plans

Sebelius Warns Employers Not To Jack Up Health Care Costs

June 14, 2010

WASHINGTON — The Obama administration had a message Monday for employers who want to keep federal bureaucrats from rewriting the rules for their company medical plans: Don’t jack up costs for workers, and you won’t have to worry about interference from the new health care law. “What we don’t want is a massive shift of costs to employees,” said Health and Human Services Secretary Kathleen Sebelius. She announced a new regulation that spells out how health plans that predate the health overhaul law can avoid its full impact. Meant to deliver on President Barack Obama’s promise that people who like their current health coverage can keep it, the rule sets limits likely to become increasingly important as medical costs keep rising. Plan changes that would cause a health plan to lose its “grandfathered” status and trigger new federal requirements include: _ Dropping coverage for a particular health problem, for example, diabetes. _ Increasing the proportion of insurance paid by workers, for example from 20 percent of the hospital bill to 25 percent. _ Cutting back the share of premiums that the company pays by more than 5 percent. _ Significantly increasing annual deductibles or co-payments paid by workers. For example, if an employer raises a $1,000 deductible by $500 over the next two years. Workplace coverage is the mainstay of the nation’s health insurance system, and will remain so under the new law. Consumer advocates said the regulation gives employers the flexibility to make needed changes, while protecting workers. “If a plan changes in some significant way, or if it increases cost-sharing amounts, then that results in a very different plan – and it should not be grandfathered in,” said Ron Pollack, executive director of Families USA, an advocacy group that supports the overhaul law. Employers are wary. “It’s a big unknown,” said Steve Wojcik, vice president of the National Business Group on Health, which represents human resources managers at major companies. “It definitely sets boundaries where plans have been used to considering all kinds of changes to both improve quality and control costs.” For example, Wojcik said it’s unclear whether a plan would lose its protected status by making a change such as requiring counseling and dieting before approval of weight-loss surgery. And converting from traditional health insurance to a policy with a health savings account might lead to problems because the latter have significantly higher deductibles. The administration’s own analysis suggests it may not be easy for current plans to keep their special protected status. By 2013, two-thirds of small employer plans will have to relinquish their “grandfathered” status, along with 45 percent of large company plans, according to regulators’ projections. Those plans will have to comply with a range of federal requirements on benefits. The rule, effective immediately, is “a key part of a balanced approach” that will “provide Americans who like their plans with stability,” Sebelius said. It won’t be a free ride for workers, said Wojcik. “Part of the bargain is that employers will be facing higher costs,” he said. “The percentage share of the premiums will remain the same, but costs are going to go up for both sides in terms of dollars.”

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Whitacre Seeks `Bigger, Bolder’ GM IPO as 32 Companies Scrap Initial Sales

June 14, 2010

By Jeff Green and David Welch June 14 (Bloomberg) — Ed Whitacre has General Motors Co. in better shape now than it’s been in years. Pushing ahead with an initial public offering this year may be tougher to manage. Bonds that convert into GM shares fell at the end of last week to their lowest level since Feb. 26. GM, which earned $865 million in the first quarter, is still losing money at its European unit. Chief Executive Officer Whitacre has less than four months to meet a goal of setting up a lending division. The IPO market has stumbled, with 32 deals pulled since April. Whitacre has said he’d like to begin selling shares as soon as possible. The former AT&T Inc. chairman will need to balance his natural inclination to seek a big IPO against the need to make it successful for the government, which owns 61 percent of the automaker, said James Kahan , a former AT&T executive. “Ed does things that are bolder and bigger rather than small and timid,” said Kahan, who said he hasn’t discussed the size of the IPO with Whitacre. “All things being equal, Ed would like it bigger versus small. But all things aren’t equal. He needs to get the government the best value for its stake, too.” The Obama administration needs GM to go public to reduce its 61 percent stake and harvest returns on its $50 billion investment. Morgan Stanley and JPMorgan Chase & Co. are expected to lead the initial sale, people familiar with the matter said last week, and a June selection means Detroit-based GM may be able to sell shares in the fourth quarter. Selim Bingol, a GM spokesman, declined to comment. ‘Only Way’ “This is the only way GM is going to be able to get out of government ownership,” said Rebecca Lindland , a forecaster at IHS Global Insight in Lexington, Massachusetts. “The company is in significantly better shape than it has been in a long time.” At least five investment banks competed to handle the sale, which may be worth as much as $12 billion, making it the second- largest in a decade. Morgan Stanley and JPMorgan , both based in New York, would be responsible for writing the prospectus and promoting the shares to potential investors, said two people who asked not to be identified because the decision isn’t final. A successful IPO may be the biggest challenge so far for Whitacre, who as chairman also led the board that ousted Fritz Henderson from the CEO job in December. He’s reassigned a majority of top executives and is pushing for a return to profitability. Not Too Big GM’s sale will come after at least 32 companies worldwide postponed or withdrew initial offerings since the start of May, data compiled by Bloomberg show. IPOs have dried up as concern that the European debt crisis is spreading beyond Greece and slower-than-estimated U.S. jobs growth in May helped push the Standard & Poor’s 500 Index down 10 percent from its 2010 high on April 23. “Can the market absorb a multibillion deal of General Motors? Yeah, in a heartbeat,” said William Smith , president of Smith Asset Management in New York, who used to own shares of GM. “It’s General Motors. The question then becomes is it valuable and is it worth buying on the IPO?” Since 1999, four U.S. IPOs have exceeded $5 billion — Visa Inc.’s $19.7 billion deal in 2008, AT&T Wireless Group’s $10.6 billion offering in 2000, Kraft Foods Inc.’s $8.68 billion deal in 2001 and United Parcel Service Inc.’s $5.47 billion sale in 1999, according to data compiled by Bloomberg. The banks want to sell about half of the government stake to the 20 top institutional investors, said one person familiar with the plans. The largest institutional investors include Vanguard Group Inc. and Fidelity Investments. ‘Patriotic Responsibility’ “I’d almost feel a patriotic responsibility to look at it,” said Jim Porter , founder of Hinsdale, Illinois-based New Century Capital Management LLC. “It’s certainly more streamlined and a lot more interesting than it ever has been in the past.” GM is losing money in Europe after Whitacre and the board overruled an agreement Henderson negotiated to sell a majority of the Opel unit to a group led by Magna International Inc. GM reported a loss of $500 million before interest and taxes in Europe in the first quarter, in contrast to a $1.2 billion profit in North America. Also, U.S. auto sales to retail customers fell in May as sales to so-called fleet customers buoyed an annual sales rate of 11.6 million cars and trucks, Brian Johnson , a Barclays Capital analyst, wrote in a June 8 report. GM’s 38 percent of sales from fleet, which is less profitable than retail, was the second highest monthly percentage on record, he said. ‘Excellent’ Potential “GM’s earnings potential is excellent because it finally has a healthy North American unit and can focus its marketing efforts on just four brands instead of eight,” David Whiston , an analyst at Morningstar Investment Services Inc. in Chicago, said in a June 7 report. Chief Financial Officer Chris Liddell ’s comments on the first quarter earnings call imply that GM’s North American unit will break even at a U.S. light-vehicle level of around 11 million units, Whiston said in the report. “We think the normative demand for U.S. light-vehicles is 14-16 million units so we expect GM to be printing money as vehicle demand comes back over the next few years,” he said. Whitacre also wants the company to have an automotive- lending unit before going public, people familiar with the plan have said. GM hasn’t had such a subsidiary since former CEO Rick Wagoner sold 51 percent of GMAC to private-equity firm Cerberus Capital Management LP in 2006. Timing Factors The timing of the offering will depend on GM’s profitability, the health of the economy and the state of capital markets, three people familiar with the matter said last week. The size of the stock sale hasn’t been determined yet, said one person familiar with the plan. The sale may raise as much as $12 billion, an estimate by Independent International Investment Research Plc showed. GM’s equity is worth $70 billion, according to a May 20 report by Eric Selle , a JPMorgan debt analyst who projects a return of 47 cents on the dollar for holders of bonds issued by GM’s predecessor, General Motors Corp., that will be converted to stock and warrants in new GM. At June 11 bond prices, GM’s implied equity value is about $45 billion. The 8.375 percent notes due in 2033 declined 1.5 cents to 30.25 cents on the dollar June 11 in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. That represents a 22 percent decline from the April 30 peak of 38.81 cents, according to Trace. U.S. Stake For the Treasury to break even, the value of GM would need to rise to about $80 billion after bondholders and the UAW’s health-care trust exercise stock warrants that dilute the U.S. ownership. The U.S. government’s current net investment in the automaker is $42.2 billion, according to a senior official in President Barack Obama ’s administration. GM has repaid $6.7 billion in loans and paid $600 million in interest and dividends. The U.S. also holds $2.1 billion in the company’s preferred shares. “The pun is GM is not in the driver’s seat,” said Michael Holland , who oversees more than $4 billion as chairman of Holland & Co. in New York. “The Treasury’s in the driver’s seat. There’s no doubt who the decision makers are.” The government has hired Lazard Ltd. for $500,000 a month to advise on selling its stake, according to a document on the department’s website. Evercore Partners Inc. also is advising GM on the selection, a person familiar with the matter said. Setting Fees The Treasury said June 10 that it will determine the underwriters’ fees. The fees will be 0.75 percent, according to a person briefed on the matter. That would be less than any U.S. IPO over $5 billion since 1999, Bloomberg data show. “The underwriters are going to view GM as a client they’re going to have over time,” said Paul Bard , director of research at Greenwich, Connecticut-based Renaissance Capital LLC, which has studied IPOs since 1991. “This isn’t just one transaction. To an investment bank, GM represents a number of transactions.” Choosing a lead underwriter now allows GM to file an S-1 initial registration form as soon as July and sell shares in October or November, a person familiar with the matter said. “There’ll be such a close watch on this IPO,” said Steven M. Rogé, a Bohemia, New York-based manager at R.W. Rogé & Co., which oversees $200 million. “It won’t just be financial, it’ll be political. It might even be more political than financial.” To contact the reporters on this story: Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net ; David Welch in Southfield, Michigan, at dwelch12@bloomberg.net .

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Deutsche Bank’s Ackermann Says He’s Confident Greece Will Service Its Debt

June 11, 2010

By Aaron Kirchfeld, Gabi Thesing and Elena Logutenkova June 11 (Bloomberg) — Deutsche Bank AG Chief Executive Officer Josef Ackermann said he is confident that Greece is committed to implement reforms that will allow it to service its debt. Ackermann was speaking to reporters in Vienna today. The Deutsche Bank chief said that measures introduced by Greece to reduce its budget gap have made him “change my views” on the country, he said to bankers in Vienna after Greek Prime Minister George Papandreou outlined his plans to turn the economy around. Ackermann had said on May 13 that Greece may not be able to repay its debt in full, arguing it would require “incredible efforts.” To contact the reporter on this story: Aaron Kirchfeld in Vienna at akirchfeld@bloomberg.net

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Banking Rules May Cut GDP Growth in U.S., Europe, Japan by 3.1%, IIF Says

June 10, 2010

By Elena Logutenkova June 10 (Bloomberg) — Plans to strengthen banks’ capital and liquidity would erase 3.1 percent of gross domestic product in the U.S., Europe and Japan by 2015 as financial firms curb lending to businesses, according to a study by the Institute of International Finance. The euro area would be hit the hardest and Japan the least, according to the report, released at a press conference on the IIF in Vienna today. IIF, chaired by Deutsche Bank AG Chief Executive Officer Josef Ackermann , represents more than 375 financial companies based in more than 70 countries. About 9.7 million fewer jobs would be created over the five-year period than would otherwise be the case, the report said. The institute’s report comes as fiscal austerity measures in the euro area, spurred by the sovereign-debt crisis, threaten to tip the region back into a recession. The euro area’s economy expanded 0.2 percent in the first quarter from the fourth, when it stagnated, according to the European Union’s statistics. “We are meeting at a crucial time for the global economy,” Ackermann said in a statement prepared for the press conference. It is “a time both of uncertainty over the course of economic recovery, and one where major economic policy and financial regulatory reforms will be at the center” of discussions by the Group of 20 leaders. Bankers are stressing the costs of too much regulation as the Basel Committee on Banking Supervision prepares to raise the level of capital banks should hold, potentially reducing funds available to lend and to fuel growth. G-20 Meeting G-20 finance ministers meeting in Busan, South Korea, earlier this month reiterated a deadline of the end of this year to agree on new capital and liquidity rules with the aim of implementing them by the end of 2012. G-20 leaders are due to meet in Toronto later this month to discuss regulatory reforms as well as ways for countries to recover from the global recession. “The analysis suggests that rapid implementation of the Basel Committee proposals would have a significant negative impact on economic growth and job creation,” Peter Sands , CEO of London-based Standard Chartered Plc. said in a statement. IIF said the report is an interim study, and that it’s open to suggestions on how to improve the methodology of forecasting the economic impact. The group also plans to expand the impact study to other countries, it said. To contact the reporters on this story: Elena Logutenkova in Zurich at elogutenkova@bloomberg.net

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All Nippon Plans First 787 Overseas Flights in March

June 4, 2010

By Chris Cooper and Kiyotaka Matsuda June 4 (Bloomberg) — All Nippon Airways Co. , the first customer of Boeing Co. ’s 787 Dreamliner, plans to start flying the aircraft overseas in March, increasing international operations while rival Japan Airlines Corp. slashes routes. ANA, as All Nippon is also known, expects to receive its first 787 in November and will use it first on local routes, Executive Vice President Katsumi Nakamura said in an interview in Tokyo yesterday. The Japanese carrier is considering flights to Los Angeles, San Francisco, London, Paris, Frankfurt and Munich as well as China with the Dreamliner, he said. The new aircraft and the opening of a fourth runway in Tokyo’s Haneda airport will enable ANA to boost overseas flights as JAL restructures under government-backed bankruptcy protection. Boeing is more than two years behind schedule on producing the plane and is still struggling with faulty parts from suppliers. “ANA will be able to be more dominant in the international market as JAL is still in trouble,” said Jay Ryu , a Hong Kong- based analyst at Mirae Asset Securities Co. “China is an untapped market so it’s got to improve. One option is to expand into China so can they carry Chinese people to the U.S.” Tokyo-based ANA is the biggest airline customer for the 787, with 55 of the planes on order. The aircraft will be 20 percent more fuel efficient compared with similar-sized planes, according to the aircraft’s maker. ANA is forecasting a return to profit this fiscal year as it boosts international flights 15 percent. The 787s will replace Boeing 767 aircraft in the company’s fleet. Strengthening Brackets “It’s indispensible; without the 787 we wouldn’t be able to go ahead with our plans,” said Nakamura, who flew on a test flight last month. “Boeing seems very confident in being able to deliver the plane this year.” All Nippon gained 0.7 percent to close at 278 yen in Tokyo today, extending its gain for the year to 10 percent. The Nikkei 225 Stock Average has declined 6.1 percent this year. Boeing said last month it’s strengthening brackets attaching sections of the fuselage after discovering a former supplier’s design flaw. The planemaker has said it will deliver the plane to ANA in the fourth quarter of this year. ANA became the first airline to fly the 787 last month in a test flight. The carrier plans to start training pilots to fly the plane from September, Nakamura said. “It was exciting,” said Masayuki Ishii, one of two ANA pilots who flew the plane. “It was easy to handle.” ANA boosted its 787 order to 55 planes from an initial agreement for 50 in 2004, worth about $6 billion at list prices, it said in 2008. Japan Airlines has also ordered 35 of the aircraft. To contact the reporters on this story: Chris Cooper in Tokyo at ccooper1@bloomberg.net ; Kiyotaka Matsuda in Tokyo at kmatsuda@bloomberg.net

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Covered Bond Sales Rise Amid Sovereign Deficits Credit Markets

June 3, 2010

By Sonja Cheung and Caroline Hyde June 3 (Bloomberg) — Sales of covered bonds are accelerating as investors seek debt backed by collateral amid concern about the creditworthiness of governments and banks. About $7.7 billion of the securities have been sold or are being marketed this week worldwide, more than double last week’s total, according to data compiled by Bloomberg. Bank of Montreal , Canada’s fourth-largest bank, sold $2 billion of the bonds due in 2015. Demand for securities backed by mortgages and public-sector loans with top ratings is rising as European governments from Greece to Spain struggle to cut record budget deficits, threatening the region’s banks. Covered bonds returned 0.25 percent in May, compared with a 0.4 percent loss on global investment-grade company debt, Bank of America Merrill Lynch index data show. “In this new world where volatility is high,” it’s “certainly an advantage to be holding bonds that have collateral backing,” said Georg Grodzki , head of credit research at Legal & General Investment Management in London. The company, which oversees almost 300 billion pounds ($439 billion), is a “selective buyer” of covered bonds, favoring notes sold by northern European issuers, he said. Yields have risen at a slower pace relative to government securities than corporate debt. Spreads on euro-denominated covered bonds have widened 9 basis points to 153 basis points since May 6, compared with an increase of 28 basis points to 196 for company debt, Bank of America Merrill Lynch indexes show. Company Bond Sales The increase in covered bond sales contrasts with a decline in corporate debt issuance to $70 billion last month, less than half April’s tally and the least since 2003, according to data compiled by Bloomberg. Elsewhere in credit markets, BP Plc bonds rose the most since March 2009, rebounding from a record low, as investors assessed liabilities stemming from the worst oil spill in U.S. history. The 4.75 percent notes due in 2019, issued by the company’s finance unit, increased 2.7 cents to 92.9 cents on the dollar as of 12:28 p.m. in New York, according to Trace, the bond price reporting system of the Financial Industry regulatory Authority. The debt fell to 90.1 cents yesterday, the lowest ever. BP bonds had fallen as the London-based company’s efforts to plug its gushing well failed and the U.S. Justice Department said it’s investigating whether any criminal or civil laws were violated. The leak began after an April 20 explosion aboard the Deepwater Horizon rig, which BP leased from Vernier, Switzerland-based Transocean Ltd. BP Rating Cut “Investors are starting to get their hands around the potential exposures the spill companies may have,” said Joel Levington , managing director of corporate credit at Brookfield Investment Management Inc. in New York. BP’s credit ranking was cut one step to Aa2 by Moody’s Investors Service and is on review another possible downgrade, the New York-based rating company said today in a statement. Fitch Ratings cut BP’s ranking one notch to AA from AA+. A gauge of U.S. corporate credit risk fell for a second day as factory orders rose and the service industry expanded in May for a fifth straight month. The Markit CDX North America Investment Grade Index Series 14, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, dropped 0.3 basis point to a mid-price of 117.1 basis points as of 12:01 p.m. in New York, according to Markit Group Ltd. The index typically falls as investor confidence improves and rises as it deteriorates. European Risk Falls The cost of insuring against non-payment on European corporate bonds fell the most in a week today, according to traders of credit-default swaps, while indexes in Asia also declined. The rally in credit coincided with gains in Europe and Asia stock markets, with the DJ Stoxx 600 Europe index rising 1.4 percent. Default swaps on the Markit iTraxx Crossover Index of 50 mostly high-yield European companies fell 24.4 basis points to a two-week low of 558.8, according to Markit data. The decline signals an improvement in investor perceptions of credit quality. Credit-default swaps on European sovereign notes snapped three days of increases, with contracts tied to Italy dropping 10 basis points to 223, declining from a record, according to CMA DataVision. Default swaps linked to Greece’s government bonds fell 21 basis points to 717, Spain dropped 12 basis points to 238 and Portugal was 15 basis points lower at 330, CMA prices show. SovX Europe Index The Markit iTraxx SovX Western Europe Index of credit- default swaps linked to debt of 15 governments fell to 147 basis points, from yesterday’s all-time high closing price of 154.5, according to CMA. Credit-default swaps on BP’s debt were 13 basis points lower at 246. In emerging markets, spreads narrowed 7 basis points on average to 307, according to JPMorgan Chase & Co.’s Emerging Market Bond index. Argentina’s new 2017 bonds sank in their first day of trading as the government began turning over the securities to investors as part of its restructuring of $18.3 billion of defaulted debt kept out of a 2005 settlement. The 8.75 percent notes tumbled to 80.85 cents on the dollar from their issue price of 90.11, Stone Harbor Investment Partners said. Argentina began issuing $738 million of the bonds yesterday to institutional investors who participated in an early tender period. The government is distributing the securities as compensation for past due interest. “Argentina came up with an issuance price which isn’t really in line with reality,” said Jim Craige , who helps manage $12 billion of emerging-market debt, including defaulted Argentine bonds, at Stone Harbor in New York. Covered Bond Sales Bank of Montreal yesterday sold U.S. dollar-denominated covered bonds in the first transaction in the currency in more than a month. BNP Paribas Home Loan Covered Bond SA, a unit of France’s largest bank, sold 1.5 billion euros ($1.8 billion) of five-year notes that yielded 42 basis points more than the swap rate, Bloomberg data show. Dexia SA in Brussels sold 500 million euros of 10-year bonds with a 15 basis-point spread. Bank of New Zealand , a unit of National Australia Bank Ltd., is meeting with investors this week before a possible sale of covered bonds, according to a person familiar with the plan. The lender has completed the documentation it needs to sell the covered notes, the person said, asking not to be named as the plans are private. A sale would be the first issue of such securities in New Zealand. ‘Flight to Safety’ “Investors are buying covered bonds rather than unsecured notes as a flight to safety,” said Florian Hillenbrand , a Munich-based senior analyst at UniCredit SpA, Italy’s biggest bank. Banks are “tapping the market now because it’s a nice window of opportunity and investors have money to put to work,” said Hillenbrand, who recommends buying German, French and Scandinavian covered bonds. Jose Sarafana , the Paris-based head of covered bond strategy at Societe Generale SA, said he expects another 60 billion euros of sales this year. “Covered bonds offer safer, more liquid assets than senior unsecured notes and therefore we’re seeing plenty of demand for new issues,” he said. Issues in the $2.9 trillion covered bond market get higher ratings than regular notes because they are backed by a pool of assets that can be sold in a default. The extra security typically allows lenders to pay less interest. Covered bonds, which date back to the 18th century, are mostly sold by banks and tend to originate from Europe. Lenders in the region are facing 195 billion euros of bad debts by the end of 2011 as governments cut spending to reduce budget deficits, the European Central Bank estimates. “Bond issuance was very low in May, so we’re now seeing banks looking to covered bonds to meet their growing refinancing needs,” said SocGen’s Sarafana. Borrowers are rushing to sell debt before the ECB’s year- long purchase program ends on June 30. The Frankfurt-based ECB said yesterday it has spent 55.1 billion euros of the 60 billion it set aside a year ago to support credit markets by buying covered bonds. To contact the reporters on this story: Sonja Cheung in London scheung58@bloomberg.net ; Caroline Hyde in London chyde3@bloomberg.net

