montreal

Dollar Optimism Rises to 15-Month High as Global Budget Woes Damp Outlook

February 10, 2010

By Daniel Kruger Feb. 10 (Bloomberg) — Investors are the most bullish on the U.S. dollar since November 2008 on concern that weakening government finances in European nations will hurt the global economic recovery, a survey of Bloomberg users showed. The world’s reserve currency will rise over the next six months, according to respondents in the Bloomberg Professional Global Confidence Index. Confidence about the outlook for the global economy among the 2,486 participants in the survey, taken before European Union officials said they may aid Greece yesterday, dropped from the highest level since the series began two years ago. The dollar rose last week to its strongest level against the euro since May as Greece struggled to convince investors the government can cut its deficit below the European Union’s ceiling of 3 percent of gross domestic product. Spain and Portugal are also trying to control widening deficits, prompting investors to drive the euro down 3.8 percent this year. The drop in the euro “shows you the magnitude and momentum of the fears associated with Greece,” said Andrew Busch, a global currency strategist at Bank of Montreal in Chicago, and a survey participant. Sentiment toward the dollar reached 55.72 this month, from 53.11 in January and 42.42 in December, according to the survey. The measure is a diffusion index, meaning a reading above 50 indicates Bloomberg users expect the dollar to strengthen. The last time the reading was this high was November 2008, when it was 59.83. That was when the U.S. pledged to spend record amounts to bail out the financial system as credit markets froze. The Bloomberg Correlation-Weighted Index for the dollar rose as much as 10 percent the next four months. Euro Confidence Tumbles The fallout from the budget crisis in Greece has led German investors to become the most bearish on the 16-nation currency since November 2007, when Bloomberg began tracking survey data. Sentiment from German participants dropped to 37.5, while the readings for respondents in Spain declined to 25.19 and slid to 30 for those in France. European officials said yesterday they may assist Greece to prevent its budget deficit from eroding confidence in the euro. Options for Greece include bilateral aid or a package put together by a group of countries using the euro, said Michael Meister , financial affairs spokesman for German Chancellor Angela Merkel ’s Christian Democratic Union. “We are talking about support in the broad sense,” Olli Rehn, the EU’s economic affairs commissioner, said yesterday. Meister said that aid would come “under strict conditions and if the Greek government undertakes far-reaching state reforms.” Paradigm Shift Speculation that economic growth will lag behind the U.S. and that the region’s debt won’t fall to pre-financial crisis levels for at least five years also are weighing on the euro, as well as assets denominated in the currency. “There does seem to be a slight shift in the paradigm,” said Samarjit Shankar , a managing director for the foreign- exchange group in Boston at Bank of New York Mellon Corp., the world’s largest custodial bank, with more than $20 trillion in assets under administration and a survey participant. “No longer is just risk aversion beneficial to the dollar. The dollar has its own set of drivers.” The Bloomberg Correlation-Weighted Index for the dollar has risen 6 percent from last year’s low on Nov. 25 as U.S. government reports showed the unemployment rate fell last month. Before the Dec. 4 payrolls report, the index fell about 21 percent from its peak last year in March as investors bought higher-yielding assets funded with dollars. Government Bond Yields “There are some good reasons to be confident about the dollar,” Busch said. “The economy’s coming back.” The U.S. economy will expand 2.7 percent in 2010, about twice as much as in the euro zone and Japan, according to the median forecasts in Bloomberg surveys of economists. The budget crisis in Greece has also bolstered the appeal of U.S. government debt. Yields on 10-year notes ended yesterday at 3.65 percent, down from the 4 percent high for the past year set in June. The prospect for an increase in 10-year Treasury note yields declined to 68.30 in February, from a peak of 76.65 a month earlier, the survey showed. Expectations for higher yields also declined in Germany, France and Spain last month. The index for German respondents dropped to 69.08 from 72.71. Pessimism fell to 66 from 72.08 among French participants, the least since October. In Spain, the measure slumped to 73.36 from 75.2, which was the highest since the surveys began. To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net

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G-7 Splits Hurt Investor Confidence as Ministers Seek Exit Plan in Arctic

February 5, 2010

By Simon Kennedy and Theophilos Argitis Feb. 5 (Bloomberg) — Group of Seven finance ministers and central bankers meet on the edge of the map today, with their policies all over it. As they gather 195 miles south of the Arctic Circle in Iqaluit, Canada, officials are seeking more unity on bank regulation after unilateral steps by the U.K. and U.S. The end of collaboration, forged during the financial crisis, may soon spread to monetary and fiscal policies as economies exit their recessions at different speeds. The unpredictability of policy and politics has JPMorgan Chase & Co. and Standard Chartered Bank warning investor confidence may suffer, potentially curtailing demand for riskier assets such as stocks. The Chicago Board Options Exchange Volatility Index had its biggest weekly advance last month since October 2008 as speculation mounted China would act to curb inflation and U.S. President Barack Obama proposed limiting the size and proprietary risk-taking of large banks. Countries are moving “from synchronous to divergent financial policies,” said Stephen Jen , a money manager at London-based hedge fund BlueGold Capital Management LLP, who predicts the dollar will outperform the euro as U.S. interest rates rise faster. “For the asset markets, policy risks will become increasingly more important than economic risks.” Dog-Sledding To bring policies of industrialized countries closer together, Canadian Finance Minister Jim Flaherty , who chairs the two-day meeting starting tonight, is isolating G-7 officials, including U.S. Treasury Secretary Timothy F. Geithner and European Central Bank President Jean-Claude Trichet , in a former whaling and fur-trading outpost that is now the capital of Canada’s northernmost territory , Nunavut. Officials will be offered the chance to go dog-sledding as well as have a fireside chat about the future of the G-7. Other topics set to be discussed include currencies, fiscal policies, aiding Haiti and financial reform. The town of just over 6,000 people, where pick-up trucks share the roads with snowmobiles, has an average temperature in February of 29 degrees Celsius below zero (minus 20 degrees Fahrenheit). Wind chills sometimes bring that down to as cold as minus 50 degrees Celsius, freezing exposed skin within minutes. Political Pressure “Different countries have taken different steps,” Flaherty said in a Jan. 29 interview in Davos. “It’s time we have a conversation about that and coordinate more. I understand the political pressures some are facing.” Efforts by Canada to narrow differences come as its bank executives call for more certainty and uniformity in regulations. Canada’s five largest banks — Royal Bank of Canada , Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal and Canadian Imperial Bank of Commerce — are all among North America’s 20 largest banks by assets and largely escaped the credit crisis. Unlike the U.S. and Europe, Canada didn’t require a bailout of its banking industry. “We have concerns about what appears to be a lack of unanimity and consistency regarding financial sector reform and the unintended consequences of individual policies,” Royal Bank Chief Executive Officer Gordon Nixon , 53, said in an e-mail. “I would urge G-7 countries to address the root causes and work towards a regulatory model that finds the right balance between risk and reward while enabling the banking industry to not only grow but serve as a catalyst for economic growth.” Divergences Five months after the Group of 20 pledged to “raise standards together,” the U.K. is imposing a one-time 50 percent tax on bank bonuses that France wants to mimic. As well as trying to revamp the shape of financial companies in a push others aren’t following, Obama is also placing a new bank levy that Flaherty won’t match. Europe and North America are already at odds over whether to tax financial speculation. Divergences could slow the push for international regulation and create loopholes for banks to take advantage of, said Barry Eichengreen , a University of California at Berkeley economist. “On bank reform there is undesirable splintering when they need to work in synch and quickly,” said Eichengreen. Politics may help explain the targeting of banks as elections near in the U.S. and U.K., said Alex Barrett , global head of client research at Standard Chartered in London. Obama announced his plan to rein-in banks the same week his Democratic party lost a Senate seat in Massachusetts. ‘Source of Volatility’ Where the fear of political intervention was once an “intangible uneasiness” in the markets of emerging nations, now it will be a “significant source of volatility” for investors in richer countries, Barrett said, identifying protectionism and currency depreciations as looming risks. After reviving economies from recession, fiscal policies may also upset markets and economies, as governments either struggle to cut ballooning sovereign debt or try to pay for social programs by raising taxes on companies, which then can’t invest, said Bruce Kasman , chief economist at JPMorgan Chase in New York. European stocks plunged the most in two months yesterday on concern Portugal, Spain and Greece will have difficulty paring their budget deficits. Meantime, Obama’s budget last week included plans to spend $100 billion in additional stimulus measures and take in an extra $400 billion from companies. “There is a near-term risk that policy uncertainty weighs on sentiment and tempers the shift from retrenchment now underway,” said Kasman. Fragility Having surged 80 percent in 2009, China’s benchmark Shanghai Composite Index has fallen 8.6 percent this year as the government starts to restrain credit growth after its economy grew the quickest since 2007 in the fourth quarter and inflation rose the most in 13 months in December. “Global growth could easily be choked off if policy makers prematurely withdraw fiscal and monetary policy support,” said Andrew Cates , an economist at UBS AG in Singapore. “Investors have taken note of this fragility.” Any disparities would be a marked change from the crisis period when the decision of policy makers to cut interest rates to record lows, spend more than $2 trillion in fiscal stimulus and bail out banks including Citigroup Inc. buoyed markets. BlueGold’s Jen is now betting on a policy split emerging among the major economies. He says the U.S. Federal Reserve may offset budgetary stimulus by tightening monetary policy while the European Central Bank keeps its benchmark rate low as investors force governments to slash spending. In Asia, he expects Japan to maintain monetary and fiscal expansions and China to cut back on both fronts. “Such a divergence in policy mixes will be a source of volatility and a propellant of new trends in asset markets,” Jen said. To contact the reporters on this story: Simon Kennedy in Iqaluit at skennedy4@bloomberg.net ; Theophilos Argitis in Iqaluit at targitis@bloomberg.net

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Haiti Seeks Help for `Colossal’ Reconstruction After Quake Kills 150,000

January 25, 2010

By Alexandre Deslongchamps and Peter S. Green Jan. 26 (Bloomberg) — Haitian Prime Minister Jean-Max Bellerive told an aid conference in Montreal that his country needs help for a “colossal” reconstruction from the earthquake that devastated the capital city two weeks ago. “Haiti will need massive support in the medium- and long- term from its partners in the international community,” Bellerive said yesterday. “The challenge will require that we do more, that we do better and certainly that we do differently.” Bellerive said the country doesn’t yet know how much aid is needed. Pamela Cox, the World Bank’s vice president for Latin America and the Caribbean, said rebuilding will cost “billions of dollars” over the next five years. Donors have given $783 million to Haiti and pledged another $1.13 billion, according to United Nations figures released yesterday. Haiti was already the poorest country in the Western Hemisphere before the temblor, which killed more than 150,000 people and destroyed a third of the buildings in the capital, Port-au-Prince. Relief groups and foreign military forces are trying to reach the estimated 3 million of Haiti’s 9 million people affected by the quake. The country’s infrastructure, including the water system, has collapsed and the government can’t deliver services. 10-Year Commitment Countries at the meeting yesterday, including Canada, France, Brazil and the U.S., committed to helping Haiti for at least the next 10 years. They also agreed to meet again in March in New York. Haiti will ask for $3 billion for reconstruction, the New York Times reported yesterday, citing Tourism Minister Patrick Delatour. President Rene Preval has put Delatour in charge of assessing damage from the quake, the report said. U.S. Secretary of State Hillary Clinton said the U.S. and other countries were examining how Haiti can lower its debt burden. Haiti owes $1.2 billion, according to figures provided by the International Monetary Fund, about 19 percent of its gross domestic product. The Inter-American Development Bank is the largest creditor, with $417.5 million outstanding. Venezuela is the second largest debtor with $295.2 million outstanding and the IMF is owed $165.6 million. Debts Cancelled The Paris Club of creditors agreed to cancel $214 million, all its members’ claims on Haiti, in July, 2009 and last week called on other creditors to do the same. Italy on Jan. 19 said it would cancel debt of 40.4 million euros ($57.2 million). Haiti intends to take control of the reconstruction, Bellerive said, even though most government offices and computer systems were destroyed in the quake. Relief plans must aim to “put the country back on the path to development,” he said in a speech yesterday. “Going back to the status quo ante is not an option.” Reconstruction will have to include moving some people out of shantytowns that have overrun the capital, and fostering economic development outside Port-au-Prince, he said. The earthquake made clear that the country was too concentrated in the capital. “In 30 seconds, Haiti lost 60 percent of its GDP,” Bellerive said. “All the resources were centralized around the Presidential Palace. We will have to decentralize.” Economic Relocation “It’s very important that economic activity be moved to some extent to the rural areas,” said Caroline Atkinson , director of external relations at the Washington-based IMF. Paying Haitians to help remove rubble will help inject needed cash into the economy, she said. UN and World Bank officials said aid efforts should also help ensure Haitian farmers can plant spring crops in March. “The main organizations desperately need funding to sustain their operations beyond the first weeks,” said John Holmes , the UN Undersecretary General for Humanitarian Affairs. “Some critical areas remain very badly funded, including early recovery and its vital cash-for-work component as well as agriculture.” Getting food into the country is a “nightmare,” Josette Sheeran , executive director of the World Food Program told reporters at the UN in New York. The U.S. has taken control of aid deliveries through Haiti’s sole international airport, and the UN has taken responsibility for the country’s security. 150,000 Buried More than 150,000 bodies have been buried, the New York Times reported Jan. 23, citing Marie-Laurence Jocelynn Lassegue, Haiti’s culture and communications minister. The UN said it had no confirmed death toll. Companies from Abbott Laboratories to Yum Brands , non- profits including the Albanian Red Cross and the Verizon Foundation, and states from Tunisia to Thailand have pledged or given more than $1.9 billion to aid Haiti, according to a 39- page list of donations published by the UN yesterday. The U.S. is the biggest state donor, contributing $184 million so far, about 38 percent of the aid pledged so far. Canada is second with $40 million, and France is third with $31 million. A poll released yesterday by KRC Research, a Washington- based non-partisan opinion research firm, found that 45% of American families have donated money to the Haitian relief effort, with nearly four-in-10 donating online, including via text messaging, the company said in a statement. To contact the reporters on this story: Alexandre Deslongchamps in Ottawa at adeslongcham@bloomberg.net ; Peter S. Green in New York at psgreen@bloomberg.net

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Haiti Seeks Help for `Colossal’ Reconstruction After Quake Kills 150,000

January 25, 2010

By Alexandre Deslongchamps and Peter S. Green Jan. 26 (Bloomberg) — Haitian Prime Minister Jean-Max Bellerive told an aid conference in Montreal that his country needs help for a “colossal” reconstruction from the earthquake that devastated the capital city two weeks ago. “Haiti will need massive support in the medium- and long- term from its partners in the international community,” Bellerive said yesterday. “The challenge will require that we do more, that we do better and certainly that we do differently.” Bellerive said the country doesn’t yet know how much aid is needed. Pamela Cox, the World Bank’s vice president for Latin America and the Caribbean, said rebuilding will cost “billions of dollars” over the next five years. Donors have given $783 million to Haiti and pledged another $1.13 billion, according to United Nations figures released yesterday. Haiti was already the poorest country in the Western Hemisphere before the temblor, which killed more than 150,000 people and destroyed a third of the buildings in the capital, Port-au-Prince. Relief groups and foreign military forces are trying to reach the estimated 3 million of Haiti’s 9 million people affected by the quake. The country’s infrastructure, including the water system, has collapsed and the government can’t deliver services. 10-Year Commitment Countries at the meeting yesterday, including Canada, France, Brazil and the U.S., committed to helping Haiti for at least the next 10 years. They also agreed to meet again in March in New York. Haiti will ask for $3 billion for reconstruction, the New York Times reported yesterday, citing Tourism Minister Patrick Delatour. President Rene Preval has put Delatour in charge of assessing damage from the quake, the report said. U.S. Secretary of State Hillary Clinton said the U.S. and other countries were examining how Haiti can lower its debt burden. Haiti owes $1.2 billion, according to figures provided by the International Monetary Fund, about 19 percent of its gross domestic product. The Inter-American Development Bank is the largest creditor, with $417.5 million outstanding. Venezuela is the second largest debtor with $295.2 million outstanding and the IMF is owed $165.6 million. Debts Cancelled The Paris Club of creditors agreed to cancel $214 million, all its members’ claims on Haiti, in July, 2009 and last week called on other creditors to do the same. Italy on Jan. 19 said it would cancel debt of 40.4 million euros ($57.2 million). Haiti intends to take control of the reconstruction, Bellerive said, even though most government offices and computer systems were destroyed in the quake. Relief plans must aim to “put the country back on the path to development,” he said in a speech yesterday. “Going back to the status quo ante is not an option.” Reconstruction will have to include moving some people out of shantytowns that have overrun the capital, and fostering economic development outside Port-au-Prince, he said. The earthquake made clear that the country was too concentrated in the capital. “In 30 seconds, Haiti lost 60 percent of its GDP,” Bellerive said. “All the resources were centralized around the Presidential Palace. We will have to decentralize.” Economic Relocation “It’s very important that economic activity be moved to some extent to the rural areas,” said Caroline Atkinson , director of external relations at the Washington-based IMF. Paying Haitians to help remove rubble will help inject needed cash into the economy, she said. UN and World Bank officials said aid efforts should also help ensure Haitian farmers can plant spring crops in March. “The main organizations desperately need funding to sustain their operations beyond the first weeks,” said John Holmes , the UN Undersecretary General for Humanitarian Affairs. “Some critical areas remain very badly funded, including early recovery and its vital cash-for-work component as well as agriculture.” Getting food into the country is a “nightmare,” Josette Sheeran , executive director of the World Food Program told reporters at the UN in New York. The U.S. has taken control of aid deliveries through Haiti’s sole international airport, and the UN has taken responsibility for the country’s security. 150,000 Buried More than 150,000 bodies have been buried, the New York Times reported Jan. 23, citing Marie-Laurence Jocelynn Lassegue, Haiti’s culture and communications minister. The UN said it had no confirmed death toll. Companies from Abbott Laboratories to Yum Brands , non- profits including the Albanian Red Cross and the Verizon Foundation, and states from Tunisia to Thailand have pledged or given more than $1.9 billion to aid Haiti, according to a 39- page list of donations published by the UN yesterday. The U.S. is the biggest state donor, contributing $184 million so far, about 38 percent of the aid pledged so far. Canada is second with $40 million, and France is third with $31 million. A poll released yesterday by KRC Research, a Washington- based non-partisan opinion research firm, found that 45% of American families have donated money to the Haitian relief effort, with nearly four-in-10 donating online, including via text messaging, the company said in a statement. To contact the reporters on this story: Alexandre Deslongchamps in Ottawa at adeslongcham@bloomberg.net ; Peter S. Green in New York at psgreen@bloomberg.net

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Haiti Earthquake Rescue Efforts Fade as Donor Nations to Meet in Montreal

