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Wall Street’s Secret Society Elects New Members

by The Huffington Post on January 16, 2011

This weekend a tight-lipped group of power brokers elected two new members into Kappa Beta Phi , Wall Street’s secret society founded in 1929, Bloomberg reported. The organization, dubbed ” Wall Street’s Frat ” by the WSJ elected Barclays M&A chief Paul Parker and Leon Black, a senior managing director at buyout firm the Apollo Group, in a posh ceremony at Manhattan’s St. Regis Hotel. While the group’s members aren’t fond of talking to the press, there is reportedly a loose hierarchy of members. The group reportedly uses titles like “grand swipe, grand smudge and grand loaf,” Bloomberg notes. Bloomberg reporter Max Abelson was seated outside the lobby and relayed this strange anecdote. Here’s Abelson : “As the evening began, a reporter seated in the lobby watched people enter the hotel, where a night in the Astor Suite costs about $1,050. When a man appeared holding a photograph of the reporter in a gray T-shirt giving a thumbs-up sign — a profile photo from his Facebook page — the reporter promptly left.” Last year, the Wall Street Journal got rare access to a Kappa Beta Phi induction ceremony , even nabbing one of the event’s pamphlets. Among those listed as the organization’s “Exalted Avisory Council (Past Grand Swipe’s)” were former Bear Stearns CEOs Jimmy Cayne and Alan D. Schwarz and Home Depot co-founder Kenneth Langone. Inductees, referred to as “neophytes” by members, are traditionally required to sit at tables with long black table cloths, and, at least in last year’s ceremony, are required to preform for the crowd. Last year, shipping magnate Peter Georgiopoulos reportedly performed a version of the “What a Feeling” song from the 1980s hit “Flashdance.”

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Wall Street’s Secret Society Elects New Members

Michael W. Hudson: My Talk With Michael Hudson, Part 3

by on November 16, 2010

Michael Hudson and Michael Hudson are often mistaken for each other. Along with sharing a name, they share an interest in the creative ways that some people help themselves to other people’s money. Michael Hudson the economist is the author of such books as Super Imperialism. Michael W. Hudson the reporter is a staff writer at the Center for Public Integrity and author of a new book , The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America, and Spawned a Global Crisis . This is Part 3 of a 3-part conversation between the two Michael Hudsons. Part 1 can be found here and Part 2 can be found here . Michael Hudson, economist : By 2005 it was clear to me that the economy was painting itself into a debt corner. To the extent that a real estate bubble is debt-financed, it simply increases the economy’s debt overhead. From the outset of my graduate economic studies, back in the 1960s, my mentor Terence McCarthy had urged me to concentrate on the debt problem. That has been the main focus of my studies all my professional life. Here’s the problem as it pertains to real estate: A property is worth whatever banks will lend. “Loosening” lending terms mean increasing the degree of debt leverage. The result is that debts rise beyond the ability of people to pay. This is the case not only with homeowners, but indebted students, corporations, cities and states as well. Solving this debt problem by writing down debts strikes many people as unimaginable. There is a moralizing tendency to imagine that all debts can be paid — and that if they are not paid, it must be the debtor’s fault. This is an ideology well popularized by the financial sector. You might call it the opposite of “truth in lending.” It encourages gullibility. The prospective borrower is treated as a “counterparty” — itself a rather hostile term. Thinking that debts can’t be paid strikes most people as cognitive dissonance. Yet Adam Smith wrote in The Wealth of Nations that no government ever had paid off the public debt. The “magic of compound interest” makes it impossible for all debts to be paid over time. The Chicago School talks about “money,” but not of debt. Yet all money and credit is debt. That is a basic balance-sheet relationship. I often wish that economics students be taught accounting so that they see that savings = debt, and also money = debt. When you factor in the mathematics of compound interest, you see why financial crises occur: debts tend to outstrip the ability to pay. At the University of Missouri-Kansas City, where I teach, we focus on the theories of Hyman Minsky. It is clear that economies develop bubbles as a means of carrying their debts. Banks lend borrowers the money to pay the interest, and this increases the debts that new buyers of real estate need to take on. The process becomes economy-wide, affecting industry and agriculture, and government itself. So crises are inevitable. The question is, how will society resolve these crises? Who is going to lose? There are only two choices: either to bring the debt burden back within the ability to pay, by wiping out debt; or let creditors foreclose, transferring property from debtors to creditors. Given the rising political power of financial wealth, economies are opting for the foreclosure option. But that slows economic growth and results in shrinkage over time. Michael W. Hudson, reporter : However preordained the financial crisis was, it’s remarkable how long its architects kept the game going. They managed to sustain the unsustainable for five years — roughly from 2002 into late 2006. As I was trying to write a new book on consumer debt, I came to see how the financial and mortgage markets had come to resemble a giant Ponzi scheme — or a least a vast collection of interlocking mini-Ponzis. The key to keeping the thing going was to keep more and more money flowing in, giving everyone wiggle room to cover up the fact that underlying transactions — mortgages and various investment vehicles such as “CDOs” — were based on smoke and mirrors. Lenders created the illusion of low default rates by refinancing customers whenever their low initial “teaser” interest rates began climbing upward, rendering the monthly payments unaffordable. The refinancing extinguished the old loan — allowing it to go on the books as paid off, “successful” transaction — and provided a new loan that was temporarily affordable thanks to a new teaser rate. A homeowner trapped in this process of serial refinancings might take out five loans in as many years before finally collapsing under the growing weight of the fees that the lenders slipped into each new transaction. This process would go down in the books as four successful loans and one foreclosure. The truth was, though, that all five transactions had been bad loans, doomed to fail from the start. The lenders also hid their reckless lending by outrunning their bad loans, growing their mortgage volume so rapidly that their customers’ rates of default were obscured. Thanks to teaser rates, it might take a year or two before borrowers ran into trouble and, even then, they might be able to stave off failure another few months by shifting money out of their 401(k)’s or borrowing from pawnshops or relatives. As lenders doubled or tripled their loan volumes every year or two — Ameriquest, for example, grew from $6 billion in loans in 2001 to $82 billion in 2004 — borrowers’ defaults from previous years began to look like statistical blips. They represented a tiny percentage of what had become a much enlarged pool of loans. All the refinancings and exponential growth was possible so long as housing values continued to climb higher and higher. It was only when the real estate prices leveled out, and then began to fall, that the hidden, slow-moving disasters for millions of families became a crisis for us all. Michael Hudson, economist : The constraint on this Ponzi scheme was the ability of income to carry the rising debt. As long as interest rates were falling, a given rental revenue or equivalent homeowners’ value could carry a rising debt. But once interest rates reached their minimum, by 2006, there was no more leeway left. Homeowners had to pay debts out of their take-home wages, which have not risen in real terms for over thirty years now. The debt charade no longer could be concealed. This leaves us with the problem of where we go from here. The Obama Administration’s “solution” is for the economy to “borrow its way out of debt.” The Fed is flooding the economy with credit to get the banks lending again – in the hope that new mortgage lending will restore high prices (that is, high housing costs to new buyers), saving the banks’ balance sheets. But with much of US real estate already in negative equity, banks are not going to start lending again on a large scale. The government doesn’t want to confront the fact that we have entered a period of debt deflation. When debtors pay their creditors, they have less to spend on goods and services. So market demand shrinks, corporate profits fall, investment declines and unemployment rises. To mainstream economists, this is an anomaly. This shows the extent to which creditor-friendly views have swamped common sense in academic economics as well as in Congress. It reflects the power of financial lobbyists to persuade many policymakers to embrace illusion over reality. Read Part 1 of “My Talk With Michael Hudson” here and Part 2 here . For other articles by Michael Hudson the economist, visit his Website here . For more articles by Michael W. Hudson the reporter, click here .