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Covered Bond Sales Jump Amid Concern Over Creditworthiness Credit Markets

June 3, 2010

By Sonja Cheung and Caroline Hyde June 3 (Bloomberg) — Sales of covered bonds are accelerating as investors seek debt backed by collateral amid concern about the creditworthiness of governments and banks. About $7.7 billion of the securities have been sold or are being marketed this week worldwide, more than double last week’s total, according to data compiled by Bloomberg. Bank of Montreal , Canada’s fourth-largest bank, sold $2 billion of the bonds due in 2015. Demand for securities backed by mortgages and public-sector loans with top ratings is rising as European governments from Greece to Spain struggle to cut record budget deficits, threatening the region’s banks. Covered bonds returned 0.25 percent in May, compared with a 0.4 percent loss on global investment-grade company debt, Bank of America Merrill Lynch index data show. “In this new world where volatility is high,” it’s “certainly an advantage to be holding bonds that have collateral backing,” said Georg Grodzki , head of credit research at Legal & General Investment Management in London. The company, which oversees almost 300 billion pounds ($439 billion), is a “selective buyer” of covered bonds, favoring notes sold by northern European issuers, he said. Yields have risen at a slower pace relative to government securities than corporate debt. Spreads on euro-denominated covered bonds have widened 9 basis points to 153 basis points since May 6, compared with an increase of 28 basis points to 196 for company debt, Bank of America Merrill Lynch indexes show. Company Bond Sales The increase in covered bond sales contrasts with a decline in corporate debt issuance to $70 billion last month, less than half April’s tally and the least since 2003, according to data compiled by Bloomberg. Elsewhere in credit markets, BP Plc bonds rose the most since March 2009, rebounding from a record low, as investors assessed liabilities stemming from the worst oil spill in U.S. history. The 4.75 percent notes due in 2019, issued by the company’s finance unit, increased 2.7 cents to 92.9 cents on the dollar as of 12:28 p.m. in New York, according to Trace, the bond price reporting system of the Financial Industry regulatory Authority. The debt fell to 90.1 cents yesterday, the lowest ever. BP bonds had fallen as the London-based company’s efforts to plug its gushing well failed and the U.S. Justice Department said it’s investigating whether any criminal or civil laws were violated. The leak began after an April 20 explosion aboard the Deepwater Horizon rig, which BP leased from Vernier, Switzerland-based Transocean Ltd. BP Rating Cut “Investors are starting to get their hands around the potential exposures the spill companies may have,” said Joel Levington , managing director of corporate credit at Brookfield Investment Management Inc. in New York. BP’s credit ranking was cut one step to Aa2 by Moody’s Investors Service and is on review another possible downgrade, the New York-based rating company said today in a statement. Fitch Ratings cut BP’s ranking one notch to AA from AA+. A gauge of U.S. corporate credit risk fell for a second day as factory orders rose and the service industry expanded in May for a fifth straight month. The Markit CDX North America Investment Grade Index Series 14, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, dropped 0.3 basis point to a mid-price of 117.1 basis points as of 12:01 p.m. in New York, according to Markit Group Ltd. The index typically falls as investor confidence improves and rises as it deteriorates. European Risk Falls The cost of insuring against non-payment on European corporate bonds fell the most in a week today, according to traders of credit-default swaps, while indexes in Asia also declined. The rally in credit coincided with gains in Europe and Asia stock markets, with the DJ Stoxx 600 Europe index rising 1.4 percent. Default swaps on the Markit iTraxx Crossover Index of 50 mostly high-yield European companies fell 24.4 basis points to a two-week low of 558.8, according to Markit data. The decline signals an improvement in investor perceptions of credit quality. Credit-default swaps on European sovereign notes snapped three days of increases, with contracts tied to Italy dropping 10 basis points to 223, declining from a record, according to CMA DataVision. Default swaps linked to Greece’s government bonds fell 21 basis points to 717, Spain dropped 12 basis points to 238 and Portugal was 15 basis points lower at 330, CMA prices show. SovX Europe Index The Markit iTraxx SovX Western Europe Index of credit- default swaps linked to debt of 15 governments fell to 147 basis points, from yesterday’s all-time high closing price of 154.5, according to CMA. Credit-default swaps on BP’s debt were 13 basis points lower at 246. In emerging markets, spreads narrowed 7 basis points on average to 307, according to JPMorgan Chase & Co.’s Emerging Market Bond index. Argentina’s new 2017 bonds sank in their first day of trading as the government began turning over the securities to investors as part of its restructuring of $18.3 billion of defaulted debt kept out of a 2005 settlement. The 8.75 percent notes tumbled to 80.85 cents on the dollar from their issue price of 90.11, Stone Harbor Investment Partners said. Argentina began issuing $738 million of the bonds yesterday to institutional investors who participated in an early tender period. The government is distributing the securities as compensation for past due interest. “Argentina came up with an issuance price which isn’t really in line with reality,” said Jim Craige , who helps manage $12 billion of emerging-market debt, including defaulted Argentine bonds, at Stone Harbor in New York. Covered Bond Sales Bank of Montreal yesterday sold U.S. dollar-denominated covered bonds in the first transaction in the currency in more than a month. BNP Paribas Home Loan Covered Bond SA, a unit of France’s largest bank, sold 1.5 billion euros ($1.8 billion) of five-year notes that yielded 42 basis points more than the swap rate, Bloomberg data show. Dexia SA in Brussels sold 500 million euros of 10-year bonds with a 15 basis-point spread. Bank of New Zealand , a unit of National Australia Bank Ltd., is meeting with investors this week before a possible sale of covered bonds, according to a person familiar with the plan. The lender has completed the documentation it needs to sell the covered notes, the person said, asking not to be named as the plans are private. A sale would be the first issue of such securities in New Zealand. ‘Flight to Safety’ “Investors are buying covered bonds rather than unsecured notes as a flight to safety,” said Florian Hillenbrand , a Munich-based senior analyst at UniCredit SpA, Italy’s biggest bank. Banks are “tapping the market now because it’s a nice window of opportunity and investors have money to put to work,” said Hillenbrand, who recommends buying German, French and Scandinavian covered bonds. Jose Sarafana , the Paris-based head of covered bond strategy at Societe Generale SA, said he expects another 60 billion euros of sales this year. “Covered bonds offer safer, more liquid assets than senior unsecured notes and therefore we’re seeing plenty of demand for new issues,” he said. Issues in the $2.9 trillion covered bond market get higher ratings than regular notes because they are backed by a pool of assets that can be sold in a default. The extra security typically allows lenders to pay less interest. Covered bonds, which date back to the 18th century, are mostly sold by banks and tend to originate from Europe. Lenders in the region are facing 195 billion euros of bad debts by the end of 2011 as governments cut spending to reduce budget deficits, the European Central Bank estimates. “Bond issuance was very low in May, so we’re now seeing banks looking to covered bonds to meet their growing refinancing needs,” said SocGen’s Sarafana. Borrowers are rushing to sell debt before the ECB’s year- long purchase program ends on June 30. The Frankfurt-based ECB said yesterday it has spent 55.1 billion euros of the 60 billion it set aside a year ago to support credit markets by buying covered bonds. To contact the reporters on this story: Sonja Cheung in London scheung58@bloomberg.net ; Caroline Hyde in London chyde3@bloomberg.net

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Copper Demand May Weaken as China Curbs Its Economy, Freeport, Codelco Say

June 3, 2010

By Matt Craze and Sara Eisen June 3 (Bloomberg) — Freeport-McMoran Copper & Gold Inc . and Codelco, the world’s two largest copper producers, said China’s plans to curb its economy threaten to reduce demand for the metal after prices slumped 15 percent in two months. The copper market will be “volatile” for as much as another year after China took measures to cool its property market, Codelco Chief Executive Officer Diego Hernandez said yesterday in an interview at Bloomberg headquarters in New York. The Asian nation is a “risk to the world’s market place in the near term,” Freeport CEO Richard Adkerson said in an interview. Chinese policy makers are trimming stimulus measures this year after a $1.4 trillion lending binge revived growth in 2009. Officials are targeting a 22 percent reduction in new loans and have sold bills and raised banks’ reserve requirements to suck money out of the financial system. Copper has slumped from a 20- month high in April on concerns about global economic growth. “In the short term, we are subject to the volatility of the world economy,” said Hernandez, a former head of BHP Billiton Ltd.’s base metals business who became chief executive of state-owned Codelco, based in Santiago, last month. Emerging market demand “could slow down for a while,” he said. Equity and commodities have slumped on speculation that Europe’s debt crisis will spread, hurting global economic growth. The Reuters/Jefferies CRB Index of 19 raw materials dropped 8.2 percent last month, the most since November 2008. Copper futures for July delivery dropped 3.6 cents, or 1.2 percent, to $3.0045 a pound on the Comex in New York at 8:59 a.m., down for a fourth straight session. Manufacturing Slowed Reports June 1 showed the rate of manufacturing gains slowed in China and the U.S., the world’s biggest copper users. European factory-output growth slowed more than previously estimated last month, figures showed yesterday. Copper prices in New York dropped 7.4 percent in May, the most since January. “China is cooling from very strong levels, the European recovery threatens to stall, and the U.S. is leveling out,” said David Thurtell , an analyst at Citigroup Inc. in London. China is seeking to limit inflation to about 3 percent this year and said May 13 it will crack down on price speculation and hoarding in some food commodities to reach the target. Consumer prices jumped 2.8 percent in April from a year earlier, the fastest pace in 18 months. “It’s positive” that China’s government is working to minimize inflation, Adkerson told Bloomberg Television today in an interview. “It will likely lead to a more sustainable situation going forward.” Expansion Plans Still, both companies are investing in expansion plans in expectation of rising future demand in China and other emerging economies. Combined, they account for about a fifth of global output of copper, which is used in plumbing and wiring. Codelco will invest $15 billion over the next five years to revamp production at its aging mines, Hernandez said. Production will rise to over 2 million tons a year from about 1.7 million tons through the increased spending, he said. Freeport, based in Phoenix, will spend $100 million this year to explore for copper and gold after cutting back on investments in 2009 amid concern over the world economy, Adkerson said in April. China, India and other emerging economies need copper “for their growth, urbanization, programs that they have and I don’t see how that could stop,” Hernandez said. Freeport rose $2.53, or 3.8 percent, to $69.02 as of 9:26 a.m. in New York Stock Exchange composite trading. The stock has dropped about 14 percent this year. To contact the reporters on this story: Matt Craze in Santiago at mcraze@bloomberg.net or Sara Eisen in New York at

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Covered Bond Sales Surge Transocean Tumbles Credit Markets

June 3, 2010

By Sonja Cheung and Caroline Hyde June 3 (Bloomberg) — Sales of covered bonds are accelerating as investors seek debt backed by collateral amid concern about the creditworthiness of governments and banks. About $7.7 billion of the securities have been sold or are being marketed this week worldwide, more than double last week’s total, data compiled by Bloomberg show. Bank of Montreal , Canada’s fourth-largest bank, sold $2 billion of the bonds due in 2015. Demand for securities backed by mortgages and public-sector loans with top ratings is rising as European governments from Greece to Spain struggle to cut record budget deficits, threatening the region’s banks. Covered bonds returned 0.25 percent in May, compared with a 0.4 percent loss on global investment-grade company debt, Bank of America Merrill Lynch index data show. “In this new world where volatility is high,” it’s “certainly an advantage to be holding bonds that have collateral backing,” said Georg Grodzki , head of credit research at Legal & General Investment Management in London. The company, which oversees almost 300 billion pounds ($440 billion), is a “selective buyer” of covered bonds, favoring notes sold by northern European issuers, he said. Yields have risen at a slower pace relative to government securities than corporate debt. Spreads on euro-denominated covered bonds have widened 9 basis points to 153 basis points since May 6, compared with an increase of 28 basis points to 196 for company debt, Bank of America Merrill Lynch indexes show. Company Bond Sales The increase in covered bond sales contrasts with a decline in corporate debt issuance to $70 billion last month, less than half April’s tally and the least since 2003, according to data compiled by Bloomberg. Elsewhere in credit markets, Transocean Ltd. ’s notes fell the most in 17 months yesterday after BP Plc failed to plug its leaking Gulf of Mexico well and the U.S. investigated if criminal or civil laws were violated. The drilling contractor’s 5.25 percent securities due in 2013 declined 4.8 cents to 94.4 on the dollar, after trading as low as 92.5, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. London-based BP’s 5.25 percent 2013 notes tumbled 3.4 cents to 98.3 yesterday, while Anadarko Petroleum Corp.’s 6.45 percent bonds due 2036 plunged 4 cents to 81.9, the lowest since May 2009. Energy company bonds have plunged since the worst oil spill in U.S. history began after an April 20 explosion aboard the Deepwater Horizon rig, which BP leased from Transocean. “There’s more questions than answers so everyone wants to sell,” said Vivek Pal , an analyst at broker-dealer Knight Capital in Greenwich, Connecticut. Junk Bonds Moody’s Investors Service said an index measuring the difficulty of borrowing for junk-rated companies failed to show improvement for the first time in 13 months. The Moody’s Liquidity-Stress Index, which falls when more cash is available in the corporate bond market, was 4.8 percent in May, unchanged from April, the rating agency said in a statement. The index peaked at 20.9 percent in March 2009. “While credit market conditions have allowed issuers to improve near-term liquidity and chip away at forthcoming maturities, a significant amount of corporate debt still matures from 2010-2014,” Moody’s analyst John Puchalla said. More than $800 billion of junk debt will mature through 2014, causing a wave of distressed exchanges in which companies try to swap out their debt at a discount to face value to avoid bankruptcy, Moody’s said in a report last month. GE Sees Bargain General Electric Co.’s investment arm is buying U.S. commercial-mortgage securities and high-yield corporate bonds. “We’re adding in markets that we feel will recover nicely with a fundamental recovery in the U.S.,” Paul Colonna , who oversees $58 billion as chief investment officer for fixed income at GE Asset Management in Stamford, Connecticut, said yesterday in a telephone interview. “While we certainly had a volatile time over the last month or so, I don’t think this is the path for the rest of the year,” Colonna said. Investors lost money on high-yield corporate bonds and commercial mortgage-backed securities last month as bond buyers fled to the “safest assets,” such as U.S. Treasuries and home- loan bonds with government-backed guarantees, Bank of America Corp. said in a June 1 report. Bond Risk Falls The cost of insuring against non-payment on European corporate bonds fell the most in a week today, according to traders of credit-default swaps, while indexes in Asia also declined. The rally in credit coincided with gains in stock markets worldwide, with the DJ Stoxx 600 Europe index rising 2.2 percent, the most since May 27. Default swaps on the Markit iTraxx Crossover Index of 50 mostly high-yield European companies fell 25.5 basis points to a two-week low of 550.5, according to JPMorgan Chase & Co. at 10 a.m. in London. The decline signals an improvement in investor perceptions of credit quality. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan shed 9 basis points to 136 basis points in Singapore, Royal Bank of Scotland Group Plc prices show. Credit-default swaps on European sovereign notes snapped three days of increases, with contracts tied to Italy dropping 10 basis points to 223, declining from a record, according to CMA DataVision. Default swaps linked to Greece’s government bonds fell 21 basis points to 717, Spain dropped 12 basis points to 238 and Portugal was 15 basis points lower at 330, CMA prices show. SovX Europe Index The Markit iTraxx SovX Western Europe Index of credit- default swaps linked to debt of 15 governments fell to 147 basis points, from yesterday’s all-time high closing price of 154.5, according to CMA. Credit-default swaps on BP’s debt were 13 basis points lower at 246. In emerging markets, spreads narrowed 13 basis points on average to 314, according to JPMorgan Chase & Co.’s Emerging Market Bond index. Argentina’s new 2017 bonds sank in their first day of trading as the government began turning over the securities to investors as part of its restructuring of $18.3 billion of defaulted debt kept out of a 2005 settlement. The 8.75 percent notes tumbled to 80.85 cents on the dollar from their issue price of 90.11, Stone Harbor Investment Partners said. Argentina began issuing $738 million of the bonds yesterday to institutional investors who participated in an early tender period. The government is distributing the securities as compensation for past due interest. “Argentina came up with an issuance price which isn’t really in line with reality,” said Jim Craige , who helps manage $12 billion of emerging-market debt, including defaulted Argentine bonds, at Stone Harbor in New York. Covered Bonds Bank of Montreal sold U.S. dollar-denominated covered bonds in the first transaction in the currency in more than a month. BNP Paribas Home Loan Covered Bond SA, a unit of France’s largest bank, sold 1.5 billion euros ($1.8 billion) of five-year notes yesterday that yielded 42 basis points more than the swap rate, Bloomberg data show. Dexia SA in Brussels sold 500 million euros of 10-year bonds with a 15 basis-point spread. Bank of New Zealand , a unit of National Australia Bank Ltd., is meeting with investors this week before a possible sale of covered bonds, according to a person familiar with the plan. The lender has completed the documentation it needs to sell the covered notes, the person said, asking not to be named as the plans are private. A sale would be the first issue of such securities in New Zealand. ‘Flight to Safety’ “Investors are buying covered bonds rather than unsecured notes as a flight to safety,” said Florian Hillenbrand , a Munich-based senior analyst at UniCredit SpA, Italy’s biggest bank. Banks are “tapping the market now because it’s a nice window of opportunity and investors have money to put to work,” said Hillenbrand, who recommends buying German, French and Scandinavian covered bonds. Jose Sarafana , the Paris-based head of covered bond strategy at Societe Generale SA, said he expects another 60 billion euros of sales this year. “Covered bonds offer safer, more liquid assets than senior unsecured notes and therefore we’re seeing plenty of demand for new issues,” he said. Issues in the $2.9 trillion covered bond market get higher ratings than regular notes because they are backed by a pool of assets that can be sold in a default. The extra security typically allows lenders to pay less interest. Covered bonds, which date back to the 18th century, are mostly sold by banks and tend to originate from Europe. Lenders in the region are facing 195 billion euros of bad debts by the end of 2011 as governments cut spending to reduce budget deficits, the European Central Bank estimates. “Bond issuance was very low in May, so we’re now seeing banks looking to covered bonds to meet their growing refinancing needs,” said SocGen’s Sarafana. Borrowers are rushing to sell debt before the ECB’s year- long purchase program ends on June 30. The Frankfurt-based ECB said yesterday it has spent 55.1 billion euros of the 60 billion it set aside a year ago to support credit markets by buying covered bonds. To contact the reporters on this story: Sonja Cheung in London scheung58@bloomberg.net ; Caroline Hyde in London chyde3@bloomberg.net

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Amazon.com Is Said to Be Introducing Thinner Kindle in August

May 31, 2010

By Peter Burrows and Joseph Galante May 29 (Bloomberg) — Amazon.com Inc. , the world’s largest online retailer, plans to introduce the next version of its Kindle electronic-book reader in August, according to two people familiar with its plans. The device will be thinner and have a more responsive screen with a sharper picture, the people said, who didn’t want to be identified because the plans aren’t public. The new Kindle won’t include a touch screen or color, they said. Amazon.com , which introduced the Kindle in 2007, faces increased competition from Apple Inc. ’s iPad — a color tablet device that lets users browse the Web, watch video and read digital books. The new Kindle may be aimed more at Amazon.com’s original e-reader competitors — Sony Corp. and Barnes & Noble Inc. — than the newer threat from the iPad, said James McQuivey , an analyst at Forrester Research Inc. “It’s probably likely that Amazon already had this one in mind, more out of a response to Sony than out of any response to Apple,” McQuivey said. Amazon.com may not have a direct challenger to the iPad this year, he said. Craig Berman , a spokesman for Seattle-based Amazon.com, didn’t return a call seeking comment. Amazon.com fell $1.24 to $125.46 yesterday in Nasdaq Stock Market trading. The shares have declined 6.7 percent this year. Chief Executive Officer Jeff Bezos said this week that the company was concentrating on wooing committed book readers and that a color display screen is “some ways out.” Not Ready “I’ve seen some stuff in the laboratory, but it’s not quite ready for prime-time production,” Bezos said May 25 at the company’s annual shareholders meeting. The Kindle uses a black-and-white screen that mimics the appearance of paper. The new version will have sharper contrast that makes e-books look more like real books, the people familiar with the product said. The delay during page turns also will be shortened. The iPad, meanwhile, uses a full-color LCD screen. Sony is taking on the Kindle with a touch-screen reader, which it introduced last year. Barnes & Noble ’s Nook device made its debut in October. The Kindle currently sells for $259, the same price as the Nook. Sony sells its touch-screen device for $199. The iPad starts at $499. About 6 million e-readers will be sold this year, up from 3 million last year, according to Forrester Research Inc. The Kindle has about 60 percent of the U.S. market, followed by Sony with 35 percent, the Cambridge, Massachusetts-based research firm estimates. Earlier this year, Amazon.com bought a company called Touchco, which specializes in touch-screen technology, according to the people. To contact the reporters on this story: Peter Burrows in San Francisco at pburrows@bloomberg.net ; Joseph Galante in San Francisco at jgalante3@bloomberg.net

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Prudential Discussing Price Cut for AIG Asia Unit After Slump Soured Deal