January 25, 2010

By Nicole Gaouette and Matt Craze Jan. 25 (Bloomberg) — Rescue workers wound down the search for survivors of Haiti’s earthquake as officials from 20 nations headed to Montreal for a meeting today to coordinate aid. U.S. Secretary of State Hillary Clinton will be among the delegates in Canada to discuss long-term reconstruction and arrangements for a donor conference to be held in March, the United Nations said in a statement. Oxfam International said the “Friends of Haiti” meeting in Montreal should agree to seek the cancellation of Haiti’s $890 million in foreign debt. “Immediate cancellation of foreign debt must be accompanied by urgent action to support farmers and prevent a man-made food crisis exacerbating the hardship,” Oxfam Executive Director Jeremy Hobbs said in an e-mailed statement. More than 150,000 people have been killed and hundreds of thousands left homeless after a 7.0-magnitude earthquake slammed Haiti, the poorest country in the Western Hemisphere, on Jan. 12. The temblor destroyed about a third of the buildings in Port-au- Prince as well as the capital’s seaport, water and sewage systems. The influx of aid and rescue workers has overwhelmed the city’s airport and created traffic jams that have delayed delivery of water, medicine and food. U.S. rescue teams and the UN had yet to give up the search for victims among the rubble as of yesterday, the official in charge of the U.S. Agency for International Development’s Haiti effort said. “We are prepared to go anywhere that we hear where someone might be,” U.S. AID’s Tim Callaghan said in a conference call with reporters yesterday. “Obviously the further we get away from the event the more difficult it becomes.” Unknown Toll More than 600,000 people are without shelter in the Port- au-Prince area, home to more than 2 million, the UN said Jan. 22, citing the government. The final death toll may never be known as it will take years to find bodies buried beneath the debris, Edmond Mulet, assistant secretary-general for UN Peacekeeping Operations told CNN. Some deaths weren’t officially recorded because victims were buried informally by family or delivered to mass graves, he said. More than 1,000 planes are waiting to land in Haiti to deliver assistance from around the world, Mulet told CNN. The country is “calm” and reports of major violence are not true, Haitian Prime Minister Jean-Max Bellerive said yesterday in Ottawa at a meeting with Canadian Prime Minister Stephen Harper . A man was pulled from the rubble after being buried for 11 days, the Associated Press reported. Rescuers dug a tunnel into a wrecked food store to reach the man, who survived by taking refuge under a desk, the AP said. “Relief and recovery for the survivors is the priority now,” Mark Fried , a spokesman for Oxfam, said in a statement. “Hundreds of thousands who lost everything but their lives” need drinking and washing water, shelter, toilets to stop the spread of disease and simple household items such as cooking pots, Fried said. Japan Vows $70 Million UN humanitarian chief John Holmes and UN development head Helen Clark are set to attend the meeting in Montreal today, along with representatives from the International Monetary Fund and the Inter-American Development Bank. Other nations that may participate include Japan, Mexico, Costa Rica, France and Spain. Japan will pledge $70 million in aid at Montreal, Kyodo news agency reported. The nation, which has the world’s second- biggest economy, had initially pledged $5 million, compared with the U.S. pledge of $100 million and $10 million promised by South Korea, Kyodo reported. Venezuela, Nicaragua and Bolivia said they will boycott the meeting to protest the U.S. military’s presence in the Caribbean, according to the German news service Deutsche Presse Agentur. Former Cuban President Fidel Castro wrote in the official Cuban newspaper Granma that U.S. troops have “occupied” Haiti. The U.S. bolstered its presence in the country and offshore to 11,000 soldiers and sailors last week to help provide humanitarian assistance and security. More Forces The UN Security Council voted Jan. 19 to raise the authorized strength of the peacekeeping force in Haiti by 3,500 soldiers and civilian police, in addition to the 7,000 soldiers and police officers already there, to increase security for relief efforts and to speed delivery of aid. The U.S. is working with the Haitian government to deliver aid, State department spokeswoman Megan Mattson said yesterday in an e-mailed response to questions. “We are responding to their requests for assistance, and in so doing, closely coordinating with the United Nations and the international community as partners in this process,” she wrote. To contact the reporters responsible for this story: Nicole Gaouette in Washington at ngaouette@bloomberg.net ; Matt Craze in Santiago at mcraze@bloomberg.net ;

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Haiti Emergency Summit Planned by UN to Coordinate Aid, Reconstruction

January 23, 2010

By Nicole Gaouette and Ben Farey Jan. 23 (Bloomberg) — The United Nations will convene an emergency summit of 20 nations on Jan. 25 to coordinate aid for earthquake-stricken Haiti. U.S. Secretary of State Hillary Clinton will be among the delegates attending the meeting in Montreal to discuss long-term reconstruction and arrangements for a donor conference to be held in March, the UN said in a statement. The world body is continuing its search-and-rescue effort after Haiti’s government ended its hunt for victims of the magnitude 7.0 earthquake that ravaged the Caribbean nation, the UN Office for the Coordination of Humanitarian Affairs said in an e-mailed statement yesterday. “We are very, very focused on search and rescue,” UN spokeswoman Choi Soung-ah said in a telephone interview from New York today. “At the same time, relief efforts are fully activated.” In a separate telephone interview, Choi said that “today is kind of quiet” in Haiti. More than 111,000 people are confirmed dead, the UN said in a statement today. Another 609,000 are without shelter in the Port-au-Prince area, the UN said yesterday, citing the government. The city is Haiti’s capital and home to more than 2 million people. The Haitian government ended its search for victims, “We still hope that we’ll be able to find people alive,” Nick Birnback , a spokesman for the Department of Peacekeeping Operations at the UN, said in a telephone interview. “The reality is that as the days go by the hope grows dimmer.” Aid Meeting Other nations that may attend the “Friends of Haiti” meeting in Montreal include Spain, Mexico, Costa Rica, France and Japan. Venezuela, Nicaragua and Bolivia said they will boycott the meeting to protest the U.S. military’s presence in the Caribbean, according to the German news service Deutsche Press Agentur. Relief efforts Port-au-Prince and other areas are increasing. More than 130,000 people have taken advantage of the government’s offer of free transportation to cities in the north, south and west, the UN said. “It’s still a tenuous situation,” Birnback said. “A large number of people in Port-au-Prince are sleeping rough on the streets.” A 7.0-magnitude earthquake struck Haiti, the poorest country in the Western Hemisphere, on Jan. 12, destroying about a third of the buildings in Port-au-Prince, as well as the city’s seaport and its water and sewage systems. There have been as many as 50 aftershocks, Birnback said. Urgent Need “Despite all our best efforts, too many people have not received the assistance they urgently need,” UN Secretary- General Ban Ki-moon told the General Assembly in New York yesterday. “I urge member states to make additional contributions.” Today, more than 1,000 mourners gathered for the funeral for the capital’s archbishop, Joseph Serge Miot, the Associated Press reported. Rajiv Shah, administrator of the U.S. Agency for International Development, was scheduled to attend the funeral after traveling to Haiti today accompanied by Craig Fugate , administrator of the Federal Emergency Management Agency, according to the U.S. State Department. Fundraising Telethon Musicians including Madonna, Beyonce, Bono and Bruce Springsteen were among celebrities who participated in a fundraising telethon yesterday. The telethon may raise more than $166 million, according to the Sydney Morning Herald . Actor George Clooney gave $1 million during the “Hope for Haiti Now” telethon, Reuters reported, citing his spokesman. Actor Leonardo DiCaprio signed a check for the same amount to the Clinton Bush Haiti Fund, which was started by former U.S. Presidents Bill Clinton and George W. Bush , BBC said. U.S. taxpayers can deduct donations for Haiti relief on their 2009 tax returns under legislation signed by President Barack Obama yesterday. The Inter-American Development Bank, which supports economic development in the Caribbean, is considering a plan to alleviate Haiti’s $441 million in debt to the bank, the group said in a statement yesterday. To contact the reporters responsible for this story: Ben Farey in London at bfarey@bloomberg.net Nicole Gaouette in Washington at ngaouette@bloomberg.net

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Village Voice Affiliate Might Face Forced Bankruptcy in Ad-Rates Dispute

January 15, 2010

By Phil Milford and Greg Bensinger Jan. 15 (Bloomberg) — New Times Media LLC, which merged with the Village Voice newspaper’s parent company in 2006, might face U.S. Bankruptcy Court proceedings after losing a $15.9 million judgment for ad-price manipulation, a lawyer said. New Times, an affiliate of Village Voice Media LLC, sued West Coast rival Bay Guardian Co. , asking a judge to rule it doesn’t have to pay the judgment in a dispute over advertising rates in San Francisco-area alternative papers, according to a complaint made public yesterday in Delaware Chancery Court. “You learn in civics class that when you get a judgment against you, you have to pay,” yet the Village Voice group hasn’t done so, said Tim Redmond, the San Francisco Bay Guardian’s executive editor. He said in a phone interview yesterday that the judgment has risen to $21 million, with interest. The ruling gives Bay Guardian a lien on all the Village Voice group’s newspaper properties, according to Redmond, who said Bay Guardian is considering petitioning to put the Village Voice chain into involuntary bankruptcy to collect the debt. “We’re considering all options,” including forced bankruptcy, Jay Adkisson, a lawyer representing Bay Guardian, said in a phone interview. Randall Farrimond, an attorney representing New Times Media and two affiliates named in the original suit, said such a forced bankruptcy wasn’t possible. “It is simply ludicrous to suggest that any of the companies that are not parties to the California action might somehow be facing bankruptcy as a result of that judgment,” Farrimond said in a letter. Lien Limited Farrimond said any lien would apply only to the holding companies named in the original suit. “It does not extend to the property of any other newspapers,’’ he said. Adkisson said that while Village Voice Media claims it only has enough assets to pay $80 million to lenders led by Bank of Montreal, he believes it can afford to pay the judgment based on court records showing it had $191 million in assets at the end of 2007. Adkisson said yesterday the Bay Guardian had just received the Delaware lawsuit and couldn’t immediately comment. Farrimond said the lawsuit “asks a judge to rule that the partnership or membership interests of New Times Media LLC in certain Delaware companies cannot be sold in order to satisfy the judgment against New Times Media.” Involuntary Petition Under U.S. bankruptcy law, creditors owed at least $10,000 are allowed to file an involuntary petition to put the case before a judge. Village Voice Media contends it “is entitled to an injunction preventing defendant from seeking remedies against Delaware entities that are forbidden by Delaware law,” according to court papers. “There’s not anything that we can do to prevent them from attempting to put any entity into bankruptcy, whether or not there’s actually a basis for it,” Farrimond said in an interview. “There’s nothing that has come up recently, that I am aware of, that would trigger a bankruptcy proceeding.” Farrimond’s clients include the defendants in the original ad-price lawsuit, the SF Weekly and the holding company for the East Bay Express, which has since been sold. He said the combined assets of his clients are less than Adkisson claims, without providing specifics. “The assets of SF Weekly are obviously far less than that $191 million number that Adkisson is throwing around,” Farrimond said in the letter. New Times Appeal Farrimond said assets of Village Voice Media outside of California weren’t subject to the original ruling. New Times Media has a pending appeal in California and won’t pay the amount of the judgment before the appeal has run its course, he said. Average weekly circulation for the Village Voice, founded in 1955, declined 11 percent in the six months through June 2009 to 213,358, according to the Audit Bureau of Circulations. The SF Weekly lost 15 percent of its average weekly circulation in the period, dropping to 85,046. The case is New Times Media LLC v. Bay Guardian Co. Inc., CA5204, Delaware Chancery Court (Wilmington). To contact the reporters on this story: Phil Milford in Wilmington, Delaware, at pmilford@bloomberg.net ; Greg Bensinger in New York at gbensinger1@bloomberg.net .

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Canadian Dollar Strengthens the Most Since November as Commodities Rally

January 9, 2010

By Chris Fournier Jan. 9 (Bloomberg) — The Canadian currency posted the biggest gain since November against its U.S. counterpart as prices for key commodity exports climbed to the highest levels in at least a year. Canada’s dollar, nicknamed the loonie for the image of the waterfowl on the C$1 coin, advanced against 13 of the 16 most- traded currencies tracked by Bloomberg as crude oil, copper and natural gas surged. An unexpected job loss in December was dwarfed by one in the U.S. Canada’s trade surplus grew to the widest in nine months, a report next week is forecast to show. “The Canadian dollar is grinding higher against the U.S. dollar slowly, because of oil and the general commodity play,” said John Curran , a Toronto-based senior vice president at CanadianForex Ltd., an online foreign-exchange dealer. “Canada tends to do better when oil is higher.” The Canadian currency appreciated 2.2 percent, the most for a week since Nov. 13, to C$1.0298 per U.S. dollar yesterday in Toronto, compared with C$1.0528 on Jan. 1. It touched C$1.0292 two days ago, the strongest level since Oct. 20. One Canadian dollar buys 97.11 U.S. cents. Shorter-term government bonds climbed, pushing down the yield on Canada’s two-year note 16 basis points, or 0.16 percentage point, over five days, the most since April, to 1.31 percent. The price of the 1.25 percent security due in December 2011 rose 30 cents to C$99.90. The yield on the 20-year bond increased three basis points to 4.21 percent. Canada sold 2 billion euros ($2.9 billion) of 10-year bonds this week, its first issue of debt in the European currency in more than a decade, the finance department said on its Web site. Rate-Boost Bets A government report yesterday showing that employers cut 2,600 jobs last month, versus a gain of 20,000 forecast in a Bloomberg News survey, prompted traders to scale back bets on interest-rate increases. The yield on the overnight index swap due in nine months, based on predictions for the Bank of Canada’s rate at that time, dropped to 0.39 percent yesterday, from 0.43 percent the day before and 0.47 percent at the end of December. The employment losses “did suggest expectations of a rate hike may be a little bit ahead of themselves,” said Meny Grauman , a senior economist in Toronto at Canadian Imperial Bank of Commerce, Canada’s fifth-largest lender. The “numbers showed we’re not seeing explosive growth in the Canadian labor market.” Bank of Canada policy makers left the benchmark overnight lending rate at a record low 0.25 percent at their last meeting in December. The next policy meeting is scheduled for Jan. 19. Second Quarter The central bank will probably boost the rate to 0.5 percent in the second quarter and 0.75 percent in the third, according to economists in a Bloomberg survey. The Federal Reserve will probably raise the benchmark U.S. rate to 0.5 percent in the third quarter, from virtually zero now, according to another survey. Crude oil for February delivery rose 4.3 percent this week to $82.75 a barrel on the New York Mercantile Exchange. It touched $83.52, the highest since October 2008, on Jan. 6. Crude is Canada’s biggest export. Copper for March delivery touched $3.544 a pound on Jan. 7, the highest price since August 2008. Natural gas for February delivery touched a one-year intraday high, $6.108 per million British thermal units, on Jan. 7 in New York. Raw materials including oil, natural gas and copper account for half of Canada’s export revenue. “Commodities are still providing a very strong backdrop for the Canadian dollar,” said Matthew Strauss , a senior currency strategist in Toronto at Royal Bank of Canada, the nation’s biggest bank. “Global factors continue to support commodity currencies.” ‘Rock Solid’ American payrolls shed 85,000 jobs, the Labor Department said yesterday, compared with a median forecast in a Bloomberg survey of no job losses. Unemployment rates in both countries held steady, at 8.5 percent in Canada and 10 percent in the U.S. “While Canadian job numbers were lower than expected, they make Canada look rock solid compared to the U.S.,” said CanadianForex’s Curran. “Since the U.S. numbers were so bad, comparatively speaking, Canada is going to shine.” The loonie declined 0.2 percent yesterday versus the euro to C$1.4832, paring its weekly gain to 1.7 percent. It dropped 0.3 percent to 89.97 yen, paring its five-day advance to 1.8 percent. “Canada is mitigated in its price action against the U.S. dollar because of the impact of the crosses,” said Jack Spitz , managing director of foreign exchange at National Bank of Canada in Toronto. Canada’s trade surplus widened to $600 million in November, a Statistics Canada report on Jan. 12 is likely to show, according to the median of 16 estimates in a Bloomberg survey of economists. That would be the biggest since March 2009. The surplus was C$400 million in October. To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

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Jason Bay Joining New York Mets, Club’s First Major Move of MLB Offseason

January 4, 2010

By Mason Levinson Jan. 4 (Bloomberg) — All-Star outfielder Jason Bay will join the New York Mets, marking the team’s first major signing this offseason. The Mets announced today that Bay will be formally introduced at a news conference tomorrow at Citi Field. Terms of the free-agent signing weren’t disclosed in a news release. The outfielder and the team reached agreement last week pending Bay passing a physical examination. ESPN and other media said the contract was for $66 million over four years. Bay, who had played for the Boston Red Sox since a 2008 trade-deadline move from the Pittsburgh Pirates, was a Major League Baseball All-Star last season, batting .267 with 36 home runs and 119 runs batted in. He adds power to a lineup where Daniel Murphy hit a club- high 12 homers last season while playing for the Mets. Jeff Francoeur had 15 homers in 2009, 10 after coming to the Mets in a trade from Atlanta in July The Mets 40-man roster already includes outfielders Francoeur , Carlos Beltran , Angel Pagan , Fernando Martinez , Nick Evans and Chris Carter. New York was beset by injuries last season, finishing with a 70-92 record , 23 games behind the division-winning Philadelphia Phillies. Until now, the Mets had remained relatively quiet during the offseason as the New York Yankees followed their World Series title by adding All-Star center-fielder Curtis Granderson , designated-hitter Nick Johnson and pitcher Javier Vazquez . Escobar Signing On Dec. 28, the Mets signed free-agent pitcher Kelvim Escobar to a one-year contract. Escobar had missed most of the past two seasons with a shoulder injury. With Bay, the Mets get a 31-year-old player who averaged 32 homers and 103 RBIs over last five major-league seasons . After being drafted by the Montreal Expos in the 2000 amateur draft, Bay made his major-league debut for the San Diego Padres in 2003 before moving to the Pirates that season. He played in Pittsburgh until his July 31, 2008, trade to the Red Sox as part of a three-team trade that landed All-Star Manny Ramirez with the Los Angeles Dodgers. Bay was named the National League Rookie of the Year in 2004 for Pittsburgh and an All-Star in each of the next two seasons. To contact the reporter on this story: Mason Levinson in New York at mlevinson@bloomberg.net .