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Michael W. Hudson: My Talk With Michael Hudson, Part 3

Danny Wong: Being On Both Sides of the Coin: How Being a Blogger Makes You a Better PR Pro

August 6, 2010

Danny Wong is a contributor to several big media outlets and is the Media Relations Guru of Blank Label , an ecommerce startup specializing in co-created custom dress shirts . As a contributor to different media outlets, you easily learn a lot about good Public Relations. If you’ve ever actually been on the other side of a bad pitch and a good pitch, you can pick out the good qualities and the god awful qualities. Actually having the perspective of the writer gives you better insights on what makes for an effective pitch and what doesn’t, and you gain a lot of other insights you wouldn’t have just as a PR Pro. You appreciate a good pitch vs. a bad pitch When you have received hundreds of pitches yourself, you quickly realize what makes for a good pitch and what makes for a bad pitch and you start appreciating easily digestible content too. You see 50+ emails in your inbox and you certainly don’t want to read all of them. You skim them for the high points, and are more likely to read a pitch if it has bullets and is broken up into short and sweet paragraphs. You cower away from the endless pitches that are more than a few hundred words and quickly hit delete or mark it as unread to return to at a later time. You become a little more critical of your own communications skills You start reevaluating how you write pitches and what messages you convey because you now have perspective on what makes for an effective pitch and a compelling story. Your general pitch or basic story isn’t going to be interesting to anyone unless it has a really interesting and unique angle. This heightened self-criticism makes you more careful when building out your messages and targeting the right reporters too. You appreciate media targeting much more When you get an irrelevant pitch you just cringe at how little research some PR representatives do. You take a bit more time to do your due diligence to figure out exactly what the reporters you are targeting are interested in and make sure you don’t pitch your new SaaS startup to a hardware writer on CNET. You will actually spend some more time reading the reporter’s past articles before shooting them an email or giving them a call too. You appreciate timeliness and newsworthiness Some stories are only good if they are still fresh. Stories get stale really quickly, but if you have interesting content for a follow-up to recent news, that always makes for a good story. So if sources pitch you in a timely manner with relevant news that hasn’t been published already, you’ve got great content for a second story. Let’s say we went back to the days right when the iPad released, you’d want to immediately pitch reporters on how your iPad exploded after two hours of use (this is clearly a hypothetical example). You appreciate honesty and integrity Let’s face it; a lot of PR professionals are spin-masters. They stretch the truth and sometimes tell white lies. But when you’re at the receiving end of a lie and end up publishing information that isn’t 100% accurate, you look like the fool and you know that source has burned a valuable bridge with you. So when this happens, you reconsider how much you spin stories and the repercussions of stretching the truth too much. Being on the other side of the coin is an invaluable experience for PR professionals looking to be better at media and blogger relations . You learn how to masterfully craft pitches because you’ve seen the good, the bad and the ugly, and you are more careful in how you communicate your messages. You also do better work when targeting and finding media leads , and ensure you pitch your story in a timely manner. You also make a big effort to ensure that your pitches are newsworthy . Lastly, you make sure that you maintain honesty and integrity when communicating with journalists and media because if you get caught in a lie, you can get into a lot of trouble as well as end a lot of valuable relationships.

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Danny Wong: Being On Both Sides of the Coin: How Being a Blogger Makes You a Better PR Pro

August 6, 2010

Danny Wong is a contributor to several big media outlets and is the Media Relations Guru of Blank Label , an ecommerce startup specializing in co-created custom dress shirts . As a contributor to different media outlets, you easily learn a lot about good Public Relations. If you’ve ever actually been on the other side of a bad pitch and a good pitch, you can pick out the good qualities and the god awful qualities. Actually having the perspective of the writer gives you better insights on what makes for an effective pitch and what doesn’t, and you gain a lot of other insights you wouldn’t have just as a PR Pro. You appreciate a good pitch vs. a bad pitch When you have received hundreds of pitches yourself, you quickly realize what makes for a good pitch and what makes for a bad pitch and you start appreciating easily digestible content too. You see 50+ emails in your inbox and you certainly don’t want to read all of them. You skim them for the high points, and are more likely to read a pitch if it has bullets and is broken up into short and sweet paragraphs. You cower away from the endless pitches that are more than a few hundred words and quickly hit delete or mark it as unread to return to at a later time. You become a little more critical of your own communications skills You start reevaluating how you write pitches and what messages you convey because you now have perspective on what makes for an effective pitch and a compelling story. Your general pitch or basic story isn’t going to be interesting to anyone unless it has a really interesting and unique angle. This heightened self-criticism makes you more careful when building out your messages and targeting the right reporters too. You appreciate media targeting much more When you get an irrelevant pitch you just cringe at how little research some PR representatives do. You take a bit more time to do your due diligence to figure out exactly what the reporters you are targeting are interested in and make sure you don’t pitch your new SaaS startup to a hardware writer on CNET. You will actually spend some more time reading the reporter’s past articles before shooting them an email or giving them a call too. You appreciate timeliness and newsworthiness Some stories are only good if they are still fresh. Stories get stale really quickly, but if you have interesting content for a follow-up to recent news, that always makes for a good story. So if sources pitch you in a timely manner with relevant news that hasn’t been published already, you’ve got great content for a second story. Let’s say we went back to the days right when the iPad released, you’d want to immediately pitch reporters on how your iPad exploded after two hours of use (this is clearly a hypothetical example). You appreciate honesty and integrity Let’s face it; a lot of PR professionals are spin-masters. They stretch the truth and sometimes tell white lies. But when you’re at the receiving end of a lie and end up publishing information that isn’t 100% accurate, you look like the fool and you know that source has burned a valuable bridge with you. So when this happens, you reconsider how much you spin stories and the repercussions of stretching the truth too much. Being on the other side of the coin is an invaluable experience for PR professionals looking to be better at media and blogger relations . You learn how to masterfully craft pitches because you’ve seen the good, the bad and the ugly, and you are more careful in how you communicate your messages. You also do better work when targeting and finding media leads , and ensure you pitch your story in a timely manner. You also make a big effort to ensure that your pitches are newsworthy . Lastly, you make sure that you maintain honesty and integrity when communicating with journalists and media because if you get caught in a lie, you can get into a lot of trouble as well as end a lot of valuable relationships.