May 28, 2010

By Kevin Crowley May 28 (Bloomberg) — Prudential Plc , the U.K. insurer seeking to buy American International Group Inc. ’s Asian unit in a $35.5 billion acquisition, said it’s talking with AIG about changing the terms of the deal. Discussions between the companies “may or may not lead to a change in the terms of the combination,” Prudential said today in a statement. Chief Executive Officer Tidjane Thiam, 47, was in New York yesterday to make his case to executives that the price for AIA should be cut, a person with knowledge of the situation said. Thiam is facing criticism from major investors as he asks for $21 billion, the biggest rights offer for an acquisition on record. Prudential’s market value is 13.8 billion pounds ($20 billion). The deal has already been delayed by the U.K. regulator over concerns about the insurer’s capital reserves and the biggest decline in equity markets since the financial crisis has dampened investors’ enthusiasm for the takeover. “It’s probably the least ideal market to raise capital,” said James Buckley , a London-based fund manager at Baring Asset Management Ltd. who helps oversee $44 billion, including Prudential stock. “The market is not completely closed for small rights offers, but for major deals like Prudential, it’s inevitably tough.” Investors owning as much as 20 percent of Prudential stock plan to vote against the takeover at the annual general meeting on June 7, Neptune Investment Management Ltd. , a London-based shareholder, said this week. Thiam needs 75 percent of investors to support the rights offer for the deal to succeed. BlackRock, Fidelity BlackRock Inc. and Fidelity Investments are among major Prudential shareholders that have voiced concern the deal is too expensive, said the person, who declined to be identified because the discussions are private. Some shareholders are demanding a reduction to as low as $30 billion, a price AIG’s board is unlikely to approve, the person said. “We have a signed agreement with Prudential, and we expect them to use their best efforts to live up to it,” Mark Herr , a spokesman for New York-based AIG, said late yesterday. Speculation the deal would collapse was “unfounded,” Prudential spokesman Ed Brewster said earlier this week. “The acquisition of AIA by Prudential represents a compelling combination that can deliver very attractive long-term returns to our shareholders,” he said. Public Offering Option The U.S. Treasury Department, which helped fund the $182.3 billion bailout of AIG, hasn’t asked the company to find a compromise on the AIA deal, spokesman Andrew Williams said in an e-mail. He commented after the Daily Telegraph reported that the Treasury encouraged the insurer to negotiate to preserve the takeover of AIA. AIG, which is selling assets to repay the U.S. bailout, had been planning a public offering of AIA until announcing the Prudential deal in March. AIG could return to the public- offering option if Prudential shareholders reject the deal, Jim Millstein , the Treasury’s chief restructuring officer, said this week in Washington. “It would certainly be a mistake to not be willing to renegotiate,” said Angelo Graci , managing director at Chapdelaine Credit Partners in New York. “There are meaningful risks to going back and pursuing an IPO; it would take longer, and the valuation would have a significant amount of uncertainty.” AIG is being advised by Blackstone Group LP, Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc. and Morgan Stanley, according to data compiled by Bloomberg. Prudential is being advised by Credit Suisse Group AG, JPMorgan Cazenove, Lazard LLC and Nomura Holdings Inc., the data show. Funding Plans Prudential plans to fund the AIA purchase through the $21 billion rights offer, including fees to banks, $10.5 billion of new shares and other securities and by selling debt. The offer is the biggest in U.K. corporate history. Capital Research & Management Co., Prudential’s biggest shareholder, would have to pay about 1.89 billion pounds to take up its rights in full, data compiled by Bloomberg show. The next three biggest holders, Blackrock, Legal & General Group Plc and Norges Bank, would pay a total of about 1.96 billion pounds for their full allocation of shares. Not all Prudential’s directors plan to take up their rights in full, Chairman Harvey McGrath said this week. Michael McLintock , CEO of Prudential’s fund-management unit, would have to pay about 3.4 million pounds to fully back the transaction. “In uncertain times investors aren’t as willing to take as much risk, and it makes it harder to raise funds for expansion,” said Peter Braendle , who helps oversee about $51 billion at Swisscanto Asset Management AG in Zurich and hasn’t decided whether he’ll back the rights offer. “Investors prefer to have a bit more cash.” Market Concern Prudential, which yesterday posted its steepest increase since August, was down 0.8 percent at 543 pence as of 9:43 a.m. in London trading. The insurer’s share price was 602.5 pence on Feb. 26, the last trading day before the deal was announced. Prudential shares were suspended in Hong Kong earlier today before the company’s statement. The combined Prudential-AIA would be the largest life insurer in Hong Kong, as well as in Singapore, Malaysia, Thailand, Indonesia, the Philippines and Vietnam. Paying $35.5 billion for AIA will create an entity worth $60 billion by 2013, Thiam said this month. “The deal raises the question why the company is trying to pursue it if a substantial number of shareholders are opposing it,” said Tom Kirchmaier , a fellow at the London School of Economics. “For me the concerns in the debt market just mirror those in the equity market, and the market might just kill a deal which it considers a bad deal.” To contact the reporter on this story: Kevin Crowley in London at kcrowley1@bloomberg.net

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Prudential Discussing Price Cut for AIG Asia Unit After Slump Soured Deal

May 28, 2010

By Kevin Crowley May 28 (Bloomberg) — Prudential Plc , the U.K. insurer seeking to buy American International Group Inc. ’s Asian unit in a $35.5 billion acquisition, said it’s talking with AIG about changing the terms of the deal. Discussions between the companies “may or may not lead to a change in the terms of the combination,” Prudential said today in a statement. Chief Executive Officer Tidjane Thiam, 47, was in New York yesterday to make his case to executives that the price for AIA should be cut, a person with knowledge of the situation said. Thiam is facing criticism from major investors as he asks for $21 billion, the biggest rights offer for an acquisition on record. Prudential’s market value is 13.8 billion pounds ($20 billion). The deal has already been delayed by the U.K. regulator over concerns about the insurer’s capital reserves and the biggest decline in equity markets since the financial crisis has dampened investors’ enthusiasm for the takeover. “It’s probably the least ideal market to raise capital,” said James Buckley , a London-based fund manager at Baring Asset Management Ltd. who helps oversee $44 billion, including Prudential stock. “The market is not completely closed for small rights offers, but for major deals like Prudential, it’s inevitably tough.” Investors owning as much as 20 percent of Prudential stock plan to vote against the takeover at the annual general meeting on June 7, Neptune Investment Management Ltd. , a London-based shareholder, said this week. Thiam needs 75 percent of investors to support the rights offer for the deal to succeed. BlackRock, Fidelity BlackRock Inc. and Fidelity Investments are among major Prudential shareholders that have voiced concern the deal is too expensive, said the person, who declined to be identified because the discussions are private. Some shareholders are demanding a reduction to as low as $30 billion, a price AIG’s board is unlikely to approve, the person said. “We have a signed agreement with Prudential, and we expect them to use their best efforts to live up to it,” Mark Herr , a spokesman for New York-based AIG, said late yesterday. Speculation the deal would collapse was “unfounded,” Prudential spokesman Ed Brewster said earlier this week. “The acquisition of AIA by Prudential represents a compelling combination that can deliver very attractive long-term returns to our shareholders,” he said. Public Offering Option The U.S. Treasury Department, which helped fund the $182.3 billion bailout of AIG, hasn’t asked the company to find a compromise on the AIA deal, spokesman Andrew Williams said in an e-mail. He commented after the Daily Telegraph reported that the Treasury encouraged the insurer to negotiate to preserve the takeover of AIA. AIG, which is selling assets to repay the U.S. bailout, had been planning a public offering of AIA until announcing the Prudential deal in March. AIG could return to the public- offering option if Prudential shareholders reject the deal, Jim Millstein , the Treasury’s chief restructuring officer, said this week in Washington. “It would certainly be a mistake to not be willing to renegotiate,” said Angelo Graci , managing director at Chapdelaine Credit Partners in New York. “There are meaningful risks to going back and pursuing an IPO; it would take longer, and the valuation would have a significant amount of uncertainty.” AIG is being advised by Blackstone Group LP, Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc. and Morgan Stanley, according to data compiled by Bloomberg. Prudential is being advised by Credit Suisse Group AG, JPMorgan Cazenove, Lazard LLC and Nomura Holdings Inc., the data show. Funding Plans Prudential plans to fund the AIA purchase through the $21 billion rights offer, including fees to banks, $10.5 billion of new shares and other securities and by selling debt. The offer is the biggest in U.K. corporate history. Capital Research & Management Co., Prudential’s biggest shareholder, would have to pay about 1.89 billion pounds to take up its rights in full, data compiled by Bloomberg show. The next three biggest holders, Blackrock, Legal & General Group Plc and Norges Bank, would pay a total of about 1.96 billion pounds for their full allocation of shares. Not all Prudential’s directors plan to take up their rights in full, Chairman Harvey McGrath said this week. Michael McLintock , CEO of Prudential’s fund-management unit, would have to pay about 3.4 million pounds to fully back the transaction. “In uncertain times investors aren’t as willing to take as much risk, and it makes it harder to raise funds for expansion,” said Peter Braendle , who helps oversee about $51 billion at Swisscanto Asset Management AG in Zurich and hasn’t decided whether he’ll back the rights offer. “Investors prefer to have a bit more cash.” Market Concern Prudential, which yesterday posted its steepest increase since August, was down 0.8 percent at 543 pence as of 9:43 a.m. in London trading. The insurer’s share price was 602.5 pence on Feb. 26, the last trading day before the deal was announced. Prudential shares were suspended in Hong Kong earlier today before the company’s statement. The combined Prudential-AIA would be the largest life insurer in Hong Kong, as well as in Singapore, Malaysia, Thailand, Indonesia, the Philippines and Vietnam. Paying $35.5 billion for AIA will create an entity worth $60 billion by 2013, Thiam said this month. “The deal raises the question why the company is trying to pursue it if a substantial number of shareholders are opposing it,” said Tom Kirchmaier , a fellow at the London School of Economics. “For me the concerns in the debt market just mirror those in the equity market, and the market might just kill a deal which it considers a bad deal.” To contact the reporter on this story: Kevin Crowley in London at kcrowley1@bloomberg.net

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Prudential Discussing Price Cut for AIG Asia Unit After Slump Soured Deal

May 28, 2010

By Kevin Crowley May 28 (Bloomberg) — Prudential Plc , the U.K. insurer seeking to buy American International Group Inc. ’s Asian unit in a $35.5 billion acquisition, said it’s talking with AIG about changing the terms of the deal. Discussions between the companies “may or may not lead to a change in the terms of the combination,” Prudential said today in a statement. Chief Executive Officer Tidjane Thiam, 47, was in New York yesterday to make his case to executives that the price for AIA should be cut, a person with knowledge of the situation said. Thiam is facing criticism from major investors as he asks for $21 billion, the biggest rights offer for an acquisition on record. Prudential’s market value is 13.8 billion pounds ($20 billion). The deal has already been delayed by the U.K. regulator over concerns about the insurer’s capital reserves and the biggest decline in equity markets since the financial crisis has dampened investors’ enthusiasm for the takeover. “It’s probably the least ideal market to raise capital,” said James Buckley , a London-based fund manager at Baring Asset Management Ltd. who helps oversee $44 billion, including Prudential stock. “The market is not completely closed for small rights offers, but for major deals like Prudential, it’s inevitably tough.” Investors owning as much as 20 percent of Prudential stock plan to vote against the takeover at the annual general meeting on June 7, Neptune Investment Management Ltd. , a London-based shareholder, said this week. Thiam needs 75 percent of investors to support the rights offer for the deal to succeed. BlackRock, Fidelity BlackRock Inc. and Fidelity Investments are among major Prudential shareholders that have voiced concern the deal is too expensive, said the person, who declined to be identified because the discussions are private. Some shareholders are demanding a reduction to as low as $30 billion, a price AIG’s board is unlikely to approve, the person said. “We have a signed agreement with Prudential, and we expect them to use their best efforts to live up to it,” Mark Herr , a spokesman for New York-based AIG, said late yesterday. Speculation the deal would collapse was “unfounded,” Prudential spokesman Ed Brewster said earlier this week. “The acquisition of AIA by Prudential represents a compelling combination that can deliver very attractive long-term returns to our shareholders,” he said. Public Offering Option The U.S. Treasury Department, which helped fund the $182.3 billion bailout of AIG, hasn’t asked the company to find a compromise on the AIA deal, spokesman Andrew Williams said in an e-mail. He commented after the Daily Telegraph reported that the Treasury encouraged the insurer to negotiate to preserve the takeover of AIA. AIG, which is selling assets to repay the U.S. bailout, had been planning a public offering of AIA until announcing the Prudential deal in March. AIG could return to the public- offering option if Prudential shareholders reject the deal, Jim Millstein , the Treasury’s chief restructuring officer, said this week in Washington. “It would certainly be a mistake to not be willing to renegotiate,” said Angelo Graci , managing director at Chapdelaine Credit Partners in New York. “There are meaningful risks to going back and pursuing an IPO; it would take longer, and the valuation would have a significant amount of uncertainty.” AIG is being advised by Blackstone Group LP, Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc. and Morgan Stanley, according to data compiled by Bloomberg. Prudential is being advised by Credit Suisse Group AG, JPMorgan Cazenove, Lazard LLC and Nomura Holdings Inc., the data show. Funding Plans Prudential plans to fund the AIA purchase through the $21 billion rights offer, including fees to banks, $10.5 billion of new shares and other securities and by selling debt. The offer is the biggest in U.K. corporate history. Capital Research & Management Co., Prudential’s biggest shareholder, would have to pay about 1.89 billion pounds to take up its rights in full, data compiled by Bloomberg show. The next three biggest holders, Blackrock, Legal & General Group Plc and Norges Bank, would pay a total of about 1.96 billion pounds for their full allocation of shares. Not all Prudential’s directors plan to take up their rights in full, Chairman Harvey McGrath said this week. Michael McLintock , CEO of Prudential’s fund-management unit, would have to pay about 3.4 million pounds to fully back the transaction. “In uncertain times investors aren’t as willing to take as much risk, and it makes it harder to raise funds for expansion,” said Peter Braendle , who helps oversee about $51 billion at Swisscanto Asset Management AG in Zurich and hasn’t decided whether he’ll back the rights offer. “Investors prefer to have a bit more cash.” Market Concern Prudential, which yesterday posted its steepest increase since August, was down 0.8 percent at 543 pence as of 9:43 a.m. in London trading. The insurer’s share price was 602.5 pence on Feb. 26, the last trading day before the deal was announced. Prudential shares were suspended in Hong Kong earlier today before the company’s statement. The combined Prudential-AIA would be the largest life insurer in Hong Kong, as well as in Singapore, Malaysia, Thailand, Indonesia, the Philippines and Vietnam. Paying $35.5 billion for AIA will create an entity worth $60 billion by 2013, Thiam said this month. “The deal raises the question why the company is trying to pursue it if a substantial number of shareholders are opposing it,” said Tom Kirchmaier , a fellow at the London School of Economics. “For me the concerns in the debt market just mirror those in the equity market, and the market might just kill a deal which it considers a bad deal.” To contact the reporter on this story: Kevin Crowley in London at kcrowley1@bloomberg.net

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Prudential Says It’s Holding Talks to Renegotiate Terms of AIA Acquisition

May 28, 2010

By Kevin Crowley May 28 (Bloomberg) — Prudential Plc Chief Executive Officer Tidjane Thiam was handed the chance to make a $35.5 billion bid for insurer AIA Group Ltd. after his firm’s share price almost tripled. The biggest decline in equity markets since the financial crisis may derail his plans. Falling investor confidence sparked by Europe’s sovereign debt crisis hampered corporate fundraisings in the past two months as Thiam, 47, asks investors for $21 billion, the biggest rights offer for an acquisition on record. Thiam was in New York yesterday to make his case in person to American International Group Inc. executives that the price for AIA should be cut, said a person with knowledge of the situation. The company confirmed in a statement today that talks with AIG are continuing. “It’s probably the least ideal market to raise capital,” said James Buckley , a London-based fund manager at Baring Asset Management Ltd. , who helps oversee $44 billion, including Prudential stock. “The market is not completely closed for small rights offers, but for major deals like Prudential, it’s inevitably tough.” Thiam said when he announced the offer in March that Prudential had “earned the right” to buy AIA after the stock jumped 191 percent to 602.5 pence in 12 months. The MSCI World Index plunged about 11 percent in the last six weeks, fueling shareholder criticism that Prudential is overpaying for AIA. BlackRock Inc. and Fidelity Investments are among major Prudential shareholders that have voiced concern the deal is too expensive, said the person, who declined to be identified because the discussions are private. Some shareholders are demanding a reduction to as low as $30 billion, a price AIG’s board is unlikely to approve, the person said. ‘Live Up to It’ “We have a signed agreement with Prudential, and we expect them to use their best efforts to live up to it,” said Mark Herr , a spokesman for New York-based AIG, in a statement late yesterday. Speculation the deal would collapse was “unfounded,” Prudential spokesman Ed Brewster said. The current talks between Prudential and AIG “may or may not lead to a change in the terms of the combination,” the insurer said today. “The acquisition of AIA by Prudential represents a compelling combination that can deliver very attractive long- term returns to our shareholders,” Brewster said. Investors owning as much as 20 percent of Prudential stock plan to vote down the takeover at the U.K. insurer’s annual general meeting on June 7, Neptune Investment Management Ltd. , a London-based shareholder, said this week. Thiam needs 75 percent of investors to support the rights offer for the deal to succeed. The Public Offering Option The U.S. Treasury Department, which helped fund the $182.3 billion bailout of AIG, has not asked the company to find a compromise on the AIA deal, spokesman Andrew Williams said in an e-mail. He commented after the Daily Telegraph reported that Treasury had encouraged the insurer to negotiate to preserve the takeover of AIA. AIG, which is selling assets to repay a U.S. bailout, had been planning a public offering of AIA until announcing the Prudential deal in March. AIG could return to the public- offering option if Prudential shareholders reject the deal, Jim Millstein , the Treasury’s chief restructuring officer, said this week in Washington. “It would certainly be a mistake to not be willing to renegotiate,” said Angelo Graci , managing director at Chapdelaine Credit Partners in New York. “There are meaningful risks to going back and pursuing an IPO; it would take longer, and the valuation would have a significant amount of uncertainty.” Largest Shareholders Prudential plans to fund the AIA purchase through a $21 billion rights offer, including fees to banks, $10.5 billion of new shares and other securities and by selling debt. The offer is the biggest in U.K. corporate history. Prudential has a market value of about 13.9 billion pounds ($20.2 billion). Capital Research & Management Co., Prudential’s biggest shareholder, would have to pay about 1.89 billion pounds to take up its rights in full, data compiled by Bloomberg show. The next three biggest holders, Blackrock, Legal & General Group Plc and Norges Bank, would pay about 1.96 billion pounds among them if they decide to buy their full allocation of shares. Not all Prudential’s directors plan to take up their rights in full, Chairman Harvey McGrath said this week. Michael McLintock , CEO of Prudential’s fund management unit, would have to pay about 3.4 million pounds to fully back the transaction. “In uncertain times investors aren’t as willing to take as much risk, and it makes it harder to raise funds for expansion,” said Peter Braendle , who helps oversee about $51 billion at Swisscanto Asset Management AG in Zurich, and hasn’t decided whether he’ll back the rights offer. “Investors prefer to have a bit more cash.” Fundraisings Postponed At least 19 companies have postponed or withdrawn $5 billion in U.S. debt sales since April 13, data compiled by Bloomberg show. Investment banking fees from acquisition advice, share and bond sales in western Europe dropped 17 percent in the first four months of 2010 compared with the previous year, New York-based research firm Freeman & Co. said. Standard Chartered Plc , the London-based bank that makes most of its profit in Asia, received bids yesterday for about 11 percent of the shares available in an initial public offering in India with one day to go. “It’s not easy to get people to part with their money when they aren’t sure about the prospects for equity markets and are more focused on preserving their wealth,” said Mike Lenhoff , chief strategist at Brewin Dolphin Holdings Plc in London, which has 22 billion pounds under management. “It’s an extremely difficult background that presents major obstacles to people trying to sort out some corporate strategies.” Shares Gain Prudential, which yesterday posted its steepest increase since August, rose as much as 2.3 percent in London and was trading up 1.2 percent at 554 pence as of 8:05 a.m. local time. The insurer’s share price was 602.5 pence on Feb. 26, the last trading day before the deal was announced. Prudential shares were suspended in Hong Kong earlier today before the company’s statement. The combined Prudential-AIA would be the largest life insurer in Hong Kong, as well as in Singapore, Malaysia, Thailand, Indonesia, the Philippines and Vietnam. Paying $35.5 billion for AIA will create an entity worth $60 billion by 2013, Thiam said this month. “The deal raises the question why the company is trying to pursue it if a substantial number of shareholders are opposing it,” said Tom Kirchmaier , a fellow at the London School of Economics. “For me the concerns in the debt market just mirror those in the equity market, and the market might just kill a deal which it considers a bad deal.” To contact the reporter on this story: Kevin Crowley in London at kcrowley1@bloomberg.net

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Frank to Lead Talks on Wall Street Overhaul, Sees Flaw in Senate on Swaps

May 25, 2010

By Alison Vekshin May 25 (Bloomberg) — U.S. Representative Barney Frank , who will lead congressional talks to produce a financial-regulation bill, said Senate language that would require commercial banks to wall off their swaps-trading operations “goes too far.” Frank’s comments today at a conference in Washington are the latest indication that the contentious swaps-desk provision may not survive final negotiations over the legislation. A separate measure in the Senate bill that would restrict banks’ proprietary trading — the so-called Volcker rule named for former Federal Reserve Chairman Paul Volcker — may address concerns targeted by Senator Blanche Lincoln’s swaps-desk plan, Frank said. “I don’t see the need for a separate rule regarding derivatives, because the restriction on banks engaging in proprietary activity would apply to derivatives,” said Frank, who leads the House Financial Services Committee. Banks should be able to use derivatives to hedge risks for themselves and their customers, Frank said. The Massachusetts Democrat will lead a bipartisan panel of lawmakers assigned to merge the House and Senate versions of legislation that will overhaul rules governing Wall Street. The House approved its version of the bill in December and the Senate approved its measure last week. Legislators must resolve the plans’ different approaches to regulating derivatives, financial instruments based on the value of another security or benchmarks such as stock options. The rule requiring banks to push out their swaps desks, which Lincoln said was necessary to rein in banks’ risk-taking, has drawn opposition from the banking industry and government officials including Volcker, who now serves as an adviser to President Barack Obama . Bernanke Opposed Fed Chairman Ben S. Bernanke and Federal Deposit Insurance Corp. Chairman Sheila Bair also oppose the Lincoln swaps-desk language. A group of U.S. House Democrats is considering ways to strip the swaps-desk measure from the bill. Representative Gary Ackerman , a New York Democrat on the House Financial Services Committee, had his staff circulate a draft letter yesterday to House members seeking their opposition. The Senate today named 12 negotiators, including Lincoln, the Arkansas Democrat who leads the Senate Agriculture Committee, to work with Frank and other House counterparts to narrow differences between the two bills. Staff for Frank and Senate Banking Committee Chairman Christopher Dodd , another negotiator who wrote the Senate bill, will meet this week and next to look for areas of compromise. Negotiators plan to begin official meetings in two weeks. Frank and Dodd have said they want to get a merged bill to Obama by July 4. To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net .