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U.S. Unemployment Rate Drops to 10% as November Payrolls Decline by 11,000

December 4, 2009

By Timothy R. Homan Dec. 4 (Bloomberg) — Employers in the U.S. cut the fewest jobs in November since the recession began and the unemployment rate unexpectedly fell, signaling the recovery is lifting the labor market out of the worst slump since World War II. Payrolls fell by 11,000 workers, less than the most optimistic forecast among economists surveyed by Bloomberg News, figures from the Labor Department showed today in Washington. The jobless rate declined to 10 percent. Stocks soared, the dollar strengthened and Treasuries declined as the report indicated companies may start hiring again after the labor market shrank by 7.2 million jobs since the recession began in December 2007. Hours worked, wages and staffing at temporary employment agencies all rose. “With firms seeing profits improving we’re starting to see a much brighter labor market,” said Stefane Marion , chief economist at National Bank Financial in Montreal, whose forecast for a 30,000 decline was the most accurate. “Confidence has been restored and firms now have started to redeploy their cash.” The Standard & Poor’s 500 Index was up 1.2 percent to 1,112.5 at 9:32 a.m. in New York. The dollar gained to 89.58 yen from 88.26 yesterday. The yield on the government’s 10-year note increased to 3.48 percent from 3.39 percent. Traders increased bets that the Federal Reserve would tighten monetary policy in the third quarter of next year. Yields on the September federal funds futures contract rose by 9.5 basis points. A basis point is 0.01 percentage point. Record Low Rates Federal Reserve Chairman Ben S. Bernanke has pledged to maintain record-low interest rates until joblessness subsides, even as a recovery takes hold. Revisions added 159,000 to payroll figures previously reported for October and September. The October reading was revised to show a 111,000 drop in jobs compared with an initially reported 190,000 decline. Payrolls were forecast to decline 125,000, according to the median estimate of 82 economists surveyed by Bloomberg News. Estimates ranged from decreases of 30,000 to 180,000. The jobless rate was projected to hold at 10.2 percent. Forecasts ranged from 9.9 percent to 10.4 percent. The number of temporary workers increased 52,000 in November, the biggest since October 2004 and the fourth straight rise. Payrolls at temporary-help agencies often turn up before total employment because companies prefer to see a steady increase in demand before taking on permanent staff. The average work week grew to 33.2 hours in November from 33 hours, the biggest rise since March 2003. Average weekly earnings rose to $622.17. Software Exporter Some companies are adding workers. Infosys Technologies Ltd., India’s second-largest software exporter by revenue, plans to add 1,000 employees in the U.S. in the next four to five quarters, said Chief Financial Officer V. Balakrishnan. Government adjustments subtracted 91,000 jobs from the unadjusted November payroll number, about in line with the historical figure. This indicates the seasonal adjustment issue may not have played much of a role in last month’s data. Today’s report showed factory payrolls fell 41,000 after decreasing 51,000 in the prior month. The median forecast by economists called for a drop of 45,000. The decline included a drop of 6,300 jobs in auto manufacturing and parts industries. Sales of cars and light trucks increased for a second consecutive month in November after plunging in the wake of the government’s so-called cash-for-clunkers incentive plan. Vehicles sold at a 10.9 million annual pace last month, up from a 10.5 million rate in October. Builder Payrolls Payrolls at builders declined 27,000 after falling 56,000. Financial firms decreased payrolls by 10,000 for a second month. Service industries, which include banks, insurance companies, restaurants and retailers, added 58,000 workers after adding 2,000. Retail payrolls decreased by 14,500 after a 44,200 drop. Angela Renee Elliott, a 40-year-old accountant and bookkeeper from Wyoming, Ohio, said she’s sent between 100 and 150 resumes after losing her job in April. This is the first time she’s been unemployed in her 17-year career. “I’m feeling pretty good and have seven interviews” already completed or planned, Elliott said in an interview, after posting her resume online on Nov. 21. “I believe I’m going to have a full-time. I’m keeping my fingers crossed.” Even so, “it’s going to get worse before it gets better,” she said of the national job market and economy. Government payrolls increased by 7,000 after a 46,000 rise in the prior month. Underemployment Rate The so-called underemployment rate — which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking — fell to 17.2 percent from 17.5 percent. Economists surveyed by Bloomberg last month projected the jobless rate will exceed 10 percent through the middle of next year even as the economy expands 2.6 percent in 2010. The U.S. economy expanded last quarter for the first time in a year, growing at a 2.8 percent pace as government incentives spurred consumers to spend more on homes and automobiles. Some companies such as Harley-Davidson Inc. are among those continuing to trim staff to wring out additional cost savings and stem losses. The biggest U.S. motorcycle maker yesterday approved a restructuring plan at its largest plant, in York, Pennsylvania, which will result in the loss of about 950 union jobs. “A restructured York operation will enable the plant to be competitive and sustainable for the future, and the new labor agreement is critical,” Chief Executive Officer Keith Wandell said in a statement. The Milwaukee-based manufacturer is cutting costs after nine straight quarterly losses. To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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New Jersey Loses $22,000 a Day With Interest Rate Swap for Debt Never Sold

December 4, 2009

By Dunstan McNichol Dec. 4 (Bloomberg) — New Jersey taxpayers are being saddled with a bill of about $657,000 a month from Bank of Montreal for an interest-rate swap approved by state officials and linked to bonds that were never sold. The 11th-largest U.S. state by population, which is cutting expenses to close a $1 billion budget deficit, will pay Canada’s oldest lender $23.5 million. The sum, about the same as the salaries for 113 teachers over three years, will allow it to avoid a $50 million penalty for canceling the contract, which was tied to planned sales of school-construction bonds. The interest rate swap, an agreement between borrowers to exchange fixed and variable-rate payments on a set amount of debt, was arranged in 2004 to protect taxpayers against rising borrowing costs . The strategy backfired after officials decided against issuing the securities. “This is a classic case of a strategic error,” said Robert Brooks , a finance professor at the University of Alabama- Tuscaloosa and author of a book on derivatives. “It’s arrogant to believe that you have such a command of the future that you know with certainty what is going to happen.” The payments, which work out to $21,892 a day for three years, show how elected and appointed officials failed taxpayers by agreeing to financial strategies they didn’t fully understand. New Jersey spent $21.3 million in 2008 to exit three contracts signed when James Florio and James McGreevey were governors. The state’s transportation trust fund is giving almost $1 million a month to a Goldman Sachs Group Inc. partnership in an agreement linked to bonds that were redeemed. Penalties and Losses New Jersey isn’t alone. Borrowers from Massachusetts to California are struggling with billions of dollars in swap penalties and losses at the same time that budget deficits expand to an estimated $350 billion in 2010 and 2011, according to the Washington, D.C.-based Center on Budget and Policy Priorities. The derivatives, mostly interest-rate swaps used to exchange fixed payments for variable rates, have grown to as much as $300 billion annually, the Alexandria, Virginia-based Municipal Securities Rulemaking Board said in an April report, citing information from market participants. Derivatives have created “unprecedented financial stress” for some of the 500 municipal issuers that sold variable-rate debt and purchased swaps from banks to lock in borrowing costs, according to an October report by Moody’s Investors Service. The biggest users of the arrangements are Pennsylvania , California , Texas and Tennessee . The U.S. Justice Department and Securities and Exchange Commission are investigating whether Wall Street banks conspired with brokers to rig bids on the contracts. Forward-Starting Agreement Jefferson County, Alabama, is on the edge of bankruptcy mostly because of a $3 billion sewer project in which fixed-rate bonds were refinanced into floating-rate securities hedged with interest-rate swaps. Larry Langford , the former Democratic mayor of Birmingham, was convicted of federal corruption charges Oct. 29 for accepting bribes in exchange for giving underwriting contracts to a banker friend while he was county commission president. New Jersey’s 2004 school-bond swap with Bank of Montreal was linked to a $250 million bond originally scheduled to be sold in 2007. The so-called forward-starting agreement was one of 15 such contracts the state set up to help finance construction. The issue was deferred to 2009 because the school program wasn’t borrowing fast enough to use swaps coming due in 2007, according to treasury spokesman Tom Bell. Fixed Rate Under its contract, New Jersey agreed to pay the bank a fixed rate of about 4.6 percent, or $967,000 a month, on the $250 million principal. In return, it would receive unspecified variable-rate payments based on a percentage of the one-month London interbank offered rate, according to Treasury Department spokesman Tom Vincz . The one-month rate was 0.23 percent on Dec. 3, down from 1.9 percent when the Bank of Montreal swap was set up, according to the British Bankers Association One-Month Libor U.S. Dollar Index . Libor is a benchmark for the cost of loans between banks. In pushing the swap off to 2009, New Jersey agreed to a 9 basis-point reduction in its fixed interest rate and the bank changed the floating-rate formula to a lower percentage of Libor. A basis point is 0.01 percentage point. When the revamped agreement took effect on Nov. 1, the state faced payments of $833,000 a month, Vincz said in an e- mail. Treasury officials allowed the bank to suspend floating- rate payments while lowering New Jersey’s fixed-rate cost to 3.1 percent, or $656,770 monthly, through November 2012. Typical School The cost would cover the $23.6 million price of a typical elementary school , according to New Jersey Schools Development Authority reports. It would also pay 113 teachers’ salaries for three years, based on data reported by the state Teachers Pension and Annuity Fund. “It is obscene,” New Jersey Governor-elect Christopher Christie said at a Nov. 16 news conference in Trenton, referring to financial strategies such as swaps pursued largely during McGreevey’s term from 2001 to 2004. “It is extraordinary to me that someone could do that much damage in less than three years.” McGreevey, who resigned in 2004 after saying he was gay, didn’t respond to phone messages left at his home and the office of his partner, Mark O’Donnell, at real-estate developer Kushner Cos. in New York City. The former governor also didn’t return a message left at the Episcopal All Saints Parish in Hoboken, New Jersey, where he serves as an assistant while seeking a Master of Divinity degree at Manhattan’s General Theological Seminary. $3.4 Billion John McCormac , Christie’s transition team economic development and growth adviser who served as state treasurer when most of New Jersey’s swaps were arranged, hung up when asked about them on Nov. 11. “OK, thanks for calling,” McCormac, mayor of Woodbridge Township , said before disconnecting. New Jersey refinanced $3.4 billion of debt tied to derivatives last year, according to a report from the state Treasury Department’s Office of Public Finance . The renegotiated swap lets New Jersey avoid a termination fee, estimated at $50 million in an Oct. 31 state report. It will allow the original swap to be reinstated if officials want to sell school-construction bonds in 2012, Vincz said in the Nov. 16 e-mail. Diligent Work “We are working diligently to manage and reduce the cost of the swap portfolio this administration inherited,” he said. “This temporary solution limits swap costs for a three-year period, after which time the state will retain the option of applying the original terms with a future borrowing as a hedge against rising interest rates.” “We are not in a position to comment, out of an obligation of confidentiality to the client,” Kim Hanson , a spokeswoman for Bank of Montreal , said in a phone interview. Peter Nissen , a financial adviser in Marlboro, New Jersey, who worked on the swap while at Public Financial Management, the state’s Harrisburg, Pennsylvania-based adviser, declined to comment. Marty Margolis , managing director at PFM, said in a phone interview that Nissen worked independently on the contract and hasn’t been associated with the company for more than two years. “That swap was done by someone who hasn’t worked for the company for several years,” Margolis said. “I know nothing about it.” Except for two deals to stem losses from existing derivative contracts, New Jersey has entered into no new swaps since Governor Jon Corzine , the former co-chairman of Goldman Sachs, took office in 2006, according to Vincz. Christie, a former U.S. prosecutor, defeated Corzine last month and is to be sworn in Jan. 19. UBS Contract New Jersey paid $21.3 million last year to end three derivative contracts connected to bonds for business-incentive grants, the River Line Light Rail project from Trenton to Camden and the New Jersey Sports and Exposition Authority. On Nov. 18, the Delaware River Port Authority, a bistate agency that runs toll bridges and a rail line to Pennsylvania, agreed to give Zurich-based UBS AG $111 million if the authority can’t issue variable-rate debt to make use of an existing swap by February. The state Transportation Trust Fund Authority is paying almost $1 million monthly to Goldman Sachs Mitsui Marine Derivative Products L.P., a partnership of the New York-based bank and Japan’s Mitsui Sumitomo Insurance Group Holdings Inc. , under a swap agreement made during McGreevey’s administration in 2003. The derivatives were linked to $345 million in auction- rate bonds sold to finance road and rail projects. Fixed-Rate Debt While New Jersey replaced the debt with fixed-rate securities in 2008, the derivative payments aren’t scheduled to expire until 2019. The state plans to sell $150 million in variable-rate bonds on Dec. 7 to make use of part of the swap. The state treasury “should continue to aggressively manage the termination, conversion and management of swaps that this administration inherited, while dealing with the realities of the most difficult credit conditions in history,” Corzine’s former spokesman, Steve Sigmund , said in an e-mail on Oct. 22. New Jersey passed up borrowing costs of 4.6 percent to 4.9 percent when it opted to issue variable-rate bonds tied to swaps during McGreevey’s tenure, a 2008 state analysis shows. The net interest cost on the debt was about 4 percent while the original derivative agreements were in effect, according to the report. Revenue Bonds The yield on 25-year fixed-rate revenue bonds is now 4.98 percent, up from a yearly low of 4.69 percent in early October, according to a Bond Buyer Index . Derivatives can save taxpayers money over longer periods if they’re managed properly, said Peter Shapiro , managing director of Swap Financial Group LLC, in South Orange, New Jersey, an adviser to companies and governments. “Will municipal officers ever take for granted that floating-rate bonds will be dull, boring and predictable means of finance?” he said in a phone interview. “No, and they probably never should have.” To contact the reporter on this story: Dunstan McNichol in Trenton at dmcnichol@bloomberg.net .

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Janet Tavakoli: Goldman Sachs Responds to the New York Times

November 24, 2009

Pulitzer Prize winner, Gretchen Morgenson of the New York Times wrote a must read article (” Revisiting a Fed Waltz with AIG ,” November 21, 2009) on Sunday in which she recaps salient points from the November 17, 2009 report of the Office of the Special Inspector General (Neil Barofsky) for the Troubled Asset Relief Programs, ” Factors Affecting Efforts to Limit Payments to AIG Counterparties ,” and wrote: On the question of whether this payout was what the report describes as a “backdoor bailout” of A.I.G.’s counterparties, Mr. Barofsky concluded: “The very design of the federal assistance to A.I.G. was that tens of billions of dollars of government money was funneled inexorably and directly to A.I.G.’s counterparties.” [T]his was money the banks might not otherwise have received had A.I.G. gone belly-up. Timothy Geithner’s interaction with the New York Times , first in his role as President of the FRBNY and later as Treasury Secretary, seems to be that of a bailout enabler and a PR spin doctor for Goldman Sachs. Based on the Sunday article’s revelations, I would not characterize his behavior as that of “a good man in a storm;” he seems a mere water-boy: According to an e-mail message that Goldman sent to the New York Fed at the time [September of '08], Mr. Geithner talked about the article with Mr. Viniar, Goldman’s chief financial officer, before calling me. When Mr. Geithner called, he said that Goldman had no exposure to an A.I.G. collapse and that the article had left an incorrect impression about that. When I asked Mr. Geithner if he, as head of the regulatory agency overseeing Goldman, had closely examined the firm’s hedges, he said he had not. Mr. Geithner told me on Friday that he spoke with Mr. Viniar that day to ensure that Goldman’s hedges were adequate. And, notwithstanding the inspector general’s findings, he said he still believes Goldman was hedged.” Prior to the article’s publication, Goldman Sachs responded to Ms. Morgenson’s questions about the Barofsky report via an email from its spokesman Luca van Praag. The entire exchange can be found here ” Goldman’s Response to Questions About A.I.G.,” November 22, 2009 . Did Goldman Sachs dissemble and equivocate in its responses to the New York Times ? Based on these responses answer is yes. Treasury Secretary Geithner may wish to keep that in mind the next time he looks to Goldman Sachs for his answers. Mr. van Praag states “Starting in the mid-90s, we bought credit default swaps from AIG to protect our firm from the risk of a decline in the value of risk we had assumed on behalf some of our clients, (i.e. assets to which we had exposure).” Near the end of his email he again mentions ” CDOs from our clients ” (emphasis added). His email never once mentions that the problematic CDOs requiring collateral calls from A.I.G. that precipitated its liquidity problems, the one’s referenced in report, seem to be chiefly 2004/5/6 vintage CDOs. Goldman underwrote the Abacus CDOs on its own list, and Goldman also underwrote CDOs that featured prominently and in large portion on the lists of French Banks SocGen and Calyon as well as Bank of Montreal and Wachovia that also hedged this risk CDSs with AIG. When responding about whether or not Goldman would have trouble collecting on its hedges in the event of an A.I.G. collapse as Barofsky’s report indicates, Mr. van Praag that Barofsky’s report stated a collapse” “‘ might have made it difficult for Goldman Sachs to collect on the credit protection it had purchased’ (emphasis added by Mr. van Praag) – however, it might not, and it is our belief that it ultimately would not have done so.” For a firm that trumpets its risk management, it seemed to present only one scenario on September 16, 2008. Lehman had just gone bankrupt, Bank of America had just agreed to takeover Merrill Lynch, and banks were starved for liquidity just like A.I.G. The banks’ TARP bailout had not yet occurred. I suggest that Goldman may self-deluding with its claim to be the stellar risk managers here: “I Retract My Apology and Call for More Regulation of Goldman Sachs .” Mr. van Praag notes that Barofsky’s report said had AIG not been rescued, Goldman would have had to bear the risk of further declines in the CDOs that it transferred to Maiden Lane III. He retorts “This is accurate in concept; however, Goldman Sachs has significant experience in adeptly managing this form of market risk.” I previously noted how “adeptly” Goldman Sachs manages its risk (” Goldman’s Undisclosed Role in AIG’s Distress “). How did that work out for the global markets? Fed Chairman Ben Bernanke told Congress on March 24, 2009: “Conceivably, [AIG's] failure could have resulted in a 1930′s-style global financial and economic meltdown, with catastrophic implications. Mr. van Praag also wrote: “It is worth noting that we participated in the transfer of assets to the Maiden Lane III vehicle at the request of the New York Federal Reserve.” I agree this is especially worth noting given that Stephen Friedman, a former Goldman Sachs co-chairman was Chairman of the New York Fed Board, and given the degree of capture then President of the FRBNY demonstrated in his seeming lack of curiosity about Goldman’s hedges as mentioned above. Ms. Morgenson also asked for some perspective about Goldman CEO Lloyd Blankfein’s apology for Goldman’s practices and its contribution to the credit crisis. She asked why Blankfein said Goldman “participated in things that were clearly wrong and have reason to regret” Mr. van Praag responded: Lloyd has expressed regret in various different forums, including a speech to the Council of Institutional Investors in April and one at the Handelsblatt Conference in September. He has stated that the financial services industry collectively neglected to raise enough questions about whether some of the trends and practices that became commonplace really served the public’s long-term interests. In particular, the industry let the growth and complexity in some new instruments outstrip their economic and social utility as well as the operational capacity to manage them. Of special note is Goldman’s admission that these products have outstripped ” their economic and social utility and operational capacity to manage them .” [emphasis added] That statement is apt for many subsequent trading activities as well. But as risk managers, Goldman is dodging its responsibility in its representation that these products merely outstripped management “operational capacity.” Goldman risk management ability was not up to the task, and its ability is not up to the task of managing the systemic risk of its now gigantic CDS operations in the wake of the demise and hobbling of many of its competitors. Operational capacity is one part of the problem. The other problem is that in Goldman’s responses to the New York Times, a bunch of operators tried to gaslight the press.