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Steve Parker: Wall Street Journal Reporter Misleads Readers, NPR and Huff Post on Toyota Story

July 29, 2010

Seems we may have been taken in. But we’re in good company, including the Wall Street Journal and National Public Radio. On July 15th, we ran a blog post entitled “Has Toyota Been Right All Along?” reporting that the National Highway Traffic Safety Administration (NHTSA), after downloading data from “black boxes” taken from Toyota-made vehicles whose owners complained about unintended acceleration (UA), said they found a high incidence of driver error and no other recorded problems which caused the UA. This meant, in plain English, that drivers were stepping on their gas pedals when they meant to hit the brakes. And it was our own government’s automotive safety agency saying so. We based our post on a Wall Street Journal article and an interview the author, WSJ reporter Mike Ramsey, did on National Public Radio. The facts, though, according to NHTSA, are different from what this reporter had written. The WSJ reporter cited his information as coming from people within NHTSA who had knowledge of these facts. NHTSA vociferously objected to that possible conjecture, saying Ramsey presented his information as coming from NHTSA, which NHTSA denied. Another NPR reporter who tried to track down Ramsey’s sources before he went on-the-air with NPR wasn’t able to make contact with them. WSJ reporter Ramsey, in the end, was relying on anonymous sources which NPR wasn’t able to verify. Here’s the full story from NPR’s own website: http://www.npr.org/blogs/ombudsman/2010/07/27/128805775/two-ways?ft=1&f=17370252 NPR and the WSJ are usually reliable sources. We apologize for any misunderstanding.

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BP Oil Spill: Off Death Watch, BP’s Future Still Open Question

July 18, 2010

NEW YORK — The future of BP PLC has shifted in recent days from a death-watch discussion to a debate about how valuable the British oil giant will be after it finishes paying for the worst offshore oil spill in U.S. history. BP gained temporary control of its broken well in the Gulf of Mexico on Thursday and is counting on shutting it off permanently within weeks. Its shares have regained more than a quarter of the value lost in the wake of the April 20 explosion on the Deepwater Horizon drilling rig. Talk of a possible bankruptcy or takeover of the company has mostly faded. But the company still faces the daunting task of paying huge government fines and royalty payments, cleanup costs, damage claims and legal expenses for years. Analysts estimate BP’s final tab for the Gulf oil spill will be anywhere from $50 billion to $100 billion. Many analysts feel BP can cover the costs if they’re spread out over years or even decades. But others don’t like the uncertainty. They note that the asset sales needed to offset at least part of those costs will likely make it a smaller company with reduced cash flow. “We still don’t have any way of gauging” how much BP could eventually spend on the spill, Macquarie Research analyst Jason Gammel said. “We’re certainly not buying the stock.” Others are more encouraged. “People are relatively optimistic about the situation for the first time since this started,” said Dougie Youngson, an analyst with Arbuthnot Securities in London. BP shares traded in the U.S. were worth $60.48 on April 20, hours before the explosion of the drilling rig triggered the oil spill. They then spiraled downward to as low as $26.75 during trading on June 28. That slide wiped out $105 billion in market capitalization. The stock began to rebound this month as details emerged about the possible sale of $10 billion or more in assets to help cover BP’s liabilities. The temporary capping of the well helped send the stock 9 percent higher last week to $37.10. BP promised the Obama administration it will set aside $20 billion over four years to pay spill-related claims along the Gulf and has spent $3.5 billion so far. But beyond that, BP says “it is too early to quantify other potential costs and liabilities associated with the incident.” Those include: _ Possible civil fines of up to $1,000 for every barrel of oil spilled. With the government’s estimate of the spill ranging from 2.15 million to 4.3 million barrels, the fine could be from $2.15 billion to $4.3 billion. _ The government also wants BP to pay royalties at a rate of 18.75 percent on the oil it collected from the well. BP put that figure at 826,800 barrels. However, the company could also owe royalties on the oil spillled into the Gulf if investigators determine that the spill was the result of BP’s negligence. _ BP has vowed to stay in the Gulf until the oil is cleaned up, which will take years. It’s hired thousands of people to clean beaches and marshes and skim oil off the water. It also has to pay cleanup costs incurred by the government. _ Anadarko Petroleum Corp. and MOEX LLC, BP’s partners in the blown-out well, are contractually obligated to pay 25 percent and 10 percent of the costs, respectively. But they have refused to pay BP’s initial bills totaling $388 million because they claim BP was negligent in its management of the well. _ The biggest wild card is legal liabilities. Lawsuits have been filed on behalf of workers who died or were injured in the blast, as well as local businessmen, shareholders and employees. Analysts estimate BP’s operations will generate about $30 billion in cash this year if oil prices hold steady. BP recently cut back capital spending to around $18 billion, so that leaves about $12 billion in free cash. Normally, dividends totaling $10.6 billion would come out of that, but BP suspended dividend payments in June. BP also has another $5 billion in cash, plus a $15 billion credit line. Adding in potential asset sales, that means BP will have as much as $30 billion available for paying penalties and other liabilities. The company’s debt level stood at about $32.15 billion at March 31. It has talked to banks about borrowing more money if needed. Even if BP sells some assets, it’s likely to remain one of the largest non-government-owned oil companies in the world. Just how big? The high-end estimate of around 4 million barrels spilled in the Gulf amounts to no more than one day’s output from BP’s vast global operations. If BP can continue to get between $70 and $75 a barrel for the oil it produces, analysts believe its cash flow will remain sufficient to cover its Gulf liabilities. That doesn’t mean people pressing claims against BP have to root for higher prices, but the reality is that a sharp drop in oil could put them at risk. West Texas Intermediate crude, the light oil that is the benchmark for global prices, is trading at around $76 a barrel. Brent crude, which is found in the North Sea among other areas, is priced around $75.40. The company’s financial condition will become clearer when BP reports results for the second quarter on July 27. There’s a chance it will announce the sale of assets at that time. Published reports have suggested the company is talking with Apache Corp. about selling a stake in the Prudhoe Bay oil field in Alaska, but BP has declined to disclose specifics. Youngson, the Arbuthnot analyst, said a sale to Apache would fit with BP’s plan to sell assets that don’t affect the company’s long-term growth, a strategy it had before the Gulf spill. It also would make sense politically, he added. Another candidate for a sale is BP’s 60 percent stake in Argentine Pan American, an Argentine oil and gas producer that also has operations in Bolivia and Chile. Analysts estimate the stake is worth about $9 billion. Oppenheimer & Co. analyst Fadel Gheit said BP doesn’t need to sell assets now, but the company is digging in for years of damage claims. “Eventually they know they’re going to have to sell something,” he said. “It’s not if, but when.” __ Wardell reported from London. AP Reporter Jennifer Quinn contributed to this report.

