserve for $2.3 billion of loans against commercial-mortgage-backed securities created before this year, an expansion from $668.9 million in its financing program’s first round a month earlier. The central bank got no requests for newly issued bonds backed by loans on skyscrapers, shopping malls, apartments or hotels, the New York Fed said today on its Web site . That part of the Term Asset-Backed Securities Loan Facility, or TALF, hasn’t been used since its start three months ago. “I would not call this a blow-out number by any stretch of the imagination, but certainly relative to what we saw in July it was positive and definitely within the range of what people were thinking,” said James Grady , managing director in New York for Deutsche Asset Management, a unit of Deutsche Bank AG that oversees $240 billion of investments. Wall Street profits and the $700 billion CMBS market, which rallied amid the opening of TALF to the debt and start of Treasury Secretary Timothy Geithner ’s Public-Private Investment Program, may depend on the programs’ results. While the average price of top-rated commercial-mortgage securities is up 8 percent since June to almost 90 cents on the dollar, last week values began weakening as buying in anticipation of investor demand tied to the programs eased, according to Merrill Lynch & Co. index data. Looking Ahead “With dealer inventories now fairly bloated across the Street, we will need to see not only a sizable subscription next Thursday, but will also need the Fed to remain accommodative with respect to the bonds it accepts as TALF-eligible collateral,” Alan Todd , a JPMorgan Chase & Co. analyst in New York, wrote in Aug. 14 report. TALF loan requests of less than $1 billion would be a “disappointment” to the market, while requests of more than $2 billion would probably be “well received,” he said in a telephone interview today before the announcement. Investment banks have been recently buying commercial- mortgage securities being offering for sale “pretty aggressively in the expectation that TALF buyers would materialize,” Grady said in a telephone interview. The investors typically will seek to acquire the bonds a few days before, or the same day that, the Fed accepts requests, he said. Fed Chairman Ben S. Bernanke this week extended the TALF for commercial-mortgage bonds into next year as he seeks to stabilize a market where property values have fallen 36 percent from their October 2007 peak, according to Moody’s Investors Service data. Banks and insurers own more than $2 trillion of U.S. commercial real-estate debt not packaged into bonds. Top Rating Required Last month, the Fed refused to accept only one commercial- mortgage bond as TALF collateral, announcing the decision about a week after disclosing the loan requests without saying why it found the debt too risky. At a minimum, the securities must carry top credit ratings, not be under review for downgrades and rank among the senior-most classes of a securitization. The central bank is receiving advice on the decisions from Trepp LLC, a New York-based research firm, and Pacific Investment Management Co., the Newport Beach, California-based firm that manages the world’s largest bond fund. The PPIP, which the government announced July 8 would begin with nine asset managers raising as much as $10 billion and receiving as much as $30 billion in taxpayer capital and loans, accepts a broader range of commercial- and residential-mortgage bonds originally rated AAA. Sales History The Fed is seeking to revive commercial-mortgage bond sales after issuance halted as the cost to sell the debt became too high to originate new real-estate loans. That choked off financing to borrowers including those seeking to refinance $165 billion of debt this year. In 2007, a record $237 billion of commercial-mortgage bonds were sold, before sales fell to $12.2 billion last year and none this year, according to JPMorgan. The Fed extended the commercial-mortgage TALF to June 30, 2010, from Dec. 31. The Aug. 17 announcement followed a letter to Bernanke from 41 House members — including Financial Services Committee Chairman Barney Frank , a Massachusetts Democrat, and Carolyn Maloney , a New York Democrat who heads the Joint Economic Committee — asking for a one-year extension after property owners stepped up lobbying for a later deadline. Spreads Over Benchmarks Yields over benchmark interest-rate swaps on so-called super senior commercial-mortgage securities issued in 2006 that are likely TALF-eligible were about 4 percentage points earlier today, according to JPMorgan data. Spreads on similar bonds that aren’t eligible were 5.5 percentage points. Since Aug. 7, spreads have widened between about 0.50 percentage point and 1 percentage point, with prices for ineligible debt weakening the most, Todd said. In November, the spreads topped out at record highs between about 13 percentage points and 15 percentage points, he said. The average price of top-rated CMBS securities has eased from a high this year of 91.2 cents on the dollar on Aug. 13, after climbing from a 2009 low of 72 cents in February, according to Merrill Lynch index data. To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net .

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China Stocks to Rebound as Bear Market Won’t Last, Merrill Strategist Says