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Boehringer Drug Increases Women’s Libidos, Frequency of Sex, Studies Show

November 16, 2009

By Naomi Kresge Nov. 16 (Bloomberg) — Boehringer Ingelheim GmbH’s desire pill, taken at bedtime for six months, boosted women’s libidos and led to better sex, according to the first published evidence showing the experimental drug works. Women who took the medicine, known as flibanserin, reported 22 percent more “satisfying sexual events” than those given a placebo in two clinical tests of 1,378 patients, according to abstracts released today at the European Society for Sexual Medicine annual meeting in Lyon, France. The findings show women who took the drug had more sex, wanted more sex and experienced less distress related to lack of desire. Boehringer plans to use the research to seek permission to sell the first female libido drug in the U.S. and Europe, potentially rekindling a debate that began a decade ago with the introduction of Pfizer Inc. ’s Viagra on whether lackluster desire is a legitimate medical condition. “Based on these optimistic and positive findings, we definitely plan to file” for regulatory approval, Michael Sand, director of clinical research at Boehringer and team leader for flibanserin, said in an interview at the meeting. The family-owned drugmaker from Ingelheim, on the Rhine’s west bank, started researching the compound more than a decade ago as a depression drug. Researchers tracked test subjects’ level of sexual appetite in order to check that flibanserin wasn’t hurting their libido and were startled to find the opposite was true for women. With or Without Therapy? The U.S. market for medicines to rekindle female desire could exceed $3.5 billion a year, BioSante Pharmaceuticals Inc. Chief Executive Officer Stephen Simes estimated in an e-mail yesterday. The company is developing a rival therapy, a testosterone gel for menopausal women. Simes says at least $1 billion in revenue could come from women who haven’t reached the age of menopause. If Boehringer’s drug makes it to market, it’s likely to be prescribed along with sex therapy, said Michael Berner , a Freiburg University Hospital psychiatrist whose patients took part in Boehringer’s studies, before the results were released. The pill targets women upset or frustrated by a lack of desire, or whose diminished libidos cause problems in their relationships. The company said today it hopes the drug can be prescribed by itself, not just as a complement to therapy. “It’s perfectly reasonable to expect that clinicians, if flibanserin is approved, will offer this as stand-alone therapy,” Boehringer’s Sand said. No Pill in Bedroom Some researchers and psychologists believe a pill has no place in the bedroom, and that women bothered by a decrease in desire should focus instead on the relationship and social factors that might explain the change. Flibanserin is “not really an enhancement drug, like Viagra is — taken on demand — but a long-term treatment, like steroids,” New York psychologist Leonore Tiefer said by e-mail before the results were released. The compound takes three to six weeks to kick in. Side effects reported in the clinical trials included dizziness, nausea, drowsiness and insomnia. About a third of the women in the study dropped out for a range of reasons, including side effects, Sand said. Study Results The main criterion for the four clinical trials, which the company named after flowers, was how many “satisfying sexual events” women said they had experienced after starting treatment. That can include masturbation. Boehringer recruited more than 5,000 heterosexual, pre-menopausal women who had been with their partners for at least a year to try the pill. Pooled results from 1,378 women in the so-called Daisy and Violet trials in North America showed that women taking 100 milligrams of flibanserin nightly reported an average of 4.5 satisfying sex acts per month, up from 2.8 acts during a four- week test period used to establish a baseline for comparison. Women taking a placebo reported 3.7 satisfying sex acts, compared to 2.7 acts during the baseline period. The women taking flibanserin didn’t just have more sex, but found it more satisfying, Sand said. The company hasn’t ruled out testing the medicine in men, he added. ‘Two Feet on the Brakes’ The Orchid trial in Europe failed to show a statistically significant increase in the number of satisfying sexual events, though women did report greater desire, according to abstracts posted on the conference Web site. The results were significant when pooled with the two North American studies, Boehringer said. A third U.S. trial, Dahlia, showed that a lower dose of the drug didn’t work. Flibanserin works on the brain by putting “two feet on the brakes” to block the release of a chemical called serotonin , which regulates mood, appetite, sleep and memory, said Jim Pfaus, a neurologist at Concordia University in Montreal, who conducted early tests of the drug in rats. In time, the process should trigger the production of dopamine, a chemical that, among other jobs, helps stimulate desire. The drug could be the first success after a series of failures from drugmakers including Procter & Gamble Co. and Pfizer. The New York-based maker of Viagra abandoned efforts to adapt its pill for women in 2004 and closed sex-health research at the end of last year. The world’s largest closely held pharmaceutical company, Boehringer needs new drugs because it faces the loss of 1 billion euros ($1.5 billion) in annual revenue when two older medicines, Mirapex for Parkinson’s disease and Flomax to treat enlarged prostate, lose patent protection next year. To contact the reporter on this story: Naomi Kresge in Lyon at nkresge@bloomberg.net

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New York Offering Will Lead Biggest Week for Muni Bond Sales Since April

November 16, 2009

By Jeremy R. Cooke Nov. 16 (Bloomberg) — U.S. state and local governments plan to sell the most fixed-rate bonds in almost seven months this week, including about $2.5 billion of Build America Bonds and non-subsidized taxable issues. New York’s Urban Development Corp. leads $12 billion in municipal borrowing plans, with a $1.5 billion sale of bonds backed by revenue from the state’s personal income taxes. Half of the offering will come in the form of taxable BABs, for which the U.S. government pays 35 percent of the interest expense under the Obama administration’s two-year economic stimulus. The authorization to sell Build America Bonds, which have helped raise more than $51 billion for infrastructure and bring down long-term, tax-exempt borrowing costs, at the end of 2010. The program’s success so far may merit an extension, Obama’s nominee to be assistant secretary for tax policy at the Treasury, Michael Mundaca, said earlier this month. “The future of the BAB program is the most important question facing the municipal bond market today,” John Dillon , a fixed-income strategist in Purchase, New York, for Morgan Stanley Smith Barney, the world’s largest retail brokerage, said in a Nov. 12 report. “The landscape could be permanently altered by an extension and/or expansion of the program.” If the BAB program sunsets and municipal issuers have to rely more on tax-exempt issues to fund public works again, municipal bond yields may be dragged higher along with rates on Treasuries, Dillon said. If Congress allows Build America issues to continue past the end of next year, municipals may “significantly outperform” U.S. debt, he said. 20-Year Index Falls The weekly Bond Buyer 20 index of benchmark 20-year yields has dropped 52 basis points, or hundredths of a percentage point, to 4.4 percent since the first public Build America offerings in mid-April. The New York issuer, which also does business as Empire State Development Corp., is offering $775.6 million of Build America Bonds, $501.5 million of tax-exempt debt and $224.1 million of taxable notes without federal subsidies. Individual investors can place orders today through banks led by Goldman Sachs Group Inc. Tomorrow, institutions such as mutual funds can buy the debt, rated AAA by Standard & Poor’s and AA- by Fitch Ratings. The proceeds will fund projects for state prisons, courts, public universities and police facilities; grants to local governments; and state agency equipment purchases. The deal also will help fund a computer-chip research and development center for Globalfoundries Inc., created by Advanced Micro Devices Inc. and the government of Abu Dhabi, Lisa Willner, an Empire State Development spokeswoman, said in an e-mail. Backed by Income Tax New York has twice previously sold Build America bonds backed by personal income tax revenue through the state’s Dormitory Authority. Taxable bonds set to pay 5.628 percent until March 2039 recently had a yield of 5.72 percent, according to JPMorgan Chase & Co. analysts in a Nov. 11 note to clients. That was 132 basis points more than Treasuries and 41 basis points more than comparable corporate bonds, according to the note. The last time municipal issuers sold more than $12 billion of fixed-rate bonds in one week was the one ended April 24, when a taxable California deal pushed the total to $15.4 billion, Bloomberg data show. Following are descriptions of additional pending municipal- bond sales; the timing and amounts may change. CALIFORNIA’S STATE PUBLIC WORKS BOARD intends to raise about $1.34 billion by selling federally subsidized taxable Build America Bonds and tax-exempt securities , all payable from state appropriations on Nov. 19. Banks led by Jefferies Group Inc. and Wells Fargo & Co. will underwrite the offering, the sixth of $1 billion or larger in the state since the beginning of October. The money raised will fund capital projects including work at San Quentin State Prison, veterans homes in Fresno and Redding and the J. Paul Leonard & Sutro Library at San Francisco State University. All of the bonds received ratings of BBB- from Fitch and A- from S&P. Moody’s Investors Service assigned an A1 to the $162.7 million portion of the deal for the university library, and its Baa2 to the rest. (Updated Nov. 16) LOS ANGELES INTERNATIONAL AIRPORT, the third-busiest in the U.S. last year, is planning to sell as much as $1.3 billion of bonds beginning this week through banks including Barclays Plc, Morgan Stanley and Ramirez & Co. The sales, comprising taxable Build America and tax-exempt bonds, will cover construction costs and refinance as much as $610 million of debt subject to the federal alternative minimum tax. The two-year U.S. stimulus law passed in February allows airports to replace select recent issues of AMT debt with lower-cost, tax-exempt bonds. Only airports in Atlanta and Chicago handled more passengers than the facility known as LAX last year, according to Airports Council International. (Added Nov. 16) AMERICAN MUNICIPAL POWER , a Columbus, Ohio-based supplier to public electric systems, intends to offer $600 million of bonds this week to refinance short-term notes and fund work on three hydroelectric generators on the Ohio River. Underwriters led by Bank of Montreal’s BMO Capital Markets GKST Inc. will handle the offering. It may include a mix of tax-exempt securities and taxable Build America Bonds, for which the federal government pays 35 percent of the interest cost. The bonds are secured by payments made under power sales contracts with municipal utilities in Ohio, Kentucky, Michigan, Virginia and West Virginia. (Updated Nov. 16) LOS ANGELES DEPARTMENT OF WATER & POWER, the largest U.S. municipal utility, plans to raise $500 million for its water system by selling a mix of federally subsidized, taxable Build America Bonds and tax-exempt securities. Banks led by Citigroup Inc. and Siebert Brandford Shank & Co. are to underwrite the taxable series of bonds, and De La Rosa & Co. will handle the tax-exempt portion. The bonds, backed by revenue from a system that serves about 4.1 million residents in the city of Los Angeles, received ratings of AA from Fitch and S&P and Aa3 from Moody’s. (Added Nov. 12) CHARLOTTE, NORTH CAROLINA, the state’s most populous city, plans to borrow $367 million for improvements to its water and sewer system and to pay off commercial paper. The tax-exempt revenue bonds, which underwriters led by Wells Fargo & Co.’s Wachovia Bank will market to investors this week, are rated Aa1 by Moody’s and AAA by S&P and Fitch. After the latest sale, Charlotte’s water and sewer system will have more than $1.5 billion in equivalent debt. (Added Nov. 12) To contact the reporter on this story: Jeremy R. Cooke in New York at jcooke8@bloomberg.net .

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Highest P/Es Since 2002 Prompt Invesco to Buy Canada-France-Spain Bargain

November 16, 2009

By Jeff Kearns, Matt Walcoff and Rita Nazareth Nov. 16 (Bloomberg) — Canadian insurers, builders in Spain and Paris-based Vivendi SA are enticing investors in search of cheap stocks after the steepest equity market rally in 70 years. Shares of Manulife Financial Corp. have slipped in Toronto in 2009 even as profit at Canada’s biggest insurer is forecast to double. Obrascon Huarte Lain SA in Madrid is 28 percent below its average earnings multiple this decade, according to data compiled by Bloomberg. Vivendi, owner of the largest music company, trades at a 37 percent discount to global stocks after falling to the cheapest level in three years. Invesco Ltd., Delaware Investments and Delphi Management Inc., which manage a combined $553 billion, are being forced to look harder for bargains after gauges of global bank shares more than doubled in eight months and computer and software makers gained 73 percent. The MSCI World Index’s 68 percent surge since March pushed the measure of 23 developed countries to the highest price compared with reported earnings since 2002, data compiled by Bloomberg show. “A lot of the recovery in the market has been simply a recovery in risk appetite,” said Erik Granade , chief investment officer of global equity at Invesco Global Strategies, a unit of Invesco, which manages $417 billion. “Now that we’re back to more normal levels, it may be typical to see investor interest focusing on a wider area.” Sanofi-Aventis Granade bought shares of Sanofi-Aventis SA, the Paris- based supplier of vaccine for swine flu that is trading for 8.1 times analysts’ prediction for next year’s income, according to data compiled by Bloomberg. Sanofi has added 13 percent this year. Stock prices in Spain, France and Germany are the lowest relative to next year’s projected earnings among the 10 biggest developed nations by market value, with benchmark indexes trading below 12 times profits, according to data compiled by Bloomberg. That compares with 13.8 for the MSCI World and ratios of 19.4 in Japan, 15 in Hong Kong and 14 for the U.S. Overseas shares may be in even greater demand for U.S.- based managers because of the falling dollar, according to John Carey , a money manager at Pioneer Investments, which oversees more than $200 billion. Since March 5, the dollar has lost 15 percent against a basket of six currencies including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc, according to data compiled by Bloomberg. That’s the biggest drop over the same number of days since 1986. Currency Translation “You have not only the movement on the shares, but also the currency translation,” Boston-based Carey said. “If the currency is rising versus the dollar, then you have that additional source of return when it’s translated back.” After slumping to a 15-year low of 9.2 in November 2008, the MSCI World’s valuation using reported profits tripled since March as the index climbed 68 percent, the steepest gain in its 39-year history. The Standard & Poor’s 500 Index surged 62 percent over the same period, pushing its ratio to earnings from 10 in March to 21.9, data compiled by Bloomberg show. The advance was the sharpest since the 1930s, data show. The MSCI World Index rose 0.4 percent at 8:16 a.m. in London after the Asia-Pacific Economic Cooperation forum pledged to maintain stimulus spending and Japan’s economy expanded more than forecast. Futures on the S&P 500 added 0.7 percent. Growth Estimates Investors looking for bargains are focusing on price- earnings ratios relative to next year’s analyst estimates, which call for average profit growth in the MSCI World index of 25 percent, data compiled by Bloomberg show. Companies in the measure will earn $67.27 a share in 2009 and $84.23 in 2010, the data show. “Earnings growth estimates are on the high side relative to history, therefore the bar has been raised and the risk of disappointment is now more prevalent,” said Jane Davies , a fund manager at HSBC Global Asset Management in London, which has $390 billion in assets. “The positive earning surprises seen this year have been driven more by cost cutting.” Manulife, the Toronto-based company trading for 9.5 times next year’s profit forecast, has dropped 3.5 percent in 2009 on concern it will be forced to add to reserves for annuities should stocks decline. North America’s largest insurer is projected to boost revenue by an annual rate of more than 8 percent through 2011, estimates compiled by Bloomberg show. “They’ve been hard done by, unfairly marked down,” said Gavin Graham , director of investments at Bank of Montreal Asset Management, which manages C$50 billion ($47 billion) including shares of Manulife, Sun Life Financial Inc. and Great-West Lifeco Inc. “What have equity markets done this year? They’re up 25, 35 percent. If you have exposure to equities, all other things being equal, wouldn’t that be a good thing?” Sun Life Sun Life, located in Toronto, trades for 9.3 times projected 2010 earnings based on its closing price last week of C$27.98, down 1.6 percent for the year. Winnipeg, Manitoba- based Great-West fetches 10.6 times forecast earnings. The stock added 15 percent in 2009 to C$23.81 on the Toronto Stock Exchange. J. Chahine Capital owns shares of Obrascon Huarte Lain, or OHL , according to Chairman Jacques Chahine , who oversees $374 million in Luxembourg. The Spanish builder that operates roads in Brazil trades for 9.2 times forecasts for 2010 profit of 1.95 euros ($2.91) a share, up 11 percent from this year’s income estimate. That compares with an average multiple of 12.7 since 2001, according to data compiled by Bloomberg. Obrascon has gained 80 percent this year. Good Value “Now you can buy on a more rational basis than at the March bottom,” Chahine said. “We bought OHL at the end of July. It’s a good example of value that is left. It is a good stock. We believe even buying a little late it is still a good value.” Delaware Investments added to its stake in Vivendi five months ago, when the media and telephone company’s price- earnings ratio using estimated 2010 income fell to 45 percent less than the MSCI World’s, according to Ned Gray , who helps manage $135 billion in Boston. That was the lowest level relative to the index based on projected earnings for the next calendar year since at least January 2006. Vivendi is forecast to post a fifth straight revenue increase this year. “The rally has left a lot of names that are far more defensive relatively weak in their stock price performance versus the more economically geared names,” said Gray. Vivendi provides “a good, consistent level of cash generation as well as a cheap valuation. They also provide a nice cushion if this economic recovery is to falter.” Vivendi, GE Vivendi’s dividend has increased every year since the payouts were reinstated in 2005. The company owns a 20 percent stake worth about $5 billion in NBC Universal, using the valuation Fairfield, Connecticut-based General Electric Co. and Comcast Corp. of Philadelphia have agreed upon, according to people familiar with the matter. Vivendi has an option to sell its stake every year from Nov. 15 to Dec. 10. Finding value in the stock market today means picking companies that “fell through the cracks” during the rally, said Scott Black , who oversees $900 million as president of Delphi Management in Boston. “Just sloshing money around isn’t very imaginative today at these multiples,” Black said. “That’s what the average idiot does. You have to look hard because the market is well picked over.” To contact the reporters on this story: Jeff Kearns in New York at jkearns3@bloomberg.net ; Matt Walcoff in Toronto at mwalcoff1@bloomberg.net ; Rita Nazareth at rnazareth@bloomberg.net .