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ProPublica: Investment Funds Stir Controversey Over For-Profit School Recruiting

July 13, 2010

By Sharona Coutts , ProPublica . Nancy Panico runs a large center for homeless and at-risk youth in Tucson, Ariz. About a year ago, a woman contacted her with some questions about for-profit schools that have tried to recruit homeless youths — a problem that Panico’s shelter had encountered. The woman, Johnette McConnell Early, visited Panico at the center and, a few months later, asked for her signature on a letter [1] alerting the U.S. Department of Education to the issue. Panico and 19 other executives from homeless shelters and service agencies around the country eventually signed the letter, addressed to Secretary of Education Arne Duncan, asserting that “for-profit trade schools and career colleges are systematically preying upon our clients.” The June 17 letter pledged “unequivocal” support to the department’s steps to tighten regulation of the for-profit industry. Some who signed had personal knowledge of aggressive recruiting tactics, but others told ProPublica they had only heard about them secondhand from colleagues and news reports. Early visited with many of the executives, they said, drafted the letter and coordinated the effort to get them to sign. What Early did not tell Panico or several others who signed: She was working for a financial firm that pays her to investigate for-profit schools. “Had I known, I probably wouldn’t have signed on,” Panico said. “I probably would have contacted one of the other people and said, ‘Hey, now that we have all this information, let’s do this ourselves.’ I think it’s sleazy to basically use me and use other executive directors that have a real issue to make a profit for some companies.” For-profit universities have come under increasing scrutiny of regulators and congressional committees who have heard complaints about alleged recruiting abuses (PDF). More recently, attention has turned to the behind-the-scenes influence of hedge funds (PDF) that are also critical of the industry and have sold short, betting that the stock of publicly traded universities will drop in price if, for instance, Congress or the Department of Education cracks down. To cover tuition costs, the schools rely heavily on federal grant and loan programs controlled by Duncan’s agency. In an interview, Early confirmed to ProPublica that an “investment firm is paying for my time” but would not disclose the identity of that firm. When asked whether her client was betting against the for-profit higher education industry, Early said she did not know. “Since I’m not part of their firm, I can’t say what their position is,” Early said. “But clearly an investment firm is not going to look into something unless they’re thinking about whether it’s a good or bad investment.” Last month, the prominent investment fund manager Steven Eisman testified before a Senate education subcommittee hearing on the “emerging risk” posed by increasing federal subsidies to for-profit schools. Eisman is best known for predicting the crash of the subprime mortgage market . He’s become a scathing critic of for-profit colleges and universities, and in his testimony referred to the practice of recruiting at homeless shelters. Eisman predicted that students at these schools will default on $275 billion in government loans over the next 10 years. Less than a week after Eisman’s appearance, Sen. Dick Durbin, D-Ill., called for congressional action to tighten the rules governing for-profits. Referring to Eisman’s testimony, Durbin said some schools were enticing “low-income, high-risk students” into “mortgaging their futures — not on overpriced homes this time, but on worthless diplomas,” and said Congress must clamp down on the quality of education the schools deliver, and the way the government administers financial aid. Eisman’s testimony was controversial. Advocates of for-profit schools and a government watchdog group criticized the subcommittee, saying Eisman was allowed to present himself as an expert and make self-serving criticisms of an industry in whose failure they believe he has a vested interest. One group, Citizens for Responsibility and Ethics , wrote to Health, Education, Labor and Pensions Committee Chairman Sen. Tom Harkin, D-Iowa, to complain that Eisman had a conflict of interest in delivering his testimony. Eisman did not return calls requesting comment. He told the Senate subcommittee he had a stake in the industry, but did not disclose specifics. In an earlier speech , Eisman named five particular companies that he said would suffer if the Education Department adopted regulations tying tuition to the employment their graduates obtain — Apollo Group, the owner of the University of Phoenix; ITT Educational Services; Corinthian Colleges; Education Management Corporation; and The Washington Post Company, which owns Kaplan University. Since April, a nonprofit group associated with another high-profile investor, Manuel P. Asensio, has written five letters criticizing the for-profit education industry and calling for tighter regulation to congressmen and regulators with jurisdiction over the sector. Short sellers have shown a steadily increasing interest in for-profit schools, according to Will Duff Gordon, an analyst at Data Explorers, a company that collects and analyzes data about short-selling. Since April, his company has also seen a spike in short positions in the sector, indicating a strengthening view that the stocks will fall. In general, short sellers place bets that a company’s stock or some other financial instrument will decline in value. “This is not an opportunistic bit of short selling,” Gordon said of for-profit schools. “People have worked out that these companies are overvalued. They’ve put on bigger and bigger short positions as the price keeps going down. And they have been right because the price keeps dropping.” For their part, short sellers claim they are merely bringing to light the fundamental problems of an industry that survives in large part on taxpayer largesse. More than 1,600 for-profit colleges, universities and trade schools received $3.3 billion in Pell grants in the year ending last June, according to Department of Education data. About 950 schools shared some $2.5 billion in federal loans in the same period. Proprietary schools are slated to pocket significantly more this year, thanks to the Obama administration’s increased funding for the need-based Pell grants. Short sellers say they provide a public service by exposing fraud or mismanagement of publicly traded companies. Most academic studies that have examined the issue confirm that short sellers are most often correct in their assessment that particular companies or industries are overvalued, according to William N. Goetzmann, director of the International Center for Finance at the Yale School of Management. But some short sellers appear to be moving beyond assessing particular companies and taking a financial position accordingly. Now, says the Career College Association, some are trying to stage-manage the reporting of negative stories to fuel the impression of a groundswell of anger against the schools. “Certainly there are legitimate critics. I may not agree with them, but they’re not in it to fatten their wallets,” said Harris Miller, president of the CCA, which represents for-profit schools. “But I think that a lot of the activity going on, and with other media reports, is being driven by the short sellers, who are hiring people who are semi-disguising who they are and not being candid with people about their role in trying to drive down the stock price of certain companies.” Early terminated the interview with ProPublica when asked whether the hedge fund knew she had drafted the letter and coordinated the effort to have it cosigned by representatives for homeless shelters. But when informed of Early’s connection to an investment firm, several people who signed the letter said they found the episode disquieting. Two who signed told ProPublica they were under the impression that Early was conducting research for a Bloomberg Businessweek reporter working on a story about for-profit schools enrolling homeless people. Early confirmed in the interview that she “connected” the reporter with several people at homeless shelters. Bloomberg Businessweek in May ran an article under the headline, ” Homeless high school dropouts lured by for-profit colleges .” In a statement, a Bloomberg spokesperson said: “We did not obtain information from anyone working on our behalf. Our story was the product solely of our own reporting.” The PBS investigative news program Frontline posted the letter on its website after it was provided by another short seller, Frontline producer Marrie Campbell told ProPublica. Campbell said she would “absolutely not” have posted the letter had she known the full circumstances of its provenance. It is not unusual for reporters to follow up on tips from hedge funds, financial firms or other sources with an interest in how a story might shape events. ProPublica has interviewed hedge fund managers and their researchers about for-profit colleges and universities to learn about their concerns and get leads. They disclosed they were short on the sector; any information or sources they provided were independently verified and vetted by a reporter. Others who signed the letter said Early told them that she worked for a think tank, or that they believed she was working on a book. Like Panico, they supported the substance of the letter. But one of the signers — Jennifer Brandon, executive director of Community Voicemail in Seattle, Wash. — said she had no direct knowledge of for-profits recruiting homeless people. Early told Neil Donovan, executive director and president of the National Coalition for the Homeless in Washington, D.C., that she worked for a Dallas company that offered advice and private research called J.W. McConnell & Sons, Donovan said. ProPublica contacted state and local officials in Texas who said they could find no record of the firm. Donovan said he was angered to learn of Early’s association with an investment firm. “My next letter will be to Arne Duncan saying that I didn’t know that, and I’m going to ask his inspector general to look into the fact that they received a letter where the source of the letter was misrepresenting themselves,” Donovan said. “I think that’s completely inappropriate and it’s using homeless people as pawns, and that is what our mission is against.” “It makes me feel uncomfortable,” added Larry James, president and CEO of Central Dallas Ministries. “I’m quite certain none of us knew that connection, and that would have given me pause.” Not all those who signed were troubled by Early’s conduct. Jane Burch, CEO of New Beginnings for Women and Children in Tucson, said Early told a staffer that she had “something to do with an investment firm,” and that her organization would never have signed a letter unless they agreed with its contents. “I have no evidence that there is any wrongdoing here,” Burch said. “Why would I not want to see another avenue to have our clients’ rights protected?” Both sides in the debate claim moral ground. The for-profits argue they are performing a social service by making education available to many who have been excluded from traditional four-year colleges; the short sellers claim they are protecting the same groups of people from deceptive marketing techniques and a mountain of debt. A Department of Education spokesperson said the agency remains focused on regulatory matters. Among other things, the department has announced plans to scrap regulations that watered down a ban on schools paying recruiters according to how many new students they brought in. ProPublica intern Joe Kokenge contributed reporting to this story.