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Harold Ford, Jr.: FCC Re-Designation of Broadband Will Bring Unwanted Market Uncertainty

May 25, 2010

There has been a significant amount of news coverage regarding the recent announcement by the Federal Communications Commission (FCC) that, for the first time, it may classify many broadband services under Title II of the Communications Act of 1934. Title II was designed to give the then newly-formed FCC authority to regulate telephone and telegraph services; a long stretch from modern broadband access to the Internet. Legal and agency experts are poring over the technical aspects of moving broadband from Title I to Title II, but what has not been carefully examined — and which should be — is the economic impact this re-designation will have on investment decisions that broadband network providers will make in deciding how, where, and if to build, upgrade and maintain the next generation of broadband networks. The growth of the Internet ecosystem relies on continued private investment. For the past decade, a stable market atmosphere has prospered under the “light regulatory touch” of the original classification of broadband under Title I of the Communications Act. This has allowed companies — both the operating companies and investment firms — to make reasoned judgments on how and where to invest and innovate. We are talking about sophisticated investors helping provide funding to build wired and wireless networks which now reach 95 percent of the American public. It was this confidence in the FCC to work in partnership with consumers and with providers which investors in the private sector saw as a reason to invest in broadband companies, judging their prospects to earn a reasonable rate of return were justified. All that is about to change. From my experience in Congress and judging by the opinions from market analysts from around the country, this move by the FCC to classify broadband as a Title II “telecommunications service” will create massive uncertainty for investors. Tuna Amobi, Standard & Poor stated in a May 6th MarketWatch piece: “[The FCC's 'third-way' framework] creates potential long-term negative investment (and competitive) implications for major cable broadband providers.’” John Hodulik, with UBS stated in a May 5th Wall Street Journal article: “Cable companies and carriers are likely to fight this in court for years and could accelerate their plans to wind down investment in their broadband networks…You could have regulators involved in every facet of providing Internet over time. How wholesale and [retail] prices are set, how networks are interconnected and requirements that they lease out portions of their network.” Craig Moffett, with Bernstein Research stated in a May 6th Wall Street Journal article following the announcement by the FCC: “Markets abhor uncertainty. Today we got uncertainty in spades…this development is an unequivocal negative … most significantly for the cable operators and Verizon.” The above concerns should not go ignored. Statements like “long-term negative investment,” “regulated price setting” and “this development is an unequivocal negative,” show that a better plan is coveted by the marketplace. In light of fiscal and economic uncertainty in Europe, combined with lackluster domestic job creation, the FCC should be careful not to inject more uncertainty into a marketplace searching for stability and increased investment. Broadband for America’s mission is to increase the deployment and adoption of broadband throughout America, a goal the FCC has stated is its top priority. By proposing new regulatory policies that will immediately create long-term uncertainty in the marketplace, the FCC will complicate our goal of universal access and adoption. The FCC needs to look no further than the example of the policies promoted under President Bill Clinton and President George W. Bush, which increased private investment in the pursuit of broadband deployment and adoption. That example merits following again.

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European Economy Needs MAJOR Reforms, Warns EU Leader

May 25, 2010

BRUSSELS — Europe’s economy will stagnate unless governments make major reforms to boost growth – just as they rein in spending to curb soaring debt levels, the European Union’s economy chief warned Tuesday. Low growth prospects and rocketing debt in many of the EU’s 27 nations have alarmed financial markets in recent months, causing stocks to slide and the euro to fall sharply in value to a four-year low against the U.S. dollar. EU Economy Commissioner Olli Rehn called for government action to speed up economic output, saying his forecasts show that growth will not top 1.5 percent and the jobless rate will stay close to current highs without reforms over the next five years. “The big risk is that once the recovery gets more robust, we sit idly in self-complacency and forget the structural reforms. That would lead us to a sluggish recovery – or even a lost decade,” he said in a speech at the Brussels Economic Forum organized by the EU’s executive commission. He said EU forecasts showed that “ambitious structural reforms” could help the economy grow by over 2 percent over the next ten years, creating more than 10 million jobs and taking unemployment down to 3 percent by 2020. The reforms needed vary for each European country, he said, repeating a call for them to open up national markets and drop barriers that prevent foreign companies or individuals from doing business across the bloc. Countries such as Italy and Greece have repeatedly ignored EU calls to liberalize markets. Even more business-friendly places like Germany have resisted EU moves to allow foreign services companies – anything from Polish plumbers to French telecoms companies – to crack their home markets and pile on the competition for native companies. Rehn also called for workers’ representatives to get behind labor market reforms – such as making it easier to hire and fire staff – that they fear would damage their rights. He said states need “the political skill and stamina to build a societal consensus on the necessary reforms.” Trade unions in Spain and Greece have protested loudly against government moves to hike retirement ages, which reduces state pensions spending. French President Nicolas Sarkozy is also likely to face fierce union opposition to his plans to reform pensions. Italy is expected to become the latest European government to announce big budget cuts later Tuesday, shaving an estimated euro24 billion from state spending in an effort to reduce its debt – currently the largest in the EU. Other eurozone countries – Spain, Portugal and Ireland – are sharply curbing budget spending to try and get mounting debt under control amid loss of market confidence in the euro currency and the ability of eurozone states to pay their bills. Britain, which does not use the euro, also announced some 6 billion pounds ($8.7 billion) in budget cuts on Monday. Denmark is likewise making cuts.

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Millicom Plans Mobile-Services Blitz as Bharti, America Movil Muscle In

May 24, 2010

By Diana ben-Aaron May 24 (Bloomberg) — Millicom International Cellular SA , a company with mobile-phone customers in countries from Guatemala to Tanzania, plans to counter Bharti Airtel Ltd. ’s Africa entry with services such as money transfers, banking and insurance. “I don’t think Bharti is proven outside of India, so let’s see what they bring,” Chief Executive Officer Mikael Grahne said in an interview in Stockholm. “We just need to accelerate and come out with new things.” Millicom was interested in some of Zain’s Africa assets that Bharti agreed to acquire for $10.7 billion in March, he said. As Bharti, France Telecom SA , Vodafone Group Plc and America Movil SAB de CV, controlled by Mexican billionaire Carlos Slim , expand on Millicom’s turf, Grahne is pushing third- generation services for wireless Internet. He’s also broadening the company’s portfolio that includes SMS-based information services and microloans for topping up prepaid balances. Grahne has standardized Millicom’s brand and business, selling units that couldn’t be among the top two operators in their countries. Millicom, whose mobile-service brand name is TiG, was established 20 years ago by Sweden’s Kinnevik Investment AB as a holding company for cellular assets. The company may bid for a license in Costa Rica, and would consider other greenfield operations or mergers if they were capable of becoming first or second in their markets and producing at least $100 million in annual revenue, he said. Target Customers “Sooner or later markets come to a certain level of maturity and to get growth from then on you need new products and services, so we are very heavily focused on anticipating that,” he said. The company will pursue customers who can pay more for extras and better network quality, rather than competing strictly on price of basic services, he said. Millicom, based in Luxembourg, has made its strategy work so far. First-quarter net income increased 11 percent to $155 million as sales rose 16 percent to $905 million, aided by stabilizing economies, broadband and other add-on services. The company’s shares have advanced almost 50 percent in Nasdaq trading in the past year, giving it a market value of $8.8 billion. Bharti’s entry into Africa is likely to spark a wave of consolidation as less profitable players exit the market, Informa analysts Nick Jotischky and Matthew Reed wrote in a recent report. Millicom competes with the Zain units being acquired by Bharti in Tanzania, Ghana, Democratic Republic of Congo and Chad. France Telecom, Vodafone “We don’t believe in global scale or regional scale,” Grahne said. “The only size that counts is in-market size, and in the markets we are in, we haven’t yet seen in-market consolidation.” France Telecom CEO Stephane Richard has said he expects to invest as much as 7 billion euros ($8.8 billion) in deals focused on Africa and the Middle East in the next five years. Vodafone CEO Vittorio Colao said this month that sub-Saharan Africa is among the three “priority areas” for the world’s largest mobile-phone company. Millicom would participate in the consolidation in its markets if it furthers the company’s goal of building market- leading operators, Grahne said. Millicom is the third-largest operator in Colombia, Rwanda and DRC, and number one or two in all its other markets, he said. A deal to divest its last Asian unit, in Laos, to VimpelCom Ltd. , is still pending. Network Sharing Central America is in a fairly stable competitive situation with Millicom, America Movil SAB de CV and Telefonica SA dividing up the market, Grahne said. Africa has too many licenses, he said. Grahne, 57, took over the CEO job from Marc Beuls in March 2009 after seven years as chief operating officer. He previously worked for Procter & Gamble Co., PepsiCo Inc., and was Seagram Co. Ltd.’s Latin American chief. He has cut costs by spinning off towers in Ghana into a separate company that can also serve other operators, and aims to do more network sharing to cut costs. “I wouldn’t mind sharing a 3G network with a competitor,” he said, referring to networks that provide higher speeds for Internet surfing. The company would also consider buying more spectrum to serve the growing consumption needs of its customers, he said. Euro Weakness Millicom is joining with Tele2 AB, a Swedish phone company with operations in Russia and another Kinnevik investment, to negotiate with equipment suppliers. Kinnevik owns 35 percent of Millicom, its website says. The euro’s decline against the dollar is likely to affect the company because Chad and Senegal have currencies pegged to the euro, and it has also made foreign-exchange markets more volatile, Grahne said. “Globally it’s still a very nervous place, people are still nervous,” he said. “We are not in our plans counting on any uptick or improvement in this environment. If it comes we will take advantage of it.” To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

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Voice Recorder Found After Fatal Air India Accident

May 23, 2010

By Vipin Nair and Rakteem Katakey May 23 (Bloomberg) — Accident investigators found the cockpit voice recorder from the wreckage of an Air India Express Boeing Co. aircraft that crashed yesterday, killing 158 passengers and crew. Analysis of the fire-damaged recorder may take about two weeks and is expected to provide the necessary details about the accident, the government said in a statement. Search teams were still looking for the main flight data recorder. “Officials from the Directorate General of Civil Aviation are searching for the black box,” Harpreet Singh, Air India’s emergency response coordinator for the disaster in southern Karnataka state, told reporters today, referring to India’s aviation regulator. Until it’s “found and formal studies are done, we can’t conclude anything,” Singh said in Mumbai. Flight IX-812 from Dubai to Mangalore slammed through a boundary wall and slid down a hill before bursting into flames at about 6:05 a.m. yesterday in India’s first fatal crash of a passenger aircraft in a decade. Flames and thick smoke billowed from the forested area. All the bodies of the dead have been removed from the wreckage of the Boeing 737-800, Singh said. Of those, 87 have been identified. There were eight survivors. The accident was the worst in India in 14 years, according to the Aviation Safety Network website. Houston, Texas-based disaster management company Kenyon International Emergency Services has been asked to assist in the rescue operation, Air India’s Singh said. The airline will also conduct an internal inquiry. Busy Skies Since India’s last major air disaster in 2000, its skies have seen the arrival of Kingfisher Airlines Ltd ., SpiceJet Ltd ., IndiGo, GoAirlines (India) Pvt. and Paramount Airways Ltd., as the world’s second fastest expanding major economy after China saw demand surge. India will be the fastest-growing air travel market for the next 10 years, Airbus SAS, the world’s biggest planemaker, predicts. The country’s carriers will add $138 billion of new aircraft over two decades, the company forecasts. National Aviation Co. of India Ltd, Air India’s owner, is seeking to raise as much as $1.15 billion to refinance loans that funded the purchase of 21 Airbus planes. Civil Aviation Minister Praful Patel said in March that India needs to more than quadruple the number of airports from the current 90 to meet the increased traffic. “India’s safety record has been as good as it gets,” said Kapil Kaul , chief executive officer of the Indian unit of the Centre for Asia Pacific Aviation . Mangalore’s “tabletop” runway “has challenges and the experience of the pilot is critical,” he said. Boeing Team Boeing is sending a team to provide technical assistance to the investigation at the invitation of Indian authorities, the Chicago-based manufacturer said in a statement yesterday. Air India said the crashed 737 was about 2 1/2 years old. Firefighters had to cross a railway and battle through trees to reach the wreckage, the CNN-IBN television channel reported yesterday. It showed a rescue worker carrying the foam- covered body of young child up a mud bank away from the crash. At least 50 victims were from the state of Kerala, Press Trust of India reported. Kerala relies on remittances from people working in the Middle East for a quarter of its economy. Both pilots were experienced and had flown into Mangalore together on May 17, Air India’s director for personnel, Anup Srivastava , told reporters in Mumbai yesterday. The civil aviation ministry said in a statement the plane had landed “slightly beyond” the runway’s “touchdown” zone at a time when visibility was about six kilometers (four miles). 1996 Crash Yesterday’s crash was the worst in India since a Saudi Arabian Airlines flight collided with a Kazakhstan Airlines jet in November, 1996, killing all 349 on board. In the South Asian country’s last major air disaster, a Boeing 737-200 crashed into a residential area while approaching Patna airport in the eastern Bihar in July 2000. For loss-making national carrier Air India the accident “comes at a time when it is struggling,” analyst Kaul said. “This is going to be demotivating. While the incident may not affect their plans to raise capital, “they are going to be much more in focus for the wrong reasons,” he said. International air travel has rebounded from last year’s slump as the global economy expanded. Indian airlines carried 16.82 million passengers between January and April this year, 22 percent more than a year earlier, according to the Civil Aviation Ministry. To contact the reporters on this story: Vipin Nair in Mumbai at vnair12@bloomberg.net ; Rakteem Katakey in New Delhi at rkatakey@bloomberg.net .

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Cockpit Flight Recorder Found in Air India Crash That Killed 158 People

May 23, 2010

By Vipin Nair and Rakteem Katakey May 23 (Bloomberg) — Accident investigators continue to search for flight data and voice recorders from the wreckage of an Air India Express Boeing Co. aircraft that crashed yesterday, killing 158 passengers and crew. “Officials from the Directorate General of Civil Aviation are searching for the black box,” Harpreet Singh, Air India’s emergency response coordinator for the disaster in southern Karnataka state, told reporters today, referring to India’s aviation regulator. Until it’s “found and formal studies are done, we can’t conclude anything,” Singh said in Mumbai. Flight IX-812 from Dubai to Mangalore slammed through a boundary wall and slid down a hill before bursting into flames at about 6:05 a.m. yesterday in India’s first fatal crash of a passenger aircraft in a decade. Flames and thick smoke billowed from the forested area. All the bodies of the dead have been removed from the wreckage of the Boeing 737-800, Singh said. Of those, 87 have been identified. There were eight survivors. The accident was the worst in India in 14 years, according to the Aviation Safety Network website. Houston, Texas-based disaster management company Kenyon International Emergency Services has been asked to assist in the rescue operation, Air India’s Singh said. The airline will also conduct an internal inquiry. Busy Skies Since India’s last major air disaster in 2000, its skies have seen the arrival of Kingfisher Airlines Ltd ., SpiceJet Ltd ., IndiGo, GoAirlines (India) Pvt. and Paramount Airways Ltd., as the world’s second fastest expanding major economy after China saw demand surge. India will be the fastest-growing air travel market for the next 10 years, Airbus SAS, the world’s biggest planemaker, predicts. The country’s carriers will add $138 billion of new aircraft over two decades, the company forecasts. National Aviation Co. of India Ltd, Air India’s owner, is seeking to raise as much as $1.15 billion to refinance loans that funded the purchase of 21 Airbus planes. Civil Aviation Minister Praful Patel said in March that India needs to more than quadruple the number of airports from the current 90 to meet the increased traffic. “India’s safety record has been as good as it gets,” said Kapil Kaul , chief executive officer of the Indian unit of the Centre for Asia Pacific Aviation . Mangalore’s “tabletop” runway “has challenges and the experience of the pilot is critical,” he said. Boeing Team Boeing is sending a team to provide technical assistance to the investigation at the invitation of Indian authorities, the Chicago-based manufacturer said in a statement yesterday. Air India said the crashed 737 was about 2 1/2 years old. Firefighters had to cross a railway and battle through trees to reach the wreckage, the CNN-IBN television channel reported yesterday. It showed a rescue worker carrying the foam-covered body of young child up a mud bank away from the crash. At least 50 victims were from the state of Kerala, Press Trust of India reported. Kerala relies on remittances from people working in the Middle East for a quarter of its economy. Both pilots were experienced and had flown into Mangalore together on May 17, Air India’s director for personnel, Anup Srivastava , told reporters in Mumbai yesterday. The civil aviation ministry said in a statement the plane had landed “slightly beyond” the runway’s “touchdown” zone at a time when visibility was about six kilometers (four miles). 1996 Crash Yesterday’s crash was the worst in India since a Saudi Arabian Airlines flight collided with a Kazakhstan Airlines jet in November, 1996, killing all 349 on board. In the South Asian country’s last major air disaster, a Boeing 737-200 crashed into a residential area while approaching Patna airport in the eastern Bihar in July 2000. For loss-making national carrier Air India the accident “comes at a time when it is struggling,” analyst Kaul said. “This is going to be demotivating. While the incident may not affect their plans to raise capital, “they are going to be much more in focus for the wrong reasons,” he said. International air travel has rebounded from last year’s slump as the global economy expanded. Indian airlines carried 16.82 million passengers between January and April this year, 22 percent more than a year earlier, according to the Civil Aviation Ministry. To contact the reporters on this story: Vipin Nair in Mumbai at vnair12@bloomberg.net ; Rakteem Katakey in New Delhi at rkatakey@bloomberg.net .

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Air India Crash That Killed 158 Investigated, Flight Data Recorders Sought

May 23, 2010

By Vipin Nair and Rakteem Katakey May 23 (Bloomberg) — Accident investigators continue to search for flight data and voice recorders from the wreckage of an Air India Express Boeing Co. aircraft that crashed yesterday, killing 158 passengers and crew. “Officials from the Directorate General of Civil Aviation are searching for the black box,” Harpreet Singh, Air India’s emergency response coordinator for the disaster in southern Karnataka state, told reporters today, referring to India’s aviation regulator. Until it’s “found and formal studies are done, we can’t conclude anything,” Singh said in Mumbai. Flight IX-812 from Dubai to Mangalore slammed through a boundary wall and slid down a hill before bursting into flames at about 6:05 a.m. yesterday in India’s first fatal crash of a passenger aircraft in a decade. Flames and thick smoke billowed from the forested area. All the bodies of the dead have been removed from the wreckage of the Boeing 737-800, Singh said. Of those, 87 have been identified. There were eight survivors. The accident was the worst in India in 14 years, according to the Aviation Safety Network website. Houston, Texas-based disaster management company Kenyon International Emergency Services has been asked to assist in the rescue operation, Air India’s Singh said. The airline will also conduct an internal inquiry. Busy Skies Since India’s last major air disaster in 2000, its skies have seen the arrival of Kingfisher Airlines Ltd ., SpiceJet Ltd ., IndiGo, GoAirlines (India) Pvt. and Paramount Airways Ltd., as the world’s second fastest expanding major economy after China saw demand surge. India will be the fastest-growing air travel market for the next 10 years, Airbus SAS, the world’s biggest planemaker, predicts. The country’s carriers will add $138 billion of new aircraft over two decades, the company forecasts. National Aviation Co. of India Ltd, Air India’s owner, is seeking to raise as much as $1.15 billion to refinance loans that funded the purchase of 21 Airbus planes. Civil Aviation Minister Praful Patel said in March that India needs to more than quadruple the number of airports from the current 90 to meet the increased traffic. “India’s safety record has been as good as it gets,” said Kapil Kaul , chief executive officer of the Indian unit of the Centre for Asia Pacific Aviation . Mangalore’s “tabletop” runway “has challenges and the experience of the pilot is critical,” he said. Boeing Team Boeing is sending a team to provide technical assistance to the investigation at the invitation of Indian authorities, the Chicago-based manufacturer said in a statement yesterday. Air India said the crashed 737 was about 2 1/2 years old. Firefighters had to cross a railway and battle through trees to reach the wreckage, the CNN-IBN television channel reported yesterday. It showed a rescue worker carrying the foam-covered body of young child up a mud bank away from the crash. At least 50 victims were from the state of Kerala, Press Trust of India reported. Kerala relies on remittances from people working in the Middle East for a quarter of its economy. Both pilots were experienced and had flown into Mangalore together on May 17, Air India’s director for personnel, Anup Srivastava , told reporters in Mumbai yesterday. The civil aviation ministry said in a statement the plane had landed “slightly beyond” the runway’s “touchdown” zone at a time when visibility was about six kilometers (four miles). 1996 Crash Yesterday’s crash was the worst in India since a Saudi Arabian Airlines flight collided with a Kazakhstan Airlines jet in November, 1996, killing all 349 on board. In the South Asian country’s last major air disaster, a Boeing 737-200 crashed into a residential area while approaching Patna airport in the eastern Bihar in July 2000. For loss-making national carrier Air India the accident “comes at a time when it is struggling,” analyst Kaul said. “This is going to be demotivating. While the incident may not affect their plans to raise capital, “they are going to be much more in focus for the wrong reasons,” he said. International air travel has rebounded from last year’s slump as the global economy expanded. Indian airlines carried 16.82 million passengers between January and April this year, 22 percent more than a year earlier, according to the Civil Aviation Ministry. To contact the reporters on this story: Vipin Nair in Mumbai at vnair12@bloomberg.net ; Rakteem Katakey in New Delhi at rkatakey@bloomberg.net .

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Liz Ryan: Job-Hunting While Pregnant?