August 19, 2009

By Bloomberg News Aug. 20 (Bloomberg) — China’s stocks are set to rebound from this month’s plunge on prospects earnings will beat estimates and policy makers will maintain bank lending, Bank of America Corp.’s Merrill Lynch unit said. The Shanghai Composite Index fell 4.3 percent to 2,785.58 yesterday, 19.8 percent below the high on Aug. 4 and near the 20 percent bear-market threshold. About 10 stocks fell for each that rose on the Shanghai gauge amid disappointing earnings and concern the government will seek to damp property speculation. “I don’t think this is a turning point,” David Cui , China strategist at Merrill Lynch, said in a phone interview yesterday. “My sense is that earnings will surprise on the upside and we’ll see a round of earnings upgrades. The government’s monetary policy also hasn’t changed.” Cui’s view is shared by U.S. fund managers Uri Landesman of ING Investment Management Inc. and Sentinel Asset Management’s Kate Schapiro, who say the stock selloff won’t prompt them to cut their investments in the world’s third-largest economy. “If you were to put a gun to my head, I would say that China is a buy, not a sell,” said Landesman, who manages $2.5 billion at ING Investment in New York. “China has always been a volatile place and that hasn’t changed in the last few weeks.” Landesman said he’s considering adding to his China holdings. China’s benchmark stock index posted the biggest gains among the world’s markets from Jan. 1 to Aug. 4, more than doubling from the low in November. Shares had surged as the government unveiled a 4 trillion yuan ($585 billion) stimulus package and new loans by banks surged to a record in the first half. The gauge remains 54 percent below the all-time high on Oct. 16, 2007. Main Catalyst The index has slumped this month, paring the year-to-date advance to 53 percent, after new lending in July tumbled to less than a quarter of June’s level, while losses at Yunnan Copper Industry Co. and Maanshan Iron & Steel Co. revived concern that earnings will deteriorate. The equities rally also faltered as the securities regulator allowed initial public offerings after a nine-month moratorium. Jonathan Garner, chief Asian and emerging market strategist at Morgan Stanley in London, told Bloomberg Television that the main catalyst for the recent plunge was the July IPO of China State Construction Engineering Corp. “It drained liquidity from secondary markets,” he said. China Everbright Securities Co. yesterday underscored the downturn, slumping by the 10 percent daily limit, a day after it had the smallest debut of any new stock in Shanghai this year. Shanghai-based Everbright rose 30 percent on Aug. 18, against an average 109 percent for the seven other companies to list shares in China since the moratorium ended last month. ‘Leg Down’ “The next few days are key,” said Cui at Merrill Lynch, who favors shares of property developers, coal and non-ferrous metals producers. “We may see another leg down if the market doesn’t hold around the 2,800 level.” China’s biggest state-owned banks such as Industrial & Commercial Bank of China Ltd. are scheduled to report their half-yearly results within this fortnight. Shanghai’s index has extended its decline since Prime Minister Wen Jiabao said on Aug. 9 that the government will maintain its current macroeconomic policy stance aimed at bolstering domestic spending as the nation continues to experience fallout from the global recession. The index is trading at 29.8 times reported earnings, against 17.6 times for the MSCI Emerging Markets Index, and remains 53 percent higher than at the start of this year. ‘Back off a Bit’ “I think it’s healthy for the market to back off a bit,” said Schapiro , fund manager at San Francisco-based Sentinel, with $17 billion in assets. “Over the next 12 months or so I think we’re in a period of time where China’s growth is still going to be the fastest of the major countries of the world. Even without a pickup in their export sector, they can probably grow at around 8 or 9 percent.” The Shanghai Composite is poised to rally and global equities may follow suit, according to Richard Ross , global technical strategist at New York-based Auerbach Grayson & Co. Charts shows four levels of “support” signaling that the index may rebound: the 38.2 percent Fibonacci retracement, the 200-day exponential moving average, the trend line since mid-January and the 14-day relative strength index. “A rebound is in the cards,” said Ross. ‘Trend Oriented’ Stocks plunged the most in eight months on July 29 on speculation the government will curb inflows into the market. Beijing-based Caijing magazine reported that day speculation the central bank was poised to order lenders to set aside larger reserves. Market News International said Chinese equities fell that day on speculation regulators will increase a tax on stock trading. “The Chinese market is very trend-oriented because there are many individual investors,” said Philippe Zhang , chief investment officer at AXA SPDB Investment Managers in Shanghai, which oversees about $220 million. “So it can rally very quickly and go down strongly as well.” Investors opened 484,185 accounts to trade stocks last week, the slowest pace since the five days ended July 10, according to data from the nation’s clearing house. Account openings peaked this year at 700,617 in the last week of July, days before the index reached this year’s high, the data shows. “It’s scary,” retiree Xu Xuehong, 64, who had about 300,000 yuan ($43,900) invested in shares, said in an interview at a branch of Shenyin & Wanguo Securities Co. in Shanghai. “The decline is too rapid; I am not going to make new investments.” Speed of Decline China’s CSI 300 index , measuring exchanges in Shanghai and Shenzhen, has fallen more than 20 percent five times since 2005, with the index plunging by 33 percent and lasting almost three months on average during the bear markets, according to Birinyi Associates Inc. The index fell 5 percent to 3,014.47 yesterday, down 20 percent since Aug. 4. “The speed of this drop stands out,” said Kevin Pleines, analyst for the Westport Connecticut-based research and money management firm. “If this decline follows the average, it will take the CSI down another 486 points to 2,527.” To contact the Bloomberg News staff for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net

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Investors Piling Into Stocks as Risk Appetite Jumps, Merrill Survey Shows

August 19, 2009

By Sarah Jones Aug. 19 (Bloomberg) — Money managers jumped back into equities this month and reduced their holdings of cash as risk appetite returned to levels not seen since the last bull market, a Merrill Lynch & Co. survey showed. Respondents, who together manage $554 billion, increased their holdings in global equities as optimism on economic growth and corporate earnings rose to the highest level in more than five years. The MSCI World Index , a gauge of 23 developed nations, has rebounded 51 percent since March 9 as companies from Goldman Sachs Group Inc. to Intel Corp. reported better-than-expected earnings. The Organization of Economic Cooperation and Development said today that the economies of its 30 members collectively stopped shrinking in the second quarter as Japan joined France and Germany in exiting recession. “People have had to admit that the global economy is improving,” said Patrik Schowitz , a European equity strategist at Bank of America Securities-Merrill Lynch. “A lot of investors missed out on the March rally, which had become increasingly painful, so they have had to throw in the towel,” he said at a press briefing today in London. A net 34 percent of the 204 fund managers who participated in the survey were “overweight” equities this month as cash holdings diminished. That’s up from 7 percent in July and is at the highest level since October, 2007, the month in which the MSCI World peaked at the end of the last bull market. Risk Appetite Jumps The average cash position among respondents dropped to 3.5 percent, the lowest proportion since July 2007, compared with 4.7 percent last month. The report’s risk and liquidity indicator, a measure of risk appetite among investors, jumped to 41 percent, a two-year high. “Strong optimism in August represents a big turnaround from the apocalyptic bearishness of March,” said Michael Hartnett , New York-based co-head of international investment strategy at Bank of America-Merrill Lynch. Though “a nagging lack of conviction about the durability of the recovery remains.” A net 75 percent of respondents believe the world economy will strengthen in the next 12 months, the highest reading since November 2003. Even so, four out of five investors forecast “below-trend growth.” Optimism on corporate earnings continued to improve, with 70 percent of money managers predicting corporate earnings will rise in the coming year, the highest proportion since January 2004. That compares to 51 percent who held that opinion in July. The survey was conducted from Aug. 7 to Aug. 12. As of January, Merrill Lynch changed the format of its survey and no longer publishes full historical data. To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net .