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Video: Gray Discusses LeBron James’s Decision to Sign With Heat: Video

July 9, 2010

July 9 (Bloomberg) — Reporter Jim Gray discusses two-time National Basketball Association Most Valuable Player LeBron James’s decision to leave the Cleveland Cavaliers for the Miami Heat. Gray, who hosted the ESPN special where James announced his decision, spoke with Deirdre Bolton and Michele Steele on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)

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Home Sales Probably Waned After Credit U.S. Economy Preview

June 20, 2010

By Shobhana Chandra June 20 (Bloomberg) — The housing market began to retrench in May after a government incentive ended, leaving manufacturing at the head of the U.S. recovery, economists said reports this week will show. Sales of new homes fell 19 percent to a 410,000 annual pace last month, according to the median estimate of 57 economists surveyed by Bloomberg News before a Commerce Department report June 23. Orders for durable goods may show gains in business investment and overseas sales boosted demand for capital equipment like computers and machinery. “We got the run-up in housing activity and there’ll be a pretty big payback now that the tax credit has expired,” said Stephen Stanley , chief economist at Pierpont Securities LLC in Stamford, Connecticut. “The strongest sector of the economy right now is manufacturing.” Federal Reserve policy makers meeting this week are projected to commit to keeping interest rates near zero in coming months to help wean the world’s largest economy off government stimulus. The hazard posed by the European debt crisis, joblessness and a lack of inflation add to the reasons why central bankers will focus on sustaining the economic rebound. “There are certainly a lot of risks the Fed is mindful of, and they’re very much in a wait-and-see mode,” said Stanley. Central bankers begin their two-day policy meeting on June 22. Homebuyers needed to have signed their contracts by April 30 and must close deals by the end of June to qualify for a government credit worth as much as $8,000. Sales of new houses are tabulated at contract signings, meaning the window of opportunity for that market has shut. Fewer Orders Hovnanian Enterprises Inc. , the largest homebuilder in New Jersey, reported this month that orders fell 17 percent in the quarter ended April 30 from the same time last year, and contract signings slowed in May, a sign the tax credit helped pull some sales forward. “The expiration of the federal homebuyer tax credit, the lack of job growth and a potential increase in foreclosures all pose risks to a housing industry recovery,” Ara K. Hovnanian , chairman and chief executive officer, said in the statement on June 2. Resales, in contrast, have a couple more months to run. Purchases of existing homes , which are calculated based on closings, rose 6.5 percent in May to a six-month high 6.15 million annual pace, according to the median estimate of 57 economists surveyed by Bloomberg. The report from the National Association of Realtors is due June 22. Aircraft Orders Bookings for goods meant to last at least three years fell in May for the first time in six months, according to the survey median. The projected 1.3 percent drop reflects a likely retreat in demand for transportation equipment, a volatile category. Orders for civilian aircraft probably fell after jumping 228 percent in April. Orders excluding transportation increased 1 percent, the third gain in the past four months, the Commerce Department’s June 24 report on durable goods is also projected to show. Growing exports and business spending are helping drive the rebound in demand at American factories. Sales overseas were up 22 percent through April from the same time last year, according to figures from the Commerce Department. Investment in equipment and software climbed 13 percent in the first quarter after increasing 19 percent in the prior three months, the best six- month performance since 2000. Growing Economy The economy began to recover in the middle of last year following the worst recession since the 1930s. Economists surveyed by Bloomberg forecast gross domestic product rose at an annual rate of 3 percent in the first quarter, matching the government’s prior estimate published last month. The Commerce Department will issue the report on June 25. Stocks have fallen on concern the global economic rebound may cool as European governments try to reduce budget deficits. The Standard & Poor’s 500 Index is down 8.2 percent from a 19- month high reached on April 23. The slump in stock prices is having limited effect on Americans’ confidence, a report will show on June 25. The Thomson Reuters/University of Michigan final index of consumer sentiment rose to 75.5 this month, the highest level since January 2008, from 73.6 in May, according to the survey median. The reading would match the preliminary estimate issued earlier this month. To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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Macarthur Coal Founder Talbot, Sundance Resources CEO Missing in Cameroon

June 20, 2010

By Elisabeth Behrmann June 20 (Bloomberg) — Sundance Resources Ltd ., an Australian-based iron ore explorer, today confirmed Ken Talbot , former chief executive officer of Australian mining company Macarthur Coal Ltd ., is missing in West Africa after an aircraft carrying nine mining executives was lost. Talbot was on board a plane chartered by Sundance on a flight to the company’s Mbalam iron ore project in Cameroon from the capital, Yaounde, yesterday, according to an e-mailed statement from Don Nissen, chairman of Talbot Group Management. Also missing are Sundance Chairman Geoff Wedlock , Chief Executive Officer Don Lewis , Company Secretary John Carr-Gregg and non-executive directors John Jones, Craig Oliver and Talbot, Sundance said in an e-mailed statement today. “Between them, without exaggeration, there are two centuries of mining experience,” said Gavin Wendt , an analyst at Sydney-based Mine Life Resources, by phone. “The families of the missing have been notified and are being supported during this deeply distressing time,” the company’s statement said. Emergency response procedures have been activated, with efforts focused on coordinating with the government authorities in the Republic of Cameroon, Republic of Gabon and Republic of Congo as well as with the Department of Foreign Affairs and Trade and Australia’s diplomatic representatives to locate the aircraft, the Perth-based iron-ore developer’s statement said. Well Known Talbot owns 16.1 percent of Sundance, according to Bloomberg data. A well-known Australian mining figure, he founded Macarthur Coal and built the company into the largest producer of pulverized coal used in steelmaking, with a current market capitalization of A$3.18 billion ($2.76 billion). His current investments span iron ore, uranium, liquefied natural gas and copper. Talbot Group spokesman Shane Edwards and Sundance spokeswoman Felicity Nuttal declined to comment further. “The Australian High Commissioner-designate to Abuja — currently in Cameroon — is managing the government’s response on the ground,” said spokeswoman Ranya Alkadamanini of the Australian Department of Foreign Affairs and Trade by e-mail. Sundance shares rose 4 percent on June 18 to 13 cents, giving it a market capitalization of A$352.3 million. To contact the reporter on this story: Elisabeth Behrmann in Sydney at ebehrmann1@bloomberg.net