May 21, 2010

Dear Liz, I find myself in the situation of having two interviews for jobs that, so far, sound like the perfect fit for me. I am also 20 weeks pregnant. I am still able to ‘cover it up’ more or less, although I am not sure I really want to do that. In a perfect world, I would like to march in there, full belly showing proud and announce that, yes, I will need all of October off, but I am your gal! I know how all of this works once you get the job and THEN get pregnant. This part is a whole new world to me. How much do I say or not say…if anything at all? Should I do my best to cover it up and then tell them once an offer has been made? That seems dishonest. Do I say anything about my plans for childcare once he is born … because I do have a plan. Any advice or shared experience would be greatly appreciated! Janelle Dear Janelle, Congratulations on your wonderful baby news! Here are some thought on your situation: JOB-HUNTING WHILE PREGNANT It’s happening all over: A woman is laid off while she’s pregnant and finds herself job-hunting as her due date approaches. Another woman’s organization tanks, and she finds herself out of work just as she realizes that that she’s expecting. A third finds her consulting business too slow to sustain her financially, so she starts a job search during her second trimester. The important thing to know about pursuing a job search during pregnancy is that it can be done. While your pregnancy is a factor in your job search — and more of a factor if your due date is coming up quickly or if, for instance, you’re expecting more than one baby — being pregnant is no reason to put off a job search. You will need to incorporate your post-baby plans into your interview conversation, so that you’re ready to answer questions about your return to work, your ability to manage your job with a newborn, and so on. But the fact that you’re expecting shouldn’t be the primary, or even a major, focus of your discussions during interviews. If you’re not “out” with your pregnancy — if you haven’t reached the point where you’re generally letting people know about your condition — it’s not necessary or appropriate to say anything about it during an interview or when you’re considering a job offer. Would you tell a relative stranger something you haven’t told your best friends yet? Some women worry that if they keep quiet about their pregnancy, later they’ll get sideways looks from the boss, who will never trust them again. Don’t put that pressure on yourself. When the day comes to share your good news, after a month or two of productive employment at your new company, you’ll say, “Sally, I wanted to let you know that Jack and I are expecting! The baby is due in February, and I feel great.” That’s the whole message; you don’t need to get into who knew what when, and no one will be likely to be so tacky as to inquire. If anyone does ask, “Didn’t you know this when you were interviewing here?” you can smile and say, “We’re just official as of this week, and we’re so excited.” If your pregnancy is well established, you should be prepared to discuss the logistics of your maternity leave and return to work during the job interview. Most of us in the business world are well trained (sometimes by unhappy experience) not to ask a woman if she’s pregnant, so don’t be self-conscious about your growing tummy. You should bring up the topic, well into the interview (don’t even bother if you’re completely uninterested in the job). You say to the interviewer, “Henry, may I ask you a few specific questions? Great. First, I’m curious about the relationship between the business development group and the sales organization here at XYZ Association. Oh, really? Terrific. Thanks. Secondly, I’m expecting a baby in September. I have some ideas about maternity leave and how I will manage things while away from the office, and I’d love to touch on that today. Excellent. The third is ….” This way, you get the information out and let the organization know that you’re not planning to fake your way through this big life change, that you have a plan, and that you’ll be extremely responsible when it comes to managing your job through the new-baby time. Is there a danger that you’ll be passed over as a candidate simply because of your condition? Frankly, yes. If the organization has two excellent candidates, and you are one, and the other one is not expecting, you could lose out. But if you are the right person for the job and seem well prepared for both the new job and your other life changes, many employers will take the correct long view — what’s three months of maternity leave out of a long and successful relationship? In your confidence-inspiring remarks about your plans, you don’t need to go into exhaustive detail. Your prospective employer doesn’t need to know who will be watching the baby or whether or not you’ll be nursing, for instance. But it might be helpful to throw in facts that will show you’re not going to fall apart upon baby’s arrival. For example, if this is your second child, you could mention that your past maternity leave went smoothly. One caution: Be sure to guard against the natural impulse to oversell your flexibility. Don’t say, “I’ll only take two weeks maternity leave!” It’s more important to focus on your skills, your experience, and your enthusiasm for the job and the organization than to feel you have to apologize for or explain away your wonderful expectant state. Do invest in a professional interviewing wardrobe. Remember what they say: Pregnancy makes you radiant. Let yourself shine with confidence and delight in your wonderful situation and remember that you’re a terrific job candidate. The squirmer in your belly doesn’t take anything away from that; if anything, he or she adds to it.

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New Zealand Dollar Soars as Budget Reveals Plans to Cut Foreign Debt

May 20, 2010

New Zealand Dollar Soars as Budget Reveals Plans to Cut Foreign Debt

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NZ Dollar Soars as Budget Reveals Plans to Cut Foreign Debt

May 20, 2010

NZ Dollar Soars as Budget Reveals Plans to Cut Foreign Debt

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UnitedHealth, Humana Need 5-Star Ratings for $2.5 Billion Medicare Bonus

May 18, 2010

By Drew Armstrong May 18 (Bloomberg) — Insurers led by UnitedHealth Group Inc. and Humana Inc. may share in an estimated $2.5 billion in yearly bonuses if their U.S-backed Medicare plans rate four or five stars under a system created to improve quality of care. The U.S. has ranked Medicare Advantage insurance plans that serve the elderly on a one- to five-star basis since 2007, weighing clinical outcomes, access to tests, preventive care and consumer satisfaction, among 33 criteria . Under the health law signed in March, those scores will be used to award bonuses that can boost U.S. subsidies for the plans by five percent. The money may help offset an estimated $136 billion , 10- year scheduled cut in U.S. payments for the plans. UnitedHealth has begun an improvement push because most of their customers are in plans now ranked from three to three-and-a-half stars, said spokesman Matthew Burns. At the same time, America’s Health Insurance Plans , the industry’s lobbyist, is urging changes in the system that may allow more plans to get higher ratings. It’s “health-care Darwinism,” said Nathan Goldstein, senior vice president of strategic development with Gorman Health Group , a Washington consulting firm that works with Medicare Advantage plans, in an interview. The program begins with a 1.5 percent bonus in 2012, then 3 percent in 2013 and 5 percent in 2014. Payments will be worth at least $700 million a year by 2014, said Brian Biles , a professor at George Washington University’s Department of Health Policy who wrote a study on the program. If all the three-star plans improved to four, the total bonus payments would be worth about $2.5 billion, according to a separate analysis by Biles. ‘Taking the Edge Off’ The bonuses “could be significant in taking the edge off cuts to Medicare Advantage,” said Ana Gupte , a Sanford C. Bernstein & Co. analyst in New York, in an e-mail. UnitedHealth, based in Minnetonka, Minnesota, gained 5 cents to $30.44 in New York Stock Exchange trading yesterday. Humana , of Louisville, Kentucky, increased 14 cents to $45.89. The Standard & Poor’s 500 Managed-Care Index has fallen 12 percent since President Barack Obama signed the health-care law on March 30, compared with a 3.1 percent decline in the S&P 500. Advantage plans compete with traditional Medicare by offering expanded benefits and different premiums. About 10.2 million of the 45 million Medicare recipients were Advantage members in 2009, according to the Kaiser Family Foundation , a Menlo Park, California, health-care research group. UnitedHealth Coverage UnitedHealth covered 2 million people in Advantage plans as of March 31 and Humana had 1.74 million, according to statements released last month. The Advantage program accounted for one- fifth of UnitedHealth’s $3.82 billion in earnings last year, said Matthew Borsch , a Goldman Sachs Group Inc. analyst in New York, in a May 3 note. In 2009, he U.S. paid insurers an estimated $110 billion to run the plans, according to Kaiser. The payments were about 14 percent higher per-patient than the cost of traditional Medicare, the U.S. government’s basic health program for those 65 and older, the Medicare Payment Advisory Commission said. In an effort to raise its ratings by 2014, UnitedHealth will encourage patients to use chronic and preventive care services more often, and the company plans to put resources into added call centers and customer support, said Rhonda Medows, the insurer’s chief medical officer for public and senior markets. “We believe we’ll achieve four or better in time,” Medows said in a telephone interview. Industry Lobbying The insurance industry has been lobbying to influence many parts of the health-care overhaul that will affect how companies do business, including rules about the proportion of premium dollars to be used for administrative costs and profits. The rating system is also at issue said Robert Zirkelbach , the group’s spokesman. The star system grades insurers against one another on some of the 33 measures. America’s Health Insurance Plans is challenging the objectivity of having the criteria rated on a curve, Zirkelbach said in a telephone interview. “We have raised concerns that some of the measures in the current star systems are not based on objective criteria, which could prevent some plans from moving up,” he said. That means companies will find it harder to improve their ratings unless the metrics grading them against one another are changed to allow measurements against universal standards, said Biles, who wrote the study about the bonus program. “For somebody as big as UnitedHealth, that all their plans could be four stars under the current system is impossible,” Biles said in a phone interview. No Decision on Changes Medicare hasn’t decided whether to change the criteria, said Peter Ashkenaz , a spokesman for the Centers for Medicare and Medicaid Services, in an e-mail. Biles said ending the grading curve might make the star rating system less meaningful. “They’ll set absolute values, but they’ll set them so low that everybody lives in the world of Lake Wobegon, where all the children and all the plans are above average,” he said, referring to radio show host Garrison Keillor’s fictional town in Minnesota. Nonprofit Medicare Advantage plans tend to have higher ratings than for-profit companies. The average nonprofit plan has 3.87 stars, compared with 3.02 stars for the for-profit insurers, according to the Kaiser foundation. Martin’s Point Health Care in Portland, Maine, a nonprofit insurer, is one of four plans in the U.S. with a five-star rating. The insurer had 2,652 Advantage patients that brought in $16.4 million in 2009. Martin’s Point competes locally against Humana among about 10 rivals, Chief Executive Officer David Howes said in a phone interview. 9 Percent Cut All the local Maine plans are facing about a 9 percent cut to their government payment rates next year. “But they’re not all going to be getting the quality bonuses. I think the quality bonuses may be critical for success going forward,” Howes said. Howes said Martin’s Point expects to double the number of Advantage customers in the next year. The plan relies on its existing relationships with doctors and hospitals to make sure they’re providing preventive care, one of Medicare’s metrics. “We’ve spent a lot of time thinking about, ‘Who do we want to have in that network?’” Howes said. “Who gives nice access? Who gives us the ability to touch our members and patients in a way that is positive?” Martin’s Point’s five-star ratings will help it win more customers from its competitors and perhaps eventually drive them from the market, said Goldstein, of Gorman Health Group, who has consulted with the Maine nonprofit. “To the victor goes the members,” Goldstein said. “Mr. CEO, what I’m here to tell you is that your payment rate is getting cut down, and you have two levers you can pull to increase it — your risk adjustment, and your star system.” To contact the reporter on this story: Drew Armstrong in Washington at darmstrong17@bloomberg.net .

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Doubling Bonus Taxes in U.K. Sends British Bankers to Accountants, Lawyers

May 17, 2010

By Andrew MacAskill and Jon Menon May 17 (Bloomberg) — U.K. bankers , faced with a potential doubling in tax on the stock component of their bonuses, are asking lawyers and accountants if they can escape the plans. The coalition government said last week it may raise capital gains tax from 18 percent for non-business assets. Bringing it into line with income tax, which has a top rate of 50 percent, would more than double the levy on stock awards. “This will affect thousands of people in the City,” Mike Warburton , a senior tax partner at Grant Thornton in Bristol, England, said in an interview. “If they are going to tax profits on share schemes, then that will double your tax bill.” The decision may undercut efforts by the Financial Services Authority to make bankers take a greater proportion of their bonuses in stock. The FSA is trying to ensure pay is aligned with the interests of shareholders following the worst financial crisis since the Great Depression. “We have had a number of enquiries,” said Patrick Stevens , a tax partner at accounting firm Ernst & Young LLP . “In the next few weeks, lots of executives will say to their employers that they ought to be able to cash-in on any gains.” The Conservative party last week adopted the Liberal Democrat-backed capital gains policy as part of the coalition deal. The tax rise will be used to raise the threshold at which low earners start paying income tax. “Increasing the rate of capital gains cuts across that policy initiative to encourage people to receive bonuses in share form,” said Neal Todd , a tax partner at London-based law firm Berwin Leighton Paisner. “Many people who are sitting on large potential gains will be seeing if they can offload those shares rather quickly to trigger their gain.” ‘Business Assets’ The new government is committed to a budget statement before the end of next month, according to Chancellor of the Exchequer George Osborne. That should state whether bankers’ shareholdings will be classified as business or non-business assets and so liable to the tax increase. “The critical thing is going to be whether acquiring shares in the company you work for is going to be treated as business assets or not,” said Sylvie Watts , a compensation lawyer at London-based Allen & Overy LLP. “For policy reasons, the new government may want the higher rate of tax to apply.” The new government, the first British coalition in 65 years, is planning to raise taxes and cut spending as it seeks to narrow Britain’s record budget deficit . David Cameron “Everyone recognizes there is a problem,” Prime Minister David Cameron told the BBC’s Andrew Marr show yesterday. “When you have a capital gains tax rate of 18 percent and a top rate of income tax at 50 percent, you’ll find people finding all sorts of ways to treat income as capital gains,” he said. “I want to light the flames of entrepreneurialism in Britain and get people investing in businesses.” The tax is most likely to take effect in April next year and may be applied at 50 percent for higher earners, according to Richard Mannion, tax director at Smith & Williamson in London. “Shares in your employer used to get the lower rate of capital gains tax,” John Whiting , tax policy director at the London-based Chartered Institute of Taxation , a professional body that promotes the study and practice of taxation. “ I wouldn’t guarantee that it still will.” Gartmore Plc Chief Executive Officer Jeffrey Meyer said on May 14 that the rise in capital gains tax may lead to investors selling assets to lock in gains before any changes are made. “You may see an increase in redemptions then reinvestment as a result of that,” Meyer said. “So there may perhaps be a higher turnover in the assets under management levels.” To contact the reporters on this story: Andrew MacAskill in London at amacaskill@bloomberg.net Jon Menon in London at jmenon1@bloomberg.net

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Standard Chartered Said to Consider Offering to Buy South Africa’s Nedbank

May 12, 2010

By Jon Menon and Renee Bonorchis May 12 (Bloomberg) — Standard Chartered Plc , the British lender that earns three-quarters of its profit in Asia, may make an offer for South Africa’s Nedbank Group Ltd., said a person with knowledge of the situation. The deliberations are at an early stage and may break down, said the person, who declined to be identified because the talks are private. Old Mutual Plc , Africa’s biggest insurer, owns 52 percent of Nedbank, which has a market value of about 69 billion rand ($9.2 billion). Any decision on Nedbank’s future would be up to Old Mutual, said Don Bowden , a spokesman for Johannesburg-based Nedbank. Tim Baxter , a spokesman at Standard Chartered in London, declined to comment as did Patrick Bowes , a spokesman for Old Mutual. Sky News, which reported the plans late yesterday, said Goldman Sachs Group Inc. is advising Standard Chartered. Standard Chartered was profitable during the credit crisis and didn’t receive a government bailout. The lender said last week it had a “very strong” profit in the first quarter. Run by Chief Executive Officer Peter Sands , the bank is the best performer in the FTSE 350 Index of five British lenders over the past 12 months . The takeover would be the biggest by a British bank since Lloyds Banking Group Plc acquired HBOS Plc, the country’s largest mortgage lender, in a government-brokered deal in the credit crisis of 2008, according to data compiled by Bloomberg. Standard Chartered declined 2.6 percent to 1,657.5 pence at 9:31 a.m. in London trading, while Old Mutual gained 5.4 percent to 119.2 pence. Nedbank gained 3.6 percent to 140.20 rand in Johannesburg. To contact the reporters on this story: Jon Menon in London at jmenon1@bloomberg.net Renee Bonorchis in Johannesburg at rbonorchis@bloomberg.net

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GM Is Said to Weigh Returning to Automotive Financing, May Buy Back GMAC

May 11, 2010

By David Welch and Katie Merx May 11 (Bloomberg) — General Motors Co. may return to the auto-lending business more than three years after selling control of GMAC LLC, according to three people familiar with the company’s plan. GM may buy back the GMAC business, start a new finance company or form a partnership with banks and other lenders, said the people, who asked not to be identified because the plans are private. Having its own finance arm could increase the automaker’s profit and give its dealers competitive leasing and loan offers. Chief Executive Officer Ed Whitacre wants to establish an in-house lender before taking the Detroit-based automaker public again as soon as the fourth quarter of this year, said one of the people. GM repaid government loans last month, and having an initial public offering will allow the U.S. to reduce its 61 percent stake in the automaker. “The IPO is going to be more of a success if they can sell more vehicles than they have been selling,” said Rebecca Lindland , an analyst at IHS Global Insight in Lexington, Massachusetts. “They should be able to do that if they can be more aggressive in their financing. Having their own finance company would certainly help.” Whitacre has his management team exploring all options, the people said. Acquiring Detroit-based GMAC, now known as Ally Financial Inc., would give GM a ready-made lending operation. To acquire those operations, the automaker would have to execute a deal with the U.S. Treasury, which owns 56 percent of GMAC. Tom Wilkinson, a GM spokesman, declined to comment. Automotive Lending GM would probably want to acquire only the automotive business, said Mark Wakefield, a director at Southfield, Michigan-based turnaround firm Alix Partners, which is winding down the bankrupt old GM, now called Motors Liquidation Co. GM probably wouldn’t want GMAC’s mortgage business, which was called ResCap until the company changed names, he said. It made $175 million in the first quarter after losing $17.3 billion from 2007 through 2009. “The cleanest way to do this is to buy only the auto finance business and leave ResCap, Ally Bank and the commercial warehouse-lending business alone,” said Wakefield, who isn’t directly involved in the matter. An Ally spokeswoman, Gina Proia , called the potential acquisition of its auto-finance business by GM “speculation.” “Our position is that if we are supporting our manufacturers and customers, then the relationship works,” Proia said. GM sold 51 percent of GMAC to private equity firm Cerberus Capital Management LP in 2006 when the automaker ran low on cash and since has had to rely on outside lenders. One complicating factor: If GM owns more than 10 percent, the lender would have to relinquish its bank holding company status and wouldn’t have access to the Federal Reserve’s discount window for cheap funds. All parties would also have to work out a solution with Chrysler Group LLC, which has a contract with Ally for its dealers, Wakefield said. Borrowing Rates A GM-owned finance arm would have to borrow on the open market to lend to car buyers and dealers. The funds could come at higher interest rates until GM proves that it is a sound investment, Wakefield said. “It would take a while to convince the market that GMAC is safe and sound,” Wakefield said. “It will take a while to claw their way to a borrower rate that is competitive.” Russ Shelton , owner of Shelton Pontiac Buick GMC Inc. in Rochester Hills, Michigan, said dealers would welcome an in- house finance arm at GM. “Probably the biggest missing piece for GM is financing,” Shelton. “Getting a customer financed today is the hardest thing, even if they have good numbers. I think we could probably overcome some of that with a captive finance arm.” To contact the reporter on this story: David Welch in Southfield, Michigan, at dwelch12@bloomberg.net .

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FDIC Advances Plan to Make Asset-Backed Security Sellers Retain 5% of Risk

May 11, 2010

By Phil Mattingly May 11 (Bloomberg) — The Federal Deposit Insurance Corp. advanced a proposal aimed at overhauling part of the $4 trillion asset-backed securities market and introduced a rule that would require the biggest U.S. banks to submit “funeral plans” to handle their possible collapse. The FDIC board voted 3-2 today to release for comment a measure requiring sellers of securitized loans to keep 5 percent of the credit risk in exchange for safe-harbor protection that makes the bonds more attractive to investors. The proposal aims to bolster a market whose collapse helped trigger the 2008 financial crisis, FDIC Chairman Sheila Bair said today. “Now is the time to put some prudent controls in place to make sure we don’t get into some of the problems we saw in the past,” Bair said at the board meeting. JPMorgan Chase & Co., Bank of America Corp. and industry groups including the Mortgage Bankers Association and the American Securitization Forum pushed the FDIC to scrap or tone down the proposal after it was introduced in December, saying it could damp the U.S. economic recovery. Comptroller of the Currency John Dugan and Acting Director of the Office of Thrift Supervision John Bowman, members of the agency’s five-person board, opposed the measure, citing both potential threats to the economy and concern that the FDIC rule might conflict with steps being considered by lawmakers and the Securities and Exchange Commission. “Congress is on the verge of passing a provision that addresses the very issues” in the rule, Dugan said at today’s meeting. “We ought to defer acting until Congress acts.” House Bill The House of Representatives in December passed a bill that included 5 percent risk-retention, and the Senate is considering similar language. The SEC last month approved a proposal that would require financial firms to hold 5 percent of each class of an asset-backed security to avoid regulatory hurdles when selling the bonds. The FDIC’s securitization proposal would require additional disclosures by sellers, including the structure of the bond and the credit and payment performance of its loans. It also would require disclosure of compensation paid for the securitization. Asset-backed debt was among the largest sources of more than $1.7 trillion of writedowns and credit losses at the world’s largest financial companies since the start of 2007, according to data compiled by Bloomberg. The agency will now institute a 45-day comment period, followed by an evaluation and the approval of a final rule. The final rule could be in place as soon as this fall. ‘Funeral Plans’ The FDIC board also approved a proposal to require about 40 U.S. banks to submit annual contingent resolution proposals — “funeral plans” — that would outline steps for unwinding the lender in the event of its failure. The measure would include specific steps for resolving deposit-taking banks that are attached to larger holding companies. Senators Mark Warner , a Virginia Democrat, and Bob Corker , a Tennessee Republican, have pushed for a similar proposal that would apply to all large financial companies in the regulatory- overhaul bill now on the Senate floor. “I really see this proposal as a necessary compliment to what’s envisioned in both the House and Senate bills,” said FDIC Vice Chairman Martin Gruenberg during the meeting. The proposed rule would apply to depository institutions with more than $10 billion in assets that are part of a bank holding company structure with assets of more than $100 billion. “We need to make sure that we’re prepared and that an institution can demonstrate in advance to us that it can be resolved in an orderly manner,” Bair said. To contact the reporter on this story: Phil Mattingly in Washington at pmattingly@bloomberg.net .