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Sovereign Funds Curb Risk Appetite After Criticism of Losses, Report Says

August 19, 2009

By Poppy Trowbridge Aug. 19 (Bloomberg) — Sovereign wealth funds are seeking safer investments after facing “vehement” domestic criticism over losses linked to the credit crisis and a plunge in oil prices, analysts at State Street Corp. said. “Criticism by the national media for their high-profile losses might even jeopardize their ability to take the long-term investment positions that have given them such a comparative advantage,” John Nugée , managing director and head of the official institutions group at Boston-based State Street, told reporters at a briefing in London yesterday. Sovereign funds, together worth about $3.2 trillion, operate as government-owned, special purpose investment vehicles. They are slashing risk, shoring up liquidity and investing more in their home markets after the credit crunch and a collapse in commodity prices led the value of their assets to plunge. The funds have also shrunk as governments tapped their capital reserves amid the global economic slump. Singapore’s Temasek Holdings Pte , Kuwait Investment Authority and China Investment Corp. are among the sovereign funds that helped struggling U.S. investment banks replenish more than $200 billion of capital. Securities linked to financial-services firms plummeted after the collapse of the U.S. subprime mortgage market in 2007. KIA and Temasek owned shares in Merrill Lynch & Co., which was bought by Bank of America in September after the shares slumped 35 percent. Traditionally silent stakeholders, some funds may consider taking a more active role as a result of their losses, according to State Street. Many of the funds are financed by oil revenue. Crude oil for September delivery was trading at $68.30 a barrel at 12:30 p.m. yesterday on the New York Mercantile Exchange. The price has collapsed from its record of $147.27 last July. To contact the reporter for this story: Poppy Trowbridge in London at ptrowbridge@bloomberg.net

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Goldman Said to Replace UBS in Evergrande $1 Billion IPO Underwriting Team

August 18, 2009

By Bei Hu Aug. 18 (Bloomberg) — UBS AG has dropped out of the team arranging a $1 billion Hong Kong initial public offering for Evergrande Real Estate Group Ltd., the Chinese developer that has revived plans to sell shares, said four people with knowledge of the change. Evergrande replaced UBS with Goldman Sachs Group Inc., who will manage the sale alongside BOC International (Holdings) Ltd. and Bank of America Corp.’s Merrill Lynch & Co. unit, said two of the people, who declined to be identified because the information isn’t public. UBS left the underwriting team after deciding it was unable to meet Evergrande’s required commitment for human and other resources in the sale, two of the people said. Investment banks, which cut staff amid the deepest financial crisis since the 1930s last year, are struggling to cope with a resurgence of IPO activity in Hong Kong. Financial companies globally slashed nearly 330,000 jobs amid the credit crisis that resulted in almost $1.6 trillion of writedowns and losses, according to data compiled by Bloomberg. Li Chenxi, a Guangzhou-based spokeswoman for Evergrande, said he doesn’t yet have information on the changes. Spokespeople for the investment banks declined to comment. Jonathan Penkin, Goldman’s Hong Kong-based head of equity capital markets in Asia outside Japan, estimated in June that as many as 100 companies may be reviving Hong Kong IPO plans delayed by the 2008 market rout. IPO Revived Evergrande, a Guangzhou, southern-China-based developer, in March 2008 scrapped its first attempt at a Hong Kong share sale that could have raised as much as HK$16.6 billion ($2.1 billion), the largest IPO by a Chinese developer, as the market slumped. It reapplied to the Hong Kong stock exchange to revive the share sale with BOCI, Merrill and UBS as bookrunners around Aug. 7, the people said. Goldman was involved in the company’s earlier attempt at an IPO with Credit Suisse Group AG and Merrill. Evergrande and the banks are in discussions with the Hong Kong stock exchange as to whether the developer will be allowed to amend or have to refile the share sale application, which would delay the IPO likely to start as early as next month, said one of the people. To contact the reporter on this story: Bei Hu in Hong Kong at bhu5@bloomberg.net

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Commercial-Mortgage Bond Rally Stalls Ahead of Deadline for Fed Program

August 14, 2009

By Sarah Mulholland Aug. 14 (Bloomberg) — Yields on bonds backed by shopping malls, hotels, office buildings and apartment complexes rose relative to benchmark interest rates as investors wait for the second round of the Federal Reserve’s program to jumpstart lending. The yield gap, or spread, on a commercial-mortgage security commonly cited as a barometer rose 0.60 percentage point yesterday to 6.30 percentage points more than the benchmark swap rate, according to JPMorgan Chase & Co. data. The debt was at about 5.30 percentage points over the benchmark at the end of last week. The price of Markit CMBX index contracts plunged as much as 6.18 percentage points yesterday, JPMorgan data show. The price of the contracts fall as the cost to protect debt from default rises. Investors and Wall Street banks had been gobbling up the bonds as the Fed’s program to stimulate new lending promises to boost returns by financing purchases of AAA commercial-mortgage debt. The Fed effort pushed prices up quickly, and buyers could be pulling away as the commercial-mortgage market remains under pressure, according to Lisa Pendergast , a strategist at Jefferies & Co. in Stamford, Connecticut. Maguire Properties Inc. , the largest office landlord in downtown Los Angeles, announced its plans to surrender control of seven buildings to its lenders on Aug. 10. The mortgages on six of them had been bundled and sold as bonds. ‘Wake-Up Call’ “Maguire should have been a wake-up call for anybody that got lulled into comfort,” Pendergast said. “No sophisticated borrower is going to continue to feed a property for very long knowing that their assets are far out of the money.” The Fed began lending against so-called legacy commercial mortgage-backed securities last month through its Term Asset- Backed Securities Loan Facility, or TALF. Legacy securities are those sold before Jan. 1. Investors sought $669 million in loans to purchase older bonds backed by commercial real estate last month. The amount of loan requests should increase as investors get more comfortable with the program’s mechanics, according to a report from Barclays Capital yesterday. The next deadline for investors to apply for loans to buy the older bonds is Aug. 20. The Fed has reserved the right to reject loan requests if the bond to be used as collateral is deemed too risky. The Fed threw out one bond and accepted 35 in July. Top-ranked commercial-mortgage backed securities have gained 10.17 percent since July 1, according to Merrill Lynch & Co. indexes. ‘Momentary Setback’ This week’s sell-off should be seen as a “momentary setback,” Citigroup analysts led by Darrell Wheeler in New York said in a report today. The U.S. Public Private Investment Partnership, a separate government program that will lend against a broader swath of commercial-mortgage securities, should push prices up further once the program gets off the ground, the Citigroup analysts said. To contact the reporter on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net