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Female Desire Drug Sparking Libido May Prove Sex Really Is All in Her Head

November 13, 2009

By Naomi Kresge Nov. 13 (Bloomberg) — Boehringer Ingelheim GmbH is banking on sex really being all in women’s heads. The German drugmaker is putting the finishing touches on a pill designed to reawaken desire by blunting female inhibitions. Unlike Viagra, which targets the mechanics of sex by boosting blood flow to the penis, this drug works on the brain. The desire drug, the focus of a meeting on sexual disorders in Lyon next week, has the potential to revolutionize sexual medicine much as Pfizer Inc. ’s blue pill did a decade ago. That could put family-owned Boehringer at the center of a debate about whether the medicine is a chemical shortcut around a complex dysfunction involving body and mind — or whether disinterest in sex is a legitimate medical condition. “This drug has the potential to finally open the door to acceptance of the idea that decreased desire can be something that involves a dysfunctional way the brain works, and not only a bad partner,” said Jim Pfaus, a neurologist at Concordia University in Montreal, who conducted early tests of the drug in rats. “Of course it’s in your head.” The U.S. market for medicines to rekindle female libido could be bigger than the $2 billion a year in U.S. sales for erectile dysfunction treatments because more women report sexual problems, BioSante Pharmaceuticals Inc. Chief Executive Officer Stephen Simes estimated last year. Showing It Works Boehringer, based in the German town of Ingelheim on the Rhine’s west bank, was searching for a depression treatment in the 1990s when it stumbled on the compound, called flibanserin. By 2002, Boehringer found the drug wasn’t lifting patients’ mood. The company says researchers were startled when test subjects rated one measure of well-being, sexual appetite, consistently higher than the others. After what Pfaus described as an initial period of hesitation about developing a sex pill, Boehringer decided to move forward. The company needs new drugs because it faces the loss of 1 billion euros ($1.5 billion) in annual revenue when two older medicines, Mirapex for Parkinson’s disease and Flomax to treat enlarged prostate, lose patent protection next year. The world’s largest closely held pharmaceutical company has been studying flibanserin for more than a decade and it has yet to publish clinical test results showing the drug is effective. The company will lift its veil of secrecy on Monday at the European Society for Sexual Medicine conference with data from trials of more than 5,000 European and U.S. women. Women’s Distress The main criterion for the clinical trials, which the company named after flowers, was how many “satisfying sexual events” women said they had experienced after starting treatment. If the results are good, the so-called Bouquet studies, dubbed Violet, Daisy, Dahlia and Orchid, could form the basis for applications to U.S. and European regulators. The German company is taking a page from Pfizer’s book. The U.S. drugmaker broadened the appeal of Viagra in 1998 by steering clear of the word “impotence” and saying the blue pill addressed a disease called erectile dysfunction. Boehringer is avoiding potentially offensive words such as frigidity and refers to the problem its pill cures by its clinical name, hypoactive sexual desire disorder , or HSDD. “An increasing body of evidence shows that hypoactive sexual desire disorder causes substantial emotional distress,” said Heike Specht, a spokesman for the company. The drugmaker “has conducted late-stage clinical trials in over 5,000 women from which we hope will result the first available pharmaceutical treatment.” A Boehringer survey of 31,000 U.S. women aged 18 and above found that one in 10 expressed distress because of diminished sex drive. Ideological Battle A sluggish libido is “a real problem,” and early clinical results so far suggest Boehringer’s drug can help, according to Stephen Stahl , a psychopharmacologist and chairman of the Neuroscience Education Institute in Carlsbad, California. Stahl, who has been a consultant for Boehringer, sees a growing role for drugs in treating sexual disorders. Not everyone agrees there is a disorder to begin with. In 2003, a year after Boehringer started the Bouquet clinical trials, an article written by Ray Moynihan in the British Medical Journal called female sexual dysfunction “the freshest, clearest example we have” of a disease created by pharmaceutical companies to make healthy people think they need medicine. “This is for some an ideological battle,” said psychiatrist Michael Berner of the Freiburg University Clinic , who had patients in Boehringer’s studies. “One view is the multi-dimensional view you get from people like me. And then you have these people that say you should work only on relationship issues and that medication cannot have a place.” ‘Like Dancing’ Researchers don’t know why some women’s libido falters, said Pfaus, who has tested compounds in rats for Pfizer, Boehringer and Palatin Technologies Inc . by gauging whether they spur female rats to solicit sex from males. “An erection is obvious, it’s easy,” Pfaus said. “But desire — how do you get at that?” The explanation may be partly evolutionary, according to Berner, who says male primates are driven by a need to spread their semen, while for females it’s important to be able to care for and rear the offspring. Some researchers believe the social components of intercourse mean that sexual problems can’t be addressed in the same way as heart failure or cancer. Sex is a “historical and cultural phenomenon,” said Leonore Tiefer, a psychiatry professor at New York University . There’s no baseline of normalcy by which to define a disorder, she contends. “It’s like dancing, or music, or piano-playing,” Tiefer said. “You do it with the body, but the part the body plays isn’t the largest part.” Over the Wall Flibanserin works on the brain by putting “two feet on the brakes” to block the release of a chemical called serotonin , which regulates mood, appetite, sleep and memory, Pfaus said. In time, the process should trigger the production of dopamine, a chemical that, among other jobs, helps stimulate desire. The drug differs from testosterone, a hormone that’s also been tested to reawaken women’s desire. Berner, interviewed at his study in Freiburg, sketched the picture of a wall to explain how flibanserin works. “You’re standing here, sad, inhibited,” he said, drawing a stick figure next to the wall on a scrap of paper. “Testosterone would give you a little bit more excitement, so you’d climb over. Flibanserin would take away one of the stones.” Once a Day The compound takes three to six weeks to kick in. The pill has to be taken daily, and some women taking part in the clinical trials reported feeling tired, Berner said. Boehringer recruited women for clinical studies using print advertisements. Berner said his patients were largely professionals in their early 30s to mid-40s, and most chose to continue in the trial in a subsequent phase that ensured they would get the real drug instead of a placebo. Boehringer is recruiting older women for a follow-up study. Women can be diagnosed with hypoactive sexual desire disorder if they feel concerned, bothered or frustrated by a lack of desire — or if it’s hurting their relationships. The company used personal digital assistants to check whether the pill was working. Participants were beeped once a day and asked to rate their level of desire and say whether they had been sexually active and whether it was enjoyable. Potential Rivals If flibanserin makes it to market, it will be the first success after a series of failures from drugmakers including Procter & Gamble Co. and Pfizer. The New York-based maker of Viagra abandoned efforts to adapt its pill for women in 2004 and closed sex-health research at the end of last year. The only female sexual dysfunction therapy approved in the U.S. is Eros-CTD , from NuGyn, Inc., a suction pump that fits over the clitoris much like the erection pumps that predated Viagra. Intrinsa, a testosterone patch from Noven Pharmaceuticals Inc. licensed by Procter & Gamble, is sold in Europe for women whose uteruses have been removed. A U.S. version was put on hold in 2004 on concern about whether it is safe for long-term use. Still in clinical trials are a new version of the P&G patch; LibiGel, a testosterone gel from BioSante ; and bremelanotide, an injected therapy from Palatin Technologies. Researchers around the world will be watching Boehringer’s results in Lyon, according to Pfaus. “There are probably a lot of companies holding their breath,” he said. To contact the reporter on this story: Naomi Kresge in Zurich at nkresge@bloomberg.net

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Maple Leafs and Rangers Are NHL’s Most Expensive Franchises, Forbes Says

November 12, 2009

By Nancy Kercheval Nov. 12 (Bloomberg) — The Toronto Maple Leafs are the most valuable National Hockey League team, followed by the New York Rangers, Forbes magazine said. The Maple Leafs are worth $470 million, $54 million more than the Rangers, the report said. The 2008-09 season was the NHL’s most profitable since Forbes began tracking finances 12 years ago, with teams posting an average operating profit of $6.1 million. The Montreal Canadiens are third on the list, at $339 million, followed by the Detroit Red Wings at $337 million and the Philadelphia Flyers at $273 million. The New York Islanders are 28th out of 30 teams at $149 million, while the average franchise value rose $3 million to $223 million. The Ontario Teachers’ Pension Plan, Canada’s third-biggest retirement fund, owns 66 percent of the Maple Leafs, Lawrence Tanenbaum holds 20 percent and Toronto-Dominion Bank has the remainder, Forbes said. The value of the Maple Leafs rose 5 percent this year, the report said. Revenue for the team, which won the last of its 13 Stanley Cup titles in 1966-67, climbed 5 percent to $168 million, while sales at the Rangers advanced $2 million to $139 million. “Despite not winning the Cup in decades and missing the playoffs last year, the Leafs raised ticket prices an average of 3.5 percent for the 2009-10 season and will once again have the highest ticket prices in the NHL,” Forbes said. To contact the reporter on this story: Nancy Kercheval in Washington at nkercheval@bloomberg.net .

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Montreal Takes Back Sin City Name as Yacht, Cash Scandals Mar Mayoral Race

October 31, 2009

By Chris Fournier and Frederic Tomesco Oct. 31 (Bloomberg) — Montreal got the nickname Sin City during Prohibition, when Americans crossed the border into Canada to drink, gamble and buy sex. The epithet is making a comeback this month. Allegations of price fixing, kickbacks and ties to organized crime are marring tomorrow’s election for mayor of Canada’s second-biggest city. Almost two-thirds of respondents in an Angus Reid poll released yesterday said the scandals will influence their vote. “This is Sin City all over again,” said Harold Chorney, a political science professor at Concordia University in Montreal. “Corruption is part of the history here.” Gerald Tremblay , the mayor since 2001, in September canceled a C$356 million ($330 million) pact to install water meters after La Presse newspaper reported that a city councilor vacationed on a yacht owned by the contractor who led the winning bid. Challenger Louise Harel , who leads in the polls, ousted her deputy this month after he admitted that his staff took improper cash donations. The corruption allegations are diverting attention from economic challenges facing the city of about 1.7 million people. The winner of the election faces rising costs for mass transit, policing and water, according to a May 21 Moody’s Investors Service report. Montreal has the highest debt load of any Canadian city, and ran a deficit of about C$330 million in 2008, compared with a surplus the previous year, said Ryan Domsy , senior financial analyst in Toronto at DBRS Ltd., a debt-rating company. Close Race The mayoral race is too close to call, according to an Angus Reid poll published yesterday in La Presse. Tremblay , 67, a Harvard Business School graduate, trails with 30 percent support. Harel, 63, a non-English-speaking lawyer and former minister in the separatist Parti Quebecois provincial government, leads with 34 percent. Richard Bergeron , 54, an architect who says the Sept. 11 attacks were carried out by the U.S. government and wants to ban cars from Rue Saint Catherine, the city’s busiest shopping street, is second at 32 percent. About 25 percent of respondents in the Angus Reid poll singled out transparency and the fight against corruption as the city’s No. 1 priority. Angus Reid polled 804 Montreal residents Oct. 28 and 29, with a margin of error of plus or minus 3.5 percentage points. “It’s one of the first really open races for years in Montreal,” Julie Belanger, 32, a Montreal office worker, said after an Oct. 27 candidates’ debate. “Usually you can guess who’s going to win, but this time it could be anybody.” Yacht Trips Tremblay canceled the water-meter contract, won by a group of local engineering firms, and fired two top bureaucrats after a report from Montreal’s auditor general found that elected officials lacked the necessary information before approving the project. The probe was sparked this year by a La Presse report that Frank Zampino, formerly head of the city’s executive committee, vacationed in January 2007 and February 2008 on a yacht owned by Tony Accurso , who led the group that won the water-meter order, the city’s biggest contract. Zampino retired from politics last year. Accurso’s lawyer, Louis Demers at De Grandpre Chait, didn’t return a call seeking comment. According to the auditor general’s report, the water-meter project was estimated in 2004 to cost C$36 million, about a 10th of the final contract’s price. “All of these allegations of corruption certainly don’t help Montreal’s reputation,” said David Love , a trader of interest-rate derivatives at Le Group Jitney Inc., a Montreal brokerage. “The city looks bad right now.” Sweeping Clean Harel’s Vision Montreal party based its platform on ridding city hall of its “culture of secrecy and collusion” and restoring trust in the municipal administration. Harel has called for public inquiries into the allegations of corruption at city hall, as has Bergeron’s Project Montreal party. “At first I thought a broom would be useful to clean this mess, but now I think I will need a very large vacuum cleaner,” Harel said in a television interview Oct. 28. Harel’s credibility was undermined after she forced the resignation on Oct. 18 of the head of her executive committee, Benoit Labonte , for ties to Accurso. Three days later, Labonte told Radio-Canada television in an interview that people close to him took money from Accurso, owner of Simard-Beaudry Construction Inc. Labonte said kickbacks and corruption are rampant in city hall. Maclean’s, Canada’s weekly news magazine, ran this headline on its cover this week: “Montreal is a corrupt, crumbling, mob-ridden disgrace.” “There’s an underground system,” Alex Dion, economic development officer for the borough of Montreal, said after a candidates’ debate. He said the allegations hurt Montreal’s reputation in the rest of Canada. Home of Ponzi Still, Howard Silverman, chief executive officer of CAI Global Inc., a consulting firm that helps foreign companies invest in Quebec, doesn’t think the allegations will deter investors from Montreal, the city that Charles Ponzi called home for almost a decade a century ago. Ponzi was charged in 1920 for using new funds from investors to pay redemptions by other investors, a type of fraud that now bears his name. “It’s not good for the city, it looks bad, but it won’t have much of an impact,” said Silverman, who counts investors such as London-based miner Rio Tinto Group among his clients. “Every North American or global city has its scandals or its problems.” To contact the reporters on this story: Chris Fournier in Montreal at Cfournier3@bloomberg.net ; Frederic Tomesco in Montreal at tomesco@bloomberg.net

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Financier Reijtenbagh to Sell $40 Million of Monet, Picasso, Degas Works

October 21, 2009

By Lindsay Pollock Oct. 21 (Bloomberg) — A collection of 39 major modern and Impressionist artworks, including paintings by Monet, de Chirico, Degas and Picasso, will be sold by Dutch financier Louis Reijtenbagh , who resolved three legal claims earlier this year. The 39 artworks are estimated to fetch about $40 million as part of Sotheby’s New York auctions Nov. 4 and 5. Reijtenbagh settled lawsuits with JPMorgan Chase & Co. and Credit Suisse Group AG that concerned loans to the financier. Reijtenbagh also resolved a claim on his artworks by ABN Amro Bank NV by agreeing to provide extra collateral for a loan. “It seems like it’s one of the first group of pictures appearing at auction as a distress sale” since the financial crisis took hold, said private New York dealer Franck Giraud. The Dutch financier confirmed in a statement provided by Sotheby’s that the art belongs to Monte Carlo Art SA, a Reijtenbagh family entity that controls the art, and was “previously pledged either to AMRO Bank Luxembourg SA or J.P. Morgan Chase as collateral for loans,” said the statement. “I am please to report that these loans have been fully satisfied and these works will be sold on behalf of Monte Carlo unencumbered of liens or claims from these or other banks.” The collection includes one of the sale’s priciest lots: Dutch painter Kees van Dongen’s Matisse-like 1920 “Young Arab,” featuring a bare-chested youth. The painting is estimated to fetch up to $10 million. London’s Daily Telegraph identified Reijtenbagh as the seller in an Oct. 20 article. ‘He Bought Very Well’ Geneva-based dealer Jacques de la Beraudiere was one of four main dealers who sold to the collector. He confirmed that the works in Sotheby’s catalog belong to Reijtenbagh. “I met him the first time in Paris and we became very good friends. He bought very well,” said de la Beraudiere, who is optimistic about the auction. “The market can absorb the collection easily. The estimates are not that high.” Reijtenbagh began buying from the late Robert Noortman , a dealer in Dutch Old Masters. He also patronized the Paris-based galleries Cazeau Beraudiere and Hopkins-Custot, and Montreal’s Landau Gallery. He also bought at auction. He purchased Degas’s circa 1882- 1888 oil-on-paper of jockeys on horseback at the 2004 auction of property of John Hay Whitney, paying $4.37 million. The work is now estimated to fetch between $4 million and $6 million. Dealers say this isn’t Reijtenbagh’s first sale at auction. He sold art last June at Sotheby’s in London. Reijtenbagh’s daughter-in-law, Marlies Verhoeven Reijtenbagh, works at Sotheby’s in New York. Reijtenbagh, a former doctor turned investor, has homes in New York’s Trump Tower, Belgium and Monaco. His Plaza Group is based in Antwerp. He toured the Art Basel art fair in Switzerland this past June, telling dealers he’d be back in a few years as a buyer. Watch Auction Meanwhile, an 1885 gold Swiss pocket watch customized for a 19th-century New York City beer baron fetched $25,000 yesterday during Sotheby’s sale of Important Watches, Clocks and Automata in New York. The watch had been estimated to fetch up to $12,000. The entire 161-lot sale tallied $3.15 million, well over the $2 million the presale low estimate. About 90 percent of the lots found buyers, a strong showing these days. “They had excellent results,” said New York watch dealer Jeff Morris of J&P Timepieces, who said he bought eight items at the sale. “It’s not a big sale, but it was a very good outcome.” European, Asian and U.S. buyers were active, according to Sotheby’s Aaron Rich, head of the New York watch department, with more than usual participation from buyers in Hong Kong and Taiwan. “It’s an active market,” said Rich. “There are a lot of clients waiting to buy as soon as people pull the trigger and are ready to sell.” The sale included watches by makers including Rolex, Cartier, Patek Philippe and A. Lange & Sohne. The day’s top lot was an ornate late-18th-century Swiss gilt-brass and ormolu clock, made for export to the Chinese market, resting on four gold-toned elephants. Estimated to sell for as much as $90,000, the clock sold for $278,500 to a private U.S. collector. The pocket watch was originally owned by George Ehret, a German-born owner of Hell Gate Brewing on the Upper East Side of Manhattan. He was given it on his 50th birthday by his wife and nine children, whose enamel portraits appear on the watch. The sale’s priciest wristwatch was a mint 1949 Patek Philippe gold perpetual calendar, one of only about 200 ever produced. The watch sold for $92,500, at the top of a $70,000 to $90,000 presale estimate. To contact the reporter on the story: Lindsay Pollock in New York at lindsaypollock@yahoo.com .