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Santos Seeks Landslide Win in Colombia as World Cup Keeps Voters at Home

June 20, 2010

By Helen Murphy June 20 (Bloomberg) — Colombians may hand a landslide victory today to presidential candidate Juan Manuel Santos , won over by his pledges to build on Alvaro Uribe ’s successes in boosting investment and beating back Marxist rebels. Santos, Uribe’s former defense minister, was favored by 66.5 percent of those surveyed in a Gallup Colombia poll taken June 5 to June 7, compared with 27.4 percent for the Green Party’s Antanas Mockus . The next president will take over Aug. 7 from Uribe, who brought record growth and slashed by half the number of murders while in office since 2002. Turnout may be low as voters expecting Santos to coast to victory stay home to watch the World Cup soccer tournament. Santos, who won 47 percent in the first round, has capitalized on Uribe’s 63 percent popularity while pledging to create jobs. Mockus, a former Bogota mayor who garnered 21 percent of the vote on May 30, is pledging to improve the education system and eliminate corruption associated with Uribe’s administration. “This will be an historic election in terms of margin between the two candidates,” said Monica Pachon, a political analyst at Bogota’s Universidad de los Andes. “It’s going to be a huge win for Santos.” Colombia’s peso and dollar bonds rose for a fourth straight week on speculation Santos would prevail. The peso gained 0.8 percent in the week ending June 18 to 1,909.60 per U.S. dollar and is up 7 percent this year, the best performance among world currencies tracked by Bloomberg. The IGBC stock index has climbed 7.7 percent this year, beating a 4.8 percent decline in the MSCI EM Latin America Index. Colombia’s security forces have been deployed at polling stations to guard against violence by the Revolutionary Armed Forces of Colombia, Latin America’s biggest and oldest insurgency. The campaign has been the safest in four decades, the government says. Latest Poll Turnout will be lower than in the first round because of the World Cup, said Claudia Lopez, an analyst with the Electoral Observation Mission, a Bogota-based election monitoring group. In the biggest turnout since 1998, 49 percent of 30 million eligible voters cast ballots in the first round. “The margin between candidates in the first round was so great that people think it’s already over,” Lopez said. “There’s little enthusiasm for going out to vote, and the football will influence things.” Italy, Brazil and Paraguay all play matches while polls are open between 8 a.m. and 4 p.m. local time. ‘Biggest Goal’ “Let’s lose a few minutes of World Cup football,” said Santos, 58, during a campaign rally in Cartagena June 12. “Let’s score the biggest goal for Colombia.” Santos is credited with delivering some of the biggest blows against the FARC while serving as defense minister from 2006 to 2008. These include the 2008 rescue of 15 hostages including French-Colombian politician Ingrid Betancourt and three U.S. defense contractors. He also ordered the raid into Ecuador that killed the group’s second in command, Raul Reyes . Santos has benefitted from Uribe’s support. In 2002, the year Uribe took office, Colombians suffered 1,645 terrorist attacks, 28,837 murders and 2,882 kidnappings. By 2009, those numbers had been cut to 486, 15,817 and 213 respectively. Christopher Sabatini , policy director for the Council of the Americas in New York, said the true winner is Colombia’s democracy even though the “lopsided” result will favor Santos. “The process — for its peacefulness, quality of candidates and convergence toward a consensus over broad policy continuity — should be seen as a sign of political maturity in a country that only eight years ago was in the midst of a near crisis,” he said. Campaign Pledges If elected, Santos says he’ll fulfill Uribe’s pledge to crush the rebels and maintain the pressure on drug-traffickers responsible for 51 percent of global cocaine production last year, according to the United Nations. As the U.S.’s caretaker in the war on drugs, the Andean nation receives more than $600 million a year in American foreign aid. Santos promises to boost tax revenue by bringing millions of informal workers into the system, close by 2014 a budget gap equal to 3.6 percent of gross domestic product and achieve annual growth of 6 percent within two years. Mockus, 58, has presented himself as an anti-corruption politician who will improve Colombia’s education system by raising taxes on the rich. While respectful of the government’s security gains, the former philosophy professor says he wants to prepare for a post-Uribe era of greater social justice. “Both candidates have campaigned in favor of maintaining a hard line on security and broad economic policy orthodoxy,” said Patrick Esteruelas , an analyst at Eurasia Group in New York. “But Santos’ broader support base in congress provides a much more stable political platform.” Pro-Uribe parties won 68 of 102 Senate seats in March congressional elections, compared with 5 for the Green Party. The Liberal Party, which had been the biggest opposition bloc to Uribe’s government, is split on whether to support Santos. To contact the reporter on this story: Helen Murphy in Bogota at hmurphy1@bloomberg.net

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Australia, Telstra May Agree on $9.5 Billion National Broadband Network

June 20, 2010

By Gemma Daley June 20 (Bloomberg) — Australia’s Prime Minister Kevin Rudd announced an A$11 billion ($9.5 billion) deal with Telstra Corp. on a national broadband network. State-owned NBN Co., which is building the network to provide a high-speed fiber Internet network, will get access to Telstra’s infrastructure. Telstra’s voice and broadband customers will switch to NBN Co.’s network if an agreement signed today is completed, Rudd said. “This paves the way for a faster, cheaper and more efficient rollout of the network,” Rudd told reporters in Canberra. “This also means the network will be cheaper.” The agreement, which needs to be approved by shareholders, will be worth A$11 billion, Telstra said in a statement released in Canberra. That pays for the decommissioning of Telstra’s copper network and cable broadband service, use of its infrastructure and the value of the phone company avoiding some costs. Telstra Chairman Catherine Livingstone said the company needs to forge a “definitive agreement” with the government. Its 1.4 million direct shareholders will get to vote on the agreement in the first half of calendar 2011, before new laws can be drafted and approval is sought from the Australian Competition and Consumer Commission. “Telstra has negotiated very hard,” Livingstone said in Canberra. “We will take the final proposal through an independent experts review.” Existing Network Telstra’s copper-wire platform is Australia’s only network. Telstra receives fees from rivals including Singapore Telecommunications Ltd.’s Optus unit when they want to offer voice and Internet services in Australia. Rudd announced the NBN plan in April last year, touting the network as the biggest change to the market dominated by Telstra. NBN plans to deliver coverage to 90 percent of the country at data-transfer speeds of 100 megabits per second, faster than services available to many homes and businesses. Telstra will not get a stake in NBN Co., but will be the network’s biggest customer, Communications Minister Stephen Conroy said. To contact the reporter on this story: Gemma Daley in Canberra at gdaley@bloomberg.net