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Blackstone Debut Leads U.S. Corporate Bond Sales as Rally Starts to Abate

August 14, 2009

By John Detrixhe and Megan Johnston Aug. 14 (Bloomberg) — Blackstone Group LP , the world’s largest buyout company, and brokerage Raymond James Financial Inc. offered corporate debt for the first time this week as the credit rally shows signs of abating. Sales of $26.3 billion this week compare with $24.8 billion last week, according to data compiled by Bloomberg. Blackstone Holdings Finance Co., a unit of the private equity firm, sold $600 million of bonds, and St. Petersburg, Florida-based Raymond James issued $300 million, Bloomberg data show. Investors are seeking out riskier assets such as financial company debt and lower-rated credits to earn higher yields, said Christian Hviid , director of asset allocation for Encino, California-based Genworth Financial Asset Management. Corporate- credit spreads, or yields relative to benchmark Treasury rates, began widening this week after reaching the tightest level since June 19, 2008, according to Merrill Lynch & Co.’s U.S. Corporate Master & High Yield index. “There’s obviously been a lot of spread contraction from investors moving into risk,” Hviid said in a telephone interview. “The easy money is done and over with. Now you really have to dig deep and do some homework.” Blackstone sold 10-year, 6.625 percent bonds that priced at 99.25 cents on the dollar to yield 6.73 percent, or a spread of 312.5 basis points, Bloomberg data show. The debt is likely to be rated A by Standard & Poor’s, the data show. A basis point is 0.01 percentage point. ‘Smart Play’ “When they came into the equity market, looking back it basically indicated the top of the market,” said Rich Lee , managing director of fixed-income at Wall Street Access, a broker-dealer in New York. “They must feel the same thing about spread product, and I think coming now is a pretty smart play.” Blackstone went public on June 21, 2007, just three months before the stock market began its historic collapse. The Standard & Poor’s 500 Index reached a record high on Oct. 9, 2007, before plummeting 38 percent in 2008, its steepest decline since 1937. Financial companies worldwide have written down $1.6 trillion since the third quarter of 2007, Bloomberg data show. The extra yield, or spread, investors demand to own investment-grade debt instead of Treasuries tightened 1 basis point this week to 253 basis points as of yesterday, according to Merrill Lynch’s U.S. Corporate Master index. Yields fell 24 basis points to 5.41 percent. A basis point is 0.01 percentage point. Risk Reach “Investors have increasingly come to a view that higher- quality paper has tightened as much as it’s going to,” said James Merli , head of U.S. fixed-income syndicate at Barclays Capital in New York. “Their risk appetite is increasing and they’re reaching for incremental spread, going into BBBs and in some cases further down in the capital structure.” Investment-grade companies sold at least $18 billion of debt this week, compared with $23 billion issued the week before, Bloomberg data show. Including high-yield, high-risk or junk debt, companies have borrowed $865 billion in bonds this year, a 36 percent increase from 2008. High-yield bonds are rated below BBB- by S&P and less than Baa3 by Moody’s Investors Service. Sales at U.S. retailers fell in July even as the federal government’s cash-for-clunkers plan helped boost auto purchases, raising the risk that consumers will keep cutting back as job losses mount and temper a recovery from the worst recession since the 1930s. A separate government report yesterday showed more Americans than forecast filed claims for unemployment insurance last week, underscoring the threat to spending from the continued deterioration in the job market. The “catastrophic” retail sales and weaker-than-expected employment data was a “reality check” for investors, said Hviid, who helps manage $7 billion of assets at Genworth. Safety Margin “At this juncture people are really scrutinizing the fundamentals,” Hviid said. “A lot of trading is much more discriminating.” Raymond James, the biggest U.S. regional brokerage, sold $300 million of 10-year, 8.6 percent bonds at 99.983 cents on the dollar to yield 8.6 percent, or a spread of 500 basis points more than similar-maturity Treasuries, Bloomberg data show. “The reason for adding more working capital, if we’re wrong on the immediate economic outlook and indeed we do have a ‘W-shaped’ bottom here, this would just provide an extra margin of safety,” Thomas James , chief executive officer of Raymond James, said in an Aug. 13 telephone interview. Junk-bond spreads widened this week for the first time in five weeks, rising 34 basis points relative to Treasuries to 891 basis points as of yesterday, according to the Merrill Lynch High-Yield Master II index. Recovery Optimism Yields relative to Treasuries are widening as investors realize that the economy isn’t as robust as spreads imply, said Kingman Penniman , president of high-yield research firm KDP Investment Advisors in Montpelier, Vermont. Junk-bond sales of $8.3 billion compare with $1.81 billion last week, Bloomberg data show. “The market is a little ahead of itself on optimism on credit trends and an economic recovery,” Penniman said. “At some point spreads can’t continue to tighten given the reality of fundamentals that are out there.” In the high-yield market, Sprint Nextel Corp. sold $1.3 billion of 8.375 percent notes due in 2017 that priced to yield 506 basis points more than similar-maturity Treasuries, or a yield of 8.625 percent, according to data compiled by Bloomberg. Sprint initially planned to sell $500 million of the debt, according to a person familiar with the offering who declined to be identified. Among borrowers seeking to issue debt is NewPage Corp. , the producer of coated paper used in magazines, catalogs and commercial printing, which plans to sell $595 million through a sale of senior secured notes due in 2014. NewPage is marketing the notes simultaneously with an offer to buy back outstanding debt maturing in 2012 and 2013, the Miamisburg, Ohio-based company said in a statement distributed July 15 by PR Newswire. To contact the reporters on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net ; Megan Johnston in New York at mjohnston17@bloomberg.net .