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Gold at $2,000 Becomes Inflation-Adjusted Target for Bulls Eyeing ’80 High

October 19, 2009

By Pham-Duy Nguyen Oct. 19 (Bloomberg) — Gold’s rally to a record means prices are still 53 percent below the 1980 inflation-adjusted peak . While gold rose 19 percent this year to $1,072 an ounce on Oct. 14, consumer prices almost tripled in the past three decades, eroding the metal’s value. Bullion hasn’t kept pace with the cost of bread, fuel or medical care. In 1980, gold hit a then-record $873 an ounce. In today’s dollars, that would be $2,287, according to the U.S. Labor Department’s inflation calculator . Record government debt and interest rates close to zero percent are pushing gold higher for a ninth straight year, and options show investors expect the rally to continue. When prices reached all-time highs, the contract with the most open interest was the December call to buy the metal at $1,200. The contract to purchase at $1,500 an ounce was the third biggest. “Gold is not at any peak,” said Martin Murenbeeld , the chief economist at Toronto-based DundeeWealth Inc., which manages $58.5 billion in mutual funds and brokerage accounts. “The world’s money supply has increased and gold hasn’t kept pace,” he said. “We’re now in a period where gold is catching up.” The U.S. Dollar Index, which measures the currency against those of six major trading partners, fell on Oct. 15 to the lowest level in 14 months, and has dropped about 7 percent this year. President Barack Obama has increased the nation’s marketable debt 22 percent to $7.01 trillion to revive growth. Preserving Value Gold bulls say today’s record borrowing and low interest rates mean the government will have to accept faster inflation as the economy recovers. Investors buy bullion to preserve value during times of turmoil and economic stress. Financial institutions worldwide have reported credit losses and writedowns of about $1.62 trillion since the start of 2007, when the credit crisis began. Group of 20 governments have pledged about $11.9 trillion to ease credit and revive economic growth, according to the International Monetary Fund . “Gold is the hedge against currency devaluation,” John Brynjolfsson , of hedge fund Armored Wolf LLC, said in a Bloomberg Television interview from Aliso Viejo, California, on Oct. 7. He predicted bullion will top $2,000. Banks have raised their gold estimates. On Oct. 9, JPMorgan Chase & Co. said the metal will average $1,006 an ounce next year, compared with an earlier projection of $950. Deutsche Bank AG forecast an average of $1,150, up 32 percent from its estimate in July. Barclays Capital said Oct. 12 that “prospects for a run at $1,500 should not be underestimated” next year. Understated CPI Gold would need to rise more than sixfold to top the 1980 record, using a more accurate inflation-adjustment, said John Williams, an economist and the editor of Berkeley, California- based Shadowstats.com . He said the government has understated the cost of living over the past two decades with adjustments in the way it measures the basket of goods and services monitored by the U.S. consumer price index, or CPI. Gold futures for December delivery closed Oct. 16 at $1,051.50 an ounce on the New York Mercantile Exchange’s Comex division, gaining for a third straight week. “If the methodologies of measuring inflation in 1980 had been kept intact, gold would have to hit $7,150 to be the equivalent of the 1980 record,” Williams said. The cost of living in the U.S. rose 0.2 percent last month, the Labor Department said on Oct. 16. Compared with a year earlier, consumer prices fell 1.3 percent. The CPI will drop 0.5 percent this year, before rising 1.9 percent in 2010, reflected by the median estimates of 61 economists in a Bloomberg survey. Annual increases averaged 2.8 percent a year in the past decade. Purchasing-Power Adjustment In March 1980, inflation surged to a 14.8 percent annual rate, two months after gold capped a four-year rally. Adjusted for the decline in the dollar’s purchasing power since then, gold’s Oct. 14 record of $1,072 represents the equivalent of $409 in 1980 dollars, the Labor Department calculator shows. Since January 1980, the average price of a pound of white bread has risen almost threefold, from about 50 cents to $1.38 in August, and medical care has surged more than fivefold, Labor Department figures show. Gasoline and electricity prices have more than doubled. Today, the gap between gold’s spot price and its CPI- adjusted equivalent is the widest ever. Gold hasn’t been as effective a hedge against inflation as oil since the 1980s, said Matt Zeman , of LaSalle Futures Group LLC in Chicago. Oil Beats Gold Crude passed its 1981 inflation-adjusted record two years ago. The cost of imported oil averaged $39 a barrel in February 1981, after Iran cut exports, according to the Energy Department. That’s $89 in 2007 dollars, the Labor Department calculator shows. Oil reached a record $147.27 on July 11, 2008, and closed at $78.53 on Oct. 16 in New York trading. “If you bought gold in the 1980s, you’re still losing money today,” said Zeman, a metals trader. Gold prices in New York languished for two decades after declining from the 1980 record, dropping to a 20-year low of $253.20 on July 20, 1999. While bulls say gold is cheap, the inflation-adjusted price is 15 percent above its 30-year average, Bloomberg data show. The Federal Reserve may limit gains by raising interest rates before inflation balloons, analysts said. Fed Chairman Ben S. Bernanke said on Oct. 8 that policy makers will need to raise interest rates “at some point” to control inflation. ‘Prepared to Tighten’ “When the economic outlook has improved sufficiently, we will be prepared to tighten,” Bernanke said in remarks prepared for an Oct. 8 conference in Washington. Fed moves to cool inflation and the government’s revenue needs will stop gold, according to Jon Nadler , a senior analyst for Montreal metals dealer and refiner Kitco Inc. “These wild calls for several-thousand-dollar gold are typical of times when gold goes into uncharted territory,” Nadler said. “The Fed will pull the interest-rate trigger and the Obama administration will, in addition, pull the tax-hike trigger before we get into any serious inflation. Once the man on the street gets in, the gold rally is likely over.” Gold held in exchange-traded funds climbed to records this month at Zuercher Kantonalbank and ETF Securities Ltd. Holdings in the SPDR Gold Trust , the biggest exchange-traded fund backed by bullion, are up 42 percent this year. Hedge funds and other large speculators hold their most-bullish position ever in gold futures. So-called net-long positions, or bets prices will rise, increased by 6 percent to 253,955 contracts in the week ended Oct. 13, according to the Commodity Futures Trading Commission. Gold Producers The Philadelphia Stock Exchange Gold & Silver Index jumped 43 percent this year, as Phoenix-based Freeport-McMoRan Copper & Gold Inc. tripled. Toronto-based Barrick Gold Corp. , the world’s largest producer, fell 10 percent. Barrick said Sept. 8 it will record $5.6 billion in third-quarter costs to eliminate fixed- price contracts as the company bets gold’s value will climb. At Jersey, Channel Islands-based GoldMoney.com , which held $759 million of gold and silver for investors as of Sept. 30, founder James Turk said bullion can climb eightfold based on the historical relationship between the metal and the Dow Jones Industrial Average. The Dow is up 10-fold since January 1980. Gold and the Dow, which has gained 14 percent this year to 9,995.91, were at about the same level during the Great Depression and the early 1980s, he said. On Jan. 21, 1980, as gold futures surged to $873, the Dow slipped to 946.25. “The dollar is constantly being debased and inflated,” Turk said. “By 2013, gold is going to be at $8,000 and the Dow will be at 8,000.” Gold-Dollar Link Deutsche Bank said early this month that the dollar will fall to $1.60 per euro next year, a drop of 7.3 percent from last week, because of “rising fiscal deficits and loose monetary policy.” Gold has moved in the opposite direction of the dollar over most of the past decade. The metal’s correlation coefficient to the U.S. Dollar Index is minus 0.8539, Bloomberg data show. A correlation of minus 1 indicates two assets move inversely to each other, while a 1 would show they move in tandem. A reading of zero shows no correlation. Philip Gotthelf , the president of Equidex Brokerage Group Inc. in Closter, New Jersey, says he expects gold to trade at $1,250 by year-end. “Gold has been pushing higher because it’s no longer just a hedge against commodity inflation, it’s also a hedge against a change in world-monetary standards.” To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net .

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Woods-Led U.S. Team Looks to Extend Win Streak at Presidents Cup Tourney

October 8, 2009

By Michael Buteau Oct. 8 (Bloomberg) — Tiger Woods and the rest of the U.S. Presidents Cup team look to continue their dominance in the team golf competition when six first-day matches begin this afternoon in San Francisco. The U.S., led by Woods, has won five of the previous seven editions of the competition, which pits a team of 12 Americans against 12 non-European players on an International squad. Woods has played in six Presidents Cups, with a 13-11-1 record. He will be paired with Steve Stricker in today’s opening alternate-shot matches against Australia’s Geoff Ogilvy and Japanese teenager Ryo Ishikawa . “He’s definitely pumped up,” U.S. Captain Fred Couples said of Woods. “He is ready to go.” Today’s play begins at Harding Park Golf Course with the International pair of Mike Weir and Tim Clark facing Anthony Kim and Phil Mickelson . Mickelson, who has been bothered by minor back pain since winning the U.S. PGA Tour’s season-ending Tour Championship, said he’s looking forward to playing with Kim. The two share an aggressive playing style, Mickelson said. “There’s not a shot that he fears,” the left-handed Mickelson said of Kim. “He likes getting closer to the hole and he feels like he can hit any shot necessary around the green. We fit very well together.” Match Pairings Other matches, with the International pairs first, have Adam Scott and Ernie Els facing Hunter Mahan and Sean O’Hair ; Vijay Singh and Robert Allenby playing U.S. Open champ Lucas Glover and British Open winner Stewart Cink ; and Masters Tournament winner Angel Cabrera and Camilla Villegas taking on Kenny Perry and Zach Johnson . The day’s final match features Retie Goose and PGA Championship winner Y.E. Yang against Americans Justin Leonard and Jim Fury . The biennial competition was created by the U.S. PGA Tour in 1994 to give foreign players not eligible for the PGA of America-hosted Ryder Cup a chance to compete against the U.S. The Presidents Cup is made up of 34 matches. Today’s play will feature an alternate-shot format, in which two players for each team play alternating shots with the same ball. The lowest score wins the hole, and the match goes to the pair with the most holes won. Tomorrow will have foursomes, where two players on each team compete against two opposing players, each hitting his own ball. The lowest score of the four players wins the hole. Third-round play on Oct. 10 will have six alternate-shot matches in the morning and six foursome matches in the afternoon. The event will close on Oct. 11 with 12 singles matches. American Lead The Americans lead the series 5-1-1. The U.S. defeated the International team 18 1/2-15 1/2 in Montreal in 2007. Greg Norman , captain of the International team, said his squad needs to get off to a strong start to have a chance against the Americans, who won five of the first six matches two years ago. “When you look back over the history of the Presidents Cup, where we as a team have got beaten is in the first day,” Norman said. “America has been very, very dominating in that department. So when we get behind the 8-ball, it’s very hard.” The U.S. team has five players who won a total of 16 Tour events this season, with 20 wins for squad members overall. Only Ogilvy and Yang won more than one event on the U.S. Tour this year. To contact the reporter on this story: Michael Buteau in Atlanta at mbuteau@bloomberg.net

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`Master of Light’ Kao, Imaging Pioneers Boyle, Smith Win Nobel in Physics

October 6, 2009

By Michelle Fay Cortez and Trista Kelley Oct. 6 (Bloomberg) — Three scientists whose work gave birth to fiber-optic networks and digital cameras won this year’s Nobel Prize in Physics. Charles K. Kao , who worked at Standard Telecommunications Laboratories in Harlow, U.K., and taught at the Chinese University in Hong Kong, will share the 10 million-krona ($1.4 million) prize with Willard S. Boyle and George E. Smith , formerly of Bell Laboratories in Murray Hill, New Jersey, the Nobel Assembly said today in Stockholm. Kao will get half of the amount while Boyle and Smith split the remainder. Kao calculated how to transmit light over long distances through optical glass fibers in 1966, a breakthrough that means people today can exchange text, music and images around the world within seconds. Three years later, Boyle and Smith designed the first imaging technology using a digital sensor, paving the way for the digital camera. The research “affects our everyday lives,” Joseph Nordgren, professor of physics at Uppsala University in Sweden and chairman of the Nobel prize committee in the field, said in a telephone interview. The scientists’ work altered “the way we are connected today, the way we can image things that happen in the universe and transmit them easily.” Asked why the three physicists didn’t get rewarded earlier, Nordgren said the Nobel prize “is not really given to lifetime achievements” but rather to a single body of work in which you can “see the impact.” “The way we are connected today, the way communication works, that wasn’t evident 20 years ago.” Purity of Glass The findings “helped to shape the foundation of today’s networked societies,” the Nobel committee said in a statement that called the three scientists “the masters of light.” Kao’s discovery in fiber optics set the stage for the technological revolution that underpins today’s global communication systems, powering broadband Internet connections and carrying data transmissions around the world. In 1966, he figured out how to transmit light for more than 100 kilometers using optical glass fibers , five times the length of the most advanced fibers then available, the Nobel committee said. The key was the purity of the glass, Kao found. The first ultra-pure fibers were made just four years after his discovery, in 1970. Now the glass fibers snake throughout the world in utility and computer cables, and the light that flows through the thin threads instantaneously transmit text, music, pictures and video globally. Everyday Lives “Kao was the first to understand the impurities of glass and how to get rid of them,” said Sir Peter Knight of Imperial College London. “He was a revolutionary and his work is a fine example of how fundamental research can have a massive impact on our everyday lives.” Kao, 75, was born in Shanghai and has British and U.S. citizenship. He worked as an engineer while studying at the University of London, where he received his doctorate degree in 1965. He married May Wan Wong in 1959 and has two children. “I am absolutely honored,” Kao said in an e-mailed statement today. “The Nobel has never been given out for applied sciences before. Fiber optics has changed the world of information so much in these last 40 years. It certainly is due to the fiber optical networks that the news has traveled so fast.” The other half of the prize was awarded to Boyle and Smith for an invention that still dominates sophisticated digital photography. Hubble Telescope Their imaging technology used a digital sensor, known as a charge-coupled device , to transform light into electric signals. Building on the theories of Albert Einstein , who won the same award in 1921, they designed a sensor that could quickly capture and display tiny dots of composition called pixels, which form a picture when joined. With the invention of their electronic eye for a digital camera, light could be captured and distributed electronically. It is still used in sophisticated devices including the Hubble Telescope , and in medical tools to peer inside the human body to diagnose disease and perform microsurgery, the Nobel committee said. “Digital photography has become an irreplaceable tool in many fields of research,” the committee said. “The CCD has provided new possibilities to visualize the previously unseen. It has given us crystal-clear images of distant places in our universe, as well as the depths of the oceans,” they said. ‘Out Sailing’ Boyle, 85, was born in a log cabin in Canada’s Nova Scotia province and home-schooled by his mother until his early teens. A Canadian and U.S. citizen, he trained as a pilot in the Royal Canadian Navy, according to an interview posted on science Web site science.ca . He received his undergraduate and doctoral degrees at McGill University in Montreal, and has four children. Smith, 79, was born in White Plains, New York. He studied at the University of Pennsylvania in Philadelphia and received his doctorate at the University of Chicago in 1959. He has two daughters and a son. “This is really quite exciting, but is it real?” Boyle said when reached via telephone by the prize press conference today. “I haven’t had my morning cup of coffee yet.” Smith, who completed a round-the-world trip in a sail boat called the Apogee in 2005, did not answer a phone call or e-mail seeking comment. Nordgren also said the committee hadn’t been able to reach him to let him know about the prize. “Maybe he’s out sailing,” Nordgren said. Universe and X-Rays Last year’s physics prize went to Yoichiro Nambu of the U.S., and Makoto Kobayashi and Toshihide Maskawa of Japan for showing how subatomic particles that are supposed to act similarly sometimes don’t, leading to a better explanation of how the universe was formed. Annual prizes for achievements in physics, chemistry, medicine, peace and literature were established in the will of Alfred Nobel , the Swedish inventor of dynamite, who died in 1896. The Nobel Foundation was established in 1900 and the prizes were first handed out the following year. In 1901 the first Nobel Prize in Physics was awarded to Wilhelm Roentgen for his discovery of X-rays. The physics prize has since been awarded for discoveries and inventions, according to the Nobel Prize Web site. Yesterday, Elizabeth Blackburn , 60, a professor at the University of California in San Francisco; Carol Greider , 48, a professor at Johns Hopkins University School of Medicine in Baltimore; and Jack Szostak , 56, a professor at Harvard Medical School in Boston, won the Nobel Prize in medicine for research on cell division and the “immortality enzyme” that can help them multiply without damage. To contact the reporter on this story: Trista Kelley in London at tkelley2@bloomberg.net Michelle Fay Cortez in London at mcortez@bloomberg.net

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Morgan Stanley Increases S&P 500 Forecast, Ending Run as Most-Bearish Firm

September 24, 2009

By Sarah Jones Sept. 24 (Bloomberg) — Morgan Stanley’s Jason Todd , who had been Wall Street’s most bearish equity strategist, boosted his 2009 forecast for the Standard & Poor’s 500 Index by 17 percent because of higher-than-anticipated earnings. The strategist recommended investors cut stock holdings in July following a 41 percent surge in the S&P 500 since March 9. Todd now expects the index to finish the year at 1,050 after it rose 11 percent to 1,060.87 since his comments two months ago. He also upgraded his 2010 profit forecast for S&P 500 companies by 13 percent to $70 a share. “The current rally is typical of what follows major bear markets and is not, in our view, the start of a new multi-year bull market,” Todd wrote in a note to investors dated today. “However, we now think it can run for longer than we previously expected.” Strategists at Wall Street’s biggest securities firms have failed to keep up with the S&P 500 after the steepest surge since the 1930s. The benchmark gauge for U.S. equities is above all but one of the 10 projections by forecasters in a Bloomberg survey this month, the first time that’s happened in data going back to 1999. The average estimate is 1,037. While Todd’s year-end target is 1 percent below yesterday’s close, he said the index could rise as high as 1,100 between now and Dec. 31. Joyce, Garthwaite, Zyblock Todd, whose prior forecast was 900, is now tied with Bank of Montreal’s Ben Joyce , Credit Suisse Group AG’s Andrew Garthwaite and RBC Capital Markets’ Myles Zyblock . Barclays Plc’s Barry Knapp is the most bearish at 930. “None of the traditional equity market indicators are giving a strong sell signal,” Todd said. “Against a backdrop where growth data are likely to be strong into year end and where liquidity remains generous, we think the headwinds preventing the market from trading higher are limited.” Todd also increased his 2009 earnings estimate by 7.8 percent to $55. Analysts estimate companies in the S&P 500 will end a two-year profit slump in the last three months of 2009, with earnings projected to rise 62 percent on average, according to forecasts compiled by Bloomberg. To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net .

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Total May Get Russian Bids for European Refineries, CEO De Margerie Says

September 22, 2009

By Tara Patel and Margaret Brennan Sept. 22 (Bloomberg) — Total SA , the French oil refiner seeking to reduce surplus capacity, said Russian companies may bid for European plants as they pursue expansion abroad. “They have a market to develop in Europe and may be interested to buy when we are interested to sell,” Chief Executive Officer Christophe de Margerie said today in a Bloomberg Television interview in New York. “We could do win- win deals with companies like Russians.” Total has said it may sell refining assets to save costs as global overcapacity grows to an estimated 9 million barrels a day this year, almost twice the level in 2007. The Paris-based company, which is expanding in the Middle East and studying projects in Asia, is under pressure from the French government and unions to keep jobs at home, where it has six refineries. “Integrated companies not present in Europe with access to crude may want to be part of this network where we consider we’ve been present for too long,” de Margerie said. “I can’t say it’s a huge bullish market but yes, we find buyers,” he said, citing Total’s sale of a 45 percent stake in its Vlissingen refinery to Russia’s OAO Lukoil in June. The stake in the 190,000-barrel-a-day Dutch plant sold for $725 million. Total, Europe’s biggest oil refiner, agreed to the deal after exercising pre-emption rights over shares previously offered for sale by Dow Chemical Co. to Valero Energy Corp. Access to Europe Valero, the largest U.S. refiner, said in May it had been seeking to enter the European market for “quite some time” to take advantage of an expected recovery in fuel demand as the continent emerges from a recession. Lukoil said the acquisition would fit with its strategy of boosting refining capacity to process its own crude. Total temporarily halted output at its Flanders refinery in northern France last week because of weak demand for oil products in northwestern Europe. The company has also stopped a crude-distillation unit at its Normandy refinery, where it plans to raise diesel production and reduce gasoline output under a nationwide restructuring plan announced in March. Some 555 refining and petrochemical jobs will be cut under the plan. In a list of 61 European refineries, four of Total’s plants rank in the top 25 percent in terms of efficiency. Three are in the second quartile and rest are in the bottom half, the company said in a presentation to analysts last week. Total still has “less sophisticated refineries” in its portfolio, the company said, without specifying sites. Rome Plant Sale Total’s Leuna plant in Germany isn’t among refineries up for potential sale, de Margerie said Sept. 16. The French refiner may consider selling its stake in a plant in Rome, co- owned with ERG SpA , Total’s Head of Refining and Marketing Michel Benezit said May 19. Total workers in France have threatened strikes to protest the possible sale of plants, accusing the company of wanting to “sacrifice” European refining capacity to expand in Asia and the Middle East. “It’s my responsibility to prepare things, not wait to be faced with strong real concerns and be forced to adapt ourselves without getting the time to prepare,” de Margerie said today. “We are part of a global system. We’re not talking about closing refineries. We’re talking about selling.” The European refining market is “certainly not an area of growth,” he said. “We have to adapt our system to new demand.” Total is developing a 400,000-barrel-a-day plant in Jubail, Saudi Arabia, and has said it’s interested in having a stake in a second refinery in China. The company pulled a team in India that had been studying a possible refinery project there. Margins Narrow Refiners in Europe have idled plants, sought to sell others and slowed operating rates as the recession curbs demand for fuels, dragging down prices and squeezing profit margins for producers. Royal Dutch Shell Plc , Europe’s biggest oil company, said last week it would continue to cut costs at its downstream business, citing “significant pressure” on margins. Shell said last month it may sell the U.K. Stanlow refinery. The company is also looking to sell its Heide and Hamburg refineries in Germany as well as Canada’s Montreal East plant. Eni SpA , Italy’s biggest energy company, plans talks with unions to discuss the future of its Livorno refinery, which was shut down last week because of labor protests against its closure if sold. To contact the reporters on this story: Tara Patel in Paris at tpatel2@bloomberg.net ; Margaret Brennan in New York at mbrennan25@bloomberg.net .