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CBS’s Showtime Said to Test Online Service for Cable Channel’s Subscribers

May 10, 2010

By Andy Fixmer May 10 (Bloomberg) — CBS Corp. ’s Showtime is developing an online video service for subscribers, according to a person with knowledge of the plans, joining rival cable channels that are seeking to reach customers away from TV sets. The service would be similar to the Web access being tested by Time Warner Inc. ’s HBO, said the person, who asked not to be identified because the plans aren’t public. Showtime, with 18 million pay-TV subscribers and original shows including “Nurse Jackie” and “Weeds,” hasn’t set a starting date. Premium cable channels are experimenting with ways to offer service online and to mobile customers without cannibalizing monthly pay-TV subscription fees that contribute the bulk of their revenue. Showtime is discussing the planned service with pay-TV operators that distribute the channel, the person said. “There’s nothing to announce at this time,” Johanna Fuentes , a spokeswoman for Showtime in New York, said in an interview. HBO, which along with Cinemax has about 40 million subscribers, in February began offering HBO GO at no additional cost to customers on Verizon Communications Inc. ’s FiOS TV service. “All the HBO subscribers in the United States are going to have HBO programming on demand across every device,” Jeff Bewkes , Time Warner’s chief executive officer, said on a May 5 conference call. “That is a powerful offering.” Starz, owned by Englewood, Colorado-based Liberty Media Corp. , provides shows to Netflix Inc. , which offers the cable channel’s content online as part of its monthly movie-rental subscription plans. Viacom Inc. ’s Epix, the premium movie channel first offered in October 2009, includes online access for all customers. Two- thirds have viewed movies online, with an average age of 36, according to a survey released today by Epix. Epix, also owed by Lions Gate Entertainment Corp. and Metro-Goldwyn-Mayer Inc., has distribution with pay-TV systems including Englewood, Colorado-based Dish Network Corp., Verizon’s FiOS, Cox Communications Inc. and St. Louis-based Charter Communications Inc. CBS, owner of the most-watched U.S. television network, slid 75 cents, or 5 percent, to $14.21 on May 7 New York Stock Exchange composite trading. Time Warner fell 65 cents to $30.25 and Viacom Class B shares dropped 59 cents to $32.26. All are based in New York. To contact the reporter on this story: Andy Fixmer in Los Angeles at afixmer@bloomberg.net

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EU Races to Ready Emergency Fund, Fight Off `Wolfpack’ Before Asia Opens

May 9, 2010

By James G. Neuger and Meera Louis May 9 (Bloomberg) — European Union finance ministers pledged to stop a sovereign debt crisis from shattering confidence in the euro as they held an emergency summit to hammer out a lending mechanism for deficit-stricken nations. Jolted into action by last week’s slide in the currency to a 14-month low and soaring bond yields in Portugal and Spain, leaders of the 16 euro nations agreed on the backstop yesterday and told ministers to get it ready before Asian markets open. “We are going to defend the euro,” Spanish Economy Minister Elena Salgado told reporters as she arrived to chair today’s Brussels meeting. “We think we have a duty for more stability for our currency. We will do whatever is necessary.” Europe’s failure to contain Greece’s fiscal crisis triggered a 4.3 percent drop in the euro last week, the biggest weekly decline since the aftermath of Lehman Brothers Holdings Inc.’s collapse. It prompted the U.S. and Asia to urge broader steps to prevent a debt crisis from pitching the world back into a recession. “In the night, when the markets are opening, we cannot afford a disappointment,” said Finance Minister Anders Borg of Sweden, one of 11 EU nations not in the euro. “We now see herd behavior in the markets that are really pack behavior, wolfpack behavior.” European officials declined to disclose the size of the stabilization fund, to be made up of money borrowed by the EU’s central authorities with guarantees by national governments. The meeting was scheduled to start 3 p.m., followed by a briefing three hours later. Some officials said talks could last longer. Alternative Plans “There is some discussion about what the solution will be,” Dutch Finance Minister Jan Kees de Jager said. “There are several alternatives at the moment.” Separately, European Central Bank council members were slated to hold a teleconference today. “Europe is getting its act together,” said Chris Rupkey , chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Time will tell if this statement is enough to satisfy the European bond market vigilantes.” Government officials said they won’t push the independent ECB to, for example, buy government bonds. President Jean-Claude Trichet accelerated the market selloff on May 6 by rejecting that measure. Trichet is in Basel, Switzerland, today for a scheduled meeting of central bankers from the Group of 10 nations. Vice President Lucas Papademos is attending the Brussels talks. Stiffest Test With the euro facing the stiffest test since its debut in 1999, the weekend turned into a crisis-management exercise to restore faith in the currency and prevent a European debt crisis from cascading around the world. The purpose is to “decide on a mechanism that enables us to assure the stability of the euro, stability in the zone and, beyond that, stability in financial markets,” French Finance Minister Christine Lagarde said. The euro slid to $1.2715 from $1.3293 in the past week, and is down 15 percent since late November. European stocks sank the most in 18 months, with the Stoxx Europe 600 Index tumbling 8.8 percent to 237.18. The extra yield that investors demand to hold Greek, Portuguese and Spanish debt instead of benchmark German bonds rose to euro-era highs. The premium on 10-year government bonds jumped as high as 973 basis points for Greece, 354 basis points for Portugal and 173 basis points for Spain. Strong Response Europe came under pressure from Japan and North America on a hastily-arranged conference call of G-7 finance chiefs on May 7. “We hope to see a strong, early policy response in Europe,” Canadian Finance Minister Jim Flaherty , who chaired the call, told reporters in Ottawa. Britain, the EU’s third-largest economy, won’t contribute to a fund to shore up euro countries, though it backs efforts to restore stability, Chancellor of the Exchequer Alistair Darling said. “When it comes to supporting the euro, that is for the euro group countries,” Darling told Sky News. “We need to show again today that by acting together we can stabilize the situation.” At the leaders’ summit in Brussels, German Chancellor Angela Merkel stepped up German calls for a closer monitoring of government finances and more rigorous enforcement of the deficit-limitation rules, originally drafted by Germany in the 1990s. Europe will send “a very clear signal against those who want to speculate against the euro,” Merkel said. EU Limits The vow to push budget shortfalls below the euro’s 3 percent limit echoes promises that have been regularly broken ever since governments in 1999 set a three-year deadline for achieving balanced budgets. The euro region’s overall deficit is forecast at 6.6 percent of gross domestic product in 2010 and 6.1 percent in 2011. Plans for a European credit-rating authority are already under consideration at the European Commission, the bloc’s Brussels-based executive agency. It also is investigating whether ratings companies such as Standard & Poor’s wield too much power over investors’ perceptions of governments. Asked whether steps to stem speculation against government bonds would include restrictions on short sales or credit default swaps, European Commission President Jose Barroso said “some of the points you have mentioned will be contemplated.” The political leadership of the $12 trillion economy yesterday also signed off on a 110 billion-euro ($140 billion) aid package for Greece negotiated by finance ministers last week. So far nine governments have cleared the way for funds to be sent to Athens. To contact the reporter on this story: James G. Neuger in Brussels at jneuger@bloomberg.net

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Erakat Says U.S.-Mediated Indirect Peace Talks With Israel `Have Started’

May 9, 2010

By Gwen Ackerman and Saud Abu Ramadan May 9 (Bloomberg) — U.S.-mediated peace talks between Israel and the Palestinian Authority “have started,” senior Palestinian official Saeb Erakat said, ending a breakdown that lasted almost a year and a half. Palestinian Authority President Mahmoud Abbas will act as a chief negotiator and all core issues, such as Jerusalem, borders and refugees will be on the table during the four months of indirect negotiations, Erakat said in remarks published today by the official Wafa news agency. His comments followed a second meeting between Abbas and U.S. envoy George Mitchell in as many days. Mitchell was expected to return to Washington later today. Israeli Prime Minister Benjamin Netanyahu welcomed yesterday’s decision by the Palestinians to resume talks, saying he hoped they would lead to direct negotiations. “In the long term, it is impossible to arrive at decisions and agreements on critical issues, such as security and national interests, without sitting together in the same room,” he said at today’s Cabinet meeting. Talks between Israel and the Palestinians stalled in December 2008 after Israel sent forces into the Gaza Strip in an operation the government said aimed to stop cross-border rocket attacks. Abbas had linked participation in the talks to Israel’s agreeing to freeze plans to build new homes for Jews in east Jerusalem, captured by Israel from Jordan in the 1967 Middle East war and sought by the Palestinians as the capital of a future state. Core Issues An Israeli official, speaking anonymously because he was not authorized to give details of the negotiations, said Israel had agreed core issues such as Jerusalem, borders and refugees may be raised in the talks for preliminary discussion, on the understanding that any solutions would be found in direct talks. Netanyahu adviser Yitzhak Molcho will be sitting with Mitchell during the indirect talks, the official added. “In a certain sense, proximity talks are mainly theater,” said Gerald Steinberg , a political scientist at Bar-Ilan University outside Tel Aviv. “Certainly nobody expects proximity talks to lead to anything substantial.” Opposition and Kadima party leader Tzipi Livni , the former foreign minister who was a chief negotiator with the Palestinians under the previous government, called the indirect talks a test of Netanyahu’s readiness to make decisions for peace. “I hope these talks will have content, that they will be true talks, and I hope we will not miss this opportunity,” Livni said today in an e-mailed statement. Talks Stalled U.S. efforts to initiate indirect discussions stalled in March when Israel approved a plan to build 1,600 new homes for Jews in east Jerusalem during a visit by Vice President Joe Biden . U.S. officials criticized the plans and Palestinian officials said they were reconsidering their participation in the talks. Netanyahu, while publicly saying construction in Jerusalem will continue, may have slowed projects in disputed areas of the city. The planning committee responsible for approving construction in Jerusalem , which gave the go-ahead for the building plans in March, met last week for the first time since Biden’s visit. No building plans related to east Jerusalem were on the agenda, committee member and Jerusalem Councilman Yair Gabbay said in a phone interview last week. To contact the reporter on this story: Gwen Ackerman in Jerusalem at gackerman@bloomberg.net Saud Abu Ramadan in Jerusalem at sramadan@bloomberg.net

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Goldman Sachs’s Gupta Did Business For Years With Galleon’s Raj Rajaratnam

May 5, 2010

By Mehul Srivastava, John Helyar and Miles Weiss      May 6 (Bloomberg) — Rajat Gupta, the Goldman Sachs Group Inc. director who is being investigated by U.S. authorities over his links to Galleon Group LLC founder Raj Rajaratnam , had a long-standing business relationship with the billionaire hedge fund manager. Interviews, public records, lawsuits and regulatory filings show a 13-year history of co-investing and other business collaborations between Gupta, 61, the former worldwide head of consulting firm McKinsey & Co. , and Rajaratnam, 52, the central figure in the Galleon insider trading probe. Rajaratnam has a stake in a fund managed by New Silk Route NSR Partners LLC, founded by Gupta and three others in 2006 to invest in South Asian companies, according to a New Silk Route spokeswoman. The fund owns stakes in at least 11 Indian companies, including cell phone tower operator Reliance Infratel Ltd. and the Cafe Coffee Day chain.      “Mr. Rajaratnam has had a well-known relationship with Mr. Gupta for many years, and it is one that he is both proud and fond of,” Rajaratnam’s spokesman, Jim McCarthy, said yesterday in a statement. “Their association as investors has led to many successful ventures around the world and made a large and positive impact for a long list of worthy businesses and charities. But just as important, they have always conducted those efforts with integrity and diligent attention to sound, ethical practices.” Criminal Charges Rajaratnam, who was arrested Oct. 16, is fighting criminal charges and U.S. Securities and Exchange Commission civil claims that he used inside information to trade shares of companies including Advanced Micro Devices Inc. He denies any wrongdoing. U.S. investigators are examining whether Gupta tipped off Rajaratnam to a $5 billion investment in Goldman Sachs by Warren Buffett ’s Berkshire Hathaway Inc. , a person with direct knowledge of the inquiry said April 23. “In any insider trading investigation, prosecutors will be looking at relationships to try to determine if any improper information was passed between them,” said Robert Mintz , a former federal prosecutor in New Jersey who is a partner with McCarter & English. “The nature of the relationship, the length of the relationship, the frequency of contact and the subsequent investing strategy are all areas that are likely to be scrutinized.” Gupta, who earned an MBA at Harvard Business School, serves on the boards of American Airlines parent AMR Corp., Procter & Gamble Co., Harman International Industries Inc., Genpact Ltd., the business outsourcing company, and Russia’s Sberbank. Gupta announced earlier this year he would not seek re-election to the Goldman Sachs board. Gupta’s attorney, Gary Naftalis of Kramer, Levin, Naftalis & Frankel LLP, denied that his client had done anything wrong. ‘Business Dealings’ “During the course of his long career, Rajat Gupta has been involved with many business dealings and philanthropic activities,” he said in a May 4 statement. “In all his activities, he has always conducted himself with unquestioned integrity.” Gupta and Rajaratnam have ties through Indian business organizations. In 2005, they were speakers at an Indian Institute of Technology conference. The two men and their wives, Anita and Asha, attended galas staged by the American India Foundation, on whose council of trustees both served. In May 2009, they were among the “creme de la creme crowd” that dined on Tandoori lamb chops, raising $1.5 million for charity in an auction while honoring KKR & Co. co-founder Henry Kravis , according to Indian-American society website Lassi With Lavina. Personal Investments In 1997, Gupta and Rajaratnam were both looking for personal investments, and when the venture-capital firm TeleSoft Partners LP of Foster City, California, sought limited partners, both men seized the opportunity. By the end of 1998, Gupta’s position was worth $213,570 and Rajaratnam’s $86,451, according to documents filed as part of a lawsuit. In early 2006, Gupta and Rajaratnam joined Mark Schwartz , the former chairman of Goldman Sachs, and Parag Saxena , the former chief executive officer of Invesco Private Capital, to start a blended hedge fund and private equity company called Taj Capital Partners Asia Fund LP. They planned to hire a 50-person team to invest about $2 billion in India and neighboring countries, according to an investor prospectus. Change Plans By December 2006, plans had changed: The fund was renamed New Silk Route, the hedge fund was dropped and the fund size reduced to $1.34 billion, according to documents filed with the SEC in October 2008. While Rajaratnam was not a principal in New Silk Route, he took a stake that by Oct. 30, 2009, was “much less than 5 percent,” said the New Silk Route spokeswoman. Rajaratnam also created a fund merging the Galleon and New Silk names, called the Galleon International Master Fund SPC Ltd.-New Silk Route Pipe Segregated Portfolio. The SEC filings don’t reveal whether Gupta or New Silk Route were involved in the fund. A Gupta spokesman declined to comment. Still, in one case, the principals at Gupta’s New Silk Route brought an investment opportunity to Rajaratnam’s fund after passing on it themselves, according to a person familiar with the transaction. The opportunity was a stake in Firstsource Solutions Ltd. , a Mumbai-based outsourcing firm that was about to go public. Rajaratnam’s fund went on to accumulate a 4.86 percent stake, according to FirstSource’s 2009 annual report. In early 2007, New Silk Route and Galleon International Master Fund SPC Ltd. bought stakes of less than 1 percent in Reliance Infratel in a single share agreement executed July 30, 2007, according to a prospectus the company filed with Deutsche Bank AG. Reliance Infratel, a cell phone tower operator, is part of Reliance Communications Ltd., one of India’s largest mobile phone companies. $1.2 Billion to Invest When Gupta and his partners launched New Silk Route in 2006, they had $1.2 billion to invest after paying salaries to themselves and staff, according to SEC filings. In 2007, Gupta and his partners found five companies in India to invest in — with investments ranging from the $21 million investment in Reliance Infratel to $68 million in INX Media Pvt Ltd., a media and television company with headquarters in Mumbai, according to data collected by Venture Intelligence, a Chennai-based research firm that tracks private equity in India. In 2008, it made two deals, for a total of $64 million. In February 2009, New Silk Route said “with a substantial portion of capital still uncommitted, the fund will be an active investor in the region over the next 12-18 months,” according to a press release. It made two more deals in 2009, for $76 million. So far this year, New Silk Route has backed two companies to the tune of $135 million, according to Venture Intelligence. New Silk Route has invested less than half of its fund, or about $468 million in publicly disclosed transactions, according to Venture Intelligence. To contact the reporters on this story: Mehul Srivastava in New Delhi at msrivastava6@bloomberg.net ; John Helyar in Atlanta at jhelyar@bloomberg.net ; Miles Weiss in Washington at mweiss@bloomberg.net

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UAL, Continental Boards Said to Approve Merger to Create Largest Carrier

May 2, 2010

By Mary Jane Credeur, Zachary R. Mider and Mary Schlangenstein May 3 (Bloomberg) — United Airlines parent UAL Corp. and Continental Airlines Inc. agreed to merge in a stock swap valued at $3.7 billion that would create the world’s biggest carrier , people with knowledge of the situation said. The airlines’ boards approved the transaction yesterday, and the deal will be announced today, said the people, who asked not to be identified because the terms aren’t public. The companies’ combined equity value would be about $8.3 billion, one person said. United and Continental together would take the top spot in global traffic from Delta Air Lines Inc. , with hubs in New York and Washington and the most traffic among U.S. carriers on high- fare Atlantic and Pacific routes. The airlines reignited merger talks last month after negotiations collapsed two years ago. “This is transformational,” said Vicki Bryan , a debt analyst at New York-based Gimme Credit LLC. “This has really been two years in the making. They did all the heavy lifting in 2008.” Annual cost savings and new revenue from the merger should reach $1 billion to $1.2 billion by 2013, one person briefed on the plans said yesterday. United’s name and Chicago headquarters will be retained, while Continental Chief Executive Officer Jeff Smisek , 55, will become the CEO and United’s Glenn Tilton , 62, will be chairman, the people said. Jean Medina , a spokeswoman for United, and Julie King of Houston-based Continental declined to comment. Options, Convertibles The $8.3 billion combined value includes the impact of options and convertible securities, a person with knowledge of the deal said. UAL will swap 1.05 shares for each Continental share , the people said. Based on April 30 closing prices, UAL had the third-largest market value among U.S. carriers at $3.63 billion, followed by Continental at $3.12 billion. UAL gained 13 cents to $21.60 on the Nasdaq Stock Market on that date, while Continental slid 35 cents to $22.35 on the New York Stock Exchange. Together, the airlines fly to 370 destinations in 59 countries and plan to continue service to all those points, a person with knowledge of the matter said. United and Continental also are ranked third and fourth in the U.S. by traffic. Fleet, Hubs United and Continental had almost $29 billion in combined revenue last year. Their main jet fleets total 700 aircraft, and they now employ more than 88,000 workers. Besides Washington and New Jersey’s Newark airport, their other hubs are in Chicago, Denver, San Francisco, Los Angeles, Houston, Cleveland and Guam. Delta vaulted to the top of the worldwide industry by traffic after buying Northwest Airlines Corp. in 2008, spurring talks on consolidation across the U.S. industry.     The deal comes two years after Continental, then led by Larry Kellner , came within hours of approving a merger with United before walking away. Smisek was chief operating officer at the time, and succeeded Kellner as CEO in January. Those talks collapsed because “it was a more risky environment at that time” when oil prices exceeded $120 a barrel and economic growth was slowing, Gimme Credit’s Bryan said. Crude traded at $86.26 on April 30 on the New York Mercantile Exchange. Merger discussions restarted last month. After the New York Times reported on April 7 that UAL was negotiating with US Airways Group Inc. , Smisek called Tilton two days later and expressed interest in a merger, said a person with knowledge of the matter. Over the next couple of days, they worked out a timeline to exchange financial information and potentially reach a deal by yesterday, this person said. US Airways     UAL put its talks with US Airways on hold to focus on Continental, prompting US Airways to pull out of those negotiations on April 22.     UAL and Continental soon reached agreement on an “at market” stock swap, in which neither side pays a control premium, the people said. It took until April 27 to work out the exact terms. While Continental argued that the ratio should be set based on the airlines’ stock prices before the April 7 leak, United pushed for a more recent period, the people said.     Smisek and Tilton reached a compromise during an April 27 meeting in Memphis, Tennessee, at a Radisson hotel near the airport, said two people with knowledge of the matter. That was where they agreed to set the ratio for the stock swap, the people said. To contact the reporters on this story: Mary Jane Credeur in New York at mcredeur@bloomberg.net ; Zachary R. Mider in New York at zmider1@bloomberg.net ; Mary Schlangenstein in Dallas at maryc.s@bloomberg.net .

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Dendreon Advances the Most in Year After Winning Approval for Cancer Drug

April 29, 2010

By Catherine Larkin April 29 (Bloomberg) — Dendreon Corp. won approval for its first product, a vaccine to fight prostate cancer, after a three-year battle with U.S. regulators. The Food and Drug Administration cleared sales of the medicine, called Provenge, Shelly Burgess, a spokeswoman for the agency, said today in a telephone interview. Dendreon, of Seattle, submitted its application with the FDA in November 2006 and, after winning the backing of an advisory panel in 2007, was required to conduct another study to prove the drug worked. Provenge will be the first medicine to train the body’s immune system to attack cancer cells like a virus. More than 27,000 men die of prostate cancer each year in the U.S., according to American Cancer Society . Provenge may bring in $4.3 billion in annual sales by 2020, according George Farmer , an analyst with Canaccord Adams Inc. in New York. “Demand will be very high given the simplicity and convenience of administration combined with the extremely benign safety profile,” Farmer said in a research report today before the FDA’s decision was announced. Katherine Stueland , a spokeswoman for Dendreon, didn’t immediately return a telephone call for comment. Dendreon gained $5.88, or 15 percent, to $45.50 in Nasdaq Stock Market composite trading before shares were halted. Before today, the shares had gained 51 percent so far this year as investors looked ahead to the FDA decision, scheduled for May 1. Stock Volatility The historic volatility of the stock attracts traders and short sellers who seek short-term profits. Hedge funds own 27 percent of Dendreon shares, according to data compiled by Bloomberg. Provenge helped men whose prostate cancer had spread to other organs live four months longer in the 512-patient study released by the company in April 2009. The company had initially applied for approval based on an earlier study of 127 men that showed the drug improved survival and a second study of 98 men that failed to show a statistically significant benefit. The therapy involves extracting white blood cells from a patient, mixing them with vaccine components and injecting the combination back into the person. It is designed to be given earlier in treatment of the cancer and pose fewer side effects than chemotherapy. The FDA’s refusal to approve the drug in May 2007 based on the original data — even after the agency’s outside advisers voted 13-4 that it was “substantially effective” — sparked protests by patients and threats of a congressional probe. Sales Plans Dendreon Chief Executive Officer Mitchell Gold said Feb. 9 that the company will have three plants to make Provenge by mid- 2011 and 125 sales representatives. Production will be at full capacity within one year of approval, he said. Questions about manufacturing logistics and Dendreon’s ability to meet demand for Provenge have resulted in varying estimates for potential sales of the product. The drug will generate $1.2 billion by 2014, according to the average estimate of four estimates surveyed by Bloomberg. That year, Farmer projected Provenge would cost about $94,000 for each patient treated with a full course of the medicine. Provenge can generate $3.1 billion in 2014, he said. At least a dozen additional products that harness the immune system to battle tumors are in late-stage development and Provenge approval “would be an important validation to the field,” said Janice Reichert , a senior research fellow at the Tufts Center for the Study of Drug Development in Boston. “Provenge will certainly be a pioneer in that area,” Reichert said in an April 21 phone interview. “The experience will definitely inform the clinical development programs of other companies and other products.” The most advanced of these vaccines include Stimuvax from Merck KGaA in Darmstadt, Germany, and Oncothyreon Inc. in Seattle; ipilimumab from Bristol-Myers Squibb Co. in New York; and TroVax from Oxford BioMedica Plc in Oxford, United Kingdom. To contact the reporter on this story: Catherine Larkin in Washington at clarkin4@bloomberg.net .

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Video: Small World’s Liotard-Vogt Plans to Change Funding Model

April 23, 2010

April 23 (Bloomberg) — Patrick Liotard-Vogt, chief executive officer of aSmallWorld.net, talks with Bloomberg’s Andrea Catherwood about his plans for growing the social networking site.