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Swatch Profit Drops 28% as Wealthy Purchase Fewer Omega, Breguet Watches

August 13, 2009

By Thomas Mulier Aug. 14 (Bloomberg) — Swatch Group AG , the world’s largest watchmaker, reported a 28 percent decline in first-half profit after consumers cut spending on Omega and Breguet timepieces. Net income fell to 299 million Swiss francs ($279 million) from 416 million francs, the Biel, Switzerland-based maker of Tissot and Blancpain watches said in an e-mailed statement today. That beat the 259 million-franc median estimate of four analysts surveyed by Bloomberg. Net sales fell 17 percent to 2.35 billion francs. The ranks of the world’s millionaires shrank 15 percent in 2008, the fastest rate on record, with North America sustaining the biggest wealth loss worldwide, according to a survey by Capgemini SA and Merrill Lynch & Co. Switzerland’s watch industry probably will lose about 3,000 jobs in the year through September, the biggest decline in more than two decades, a trade group said in June. Swatch Group Chairman Nicolas Hayek has said he aims to avoid job cuts in the company’s watch business. “We remain bearish on the luxury sector and remain more negative on the watches and jewelry segment compared with fashion and leather goods,” wrote Kate Woolfoot , an analyst at Nomura in London, before the results were released. She said watches depend more on male buyers and bankers, who are reducing their spending. Exports of Swiss watches fell 26 percent in the first half, according to the Federation of the Swiss Watchmaking Industry. Swatch Group expects “slight” profit and sales growth in the second half as exports of Swiss timepieces rebound, Hayek told shareholders in May. Cie. Financiere Richemont SA, the world’s largest jewelry maker, said May 15 it expected a “significant” decline in results in the three months through June and the outlook for the year is “negative.” Swatch Group is shutting some Leon Hatot stores in Europe and scaling back the brand’s development as the deepest recession since World War II weighs on demand. To contact the reporter on this story: Thomas Mulier in Geneva at tmulier@bloomberg.net .

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Asian Insurance Stocks Rise on Earnings; Mining Companies Fall on Metals

August 10, 2009

By Shani Raja and Masaki Kondo Aug. 11 (Bloomberg) — Asian insurance stocks advanced after Aioi Insurance Co. and Mitsui Sumitomo Insurance Group Holdings Inc. reported higher profits. Mining companies fell after metal prices declined. Aioi rose 3.5 percent and Mitsui Sumitomo rose 2 percent in Tokyo even after a magnitude-6.5 earthquake injured more than 40 people. Nippon Sheet Glass Co. surged 8.6 percent after Merrill Lynch & Co. recommended investors buy the stock. Rio Tinto Group , the world’s No. 3 mining company, sank 2.3 percent in Sydney. The MSCI Asia Pacific Index was little changed at 111.80 as of 11:48 a.m. in Tokyo. The gauge rose 58 percent from a five- year low on March 9 on speculation of a global economic recovery. Stocks in the measure are valued at an average 24 times estimated profit, higher than the MSCI World Index ’s 17 times. “Insurers tend to move in step with the market because a gain in equities boosts the value of their stockholdings,” said Yoshinori Nagano , a senior strategist at Tokyo-based Daiwa Asset Management Co., which oversees the equivalent of $89 billion. “There is concern current stock prices don’t match the fundamentals of the economy and earnings.” Japan’s Nikkei 225 Stock Average added 0.2 percent, while Hong Kong’s Hang Seng Index dropped 0.7 percent. Australia’s S&P/ASX 200 Index fell 0.1 percent. The Taiex Index sank 0.5 percent in Taiwan, where as many as 500 people are feared dead after a typhoon caused a mudslide. Futures on the Standard & Poor’s 500 Index lost 0.2 percent. U.S. stocks fell yesterday, led by commodity producers and retailers, after four straight weeks of gains left the S&P 500 trading at the highest level relative to earnings since 2004. The U.S. gauge declined 0.3 percent yesterday. Insurance Earnings Aioi added 3.5 percent to 474 yen. Mitsui Sumitomo rose 2 percent to 2,615 yen. Aioi said net income more than quadrupled in the three months to June 30, while Mitsui Sumitomo’s first- quarter earnings increased 37 percent. A third of the 443 companies in the MSCI Asia Pacific Index that have reported quarterly results so far have beaten analysts’ profit estimates , while 16 percent have missed, according to data compiled by Bloomberg. Mitsui Sumitomo Insurance said it’s considering its response to today’s earthquake, including creating a task force to gather information and analyze damage. The earthquake hit 23 kilometers (14 miles) below the seabed 170 kilometers from Tokyo at 5:07 a.m. local time, shaking buildings in the capital, the Japan Meteorological Agency said on its Web site. Quake-Related Shares P.S. Mitsubishi Construction Co. , which constructs disaster prevention facilities, climbed 5.6 percent to 413 yen. Fudo Tetra Corp. , which performs ground improvement works, rallied 5.1 percent to 82 yen. “Speculators are buying earthquake-related shares for quick returns,” said Masayoshi Yano , a senior market analyst at Tokyo-based Meiwa Securities Co. “The tremor doesn’t have an impact on those companies’ fundamentals and I don’t think their gains will last long.” Nippon Sheet Glass surged 8.6 percent to 353 yen, leading gains in shares on the Nikkei. Bank of America Corp.’s Merrill Lynch set its price estimate on the stock at 355 yen, saying price increases in Europe will contribute to earnings. Rio Tinto sank 2.3 percent to A$57.22. BHP Billiton Ltd. , the world’s biggest mining company and Australia’s largest oil company, lost 1.5 percent to A$37.20. An index of six metals on the London Metal Exchange fell 0.7 percent yesterday. Crude oil retreated for a third session in New York yesterday with a 0.5 percent decline, capping its longest stretch of declines since the three days ended July 14. Oil added 0.2 percent today. Best Performers Mining and energy companies are the best performing of the MSCI Asia Pacific Index’s ten industry groups in the past month on speculation demand for commodities will pick up as the global recovery takes hold. Better-than-expected earnings and economic reports worldwide have driven stocks higher since March, lifting the average valuation of the MSCI Asia Pacific’s companies to a four-month high of 25 times estimated profit on July 28. “We’ve gone up too fast and need to slow down,” said Fumiyuki Nakanishi , a strategist at Tokyo-based SMBC Friend Securities Co. “Technical indicators show the market is overheating.” To contact the reporter for this story: Shani Raja in Sydney at sraja4@bloomberg.net ; Masaki Kondo in Tokyo at mkondo3@bloomberg.net .