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Turkish Military Clashes With Kurdish Group, Launches Bombing Runs in Iraq

June 20, 2010

By Steve Bryant June 19 (Bloomberg) — Ten Turkish soldiers were killed in attacks by the Kurdistan Workers’ Party, or PKK, according to Turkey’s armed forces. The military said 12 PKK members had been killed in subsequent clashes. PKK gunmen attacked soldiers in the Semdinli region close to the Iraqi border, killing eight, the military said in a website statement . Additional forces were sent into the area and aircraft staged bombing runs in northern Iraq, according to the statement. Fourteen troops were wounded, the military said. Two soldiers also died in Semdinli when they stepped on a landmine laid by the PKK, the state news agency Anatolia reported. The clashes came the day after Turkish forces warned of an increase in attacks from the PKK. The organization on June 1 decided to step up attacks because Turkey is ignoring its demands for constitutionally recognized autonomy, General Fahri Kir told reporters in Ankara. The military has killed 130 PKK fighters and lost 43 soldiers since March, he said. Prime Minister Recep Tayyip Erdogan has widened Kurdish cultural rights, allowing television broadcasts in the language and increasing investment in Turkey’s mostly Kurdish southeast. The increase in PKK violence reflects the group’s “efforts to sabotage the initiative,” Erdogan said yesterday. It was the second time in a week that Turkey attacked the PKK inside northern Iraq, which the group uses as a base for attacks on Turkey. Turkey, the U.S. and the European Union classify the PKK as a terrorist group. The group has been fighting the Turkish state since 1984 in a conflict that has killed at least 40,000 people. Turkish authorities don’t negotiate with the PKK and its leader, Abdullah Ocalan , who’s serving a life sentence on an island jail in western Turkey. To contact the reporter on this story: Steve Bryant in Ankara at sbryant5@bloomberg.net

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Home Sales in U.S. Probably Waned After Tax Credit as Manufacturing Grew

June 20, 2010

By Shobhana Chandra June 20 (Bloomberg) — The housing market began to retrench in May after a government incentive ended, leaving manufacturing at the head of the U.S. recovery, economists said reports this week will show. Sales of new homes fell 19 percent to a 410,000 annual pace last month, according to the median estimate of 57 economists surveyed by Bloomberg News before a Commerce Department report June 23. Orders for durable goods may show gains in business investment and overseas sales boosted demand for capital equipment like computers and machinery. “We got the run-up in housing activity and there’ll be a pretty big payback now that the tax credit has expired,” said Stephen Stanley , chief economist at Pierpont Securities LLC in Stamford, Connecticut. “The strongest sector of the economy right now is manufacturing.” Federal Reserve policy makers meeting this week are projected to commit to keeping interest rates near zero in coming months to help wean the world’s largest economy off government stimulus. The hazard posed by the European debt crisis, joblessness and a lack of inflation add to the reasons why central bankers will focus on sustaining the economic rebound. “There are certainly a lot of risks the Fed is mindful of, and they’re very much in a wait-and-see mode,” said Stanley. Central bankers begin their two-day policy meeting on June 22. Homebuyers needed to have signed their contracts by April 30 and must close deals by the end of June to qualify for a government credit worth as much as $8,000. Sales of new houses are tabulated at contract signings, meaning the window of opportunity for that market has shut. Fewer Orders Hovnanian Enterprises Inc. , the largest homebuilder in New Jersey, reported this month that orders fell 17 percent in the quarter ended April 30 from the same time last year, and contract signings slowed in May, a sign the tax credit helped pull some sales forward. “The expiration of the federal homebuyer tax credit, the lack of job growth and a potential increase in foreclosures all pose risks to a housing industry recovery,” Ara K. Hovnanian , chairman and chief executive officer, said in the statement on June 2. Resales, in contrast, have a couple more months to run. Purchases of existing homes , which are calculated based on closings, rose 6.5 percent in May to a six-month high 6.15 million annual pace, according to the median estimate of 57 economists surveyed by Bloomberg. The report from the National Association of Realtors is due June 22. Aircraft Orders Bookings for goods meant to last at least three years fell in May for the first time in six months, according to the survey median. The projected 1.3 percent drop reflects a likely retreat in demand for transportation equipment, a volatile category. Orders for civilian aircraft probably fell after jumping 228 percent in April. Orders excluding transportation increased 1 percent, the third gain in the past four months, the Commerce Department’s June 24 report on durable goods is also projected to show. Growing exports and business spending are helping drive the rebound in demand at American factories. Sales overseas were up 22 percent through April from the same time last year, according to figures from the Commerce Department. Investment in equipment and software climbed 13 percent in the first quarter after increasing 19 percent in the prior three months, the best six- month performance since 2000. Growing Economy The economy began to recover in the middle of last year following the worst recession since the 1930s. Economists surveyed by Bloomberg forecast gross domestic product rose at an annual rate of 3 percent in the first quarter, matching the government’s prior estimate published last month. The Commerce Department will issue the report on June 25. Stocks have fallen on concern the global economic rebound may cool as European governments try to reduce budget deficits. The Standard & Poor’s 500 Index is down 8.2 percent from a 19- month high reached on April 23. The slump in stock prices is having limited effect on Americans’ confidence, a report will show on June 25. The Thomson Reuters/University of Michigan final index of consumer sentiment rose to 75.5 this month, the highest level since January 2008, from 73.6 in May, according to the survey median. The reading would match the preliminary estimate issued earlier this month. To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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Home Sales in U.S. Probably Waned After Tax Credit as Manufacturing Grew