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BlackRock Wields ETF Weapon to Expand Share of $2.7 Trillion 401(k) Market

April 22, 2010

By Amy Feldman and Sree Vidya Bhaktavatsalam April 22 (Bloomberg) — BlackRock Inc. is seeking to grab a larger slice of the $2.7 trillion 401(k) retirement market by using its position as the world’s biggest manager of exchange- traded funds to win over small companies. BlackRock is going after retirement plans with $50 million or less that have been largely ignored by big providers such as Fidelity Investments and Vanguard Group Inc. Investors in 401(k) plans have bought more than $2 billion of BlackRock’s iShares ETFs since the New York-based company began its push last year, Darek Wojnar , head of iShares strategy and research, said in a telephone interview. “Because iShares is so big, they’re a bellwether of where things are headed,” said Teresa Epperson, a partner at Mercatus, a Boston-based financial consultant. “I think it’s inevitable.” Exchange-traded funds have struggled to break into the retirement market as Fidelity, the largest 401(k) provider, Vanguard, the fifth largest, and most other large administrators have shunned them, saying they aren’t appropriate for long-term retirement savers. BlackRock is seeking to appeal to smaller plans, which often pay more for investment products, according to Wojnar. The funds are baskets of individual securities that are structured as stocks and bought and sold on an exchange. ETF costs are generally less than investments available to smaller plans. BlackRock is the biggest ETF manager, with $509 billion in iShares assets, followed by Boston-based State Street Corp. at $205 billion. Level Playing Field “It might level the playing field between the big employers and the small sponsors,” said Lawrence Petrone, director of research at Boston-based Financial Research Corp., which studies the asset-management industry. Raylon Corp., a third-generation family business in Reading, Pennsylvania, which sells furniture and hair-styling products to salons, switched from a mutual-fund plan managed by AXA Equitable to one built around ETFs run by Portland, Oregon- based Invest n Retire , according to Chris Raszkiewicz, Raylon’s director of finance. Raylon, which has $2.3 million in retirement assets among 90 participants, was able to almost halve its expense rate to 1.18 percent, Raszkiewicz said. “The bigger companies get better pricing, but for someone like us, this was perfect,” he said. The average expense ratio for ETFs was 0.57 percent of assets in 2009, compared with 0.99 percent for index funds and 1.41 percent for actively managed U.S. stock mutual funds, data from Chicago-based Morningstar Inc . show. Market Will Grow “Lower fees could mean the difference between an OK retirement and a very nice retirement over the long term,” said Tom Lydon , president and chief executive officer of Global Trends Investments in Newport Beach, California. The 401(k) market is estimated to increase 41 percent to $3.7 trillion in assets by the end of 2014, according to Boston- based Cerulli Associates. Exchange-traded funds now account for between $5 billion and $10 billion of 401(k) assets, according to Petrone at Financial Research. He said BlackRock’s ETFs used in 401(k) plans and other retirement accounts could surpass $100 billion over the next decade. Assets in 401(k) plans may grow to about 20 percent of iShares’ net inflows in five years, or about $10 billion a year, BlackRock’s Wojnar said. Higher Costs Fidelity, Vanguard, T. Rowe Price Group and Charles Schwab Corp., which collectively administer more than $1.2 trillion in 401(k) plan assets, said trading costs are higher for ETFs, because investors have to pay broker commissions on every trade. Savers who contribute small amounts from their paychecks in weekly or biweekly increments can get hit hard by those costs, according to Stephen Utkus, director of the Vanguard Center for Retirement Research. Pegi Almond, a T. Rowe Price vice president who works with 401(k) plans for the Baltimore-based firm, said that ETFs aren’t appropriate for 401(k)s for the same reason. “We have not received much demand from plan sponsors to offer it,” according to Fidelity’s Beth McHugh, a vice president in the Boston-based company’s 401(k) unit. Fidelity, the largest 401(k) administrator with $706 billion in assets, allows savers to buy ETFs only in plans that permit individual brokerage trading, according to McHugh. Fidelity doesn’t track how many people buy ETFs that way. Schwab does the same thing, according to James McCool , an executive vice president for 401(k)s at the San Francisco-based company. ‘Apples-to-Oranges’ Vanguard, the third-largest seller of ETFs, uses them for taxable accounts only, and sticks with mutual funds for its 401(k)s, according to Utkus, of the Valley Forge, Pennsylvania- based company. ETFs generally aren’t taxed until sold while mutual funds distribute taxable capital gains. Vanguard’s fees are low enough that there’s no cost advantage to its ETFs, he said. The Vanguard Total Stock Market Fund charges 6 basis points for institutional shares. The equivalent Vanguard Total Stock Market ETF costs 7 basis points. A basis point equals 0.01 percentage point. “Mutual funds don’t have bid-ask spreads, and they don’t have brokerage commissions,” Utkus said. “It’s an apples-to- oranges comparison.” State Street declined to comment. Fidelity, Vanguard, T. Rowe and Schwab are 401(k) administrators that also sell investment products for the plans, which may give them an advantage, and fees are often bundled together for both services. BlackRock, which has $276 billion in retirement plan assets, isn’t in the plan administration business. Small Companies Smaller companies often retain insurance companies and third-party administrators to run their plans, said T. Rowe Price’s Almond. Insurers handle 53 percent of the country’s 401(k) plans, representing 25 percent of assets, according to Cerulli. Insurance companies with large 401(k) businesses include Great-West Life & Annuity Insurance Co., Prudential Financial Inc. and Principal Financial Group Inc., according to an April 5 ranking of 2009 data by Pensions & Investments magazine. Exchange-traded fund assets in the U.S. surged 67 percent to $750 billion in the year ended in February, according to data from the Investment Company Institute in Washington, as investors sought low-cost alternatives to active funds, which are composed of individual securities picked by portfolio managers. Mutual funds in the U.S. held $10.97 trillion as of February, according to the ICI. Bruce Lavine , president and chief operating officer of New York-based WisdomTree Investments Inc., an ETF provider backed by hedge-fund investor Michael Steinhardt , said his company has about $50 million in assets from 401(k) investors from about 25 plans. ‘Blown Away’ “One advantage of ETFs that’s overlooked by the people entrenched in the 401(k) business is that ETFs have blown away the offerings in the index mutual fund space,” said Lavine, whose firm manages about $7.3 billion in ETFs. WisdomTree’s Emerging Markets SmallCap Dividend Fund is available only as an ETF and not through an index mutual fund, according to Lavine. The WisdomTree ETF returned 71 percent in the past year, compared with a 67 percent return for the MSCI Emerging Markets Index , Bloomberg data show. Larger plans sponsors may start exploring ETFs for their employees to stay competitive, Lavine said. “A year ago there were questions about whether it would be adopted,” BlackRock’s Wojnar said of ETFs. “The questions today are, how quickly? And how widespread?” To contact the reporters on this story: Amy Feldman in New York at afeldman16@bloomberg.net . Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net ;

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New Jersey Voters Reject Majority of School Budgets Amid Taxpayer Revolt

April 21, 2010

By Terrence Dopp April 21 (Bloomberg) — New Jersey voters rejected a majority of school budgets for the first time in more than three decades, defeating a record 59 percent of the plans as districts sought to raise the highest property taxes in the U.S. Voters shot down 315 of the 537 proposals, according to the New Jersey School Boards Association. The last time more than half of the proposals failed was in 1976, when 56 percent were rejected, according to the group. Budgets were voted down yesterday in districts including Ridgewood, Edison and Teaneck. Residents fed up with rising taxes and stung by the U.S. recession used yesterday’s elections to reject the one area of government spending over which they have a direct vote, school expenses, said Brigid Harrison , a law and science professor at Montclair State University. The results may prove a “game- changer” for Republican Governor Chris Christie as he seeks to usher his budget past the Democrat-led Legislature, she said. “This is absolutely a clear message voters were sending that they support the governor in his efforts to shrink government spending,” Harrison said. “It’s definitely a win in the tally column for him. It was such a resounding rejection that it was actually the exception for one to pass.” Voters in Hudson County approved spending plans in Hoboken and Jersey City and rejected North Bergen’s proposal. In Mercer County, Princeton’s budget passed with 67 percent of the vote, while Hamilton Township’s failed. In Essex County, plans passed for Millburn, Bloomfield and Glen Ridge and failed in Cedar Grove. Results were posted on the county clerks’ Web sites . ‘Watershed Moment’ Most of New Jersey’s school districts proposed increasing local levies to fund spending plans, after Christie, who took office Jan. 19, said he would slash their aid in the budget he proposed last month. Christie had urged citizens to reject budgets in districts where teachers didn’t accept pay freezes to deal with his cuts. “Yesterday’s election is, I believe, a watershed moment for New Jersey,” Christie told reporters today. “Our children and our families can no longer afford a government that wishes its problems away or ignores them.” School budgets rejected by voters are sent to municipal councils, who can leave the plans intact or make cuts. Municipalities have until May 19 to decide on the tax levy, and boards can appeal any council decision to the state education commissioner. Frank Belluscio , spokesman for the school-boards group, said taxes would still rise in most towns even if voters rejected the plans and reductions are made. Teacher Jobs Christie proposed trimming state aid by as much as 5 percent of districts’ budgets to help close a $10.7 billion hole in his $29.3 billion spending plan without raising taxes. Fifty- nine of 588 districts would lose all state assistance under his plan, which needs approval from lawmakers by the July 1 start of the fiscal year. Faced with reduced funding , 93 percent of the school systems proposed spending plans that called for reducing staff, according to a survey by the school-boards association . More than half opted to cut programs. The New Jersey Education Association, the state’s teachers’ union, estimated that as many as 6,000 teachers and 10,000 other school workers would lose their jobs under the proposed budgets. Teachers in 20 districts accepted pay freezes or reductions, while administrators in 143 districts agreed to wage concessions, according to data released by Christie’s office April 19. Christie today reiterated his call for teachers to give up their raises. Higher Turnout Each year over the past three decades, less than 20 percent of voters turned out for New Jersey school elections, and a majority of plans were approved, according to the school-boards group. Last year, 73 percent of the budgets passed. Turnout yesterday was 21 percent in Middlesex County, where voters nixed 15 of 24 budgets, according to the county Web site . Edison’s plan was defeated, 62 percent to 38 percent. Plans also were refused in East Brunswick, Jamesburg, Milltown, Monroe, Sayreville, Woodbridge and Old Bridge, and approved in Metuchen, North Brunswick and West Windsor-Plainsboro school district. In the Bergen County town of Teaneck , which proposed a 10 percent property-tax increase, voters defeated the budget 4,790- 3,618, director of school-community relations David Bicofsky said in an e-mailed statement. The plan would have raised the local levy by $474 on the average home assessed at $466,100. The unofficial vote count doesn’t include absentee ballots, he said. Hunterdon County Belluscio said preliminary results showed Hunterdon County as the county with the largest percentage of rejections, 82 percent, where only five of 28 budgets on the ballot passed. “Things are tough right now,” he said late yesterday. “In times of a bad economy you find that more budgets are defeated. Plus you have the aid cuts and that resulted in districts having to pass some of that cost on to taxpayers.” The $85 million budget in Ridgewood , a Bergen County suburb of New York City, sought the elimination of 72 full-time jobs and a 4 percent tax increase. Voters rejected it 2,639-2,537, according to results posted on the district’s Web site. “There was a frustration with taxes, the loss of state aid and a lot of other issues that just rolled into a tremendous snowball,” said Joseph Vallerini, school board president in Ridgewood. The loss is the first in his six years on the board. Millburn, Mendham In Millburn, where the average home is assessed at almost $1.1 million, voters backed an $82.4 million budget that raised taxes 1.5 percent, or an average of $196 a year. The plan passed 1,864-1,266, according to the Essex County Clerk’s Web site . Millburn schools are slated to lose all of their state funding, or about $3 million, spokeswoman Nancy Dries said. “There was a heightened interest in this vote because of the governor, and certainly there was concern over whether it would pass,” said Dries. “This was the largest turnout we’ve had in years.” Christie’s spokesman Michael Drewniak declined to say how the governor voted on the school budget in his hometown, Mendham Township. The district proposed raising taxes by 3.48 percent, as Christie’s plan cut all of its state aid. The budget passed, 51 percent to 49 percent, according to Morris County’s Web site . Princeton Regional Schools proposed a 3.9 percent tax increase in its $71.5 million plan, even as officials cut spending by 3.54 percent, according to Lewis Goldstein, assistant superintendent of human resources. In South Orange-Maplewood schools, where budgets are approved by an appointed panel instead of voters, the Board of School Estimate approved a $108.6 million plan that eliminates 76 aides and calls for a wage freeze. The district lost $5.3 million in aid under the Christie proposal. “It’s certainly not something we took lightly,” said Mark Gleason, the district’s school board president. “This was a difficult year because of that state aid cut. This budget involved some really tough choices.” To contact the reporter on this story: Terrence Dopp in Trenton, New Jersey, at tdopp@bloomberg.net .

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Ash Cloud Forces Obama, Merkel, Sarkozy to Cancel Trip for Kaczynski Rites

April 17, 2010

By Edwin Chen April 18 (Bloomberg) — President Barack Obama , French President Nicolas Sarkozy and German Chancellor Angela Merkel were among the leaders who canceled plans to attend the funeral of Polish President Lech Kaczynski because of the volcanic ash cloud that has hindered air travel across Europe. “I spoke with acting President Komorowski and told him that I regret that I will not be able to make it to Poland due to the volcanic ash that is disrupting air travel over Europe,” Obama said in an e-mailed statement yesterday. Kaczynski died in an April 10 plane crash in Russia. Kaczynski’s family made plans to go forward with the funeral in Krakow today. Ash from the eruption of Iceland’s Eyjafjallajökull volcano has disrupted airline traffic across Europe, forcing flight cancellations that have stranded travelers. Flights have been halted because of concerns that the ash plume could damage engines and speed sensors. The cloud has drifted as far east as Moscow. The direction of winds high in the atmosphere mean the disruption may continue for the next few days. The U.S. ambassador to Poland will represent the U.S. at the funeral today, according to the White House statement. Obama’s aides had considered a longer flight route to allow the U.S. president’s plane to detour around the ash plume, then canceled the trip yesterday as the forecast worsened. Britain’s Prince Charles and France’s Sarkozy will also be unable to attend the funeral because of the ash cloud, Agence France-Presse reported, citing their offices. Merkel had planned to be at the funeral after her return flight from the U.S. was diverted to Lisbon and Rome. She was going to attempt road transport north to Poland before abandoning her plans. Merkel expressed her regret in a phone call to Polish Foreign Minister Radoslaw Sikorski yesterday. To contact the reporter on this story: Edwin Chen in Washington at echen32@bloomberg.net

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Brazil’s Mahindra Auto Unit Plans IPO Next Year as Sales Forecast to Rise

April 14, 2010

By Arnaldo Galvao April 14 (Bloomberg) — Bramont Montadora e Industrial de Veiculos SA, the seller of Mahindra cars and trucks in Brazil, may offer shares to the public for the first time next year as demand for vehicles in Latin America’s largest economy increases. “We’re preparing the company for its first public offering this year and the sale is likely to happen next year,” company owner Eduardo de Castro said in a telephone interview. “Investors have a big appetite for Brazil because it’s a growing and stable market.” Sales at Bramont may rise to 2,600 cars this year from 270 in 2008, national sales manager Amauri Basilio said in a telephone interview from Manaus, Amazonas state. Brazilian vehicle sales rose 30 percent in March from a year earlier as the government cut taxes to boost factory output after last year’s economic slowdown, Brazil’s vehicle association said. Revenue at Manaus-based Bramont rose 100 percent to 57.7 million reais ($32.8 million) last year from a year earlier, with sales of 619 vehicles, Basilio said. International revenue at Mumbai-based parent company Mahindra & Mahindra Ltd fell 46 percent in the 12 months ended March 2009 amid the global financial crisis, the company said. Exports accounted for 14 percent of revenue, down from 29 percent a year earlier, according to data compiled by Bloomberg. Factory Plans Bramont invested $50 million in 2007 to build a factory in Manaus, the industrial low-tax zone in the Amazon, Basilio said. A second factory to produce tractors, buses, trucks and cars will be built after the IPO and four states are offering tax cuts to host the plant, Basilio said. The company’s most popular car in Brazil is the SUV, which sells for 86,000 reais ($48,900), according to Castro. Bramont was established in Brazil in March 2007 and started selling its first cars there in November of that year. It has 26 dealers in the country. Bramont is in talks with Banco Bradesco SA and Itau Unibanco Holding SA to manage the share sale, Basilio said. “We’re very optimistic about the Brazilian market,” he said. To contact the reporter on this story: Arnaldo Galvao in Brasilia at agalvao1@bloomberg.net

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Small-Business Confidence in U.S. Hits Eight-Month Low on Earnings Concern

April 13, 2010

By Shobhana Chandra April 13 (Bloomberg) — Confidence among U.S. small businesses fell in March to the lowest level since July 2009 as executives grew more concerned about earnings and sales, a private survey found. The National Federation of Independent Business’s optimism index dropped to 86.8 last month from 88 in February, the Washington-based group said today. Seven of the index’s 10 components declined last month and two were unchanged from February. “The March reading is very low and headed in the wrong direction, very inconsistent with the notion that the economy is recovering and that job growth has strength,” William Dunkelberg , the group’s chief economist, said in a statement. The figures show “uncertainty must still prevail, overwhelming any good news about the economy.” A gauge of expectations for business conditions six months from now was the sole component that improved from the prior month, rising one point. The report also showed that while workforce reductions may be over, small businesses weren’t ready to add workers or spend more on new equipment. The measure of earnings expectations showed the biggest decline in March, falling 4 points to minus 43 percent. Thirty- four percent of respondents cited “poor sales” as the top business concern, the same as in February, and the net percent of owners projecting higher sales , adjusting for inflation, fell to minus 3 percent. Expansion Plans A gauge of whether firms think this is a good time to expand dropped 2 points to a net 2 percent. The survey’s net figures are calculated by subtracting the percent of business owners giving a negative answer from those giving a positive response. A net minus 2 percent of respondents plan to hire over the next three months, down one point from February. Nine percent of firms said they currently had job openings that were hard to fill, compared with 11 percent a month earlier, a “negative” for hope that the unemployment rate will drop, Dunkelberg said. Plans for capital investment fell one point to a net 19 percent. The share of owners who said they expect credit conditions to ease in the coming months fell 2 points to a net reading of minus 16 percent. The report is at odds with recent data showing the world’s largest economy is emerging from the deepest recession since the 1930s. Employers increased payrolls by 162,000 in March, the most in three years, while the unemployment rate held at 9.7 percent. The NFIB report was based on 948 survey responses through March 31. Small businesses represent more than 99 percent of all U.S. employers and have created 64 percent of all new jobs in the past 15 years, according to the U.S. Small Business Administration. To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net

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Ford Motor Deploys Renewed Profits to Chase GM, Toyota in Emerging Markets

April 9, 2010

By Jeff Green April 9 (Bloomberg) — Ford Motor Co. , profitable last year for the first time since 2005, is stepping up spending in fast- growing markets in South America and South Africa to help catch up to General Motors Co. and Toyota Motor Corp. “Ford was very, very unhealthy just a few years ago, but now they are able to start investing again,” Rebecca Lindland , an IHS Global Insight Inc. forecaster, said in an interview today. “The places they are investing are seen as the growth markets.” Spending to retool factories will increase by $207 million in South Africa, $282 million in Brazil and $250 million in Argentina, Ford said this week. Industrywide global sales may rise 4 percent to 66.9 million autos in 2010, researcher J.D. Power & Associates estimates. After shunning a U.S. bailout and avoiding bankruptcy, Ford reported $2.7 billion in net income in 2009, ending losses totaling $30 billion in the three previous years. Capital spending may increase $1 billion in 2010, Chief Financial Officer Lewis Booth said in a February interview. “Despite being a top-five automaker in the world, Ford trails the top players such as Volkswagen and GM in many emerging markets,” said Brian Johnson , a Barclays Capital analyst, who rates Dearborn, Michigan-based Ford “equal weight.” Ford has about half the sales of GM, Volkswagen AG and Fiat SpA in South America and is well behind in South Africa, said Johnson, who is based in Chicago. Toyota is the world’s largest automaker. Ford rose 9 cents to $12.72 in New York Stock Exchange composite trading . The shares have gained 27 percent this year after surging more than fourfold in 2009. About 46 percent of Ford’s $118.3 billion in 2009 revenue came from outside North America. Ford’s 7.45 percent notes due in July 2031 rose 0.625 cent to 93 cents on the dollar in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Overseas Investments The $739 million in new spending in South Africa and South America follows investments of at least $1.49 billion spread among China, India and Thailand to bolster sales in Asia. Deliveries in Asia may increase 9 percent this year to 25.9 million vehicles, led by 12 percent growth in India and 8 percent in China, according to Westlake Village, California- based J.D. Power said. South Africa may post a 14 percent gain this year, according to Lexington, Massachusetts-based IHS Global Insight. Ford will upgrade and expand its assembly plant in the South African capital, Pretoria, and its engine factory in Port Elizabeth, according to a statement yesterday. The 3 billion rand ($415 million) investment will boost annual capacity at the Pretoria factory to 110,000 vehicles, with two-thirds expected to be exported to countries in Africa and Europe, Ford said. Production on a new compact pickup truck is scheduled to start next year, Ford said. South America Auto sales may rise 15 percent this year in South America, J.D. Power projected. Brazilian sales may rise 12 percent this year to push the country past Germany as the world’s fourth- largest auto market, after China, the U.S. and Japan, J.D. Power projected. Ford is investing $3 billion in the region through 2015. Chief Executive Officer Alan Mulally said yesterday in Brazilia that Ford will spend 500 million reais more than planned in Brazil from 2011 through 2015, pushing the total to 4.5 billion reais ($2.54 billion). Ford is developing a small sport-utility vehicle there for domestic sales and for export, its first Brazil-engineered model to be sold outside the country. Capital spending at the automaker is expected to be in the range of $4.5 billion to $5 billion this year, Controller Bob Shanks said in a conference call with investors last week. Building less-expensive vehicles on the same platforms worldwide saves money that Ford can use to expand output and allows for exports to more markets, Johnson, the Barclays analyst, said in an interview. “This is where their plans start to pay off,” he said. To contact the reporter on this story: Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net

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BASF Said to Be Preparing $4 Billion Bid for German Chemical Maker Cognis

April 9, 2010

By Angela Cullen, Aaron Kirchfeld and Richard Weiss April 9 (Bloomberg) — BASF SE is preparing a bid for Cognis GmbH that may value the privately held chemical maker at about 3 billion euros ($4 billion), according to two people with knowledge of the situation. BASF, the world’s biggest chemical producer, may make an offer as early as next week, said the people, who declined to be identified because the plans are private. A U.S. bidder is also interested in buying Cognis, which is owned by Goldman Sachs Group Inc. and Permira Advisers Ltd., one of the people said. BASF spokeswoman Jennifer Moore-Braun declined to comment. Cognis would help Chief Executive Officer Juergen Hambrecht reduce BASF’s reliance on plastics and chemicals that Middle East competitors produce more cheaply. The former Henkel AG unit , sold to the buyout firms in 2001, is attracting bidders with its range of ingredients for body lotions, cleaning products and shampoos, products that are more resistant to economic cycles than those directly derived from oil and gas. “Cognis is strong in home and personal care chemicals based on natural raw materials,” said Andreas Heine , an analyst at UniCredit SpA. “Whoever owns Cognis, owns the global market leader. It would be the right addition for BASF. We believe Cognis will be sold this year.” Reviewing Options The owners of Cognis are reviewing their options and will decide in coming weeks whether to sell the company or pursue an initial public offering, another person said. Venture capital company SV Life Sciences also owns a stake in Cognis. Cognis’s equity value compared with peers including British competitor Croda International Plc limits the amount it may generate in an IPO, making a sale to a strategic investor more likely, according to credit analyst Jochen Schlachter of UniCredit SpA in Munich. A purchase would be BASF’s biggest since its takeover of Ciba Holding AG for $5 billion last year. Hambrecht said in February he would avoid any big acquisitions until the integration of Ciba was completed. He said in January that BASF has made more progress toward a savings goal from the merger. Hambrecht is streamlining the company to move out of lower- margin businesses, and the company is looking for a buyer for its styrene operations. Dow Chemical Co. agreed last month to sell its Styron unit, the world’s biggest producer of polystyrene plastic, to Bain Capital Partners for about $1.63 billion to pay down debt and focus on higher-value materials. Cutting Jobs Dusseldorf-based Cognis, which employs about 5,600 people, has reduced its number of workers by 39 percent since the end of 2001. It was sold by Henkel for 2.5 billion euros after the maker of Loctite glues and Persil detergent chose to focus on consumer and industrial products. Cognis is in the process of creating a prospectus for a share sale should its owners decide to list the company, Chief Executive Officer Antonio Trius said on March 24. He forecast rising sales and operating profit this year. The German company posted 2009 profit of 25 million euros, following a loss of 49 million euros in 2008. Net debt stood at 1.87 billion euros as of Dec. 31. Sales fell 14 percent to 2.58 billion euros as earnings before interest and taxes rose 3 percent to 195 million euros. To contact the reporters on this story: Angela Cullen in Frankfurt at acullen8@bloomberg.net ; Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net ; Richard Weiss in Frankfurt at rweiss5@bloomberg.net

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Richard Zombeck: New Plan To Help Homeowners: Here We Go Again

April 7, 2010

Based on the past dismal failures of mortgage-related rescue plans proposed by current or past administrations, it’s difficult to believe that the latest set of plans, proposed by the Obama administration will be any more successful. In fact, it may serve as yet another way for banks and servicers to suck more money out of homeowners who are currently treading water as it is. Past attempts include Barney Frank’s Hope for Homeowners plan , started under the Bush administration, costing $300 billion. It helped one (1) homeowner. The recent plan to modify second mortgages has helped no one . The Making Home Affordable plan , also called HAMP, set out last year to help 4-6 million people. It has in fact potentially hurt approximately 940,000 and has served as a means for banks to suck $4-5 billion out of homeowners . According to Treasury reports 160,000 homeowners have been helped in one form or another, but in many cases a $20 reduction counts as a successful modification and often times the principal has been increased by adding arbitrary fees and charges to the original amount of loan on properties whose values have drastically decreased. A contributing writer at ShameTheBanks.org and former Ocwen loan specialist wrote, “I challenge our government to audit these alleged loan modifications and I know for a fact they will find a huge discrepancy in the numbers.