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Treasuries Post Biggest Weekly Drop Since 2003 as Unemployment Rate Falls

August 8, 2009

By Susanne Walker Aug. 8 (Bloomberg) — Treasuries fell, with 10-year yields soaring the most in a week since 2003, as reports indicating the U.S. economy is recovering from its worst slump since the Great Depression spurred investors toward riskier assets. Yields on 10-year debt touched the highest level in almost two months after a report yesterday showed American employers eliminated fewer jobs than forecast in July and a gauge of manufacturing climbed to an 11-month high. The Treasury announced plans to auction a record $75 billion of notes and bonds next week and signaled that issuance of inflation-linked debt would rise in 2010. “The supply and the slightly improving economy will keep pressure on rates,” said John Spinello , chief technical strategist in New York at Jefferies Group Inc., one of the 18 primary dealers that trade with the Federal Reserve. “It won’t move the Fed any closer to tightening because they don’t want to derail any recovery.” The benchmark 10-year note yield rose 38 basis points on the week, or 0.38 percentage point, to 3.86 percent, according to BGCantor Market Data. The yield touched 3.88 percent yesterday, the highest since June 11. The 3.125 percent security maturing in May 2019 fell 3, or $30 per $1,000 face amount to 94 2/32. ‘Stopped the Bleeding’ The yield’s increase was the most since the five days ended March 21, 2003, when it surged 40 basis points to 4.10 percent amid speculation the U.S.-led war against Iraq was near its end, damping demand for the safety of government debt. Treasuries of all maturities lost 1.5 percent this week, according to Merrill Lynch & Co.’s U.S. Treasury Master Index. The Standard & Poor’s 500 Index rose 2.3 on the week, advancing about 1,000 for the first time since November. The U.S. economy shed 247,000 jobs last month, less than the 325,000 median forecast in a Bloomberg News survey. The unemployment rate fell to 9.4 percent, its first drop since April 2008, down from 9.5 percent in June. The U.S. has lost about 6.7 million jobs since the recession began in December 2007, the most in any post-World War II economic slump. “This just confirms the notion while we’ve stopped the death spiral, all we’ve done is stop the bleeding to the point that the patient’s off life support,” Mitchell Stapley , who oversees $22 billion as chief fixed-income officer for Grand Rapids, Michigan-based Fifth Third Asset Management. “Nobody’s getting up and walking out of the hospital.” The Institute for Supply Management’s factory index climbed to an 11-month high in July, the Tempe, Arizona-based group said on Aug. 3. That same day the Commerce Department reported construction spending in the U.S. unexpectedly rose in June. The number of contracts to buy previously owned homes rose a higher- than-forecast 3.6 percent, the National Association of Realtors said on Aug. 4. Steeper Curve “Economic recovery will drive the curve steeper, not flatter,” Jim Caron , head of U.S. interest-rate strategy at primary dealer Morgan Stanley in New York, wrote yesterday in a note to clients. “The back-end remains vulnerable to rising inflation risks and the weight of supply.” The spread between yields on 10-year notes and Treasury Inflation Protected Securities, or TIPS, which reflects the outlook among traders for consumer prices, increased to 2.01 percentage points yesterday, from near zero at the end of last year. The difference has averaged 2.20 percentage points for the past five years. The difference between 2- and 10-year yields reached 2.58 percentage points yesterday, the most in over a week, suggesting investors are demanding higher yields on longer maturities because of the threat inflation will pick up as the economy starts growing. Debt Sales The U.S. will next week sell $37 billion of three-year notes, $23 billion in 10-year securities and $15 billion in 30- year bonds, the Treasury said Aug. 5. The department also signaled that issuance of inflation-indexed securities will rise in fiscal year 2010 and said it would consider replacing the 20- year TIPS with a 30-year security. “The TIPs announcement was unexpected,” said Andrew Richman , who oversees $10 billion in fixed-income assets as a strategist in West Palm Beach, Florida, for SunTrust Bank’s personal-asset management division. “There’s a lot of supply to be digested, a lot of issuance. There’s an alternative to the 30-year bond, so any issuance of the 30-year will have competition.” President Barack Obama has pushed the nation’s marketable debt to an unprecedented $6.45 trillion in an effort to spur economic growth, support the financial system and service record deficits. The budget shortfall is projected to increase to $1.85 trillion in the year ending Sept. 30, equivalent to 13 percent of the nation’s economy, according to the nonpartisan Congressional Budget Office. The Federal Open Market Committee will meet Aug. 12. Policy makers are expected to keep the target rate at a range of zero to 0.25 percent. Probably Halt “The only major change possible is a comment that they will not be extending the Treasury Purchase Program,” wrote Ira Jersey , an interest-rate strategist at primary dealer RBC Capital Markets in New York, yesterday in a note to clients. The Fed announced on March 18 a plan to cap consumer borrowing costs by purchasing up to $300 billion of U.S. debt over six months, a policy known as quantitative easing. The central bank bought $243.463 billion since the purchases began on March 25. The central bank will probably halt the program in mid- September as scheduled, former central bank governors Lyle Gramley and Laurence Meyer said this week. Futures on the Chicago Board of Trade indicated a 69 percent chance that the Fed will increase the target lending rate from its range of zero to 0.25 percent by its January meeting, compared with 55 percent odds a month ago. Treasuries lost 5.5 percent this year and are on a pace to post an annual loss for only the third time since Merrill Lynch started calculating returns. The index rose 14 percent last year as the global economy lapsed into the worst recession since World War II. To contact the reporter on this story: Susanne Walker in New York at swalker33@bloomberg.net .