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Istithmar’s Trail of Broken Deals Reveals Sovereign Wealth Gone Haywire

September 14, 2009

By Jonathan Keehner and Serena Saitto Sept. 14 (Bloomberg) — Dubai investment firm Istithmar World may be the first sovereign wealth fund to liquidate after a $27 billion spending spree financed largely with borrowed money, people briefed on the matter said. Unlike government-controlled funds in Kuwait and Abu Dhabi, flush with cash from oil production, or in China, backed by export earnings, Istithmar fueled purchases such as the takeover of Barneys New York by borrowing as much as 90 percent of the money, the people said. Istithmar’s parent, Dubai World , tapped Middle Eastern and European banks including Barclays Plc , Royal Bank of Scotland Group Plc and Deutsche Bank AG , leaving those three with combined debt holdings of at least $1.5 billion, the people said. “Dubai sovereign wealth funds are leveraged like private equity funds,” said Rachel Ziemba , a senior analyst covering sovereign wealth funds at Roubini Global Economics, a New York- based economic research firm. “Istithmar belongs to a parent company with a significant amount of debt coming due.” Istithmar contributed about $2.5 billion of its own cash to back $27 billion of purchases since 2003, the people said, speaking anonymously because the strategy was private. It used so-called non-recourse bank loans, backed by specific assets, to finance about 75 percent of its acquisitions, one of the people said. The rest was funded with a mixture of its own cash and money borrowed from banks on a term-loan basis that was backed by Istithmar or Dubai World, the person said. W, Mandarin Oriental Istithmar’s deals were part of Dubai ruler Sheikh Mohammed bin Rashid Al Maktoum’s attempt to raise the Arabian Peninsula emirate’s profile as he tried to vault it into the top ranks of the world’s financial centers. Under Chief Executive Officer David Jackson, the former Lehman Brothers Holdings Inc. executive who has led the fund since 2006, and his predecessor, Muneef Tarmoom , Istithmar roamed the world to target high-end businesses. The fund bought a stake in Perella Weinberg Partners, the boutique advisory firm run by Joseph Perella, and two of Manhattan’s most exclusive hotels, the W Union Square and the Mandarin Oriental at the Time Warner Center. It acquired the Queen Elizabeth 2, the Cunard Line flagship for more than three decades, with plans to convert it into a hotel to be moored beside the emirate’s Palm Island. Istithmar also bought stakes in Cirque du Soleil , the Montreal-based company known for staging extravagantly acrobatic circus-like performances around the world, and Yacht Haven Grande, a marina complex in the Caribbean catering to so-called mega- yachts. Some Soured Deals “The government wanted to put Dubai in the same league as London and New York,” said Victoria Barbary, a senior analyst in London at Monitor Group, a consulting firm based in Cambridge, Mass. “When times were good, the government was happy to have Jackson and his team making headlines around the world.” Many of the deals have soured. Barneys is in talks with creditors about a restructuring or bankruptcy. Loehmann’s Holdings Inc., a discount retailer with more than 60 stores that was acquired by Istithmar in 2006, had its junk- rated debt rating cut three notches last week by Standard & Poor’s, based on “poor” operating performance. Shares of GLG Partners Inc., a hedge fund with offices in New York and London in which Istithmar bought a 3 percent stake, have lost more than 61 percent of their value since the deal was announced in June 2007. In November of 2007, Istithmar sold an office tower at 280 Park Avenue , home to the headquarters of the National Football League, for $1.28 billion. It had bought the tower for $1.18 billion 17 months earlier, public records show. ‘Top of Market’ “They realized they had defined the top of the market,” said Peter Slatin , editorial director at Real Capital Analytics Inc., a New York research firm that tracks commercial property sales. The deals have forced Istithmar to halt investments and threaten to unseat Jackson, the CEO, people familiar with the situation said last week. Co-Chief Investment Officers John Amato and Felix Herlihy are leaving, according to Istithmar. Now, Dubai World is in talks with its creditor banks to restructure at least $12 billion in debt, a person close to the talks said, speaking anonymously because the negotiations are private. Istithmar or its assets will probably be sold to help its parent repay the debt, the person said. Nakheel PJSC, the Dubai World unit behind a series of palm-shaped, man-made islands on the emirate’s coast, has a $3.52 billion Islamic bond due in December. Islamic bonds adhere to a prohibition against receiving or paying interest. Istithmar is ‘Key’ Dubai World last week said Jackson had its “full support,” adding that Istithmar “will continue to be a key subsidiary into the future.” Sheikh Mohammed also said last week that he wasn’t concerned about the emirate’s ability to repay at least $4.52 billion of debt this year. “I assure you we are all right, the U.A.E. is all right, and we are not worried,” Sheikh Mohammed said to reporters at his Zabeel palace in Dubai. The government must repay a $1 billion Islamic bond maturing in November in addition to the Nakheel bond due in December. George Dalton , general counsel at Dubai World, referred requests for comment to spokespeople for the group, who didn’t reply yesterday. Besides Istithmar and Dubai World debt held by Deutsche Bank, Barclays and RBS, much of what remains is held by lenders based in the Middle East, the people said. Spokespeople for the three banks declined to comment yesterday. MGM Mirage Investment The investment strategy of the funds was flawed, according to Chris Turner , the 45-year-old British risk manager who was hired in 2007 as director of risk management at Istithmar’s real estate unit. “At least half the $10 billion I was involved with at Istithmar was poorly invested and completely un-hedged,” Turner said in an interview yesterday. Turner, who now lives in Europe, says he left Istithmar last year and was accused of embezzlement. He denies those claims and said he is prepared to fight the charges in court. One example of risky investing, according to Turner, came in 2007, when Dubai World bought about $5.5 billion of MGM Mirage stock at between $82 and $95 without any hedge. The stock now trades at about $12. “The attitude there was: We’re a private equity firm and as such we don’t need to hedge our investments because we understand the inherent risks and believe in our decisions,” Turner said. ‘More Careful Now’ Refinancing Dubai’s debt became more difficult with the onset of the global credit crisis as lending froze. It has about $80 billion of outstanding corporate and government debt, according a report by Moody’s in February. That almost matches the emirate’s $82 billion gross domestic product in 2008, the report said. “We’ll be more careful now,” Sheikh Mohammed told reporters in Dubai on Sept. 9. “The crisis came for everyone, not just Dubai. People had to fight.” Abu Dhabi, the wealthiest member of the U.A.E. with more than 85 percent of the federation’s total oil output capacity, helped provide Dubai with a $10 billion bailout in February. Dubai home prices plummeted 47 percent in the second quarter from a year earlier, the steepest drop of any market, according to Knight Frank LLC. “Abu Dhabi is now and will continue calling the shots in Dubai,” said Rochdi Younsi, head of Middle East research at Eurasia Group, a New York-based political-risk consulting firm, who expects additional bailouts from Abu Dhabi. “They’re making serious demands that Dubai keep only its viable arms and consolidate or shut down overleveraged ones like Istithmar.” Istithmar and Dubai World are being advised on their debt restructuring proposals by at least one outside consulting firm, people familiar with the matter said. “It’s critical that Dubai downplay any restructuring of Istithmar as business-as-usual,” Younsi said. “They’ve put way too much money and resources to let their reputation collapse.” To contact the reporters on this story: Jonathan Keehner in New York at jkeehner@bloomberg.net ; Serena Saitto in New York at ssaitto@bloomberg.net .

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Dubai’s Abandoned Deals at Istithmar Reveal Sovereign Wealth Gone Haywire

September 14, 2009

By Jonathan Keehner and Serena Saitto Sept. 14 (Bloomberg) — Dubai investment firm Istithmar World may be the first sovereign wealth fund to liquidate after a $27 billion spending spree financed largely with borrowed money, people briefed on the matter said. Unlike government-controlled funds in Kuwait and Abu Dhabi, flush with cash from oil production, or in China, backed by export earnings, Istithmar fueled purchases such as the takeover of Barneys New York by borrowing as much as 90 percent of the money, the people said. Istithmar’s parent, Dubai World , tapped Middle Eastern and European banks including Barclays Plc , Royal Bank of Scotland Group Plc and Deutsche Bank AG , leaving those three with combined debt holdings of at least $1.5 billion, the people said. “Dubai sovereign wealth funds are leveraged like private equity funds,” said Rachel Ziemba , a senior analyst covering sovereign wealth funds at Roubini Global Economics, a New York- based economic research firm. “Istithmar belongs to a parent company with a significant amount of debt coming due.” Istithmar contributed about $2.5 billion of its own cash to back $27 billion of purchases since 2003, the people said, speaking anonymously because the strategy was private. It used so-called non-recourse bank loans, backed by specific assets, to finance about 75 percent of its acquisitions, one of the people said. The rest was funded with a mixture of its own cash and money borrowed from banks on a term-loan basis that was backed by Istithmar or Dubai World, the person said. W, Mandarin Oriental Istithmar’s deals were part of Dubai ruler Sheikh Mohammed bin Rashid Al Maktoum’s attempt to raise the Arabian Peninsula emirate’s profile as he tried to vault it into the top ranks of the world’s financial centers. Under Chief Executive Officer David Jackson, the former Lehman Brothers Holdings Inc. executive who has led the fund since 2006, and his predecessor, Muneef Tarmoom , Istithmar roamed the world to target high-end businesses. The fund bought a stake in Perella Weinberg Partners, the boutique advisory firm run by Joseph Perella, and two of Manhattan’s most exclusive hotels, the W Union Square and the Mandarin Oriental at the Time Warner Center. It acquired the Queen Elizabeth 2, the Cunard Line flagship for more than three decades, with plans to convert it into a hotel to be moored beside the emirate’s Palm Island. Istithmar also bought stakes in Cirque du Soleil , the Montreal-based company known for staging extravagantly acrobatic circus-like performances around the world, and Yacht Haven Grande, a marina complex in the Caribbean catering to so-called mega- yachts. Some Soured Deals “The government wanted to put Dubai in the same league as London and New York,” said Victoria Barbary, a senior analyst in London at Monitor Group, a consulting firm based in Cambridge, Mass. “When times were good, the government was happy to have Jackson and his team making headlines around the world.” Many of the deals have soured. Barneys is in talks with creditors about a restructuring or bankruptcy. Loehmann’s Holdings Inc., a discount retailer with more than 60 stores that was acquired by Istithmar in 2006, had its junk- rated debt rating cut three notches last week by Standard & Poor’s, based on “poor” operating performance. Shares of GLG Partners Inc., a hedge fund with offices in New York and London in which Istithmar bought a 3 percent stake, have lost more than 61 percent of their value since the deal was announced in June 2007. In November of 2007, Istithmar sold an office tower at 280 Park Avenue , home to the headquarters of the National Football League, $1.28 billion. It had bought the tower for $1.18 billion 17 months earlier, public records show. ‘Top of Market’ “They realized they had defined the top of the market,” said Peter Slatin , editorial director at Real Capital Analytics Inc., a New York research firm that tracks commercial property sales. The deals have forced Istithmar to halt investments and threaten to unseat Jackson, the CEO, people familiar with the situation said last week. Co-Chief Investment Officers John Amato and Felix Herlihy are leaving, according to Istithmar. Now, Dubai World is in talks with its creditor banks to restructure at least $12 billion in debt, a person close to the talks said, speaking anonymously because the negotiations are private. Istithmar or its assets will probably be sold to help its parent repay the debt, the person said. Nakheel PJSC, the Dubai World unit behind a series of palm-shaped, man-made islands on the emirate’s coast, has a $3.52 billion Islamic bond due in December. Islamic bonds adhere to a prohibition against receiving or paying interest. Istithmar is ‘Key’ Dubai World last week said Jackson had its “full support,” adding that Istithmar “will continue to be a key subsidiary into the future.” Sheikh Mohammed also said last week that he wasn’t concerned about the emirate’s ability to repay at least $4.52 billion of debt this year. “I assure you we are all right, the U.A.E. is all right, and we are not worried,” Sheikh Mohammed said to reporters at his Zabeel palace in Dubai. The government must repay a $1 billion Islamic bond maturing in November in addition to the Nakheel bond due in December. George Dalton , general counsel at Dubai World, referred requests for comment to spokespeople for the group, who didn’t reply yesterday. Besides Istithmar and Dubai World debt held by Deutsche Bank, Barclays and RBS, much of what remains is held by lenders based in the Middle East, the people said. Spokespeople for the three banks declined to comment yesterday. MGM Mirage Investment The investment strategy of the funds was flawed, according to Chris Turner , the 45-year-old British risk manager who was hired in 2007 as director of risk management at Istithmar’s real estate unit. “At least half the $10 billion I was involved with at Istithmar was poorly invested and completely un-hedged,” Turner said in an interview yesterday. Turner, who now lives in Europe, says he left Istithmar last year and was accused of embezzlement. He denies those claims and said he is prepared to fight the charges in court. One example of risky investing, according to Turner, came in 2007, when Dubai World bought about $5.5 billion of MGM Mirage stock at between $82 and $95 without any hedge. The stock now trades at about $12. “The attitude there was: We’re a private equity firm and as such we don’t need to hedge our investments because we understand the inherent risks and believe in our decisions,” Turner said. ‘More Careful Now’ Refinancing Dubai’s debt became more difficult with the onset of the global credit crisis as lending froze. It has about $80 billion of outstanding corporate and government debt, according a report by Moody’s in February. That almost matches the emirate’s $82 billion gross domestic product in 2008, the report said. “We’ll be more careful now,” Sheikh Mohammed told reporters in Dubai on Sept. 9. “The crisis came for everyone, not just Dubai. People had to fight.” Abu Dhabi, the wealthiest member of the U.A.E. with more than 85 percent of the federation’s total oil output capacity, helped provide Dubai with a $10 billion bailout in February. Dubai home prices plummeted 47 percent in the second quarter from a year earlier, the steepest drop of any market, according to Knight Frank LLC. “Abu Dhabi is now and will continue calling the shots in Dubai,” said Rochdi Younsi, head of Middle East research at Eurasia Group, a New York-based political-risk consulting firm, who expects additional bailouts from Abu Dhabi. “They’re making serious demands that Dubai keep only its viable arms and consolidate or shut down overleveraged ones like Istithmar.” Istithmar and Dubai World are being advised on their debt restructuring proposals by at least one outside consulting firm, people familiar with the matter said. “It’s critical that Dubai downplay any restructuring of Istithmar as business-as-usual,” Younsi said. “They’ve put way too much money and resources to let their reputation collapse.” To contact the reporters on this story: Jonathan Keehner in New York at jkeehner@bloomberg.net ; Serena Saitto in New York at ssaitto@bloomberg.net .

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Mongolia Plans Sovereign Fund to Spread, Manage $30 Billion Mining Jackpot

September 11, 2009

By Bloomberg News Sept. 11 (Bloomberg) — The Mongolian government will set up a sovereign wealth fund using mining royalties and tax revenue , and distribute part of the income to citizens to alleviate poverty, said Finance Minister Sangajav Bayartsogt. The fund, to be run by professional managers from 2013, will disburse part of its annual income to every Mongolian in cash or non-cash securities to let them own stakes in the country’s mining wealth, Bayartsogt said. Initial capital will be drawn from Ivanhoe Mines Ltd. ’s $4 billion Oyu Tolgoi copper- gold mine project, estimated to generate $30 billion in tax revenue over 50 years, he said. “We’re drafting the idea to implement the proposal, and we’re studying examples like the Alaskan Permanent Fund ,” Bayartsogt said in a Sept. 9 interview in the capital Ulaanbaatar, declining to specify the size of the proposed fund. Mongolia, whose 2.7 million citizens depend on mining and agriculture for half the nation’s 2008 economic output , is banking on Oyu Tolgoi and about 6,000 other mineral deposit sites to lift average annual income, which at $1,680 per person last year was ranked by the World Bank 151st in the world. The $40 billion Alaska Permanent Fund, created in 1976 with state revenue from oil production, has constitutionally protected capital that can’t be spent. Most of its earnings are reinvested, and a dividend is returned each year to eligible Alaskans. The fund reported a $6.3 million loss in 2001 after buying 685,600 shares in Enron Corp. Oil, Gas Money Norway’s sovereign wealth fund, the 2.47 trillion-krone ($410 billion) Government Pension Fund – Global, derives money for from taxes on oil and gas and ownership of petroleum fields. The oil and gas money is invested abroad to avoid stoking domestic inflation. Mongolia also wants to diversify the economy’s reliance on animal husbandry and mining to avoid the so-called Dutch Disease , where a commodity boom sucks in foreign exchange, raises the currency’s value and makes manufacturing less competitive. “If mining is booming, the rest of the sectors will slow down because people are expecting to receive work and revenue from mining,” Bayartsogt said. “We will use revenue from mining to develop the processing industry, invest in outsourcing, education, science and technology to move up the value chain and transform the economy.” Transforming Mongolia Bayartsogt’s Democratic Party and the opposition Mongolian People’s Revolutionary Party pledged during May general elections to distribute as much as $6 billion, or up to 1.5 million tugriks ($1,060) for every citizen, from the country’s mining wealth. To fulfill the election pledge, the government may use a $250 million pre-payment from Oyu Tolgoi to seed its distribution program, Bayartsogt said. The final accord to develop the Oyu Tolgoi deposits may be signed this month, Minister of Minerals and Energy Dashdorj Zorigt said this week. “The transformational power of the Oyu Tolgoi mine cannot be understated,” said Peter Morrow , chief executive officer of the Khan Bank in Ulaanbaatar. Investments in Oyu Tolgoi are projected at almost 80 percent of Mongolia’s $5 billion economy, he said. Oyu Tolgoi Deposits Oyu Tolgoi may hold as much as 32 million tons of copper and 1,200 tons of gold, according to government estimates. Annual output when the mines are excavated may top 450,000 tons of copper with 330,000 ounces of gold, Zorigt said. “The ordinary people are expecting something” to be distributed to them as soon as Oyu Tolgoi is signed, Bayartsogt said. “The expectation is too high. Economics is always connected to politics.” The Oyu Tolgoi deposits, discovered by Ivanhoe in 2003, have gone through a sometimes tumultuous development process. Mongolia’s government on Aug. 25 passed laws allowing companies to carry forward their losses for eight years, build private roads and let Oyu Tolgoi developers use water they find on their land. The parliament will also repeal from Jan. 1, 2011, a 68 percent windfall profit tax on copper and gold. The nation’s 6,000 known mineral deposit sites include reserves of coal, uranium, silver, zinc and molybdenum. “It’s the beginning, an experiment in how to structure a large mining-exploration agreement with the world,” said Terence Ortslan , Managing Director of TSO & Associates, a Montreal, Canada-based research firm focusing on mining. “Five years from now, Oyu Tolgoi will be in operation, and other projects will be under way.” To contact the reporter on this story: Eugene Tang in Ulaanbaatar on eugenetang@bloomberg.net