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Double-Dip U.K. Recession Possible If Conservatives Win Ballot, Brown Says

April 4, 2010

By Kitty Donaldson April 5 (Bloomberg) — British Prime Minister Gordon Brown , sliding in opinion polls as he prepares to call a general election, said a victory by the opposition Conservatives would risk tipping the economy back into recession. Brown said the U.K. economic recovery is too fragile for spending cuts proposed by the opposition. David Cameron ’s Conservatives widened their lead in polls published yesterday after offering a mix of tax and budget reductions, countering Labour plans to raise payroll levies to maintain spending. Britain’s record budget deficit, about 12 percent of gross domestic product, has become a flashpoint of the campaign. The election itself may fail to yield a majority for either main party in Parliament. Brown may visit Queen Elizabeth II at Buckingham Palace as soon as tomorrow to ask the head of state to formally dissolve Parliament for a vote likely to be May 6. “With the economy, we’re not back to full fitness, we need to maintain support,” Brown said in a podcast released today, invoking injured English soccer star Wayne Rooney . “If you withdraw support too early, we’ll risk doing more damage. If we try and jump off the treatment table as if nothing had happened, we’ll do more damage to the economy — and frankly that means we risk a double-dip recession.” The Conservatives pressed a line of attack that has fueled an increase in their lead. The opposition last week said they’d partially reverse a proposed rise in payroll taxes, known as National Insurance. It would be funded by an immediate 6 billion-pound ($9 billion) reduction in spending. ‘Stealth Tax’ Conservative Treasury spokesman George Osborne , publishing research which he said shows the average national insurance contribution per family has risen more than 12 times average income-tax receipts per family over the last decade, calls it a “stealth tax.” Brown “thinks he can fool the public but he has been found out,” Osborne said in a statement. “People know that it is a tax on the income of working people and a tax on jobs — it is what threatens to kill the recovery.” Yesterday, the Conservative Party extended its lead over Labour in two opinion polls. A YouGov Plc poll for the Sunday Times put the main opposition at 39 percent of the vote, Labour at 29 percent and the Liberal Democrats at 20 percent. Another survey for the Sunday Express newspaper by Canadian pollsters Angus Reid put the Conservatives at 38 percent, 11 points ahead of Labour’s 27 percent, with the Liberal Democrats at 20 percent. YouGov polled 1,503 voters online on April 1-2. Angus Reid surveyed 1,991 voters, and the Sunday Express didn’t say how or when the poll was conducted. No margin of error was given for either poll. To contact the reporter on this story: Kitty Donaldson in London at kdonaldson1@bloomberg.net

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David Isenberg: The Unknown Contractor

March 29, 2010

In my March 25 post I mentioned how difficult it still is, despite years of trying, to collect accurate data on basic private military and security contractor (PMSC) facts, such as how many are there, And I noted that to help increase oversight of activities supporting the Defense and State departments and USAID’s efforts in Iraq and Afghanistan, the three agencies designated the Synchronized Predeployment and Operational Tracker (SPOT) as their system for tracking the required information. That information, required for each contract that involves work performed in Iraq or Afghanistan for more than 14 days, includes: * a brief description of the contract, * its total value, and * whether it was awarded competitively; and * for contractor personnel working under contracts in Iraq or Afghanistan, * total number employed, * total number performing security functions, and * total number killed or wounded. Now, despite years of effort SPOT still has problems in terms of collecting and saving information. Some reasons are disappointing but understandable, given differing methodologies for collecting and saving information across different departments and agencies. But one truly disappointing thing it does not do well is to keep track of contractors who are killed or wounded. According to John Hutton, Director, Acquisition and Sourcing Management, U.S. Government Accountability Office, who on March 23 testified before the House Armed Services Subcommittee on Oversight and Investigations regarding ” Interagency Coordination of Grants and Contracts in Iraq and Afghanistan: Progress, Obstacles, and Plans “: In addition to agreeing to use SPOT to track contractor personnel numbers, the agencies agreed to use SPOT to track information on contractor personnel killed or wounded. Although SPOT was upgraded in January 2009 to track casualties, officials from the three agencies informed us they are not relying on the database for this information because contractors are generally not updating the status of their personnel to indicate whether any of their employees were killed, wounded, or are missing. In the absence of using SPOT to identify the number of contractor personnel killed or wounded in Iraq and Afghanistan, the agencies obtain these data from other sources. Specifically, in response to requests made as part of our ongoing review, State and USAID provided us with manually compiled lists of the number of personnel killed or wounded, whereas DOD provided us with casualty data for U.S citizens, but could not differentiate whether the individuals identified were DOD civilian employees or contractors. While contractors are not active duty military, although they may very well have been not that long ago, they don’t deserve to be treated like the Unknown Soldier either. Whether or not you like the idea of the government relying on PMSC the reality is that they make a significant contribution, just like regular military personnel. Contractors know going in that if they are killed their family members won’t get the same survivor benefits, except for what they get under the Defense Base Act, as a soldier or marine who is killed. They know no chaplain will arrive at the door of their home to comfort the grieving. So it is really too much to ask that at the very least the government could at least kept track of those who are wounded and killed? After all, one can find contractor casualty lists on Wikipedia . If websites like Icasualties.org could include contractor casualties, as it used to do, the U.S. government with vastly greater informational resources at its disposal should be able to do so as well, albeit in far more comprehensive fashion. Some contractors are extremely good about letting the world know when their people are killed. DynCorp, for example, has for years, put out a press release every time one of its contractors dies. Why other contractors “are generally not updating the status of their personnel to indicate whether any of their employees were killed, wounded, or are missing” is an interesting question that someone ought to ask. Perhaps the Commission on Wartime Contracting can do so the next time it holds a hearing. Needless to say, SPOT data, should include contractors of any and all nationalities working for a PMC, not just a citizen of the host country

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Health-Care Changes to Start Taking Effect This Year (Correct)

March 24, 2010

By Shannon Pettypiece and Alex Nussbaum (Corrects effective date in first paragraph. Story first moved March 23.) March 23 (Bloomberg) — Indoor tanning salons will charge customers a 10 percent tax beginning in July in one of the changes Americans will see as a result of the U.S. health-care overhaul signed into law by President Barack Obama . Insurers will be required by September to begin providing health coverage to kids with pre-existing illnesses and allow parents to keep children younger than 26 on their plans as the clock has begun ticking on many of the law’s provisions. Medicare recipients will receive a $250 rebate for prescription drugs when they reach a coverage gap called the donut hole if the Senate passes and the president signs companion legislation approved March 21 by the U.S. House. The $940 billion overhaul subsidizes coverage for uninsured Americans, financed by Medicare cuts to hospitals and fees or taxes on insurers, drugmakers, medical-device companies and Americans earning more than $200,000 a year. Many of the changes in the bill of more than 2,400 pages, such as requiring most people to have health insurance and employers to provide coverage, will take at least two years to go into effect. “Most of the major public policy changes embodied in the health care reform legislation will become effective only after the next presidential election in 2012,” said Maury Harris , an economist with UBS AG , said in a research report. High-Risk Pools Within 90 days, the law will provide immediate access to high-risk insurance plans for people who can’t get insurance because of a pre-existing medical problem, Harris said. These high-risk pools will be funded by $5 billion in federal grants. Companies led by Minnetonka, Minnesota-based UnitedHealth Group Inc. , the largest health insurer, will be banned within six months from dropping a person’s coverage because of severe illness and from limiting lifetime or annual benefits. Participants in Medicare, the U.S. government’s health coverage for those 65 and older, are expected get a $250 rebate toward prescription drugs once their benefits run out — a coverage gap know as the “doughnut hole.” The benefit is part of the package of amendments to the legislation now pending in the Senate. Drugmakers led by New York-based Pfizer Inc. will have to offer discounted drugs to Medicare recipients next year, according to an analysis of the legislation by the Kaiser Family Foundation, a nonprofit group based in Menlo Park, California In 2013, individuals whose annual income is more than $200,000 and couples making more than $250,000 will see an increase in Medicare payroll taxes. Those taxes will also be expanded to cover dividend, interest and other unearned income. Employer Coverage In 2014, employers with more than 50 employees will be required to provide health coverage and most people will be required to have health insurance, Harris said in his report. A tax on high-cost “Cadillac” policies won’t go into effect until 2018. The insurance industry also faces about $60 billion in additional fees under the health bill through 2018, and more beyond, though it was able to postpone the levy until 2014. By 2019, the bill is expected to have expanded health insurance coverage to 32 million people, according to UBS’s Harris. The U.S. Health and Human Services Department will have two years to set penalties on hospitals with high readmission rates and longer to test new payment systems for Franklin, Tennessee- based Community Health Systems Inc. , the largest U.S. chain, and its rivals. Financial Disclosure Insurers also will have to reveal how much of members’ premiums they spend on medical care, as opposed to executive salaries or other administrative costs. Next year, they’ll owe a rebate to customers if the insurers spend less than 80 percent on benefits for people in individual or small-group plans. Starting in 2014, states have their say. The legislation leaves it to them to set up and run the online marketplaces, known as exchanges, where customers will comparison-shop for coverage. Among other powers, the exchanges will be able to banish plans for premium increases deemed to be unjustified. The legislation also creates an Independent Payment Advisory Board to suggest cuts in spending by Medicare, the government health program for the elderly and disabled, that could threaten payments for drug and device-makers. Starting in 2014, the panel’s recommendations would take effect unless federal lawmakers substitute their own reductions. To contact the reporter on this story: Alex Nussbaum in New York anussbaum1@bloomberg.net ; Shannon Pettypiece in New York spettypiece@bloomberg.net

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Health-Care Changes to Start Taking Effect This Year (Correct)

March 24, 2010

By Shannon Pettypiece and Alex Nussbaum (Corrects effective date in first paragraph. Story first moved March 23.) March 23 (Bloomberg) — Indoor tanning salons will charge customers a 10 percent tax beginning in July in one of the changes Americans will see as a result of the U.S. health-care overhaul signed into law by President Barack Obama . Insurers will be required by September to begin providing health coverage to kids with pre-existing illnesses and allow parents to keep children younger than 26 on their plans as the clock has begun ticking on many of the law’s provisions. Medicare recipients will receive a $250 rebate for prescription drugs when they reach a coverage gap called the donut hole if the Senate passes and the president signs companion legislation approved March 21 by the U.S. House. The $940 billion overhaul subsidizes coverage for uninsured Americans, financed by Medicare cuts to hospitals and fees or taxes on insurers, drugmakers, medical-device companies and Americans earning more than $200,000 a year. Many of the changes in the bill of more than 2,400 pages, such as requiring most people to have health insurance and employers to provide coverage, will take at least two years to go into effect. “Most of the major public policy changes embodied in the health care reform legislation will become effective only after the next presidential election in 2012,” said Maury Harris , an economist with UBS AG , said in a research report. High-Risk Pools Within 90 days, the law will provide immediate access to high-risk insurance plans for people who can’t get insurance because of a pre-existing medical problem, Harris said. These high-risk pools will be funded by $5 billion in federal grants. Companies led by Minnetonka, Minnesota-based UnitedHealth Group Inc. , the largest health insurer, will be banned within six months from dropping a person’s coverage because of severe illness and from limiting lifetime or annual benefits. Participants in Medicare, the U.S. government’s health coverage for those 65 and older, are expected get a $250 rebate toward prescription drugs once their benefits run out — a coverage gap know as the “doughnut hole.” The benefit is part of the package of amendments to the legislation now pending in the Senate. Drugmakers led by New York-based Pfizer Inc. will have to offer discounted drugs to Medicare recipients next year, according to an analysis of the legislation by the Kaiser Family Foundation, a nonprofit group based in Menlo Park, California In 2013, individuals whose annual income is more than $200,000 and couples making more than $250,000 will see an increase in Medicare payroll taxes. Those taxes will also be expanded to cover dividend, interest and other unearned income. Employer Coverage In 2014, employers with more than 50 employees will be required to provide health coverage and most people will be required to have health insurance, Harris said in his report. A tax on high-cost “Cadillac” policies won’t go into effect until 2018. The insurance industry also faces about $60 billion in additional fees under the health bill through 2018, and more beyond, though it was able to postpone the levy until 2014. By 2019, the bill is expected to have expanded health insurance coverage to 32 million people, according to UBS’s Harris. The U.S. Health and Human Services Department will have two years to set penalties on hospitals with high readmission rates and longer to test new payment systems for Franklin, Tennessee- based Community Health Systems Inc. , the largest U.S. chain, and its rivals. Financial Disclosure Insurers also will have to reveal how much of members’ premiums they spend on medical care, as opposed to executive salaries or other administrative costs. Next year, they’ll owe a rebate to customers if the insurers spend less than 80 percent on benefits for people in individual or small-group plans. Starting in 2014, states have their say. The legislation leaves it to them to set up and run the online marketplaces, known as exchanges, where customers will comparison-shop for coverage. Among other powers, the exchanges will be able to banish plans for premium increases deemed to be unjustified. The legislation also creates an Independent Payment Advisory Board to suggest cuts in spending by Medicare, the government health program for the elderly and disabled, that could threaten payments for drug and device-makers. Starting in 2014, the panel’s recommendations would take effect unless federal lawmakers substitute their own reductions. To contact the reporter on this story: Alex Nussbaum in New York anussbaum1@bloomberg.net ; Shannon Pettypiece in New York spettypiece@bloomberg.net

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Portugal Downgraded to AA- by Fitch on Concern Over Mounting Debt Burden

March 24, 2010

By Matthew Brown March 24 (Bloomberg) — Portugal’s credit grade was cut by Fitch Ratings, underscoring growing concern that Europe’s weakest economies will struggle to meet their debt commitments as finances deteriorate. The rating was lowered one step to AA- with a “negative” outlook, Fitch said in a statement today. The euro extended its decline, weakening 1.1 percent to $1.3355 as of 10:32 a.m. in London. Portuguese bonds fell, with the yield on the 10-year note rising 5 basis points to 4.33 percent. Portugal’s PSI-20 Index of stocks dropped 2 percent. Euro-region governments in the so-called peripheral nations, including Greece, Ireland, Italy and Spain, are seeking to narrow budget deficits that have exceeded the European Union’s 3 percent limit by as much as four times. Portugal’s gross domestic product per capita and trend growth are “significantly below” what is typical for a AA country, reducing its ability to tolerate the global economic downturn, Fitch said. “A sizeable fiscal shock against a backdrop of relative macroeconomic and structural weaknesses has reduced Portugal’s creditworthiness,” Douglas Renwick, associate director at Fitch, wrote in the report from London. “Although Portugal has not been disproportionately affected by the global downturn, prospects for economic recovery are weaker than 15 European Union peers, which will put pressure on its public finances over the medium term.” Deficit Plans Portugal is planning to cut its budget deficit to 8.3 percent of gross domestic product this year from last year’s 9.3 percent. The government predicted economic growth in 2010 of 0.7 percent after a decline last year depressed tax revenue. “Portugal’s downgrade underlines the problems in the European Union,” said Paul Robinson , a currency strategist at Barclays Capital in London. “People are worried about the fiscal situation in the southern European economies and the prospects for those economies.” The cost of protecting against losses on Portugal sovereign debt rose to the highest in almost a month, according to CMA DataVision prices for credit-default swaps. Five-year contracts insuring $10 million of bonds increased $6,000 a year to $140,000. Swaps rise as perceptions of credit quality worsen. Today’s downgrade for Portugal is the first by Fitch since 1998, and puts it one level below the Aa2 rating assigned to it by Moody’s Investors Service. The last time Portugal’s credit was lowered was on Jan. 21, 2009, when Standard & Poor’s cut it to A+, two steps lower than Moody’s and one step below the level Fitch gave it today. To contact the reporter on this story: Matthew Brown in London at mbrown42@bloomberg.net

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Health-Care Overhaul Changes to Start Taking Effect This Year

March 23, 2010

By Shannon Pettypiece and Alex Nussbaum March 23 (Bloomberg) — Indoor tanning salons will charge customers a 10 percent tax beginning today in just one of the changes Americans will see as a result of the U.S. health-care overhaul signed into law by President Barack Obama . Insurers will be required by September to begin providing health coverage to kids with pre-existing illnesses and allow parents to keep children younger than 26 on their plans as the clock has begun ticking on many of the law’s provisions. Medicare recipients will receive a $250 rebate for prescription drugs when they reach a coverage gap called the donut hole if the Senate passes and the president signs companion legislation approved March 21 by the U.S. House. The $940 billion overhaul subsidizes coverage for uninsured Americans, financed by Medicare cuts to hospitals and fees or taxes on insurers, drugmakers, medical-device companies and Americans earning more than $200,000 a year. Many of the changes in the bill of more than 2,400 pages, such as requiring most people to have health insurance and employers to provide coverage, will take at least two years to go into effect. “Most of the major public policy changes embodied in the health care reform legislation will become effective only after the next presidential election in 2012,” said Maury Harris , an economist with UBS AG , said in a research report. High-Risk Pools Within 90 days, the law will provide immediate access to high-risk insurance plans for people who can’t get insurance because of a pre-existing medical problem, Harris said. These high-risk pools will be funded by $5 billion in federal grants. Companies led by Minnetonka, Minnesota-based UnitedHealth Group Inc. , the largest health insurer, will be banned within six months from dropping a person’s coverage because of severe illness and from limiting lifetime or annual benefits. Participants in Medicare, the U.S. government’s health coverage for those 65 and older, are expected get a $250 rebate toward prescription drugs once their benefits run out — a coverage gap know as the “doughnut hole.” The benefit is part of the package of amendments to the legislation now pending in the Senate. Drugmakers led by New York-based Pfizer Inc. will have to offer discounted drugs to Medicare recipients next year, according to an analysis of the legislation by the Kaiser Family Foundation, a nonprofit group based in Menlo Park, California In 2013, individuals whose annual income is more than $200,000 and couples making more than $250,000 will see an increase in Medicare payroll taxes. Those taxes will also be expanded to cover dividend, interest and other unearned income. Employer Coverage In 2014, employers with more than 50 employees will be required to provide health coverage and most people will be required to have health insurance, Harris said in his report. A tax on high-cost “Cadillac” policies won’t go into effect until 2018. The insurance industry also faces about $60 billion in additional fees under the health bill through 2018, and more beyond, though it was able to postpone the levy until 2014. By 2019, the bill is expected to have expanded health insurance coverage to 32 million people, according to UBS’s Harris. The U.S. Health and Human Services Department will have two years to set penalties on hospitals with high readmission rates and longer to test new payment systems for Franklin, Tennessee- based Community Health Systems Inc. , the largest U.S. chain, and its rivals. Financial Disclosure Insurers also will have to reveal how much of members’ premiums they spend on medical care, as opposed to executive salaries or other administrative costs. Next year, they’ll owe a rebate to customers if the insurers spend less than 80 percent on benefits for people in individual or small-group plans. Starting in 2014, states have their say. The legislation leaves it to them to set up and run the online marketplaces, known as exchanges, where customers will comparison-shop for coverage. Among other powers, the exchanges will be able to banish plans for premium increases deemed to be unjustified. The legislation also creates an Independent Payment Advisory Board to suggest cuts in spending by Medicare, the government health program for the elderly and disabled, that could threaten payments for drug and device-makers. Starting in 2014, the panel’s recommendations would take effect unless federal lawmakers substitute their own reductions. To contact the reporter on this story: Alex Nussbaum in New York anussbaum1@bloomberg.net ; Shannon Pettypiece in New York spettypiece@bloomberg.net

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