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Treasuries Post Biggest Weekly Drop Since 2003 as Unemployment Rate Falls

August 8, 2009

By Susanne Walker Aug. 8 (Bloomberg) — Treasuries fell, with 10-year yields soaring the most in a week since 2003, as reports indicating the U.S. economy is recovering from its worst slump since the Great Depression spurred investors toward riskier assets. Yields on 10-year debt touched the highest level in almost two months after a report yesterday showed American employers eliminated fewer jobs than forecast in July and a gauge of manufacturing climbed to an 11-month high. The Treasury announced plans to auction a record $75 billion of notes and bonds next week and signaled that issuance of inflation-linked debt would rise in 2010. “The supply and the slightly improving economy will keep pressure on rates,” said John Spinello , chief technical strategist in New York at Jefferies Group Inc., one of the 18 primary dealers that trade with the Federal Reserve. “It won’t move the Fed any closer to tightening because they don’t want to derail any recovery.” The benchmark 10-year note yield rose 38 basis points on the week, or 0.38 percentage point, to 3.86 percent, according to BGCantor Market Data. The yield touched 3.88 percent yesterday, the highest since June 11. The 3.125 percent security maturing in May 2019 fell 3, or $30 per $1,000 face amount to 94 2/32. ‘Stopped the Bleeding’ The yield’s increase was the most since the five days ended March 21, 2003, when it surged 40 basis points to 4.10 percent amid speculation the U.S.-led war against Iraq was near its end, damping demand for the safety of government debt. Treasuries of all maturities lost 1.5 percent this week, according to Merrill Lynch & Co.’s U.S. Treasury Master Index. The Standard & Poor’s 500 Index rose 2.3 on the week, advancing about 1,000 for the first time since November. The U.S. economy shed 247,000 jobs last month, less than the 325,000 median forecast in a Bloomberg News survey. The unemployment rate fell to 9.4 percent, its first drop since April 2008, down from 9.5 percent in June. The U.S. has lost about 6.7 million jobs since the recession began in December 2007, the most in any post-World War II economic slump. “This just confirms the notion while we’ve stopped the death spiral, all we’ve done is stop the bleeding to the point that the patient’s off life support,” Mitchell Stapley , who oversees $22 billion as chief fixed-income officer for Grand Rapids, Michigan-based Fifth Third Asset Management. “Nobody’s getting up and walking out of the hospital.” The Institute for Supply Management’s factory index climbed to an 11-month high in July, the Tempe, Arizona-based group said on Aug. 3. That same day the Commerce Department reported construction spending in the U.S. unexpectedly rose in June. The number of contracts to buy previously owned homes rose a higher- than-forecast 3.6 percent, the National Association of Realtors said on Aug. 4. Steeper Curve “Economic recovery will drive the curve steeper, not flatter,” Jim Caron , head of U.S. interest-rate strategy at primary dealer Morgan Stanley in New York, wrote yesterday in a note to clients. “The back-end remains vulnerable to rising inflation risks and the weight of supply.” The spread between yields on 10-year notes and Treasury Inflation Protected Securities, or TIPS, which reflects the outlook among traders for consumer prices, increased to 2.01 percentage points yesterday, from near zero at the end of last year. The difference has averaged 2.20 percentage points for the past five years. The difference between 2- and 10-year yields reached 2.58 percentage points yesterday, the most in over a week, suggesting investors are demanding higher yields on longer maturities because of the threat inflation will pick up as the economy starts growing. Debt Sales The U.S. will next week sell $37 billion of three-year notes, $23 billion in 10-year securities and $15 billion in 30- year bonds, the Treasury said Aug. 5. The department also signaled that issuance of inflation-indexed securities will rise in fiscal year 2010 and said it would consider replacing the 20- year TIPS with a 30-year security. “The TIPs announcement was unexpected,” said Andrew Richman , who oversees $10 billion in fixed-income assets as a strategist in West Palm Beach, Florida, for SunTrust Bank’s personal-asset management division. “There’s a lot of supply to be digested, a lot of issuance. There’s an alternative to the 30-year bond, so any issuance of the 30-year will have competition.” President Barack Obama has pushed the nation’s marketable debt to an unprecedented $6.45 trillion in an effort to spur economic growth, support the financial system and service record deficits. The budget shortfall is projected to increase to $1.85 trillion in the year ending Sept. 30, equivalent to 13 percent of the nation’s economy, according to the nonpartisan Congressional Budget Office. The Federal Open Market Committee will meet Aug. 12. Policy makers are expected to keep the target rate at a range of zero to 0.25 percent. Probably Halt “The only major change possible is a comment that they will not be extending the Treasury Purchase Program,” wrote Ira Jersey , an interest-rate strategist at primary dealer RBC Capital Markets in New York, yesterday in a note to clients. The Fed announced on March 18 a plan to cap consumer borrowing costs by purchasing up to $300 billion of U.S. debt over six months, a policy known as quantitative easing. The central bank bought $243.463 billion since the purchases began on March 25. The central bank will probably halt the program in mid- September as scheduled, former central bank governors Lyle Gramley and Laurence Meyer said this week. Futures on the Chicago Board of Trade indicated a 69 percent chance that the Fed will increase the target lending rate from its range of zero to 0.25 percent by its January meeting, compared with 55 percent odds a month ago. Treasuries lost 5.5 percent this year and are on a pace to post an annual loss for only the third time since Merrill Lynch started calculating returns. The index rose 14 percent last year as the global economy lapsed into the worst recession since World War II. To contact the reporter on this story: Susanne Walker in New York at swalker33@bloomberg.net .

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Bank of America Reports $3.4 Billion Profit on International Operations

August 7, 2009

By David Mildenberg Aug. 7 (Bloomberg) — Bank of America Corp ., the U.S. bank that acquired Merrill Lynch & Co. in January, reported a $3.4 billion second-quarter profit from foreign operations and lost $205 million on its U.S. business, a regulatory report shows. Foreign revenues accounted for a third of Bank of America’s total revenues, net of interest expense during the quarter, compared with 8 percent in the year-earlier period that excluded Merrill Lynch, the Charlotte, North Carolina-based bank said in the filing . Merrill Lynch operates in about 40 countries outside the U.S. To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net

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Corporate-Bond Sales Climb 69% as Borrowing Costs Decline to 2007 Levels