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U.S. Aaa Rating Outlook Stable as Supports Remain Intact, Moody’s Says

August 28, 2009

By Chris Fournier Aug. 28 (Bloomberg) — The U.S.’s ability to cope with the credit crisis, its political stability and “favorable” economic prospects all support the country’s top Aaa credit ratings, according to Moody’s Investors Service. Although government financial strength is weakening as a result of intervention to support the financial system and the economy, other factors support a stable rating outlook, the New York-based company said in a statement today. The U.S. government and the Federal Reserve have spent, lent or committed more than $12 trillion in a bid to revive the economy and credit markets. The budget deficit is projected to reach $1.6 trillion this year and $1.4 trillion next year, according to the nonpartisan Congressional Budget Office. The Office of Management and Budget, in its Aug. 25 mid-year economic review, added almost $2 trillion to the 10-year deficit estimate from its May forecast, to $9.05 trillion. “The federal government debt ratios, which Moody’s considers most relevant to the rating given the U.S.’s relatively decentralized fiscal structure, are rising steeply and will continue that trend at least through 2010,” wrote Moody’s analysts including Steven A. Hess in New York. “However a substantial portion of the rise results from asset purchases, meaning” the government’s net worth is less affected, they wrote. The budget deficit will fall to about 4 percent of output by 2015, boosting the ratio of debt to gross domestic product to 77 percent in 2019, the highest level since World War II, Moody’s said. Unless action is taken now to rein in deficits, pressure on public finances from Social Security, Medicare and Medicaid will be “even more difficult to deal with,” Hess wrote. To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

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Royal Bank, Toronto-Dominion, National Beat Estimates on Trading Revenue

August 27, 2009

By Doug Alexander and Sean B. Pasternak Aug. 27 (Bloomberg) — Royal Bank of Canada and National Bank of Canada reported record profits and Toronto-Dominion Bank’s earnings topped analysts’ estimates as Canadian lenders benefited from surging trading revenue and a housing market rebound. Royal Bank, Canada’s largest lender, said third-quarter net income rose 24 percent to C$1.56 billion ($1.42 billion), or C$1.05 a share. Toronto-Dominion , the second-largest bank, said earnings fell 8.5 percent to C$912 million, or C$1.01 a share. National Bank’s profit climbed 5.9 percent to C$303 million, or C$1.78 a share. The lenders join Bank of Montreal in surpassing analysts’ estimates, putting most Canadian banks on pace to top forecasts for the second straight quarter. A 16 percent gain in the benchmark Standard & Poor’s/TSX Composite Index lifted trading fees while mortgage lending rose after existing home sales increased six straight months in Canada. “It’s a pleasant surprise,” said John Kinsey , who helps manage about C$1 billion at Caldwell Securities Ltd. in Toronto, including Canadian banks. “It would appear that the worst may be over.” Royal Bank surged C$4.16, or 7.8 percent, to C$57.25 at 9:33 a.m. trading on the Toronto Stock Exchange. Toronto- Dominion jumped 4.7 percent to C$69.22 and National Bank rose 3.2 percent to C$60.37. Before one-time items, Toronto-Dominion said it earned C$1.47 a share, exceeding the C$1.24 a share median estimate of 11 analysts surveyed by Bloomberg News. Royal Bank said it earned C$1.21 a share on that basis, higher than the 93 cents-a- share median estimate. National Bank’s earnings beat the C$1.38 a share median forecast. Trading Fees Royal Bank’s earnings jumped for the first time in seven quarters as a surge in fixed-income, equity and currency trading fees offset soaring loan losses. Trading revenue rose more than fourfold to C$1.61 billion from a year earlier. “You can’t talk about Royal without talking about the huge amount of money they make in their trading operations,” said Craig Fehr , an analyst with Edward Jones & Co. in St. Louis. The three lenders set aside more money for bad loans as Canada’s jobless rate reached an 11-year high and bankruptcies soared. Royal Bank set aside C$770 million for bad loans, more than double a year ago. Desjardins Securities analyst Michael Goldberg forecast loan losses of C$979 million for Royal Bank. Toronto-Dominion’s provisions almost doubled to C$557 million. Loan Loss Provisions “Obviously, they knew that they’re going to enter into a period where loan-loss provisions are going to be rising,” said Steven Conville , a portfolio manager at Blackmont Capital Inc. in Markham, Ontario. “I don’t think there’s significant risk to the balance sheet of the bank.” Royal Bank said consumer banking profit in Canada fell 5.6 percent to C$669 million. Royal Bank’s international consumer banking, which includes Raleigh, North Carolina-based RBC Bank, had a loss of C$95 million, its fifth straight quarterly loss, as provisions rose. Earnings from the RBC Capital Markets investment-banking unit more than doubled to C$562 million, on a surge in trading and an increase in fees from stock sales. “We did make C$1 billion excluding all of our wholesale lending and capital markets activities, so I wouldn’t characterize it as the Goldman Sachs of the north,” Royal Bank Chief Executive Officer Gordon Nixon said in a conference call with analysts. Goldman Sachs Group Inc. last month posted record earnings as revenue from trading and stock underwriting reached all-time highs. Wealth management, which includes mutual fund sales, fell 10 percent to C$168 million. Insurance profit rose 21 percent to C$167 million. Toronto-Dominion Bank Toronto-Dominion said Canadian consumer banking climbed 5 percent to a record C$677 million due to higher personal and commercial lending. U.S. consumer banking profit dropped 30 percent to C$172 million on higher costs to integrate its banking network. The bank has about as many branches in the U.S. as it does in Canada due to last year’s $7.1 billion acquisition of Commerce Bancorp Inc. Asset-management earnings, including results from its minority stake in TD Ameritrade Holding Corp. , the third-largest retail brokerage by client assets, fell 19 percent to C$163 million as the bank had lower mutual fund and advisory fees. Profit from the TD Securities investment bank climbed more than eightfold to C$327 million. Trading-related income surged to C$633 million in the quarter, from a year-earlier C$43 million. National Bank National Bank, based in Montreal, said consumer banking climbed 1 percent to C$134 million, while its financial markets business, which includes investment banking, rose 1 percent to C$167 million. Canadian Imperial Bank of Commerce , the fifth-biggest bank, said yesterday that profit rose more than fivefold to C$434 million and missed analysts’ estimates as loan losses soared. Bank of Montreal , the first Canadian lender to report third-quarter results, said Aug. 25 that profit rose 6.9 percent to C$557 million. Bank of Nova Scotia, the third-biggest bank, is scheduled to release results tomorrow. (Toronto-Dominion Bank will hold a conference call at 3 p.m. at +1-416-644-3414 or 1-800-733-7560, or via the Internet at www.td.com/investor/qr_2009.jsp) (National Bank will hold a conference call at 1:30 p.m. To listen, dial +1-416-641-6130 or +1-866-862-3908.) To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net ; Sean B. Pasternak in Toronto at +1- spasternak@bloomberg.net .

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Hurricane Bill Forecast to Pass Offshore of New England Toward Maritimes

August 22, 2009

By Brian K. Sullivan and Alex Morales Aug. 22 (Bloomberg) — Hurricane Bill is forecast today to pass through open seas between the U.S. East Coast and Bermuda as it moves toward the Canadian Maritimes. A tropical storm warning was issued for the southern Massachusetts coast. The storm had sustained winds of 105 miles (165 kilometers) per hour, making it a Category 2 on the five-step Saffir-Simpson scale , according to the U.S. National Hurricane Center in Miami. It was 430 miles east-southeast of Cape Hatteras, North Carolina and moving north-northwest at about 22 miles per hour, the center said today. While the hurricane is forecast to eventually curve away from the U.S., a tropical storm warning was issued today for the coast of Massachusetts close to Cape Cod, from Woods Hole to Sagamore Beach, including Nantucket and Martha’s Vineyard, where President Barack Obama and his family are scheduled to travel tomorrow for a week’s vacation. The hurricane should also reach Canadian waters tomorrow. “It will definitely be a hurricane when it reaches our Maritime waters Sunday,” said Peter Bowyer , a program supervisor at the centre in Dartmouth, Nova Scotia. “At this point, it is still not possible to give all the specifics everyone wants.” It’s poised to bring as much as 6 inches of rain and hurricane force winds to the Maritimes, the Canadian Hurricane Centre predicted. The provinces are also experiencing the highest tides of the year, so there is potential for a large storm surge if Bill arrives at the wrong time, Bowyer said. Bermuda on Alert Bermuda, a British overseas territory, is under a hurricane watch and a tropical-storm warning. The center of Bill is expected to come within about 200 miles, the Bermuda Weather Service said. Troops are on standby as the island faces as much as rain as the Canadian Maritimes. Bill will raise the tides 3 feet above ground level near the coast of the island, the weather service said. Large swells from Bill “are affecting the Bahamas and Bermuda and beginning to affect the southeast coast of the United States,” the U.S. hurricane center said. “Large swells will begin to affect much of the remainder of the U.S. East Coast and the Atlantic Maritimes of Canada later today and Sunday. These swells will likely cause extremely dangerous surf and life-threatening rip currents.” Workers are being evacuated from the Sable Offshore Energy Project, a gas field 125 miles off Nova Scotia, said Margot Bruce-O’Connell, a spokeswoman for Irving, Texas-based Exxon Mobil Corp. The rigs, backed by Exxon and Royal Dutch Shell Plc, were closed for maintenance and the storm won’t affect production, she said. Refineries Watched Some refineries in Nova Scotia and New Brunswick may be at risk, including closely held Irving Oil’s Saint John plant that processes about 300,000 barrels of oil a day, according to Olivier Jakob , an analyst with research group Petromatrix GmbH in Zug, Switzerland. “The marine environment on Sunday and Sunday night is going to be a harsh environment,” Bowyer said. “It is too uncomfortable a scenario to take a chance on.” The Halifax Port Authority doesn’t expect Bill to interfere with regular ship traffic, Michele Peveril, a spokeswoman for the port, said Aug. 20. Halifax is Canada’s third-largest port behind Vancouver and Montreal, and handles cargo and passenger traffic. The 2009 hurricane season, which runs from June 1 to Nov. 30, got off to a quiet start before three named storms formed in a period of 48 hours Aug. 15 and 16. Tropical storms Ana and Claudette have since dissipated. To contact the reporters on this story: Brian K. Sullivan in Boston at bsullivan10@bloomberg.net ; Alex Morales in London at amorales2@bloomberg.net .

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Bermuda Places Troops on Standby as Hurricane Bill Threatens to Lash Coast

August 20, 2009

By Ed Johnson and Brian K. Sullivan Aug. 21 (Bloomberg) — Bermuda put troops on standby and warned people to stay in their homes as Hurricane Bill spun through the Atlantic, threatening the island and the east coast of the U.S. with dangerous waves. The Category 3 storm, with winds of 125 miles (201 kilometers) per hour, is forecast to pass between Bermuda and the U.S. early tomorrow, the U.S. National Hurricane Center said in an advisory. “Stay off the roads, stay off the beaches and stay close to home,” the government of Bermuda said in a statement, placing the island under hurricane watch and ordering reservists to be ready for deployment. “We all remember Hurricane Fabian,” it said, referring to the 2003 storm that left four people dead on the island and caused an estimated $300 million in damage. Bill is a powerful hurricane and could regain Category 4 status today as it moves northwest toward Canada, the center said. Some refineries in Nova Scotia and New Brunswick may be at risk, including privately held Irving Oil’s Saint John plant that processes about 300,000 barrels of oil a day, according to Olivier Jakob , an analyst with research group Petromatrix GmbH in Zug, Switzerland. Canadian authorities started issuing bulletins on Bill yesterday. No storm of Category 3 intensity or stronger has hit Canada since recordkeeping began in 1851, according to Peter Bowyer, a program supervisor for the Canadian Hurricane Centre in Dartmouth, Nova Scotia. Ship Traffic The Halifax Port Authority doesn’t expect Bill to interfere with regular ship traffic, said Michele Peveril, a spokeswoman for the port. Halifax is Canada’s third-largest port behind Vancouver and Montreal, and handles cargo and passenger traffic. The hurricane was about 510 miles south of Bermuda and moving northwest at about 18 mph, the NHC said in its latest advisory at 11 p.m. Miami time yesterday. Gradual weakening should begin tomorrow, according to the center. “Significant coastal flooding is expected along portions of the Bermuda coastline,” the NHC said. Large swells, bringing “extremely dangerous surf and life-threatening rip currents,” should start affecting the east coast of the U.S. and Canada in the next day or two. Bill has see-sawed between Category 3 and 4 on the five- step Saffir-Simpson scale that rates a storm’s severity. Category 3 storms bring winds of 111 mph or more that can damage buildings, uproot trees and cause power outages, according to the NHC. Category 4 is reserved for hurricanes with “extremely dangerous” winds of 131 mph or more that can cause “devastating damage.” The 2009 hurricane season, which runs from June 1 to Nov. 30, got off to a quiet start before three named storms formed in a period of 48 hours Aug. 15 and 16. Tropical storms Ana and Claudette have since dissipated. To contact the reporters on this story: Ed Johnson in Sydney at ejohnson28@bloomberg.net ; Brian K. Sullivan in Boston at bsullivan10@bloomberg.net .

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CIBC Avoids `Sharp Objects,’ Starting to Lure Back Investors From Canada

August 11, 2009

By Doug Alexander and Sean B. Pasternak Aug. 11 (Bloomberg) — Gavin Graham ’s firm sold Canadian Imperial Bank of Commerce shares 13 months ago, convinced it was the bank “most likely to walk into a sharp object” after it lost billions of dollars on U.S. mortgage securities. The managers at BMO Asset Management have changed their view, buying the stock last month on expectations the Toronto- based lender is poised for a rebound after writedowns surpassed C$10 billion ($9.2 billion). “This wasn’t really the bank you wanted to be in,” said Graham , who helps manage C$46 billion as director of investments at the Toronto-based firm. “You can make the argument now that this is the time to be looking at it.” Investors such as Graham’s firm are giving Canada’s fifth- biggest bank a chance, after President and Chief Executive Officer Gerald McCaughey scaled back on risky credit assets and sold most of the U.S. investment-banking business to focus on consumer lending in Canada. Canadian Imperial may post its best profit growth in nine years when it reports third-quarter results on Aug. 26, according to five analysts’ estimates in a Bloomberg survey. Per-share profit may soar more than 11-fold from a year earlier, when the bank had C$885 million in credit-related costs. Investors have started to take note. The shares have rebounded 18 percent in the last month, the best performer among Canada’s six biggest banks. That contrasts with a 22 percent decline over the past two years, when CIBC was the worst performer in that group. CIBC fell 36 cents to C$67.95 at 9:42 a.m. in Toronto Stock Exchange Composite trading. ‘Comeback Kid’ “No doubt that Commerce looks like the comeback kid here, but we’ve heard that so many times,” said Ian Nakamoto , director of research at MacDougall, MacDougall & MacTier Inc., which manages about C$3 billion including CIBC shares. The declines over the past two years have made CIBC the cheapest among the five-biggest Canadian lenders based on a ratio of its earnings for the next year to its stock price, according to Bloomberg data . CIBC’s estimated price-to-earnings ratio is 12.3, compared with 13.3 for Toronto-Dominion Bank and 14.6 for Bank of Montreal. The stock plunge also means CIBC offers one of the richest dividends relative to its peers. The dividend yield, or the payout relative to stock price, is 5.09 percent, higher than the 4.28 percent yield for Canada’s nine-member banks index . “We have bought CIBC, though it’s not our favorite bank,” said John Kinsey , who helps manage about C$1 billion at Caldwell Securities Ltd. in Toronto. “We bought it really for the yield and we’ve been pleased with the performance.” Enron Losses CIBC had troubles in the past decade. The bank has posted C$10.7 billion in pretax debt writedowns since the collapse of the U.S. subprime mortgage market in 2007, the most among Canadian banks. In 2005, CIBC had a quarterly loss of C$1.91 billion on costs from failed energy trader Enron Corp. Before then, CIBC’s bets on risky borrowers such as Global Crossing Ltd. backfired when the firms went bankrupt, saddling the bank with bad loans. “CIBC recognizes that mistakes were made,” said Garey Aitken , chief investment officer of Bissett Investment Management in Calgary, which manages about C$11.4 billion, including CIBC. “The worst is behind them.” McCaughey, 53, vowed to reduce risk at the bank when he took over as CEO in 2005 after the Enron debacle. After the bank took writedowns on securities tied to U.S. subprime mortgages starting in 2007, he redoubled his efforts. Exit New York He sold off most of the New York-based investment bank, exited risky businesses such as European leveraged finance, shuffled management and ousted investment bankers including former CIBC World Markets CEO Brian Shaw . McCaughey also sold C$2.94 billion in stock in January 2008 to repair the bank’s balance sheet. CIBC now has the highest level of regulatory capital among Canada’s banks, according to corporate filings. Genuity Capital Markets analyst Mario Mendonca , one of the two analysts who rates CIBC a “buy,” favors the bank because it’s cheaper than the others, is less risky, and may be first to recover from the recession that has saddled lenders with rising loan losses and bad debt. CIBC, Canada’s largest credit-card issuer, will bear the brunt of credit losses before its rivals. Bank of Montreal and Royal Bank of Canada, which do more U.S. commercial and industrial lending, may face credit losses into 2010, he said. “Credit cards are the first thing that show serious deterioration as unemployment rises, and credit cards appear to be the first thing that corrects itself when the economy starts to turn the corner,” Mendonca said. Fewer Delinquencies Short-term delinquency rates in CIBC’s credit-card portfolio are decreasing, according to Sumit Malhotra , an analyst at Macquarie Capital Markets who studied data from the CARDS II Trust, a fund with about C$14 billion in CIBC credit- card debt. Not all investors are buying into a CIBC comeback. “We’ve always viewed CIBC as the bank that runs with scissors,” said David Baskin of Baskin Financial Services Inc., which manages C$300 million in assets and has avoided CIBC while investing in Royal Bank, Bank of Nova Scotia and National Bank of Canada. “It appears that they may have changed their culture at the top. We’re going to wait and see.” To contact the reporters on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net ; Sean B. Pasternak in Toronto at spasternak@bloomberg.net

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Freddie Mac Names Putnam’s Haldeman Chief Executive of Mortgage Financer

July 21, 2009

By Dawn Kopecki July 21 (Bloomberg) — Freddie Mac , the mortgage buyer seized by U.S. regulators last year, named mutual-funds executive Charles E. Haldeman Jr

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