August 7, 2009

By Megan Johnston Aug. 7 (Bloomberg) — U.S. corporate-bond sales rose 69 percent this week with investment-grade companies led by Coca- Cola Enterprises Inc. and Magellan Midstream Partners LP borrowing at costs comparable to those before the credit crisis began in 2007. Issuance reached $23.3 billion versus $13.8 billion last week, according to data compiled by Bloomberg. Coca-Cola Enterprises of Atlanta sold $250 million of 10-year notes at its lowest yield ever relative to benchmarks for that maturity. Tulsa, Oklahoma-based Magellan Midstream Partners LP raised $250 million in a reopening of notes at a similar spread to what the fuel transporter paid in 2004. Signs the U.S. economy is recovering from its biggest slump since the Great Depression is bolstering demand for corporate bonds, with investment-grade debt returning 3.9 percent in July, the third-best month on record, according to Merrill Lynch & Co.’s U.S. Corporate Master Index. Today, the government said payrolls fell by 247,000 in July, after a 443,000 loss in June. “We needed this sort of positive economic data to keep the credit rally going,” said Wesley Sparks , head of U.S. fixed income at Schroder Investment Management in New York. “I think it’s giving investors more confidence that the economy is out of the woods and recovering from the recession.” A Bloomberg News survey of 82 estimates had forecast the decline would be 325,000. Speculative Bond Ratings The number of speculative-grade issuers that had their credit ratings upgraded last month outpaced downgrades, a signal that the corporate default rate may start to drop within a year, New York-based Moody’s Investors Service analysts led by Tom Marshella said in an Aug. 6 report. Yields on investment-grade corporate bonds relative to benchmark Treasuries tightened 16 basis points this week to 257 basis points as of yesterday, the narrowest since June 23, 2008, based on Merrill Lynch’s U.S. Corporate Master index. A basis point is 0.01 percentage point. “For issuers, the tightening in spreads, along with lower Treasury yields, means the cost of borrowing for A rated issuers stands 100 basis points lower than at any point since 2007,” New York-based Bank of America Corp. strategists Hans Mikkelsen and Yuriy Shchuchinov wrote in an Aug. 5 report. ‘A Seller’s Market’ “This is definitely a seller’s market,” said Paul Spivack , global head of investment-grade syndicate at Morgan Stanley in New York, in a telephone interview. “I have not seen this type of demand appetite in a very long time.” Coca-Cola Enterprises sold 4.5 percent notes that priced to yield 4.63 percent, the lowest interest rate ever paid by the world’s largest soft-drink distributor on 10-year debt, according to data compiled by Bloomberg. The yield was 90 basis points above the comparable Treasury note. Magellan Midstream reopened its 6.55 percent notes due in 2019 at a spread of 185 basis points over benchmarks, or a yield of 6.6 percent, Bloomberg data show. That’s the lowest spread that the company paid on 10-year debt since 2004, when it issued notes that priced to yield 175 basis points more than Treasuries. The narrowing spreads reflect a thaw in the corporate- credit market, said Gregory Habeeb , who manages $7.5 billion of fixed-income assets at Calvert Asset Management Co. in Bethesda, Maryland. “It’s the broadest-based rally in history, emphasis on the word ‘broad,’” Habeeb said in a telephone interview. “It’s the biggest rally in credit history by far, so therefore everything is better.” Unemployment Rate Drops The unemployment rate dropped last month for the first time since April 2008, the Labor Department said today, to 9.4 percent from 9.5 percent in June. Last week, the Commerce Department reported that gross domestic product contracted at a less-than-projected 1 percent annual rate in the second quarter. “It looks like we’re farther along in the recession than we had thought, which is good news for our hopes of getting out of it fairly quickly,” said David Wyss , chief economist at Standard & Poor’s, in a Web cast. “We’re still looking at an economy that’s approaching bottom.” Strong investor demand has caused the extra yield borrowers must pay relative to where their outstanding debt is trading to drop. The so-called new-issue premium was 50 basis points to 75 basis points two months ago, said K.C. Nelson , who oversees almost $900 million in assets as the manager of the Driehaus Active Income Fund. “Now spreads have come in by about 125 basis points, and sometimes there’s very little concession to existing debt issues that companies have outstanding,” Nelson said in a telephone interview from his office in Chicago. “It can be 10 basis points to 25 basis points.” Sign of a Peak New-issue premiums that are falling toward zero is a signal that the market may be nearing a peak, said Timothy Cox , an executive director in debt capital markets at Mizuho Securities USA Inc. in New York. “Everything is priced to perfection,” Cox said in a telephone interview. “The last time we used that phrase was the summer of 2007. You know what that means? It’s time to get out.” Including high-yield, high-risk, or junk, debt, companies have borrowed about $836 billion in bonds this year, a 31 percent increase from 2008. High-yield bonds are rated below BBB- by S&P and less than Baa3 by Moody’s Investors Service. Junk Spreads Narrow Junk-bond spreads fell this week to the lowest levels since Lehman Brothers Holdings Inc. collapsed, declining 49 basis points relative to Treasuries to 873 basis points as of yesterday, according to the Merrill Lynch High-Yield Master II index. That’s then narrowest spread since Sept. 12, 2008, the Friday before Lehman filed for Chapter 11 on Sept. 15. In the high-yield market, Iron Mountain Inc. sold $550 million of 12-year, 8.375 percent notes that paid 8.43 percent, a spread of 466 basis points over similar-maturity Treasuries, Bloomberg data show. Proceeds may be used to repay, repurchase or retire debt and for other general corporate purposes, the Boston-based provider of information management services said in an Aug. 5 statement. High-yield bond sales of $1.59 billion compare with $5.95 billion last week, Bloomberg data show. Among borrowers seeking to issue debt is Clean Harbors Inc. , the provider of waste-management services that plans to sell $250 million of senior secured notes, according to an Aug. 3 statement. To contact the reporter on this story: Megan Johnston in New York at Mjohnston17@bloomberg.net .

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Sontag Said to Leave Merrill Lynch as Krawcheck Is Hired for Wealth Unit

August 4, 2009

By David Mildenberg Aug. 4 (Bloomberg) — Daniel Sontag is leaving Bank of America Corp.

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Corporate Bond Sales in Europe Exceed $1.1 Trillion Record in Seven Months

August 4, 2009

By Caroline Hyde Aug. 4 (Bloomberg) — Corporate bond sales surged to an all-time high of $1.1 trillion in Europe, beating the previous record set for the whole of 2007, as the global recession spurred companies to raise capital. Investors have been lured by the best returns since at least 1998, with investment-grade securities in euros handing bondholders 10.2 percent year-to-date, including reinvested interest, according to Merrill Lynch & Co. index data

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