June 20, 2010

By Shobhana Chandra June 20 (Bloomberg) — The housing market began to retrench in May after a government incentive ended, leaving manufacturing at the head of the U.S. recovery, economists said reports this week will show. Sales of new homes fell 19 percent to a 410,000 annual pace last month, according to the median estimate of 57 economists surveyed by Bloomberg News before a Commerce Department report June 23. Orders for durable goods may show gains in business investment and overseas sales boosted demand for capital equipment like computers and machinery. “We got the run-up in housing activity and there’ll be a pretty big payback now that the tax credit has expired,” said Stephen Stanley , chief economist at Pierpont Securities LLC in Stamford, Connecticut. “The strongest sector of the economy right now is manufacturing.” Federal Reserve policy makers meeting this week are projected to commit to keeping interest rates near zero in coming months to help wean the world’s largest economy off government stimulus. The hazard posed by the European debt crisis, joblessness and a lack of inflation add to the reasons why central bankers will focus on sustaining the economic rebound. “There are certainly a lot of risks the Fed is mindful of, and they’re very much in a wait-and-see mode,” said Stanley. Central bankers begin their two-day policy meeting on June 22. Homebuyers needed to have signed their contracts by April 30 and must close deals by the end of June to qualify for a government credit worth as much as $8,000. Sales of new houses are tabulated at contract signings, meaning the window of opportunity for that market has shut. Fewer Orders Hovnanian Enterprises Inc. , the largest homebuilder in New Jersey, reported this month that orders fell 17 percent in the quarter ended April 30 from the same time last year, and contract signings slowed in May, a sign the tax credit helped pull some sales forward. “The expiration of the federal homebuyer tax credit, the lack of job growth and a potential increase in foreclosures all pose risks to a housing industry recovery,” Ara K. Hovnanian , chairman and chief executive officer, said in the statement on June 2. Resales, in contrast, have a couple more months to run. Purchases of existing homes , which are calculated based on closings, rose 6.5 percent in May to a six-month high 6.15 million annual pace, according to the median estimate of 57 economists surveyed by Bloomberg. The report from the National Association of Realtors is due June 22. Aircraft Orders Bookings for goods meant to last at least three years fell in May for the first time in six months, according to the survey median. The projected 1.3 percent drop reflects a likely retreat in demand for transportation equipment, a volatile category. Orders for civilian aircraft probably fell after jumping 228 percent in April. Orders excluding transportation increased 1 percent, the third gain in the past four months, the Commerce Department’s June 24 report on durable goods is also projected to show. Growing exports and business spending are helping drive the rebound in demand at American factories. Sales overseas were up 22 percent through April from the same time last year, according to figures from the Commerce Department. Investment in equipment and software climbed 13 percent in the first quarter after increasing 19 percent in the prior three months, the best six- month performance since 2000. Growing Economy The economy began to recover in the middle of last year following the worst recession since the 1930s. Economists surveyed by Bloomberg forecast gross domestic product rose at an annual rate of 3 percent in the first quarter, matching the government’s prior estimate published last month. The Commerce Department will issue the report on June 25. Stocks have fallen on concern the global economic rebound may cool as European governments try to reduce budget deficits. The Standard & Poor’s 500 Index is down 8.2 percent from a 19- month high reached on April 23. The slump in stock prices is having limited effect on Americans’ confidence, a report will show on June 25. The Thomson Reuters/University of Michigan final index of consumer sentiment rose to 75.5 this month, the highest level since January 2008, from 73.6 in May, according to the survey median. The reading would match the preliminary estimate issued earlier this month. To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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SK Energy Will Focus on Oil Drilling, Electric-Car Batteries for Growth

June 19, 2010

By Shinhye Kang June 20 (Bloomberg) — SK Energy Co. , South Korea’s biggest refiner, said it will focus on producing oil and gas overseas, developing electric-car batteries and making petrochemicals with emissions-reduction technology to drive future earnings. “The current business model may not be able to boost the company’s operating profit a lot from now,” Chief Executive Officer Koo Ja Young told reporters on June 18. “Innovations in the business model, and in technology, are needed.” Refiners in South Korea, Asia’s largest fuel exporter, are seeking new growth engines as expanding Chinese and Indian suppliers cut profitability. SK Energy took the first step toward reorganizing in October by turning its lubricants division into a wholly owned unit . “This is very positive in the long term,” said Cho Seung Yeon , an analyst at HMC Securities Co. “The reorganization will let each division focus resources on its own business while the parent boosts investment in new sectors.” Starting next year, SK Energy will spin off petroleum and chemicals divisions that accounted for 98 percent of overall revenue in the first quarter. Ahead of the change, the refiner has completed its first electric-car battery production line to supply Daimler AG’s Japanese unit. SK Energy has also signed up for 38 oil and natural-gas projects in 17 countries. The petroleum and chemicals divisions, as they start off as wholly owned units, may sell assets or form partnerships with overseas companies to raise funds, Koo said. The petroleum division posted an operating loss for three consecutive quarters last year as the global financial crisis cut demand and China and India increased shipments. New Growth Engines SK Energy has fallen 11 percent in Seoul trading this year, compared with the 1.7 percent gain by the benchmark Kospi index. The stock closed unchanged at 104,500 won on June 18. The company’s smaller rival GS Caltex Corp. bought an unlisted waste-treatment company in April, while S-Oil Corp. may seek opportunities in alternative energy. SK Energy plans to start up a 30 billion won ($25 million) trial plant in October that can produce more olefins while emitting less carbon dioxide than current facilities, Koo said. The refiner is also developing technology to use carbon dioxide as a raw material for producing plastics, he said. “The technologies will help SK Energy reach its target of 100 trillion won in revenue before 2020, up from 35 trillion won currently,” Koo said. In energy exploration, the company is seeking rights to overseas projects and may acquire exploration companies, the chief executive said. SK Energy is producing 71,000 barrels of oil equivalent a day currently. The chemicals division may build ethane-based ethylene plants in Latin America, including Peru and Colombia, Koo said at the company’s Daejeon research & development center. SK Energy has a stake in a gas project in Peru. The company’s lubricants unit is in talks with a European company and an Asian company to form joint ventures, he said. To contact the reporter on this story: Shinhye Kang in Seoul at skang24@bloomberg.net

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SK Energy Will Focus on Oil Drilling, Electric-Car Batteries for Growth

June 19, 2010

By Shinhye Kang June 20 (Bloomberg) — SK Energy Co. , South Korea’s biggest refiner, said it will focus on producing oil and gas overseas, developing electric-car batteries and making petrochemicals with emissions-reduction technology to drive future earnings. “The current business model may not be able to boost the company’s operating profit a lot from now,” Chief Executive Officer Koo Ja Young told reporters on June 18. “Innovations in the business model, and in technology, are needed.” Refiners in South Korea, Asia’s largest fuel exporter, are seeking new growth engines as expanding Chinese and Indian suppliers cut profitability. SK Energy took the first step toward reorganizing in October by turning its lubricants division into a wholly owned unit . “This is very positive in the long term,” said Cho Seung Yeon , an analyst at HMC Securities Co. “The reorganization will let each division focus resources on its own business while the parent boosts investment in new sectors.” Starting next year, SK Energy will spin off petroleum and chemicals divisions that accounted for 98 percent of overall revenue in the first quarter. Ahead of the change, the refiner has completed its first electric-car battery production line to supply Daimler AG’s Japanese unit. SK Energy has also signed up for 38 oil and natural-gas projects in 17 countries. The petroleum and chemicals divisions, as they start off as wholly owned units, may sell assets or form partnerships with overseas companies to raise funds, Koo said. The petroleum division posted an operating loss for three consecutive quarters last year as the global financial crisis cut demand and China and India increased shipments. New Growth Engines SK Energy has fallen 11 percent in Seoul trading this year, compared with the 1.7 percent gain by the benchmark Kospi index. The stock closed unchanged at 104,500 won on June 18. The company’s smaller rival GS Caltex Corp. bought an unlisted waste-treatment company in April, while S-Oil Corp. may seek opportunities in alternative energy. SK Energy plans to start up a 30 billion won ($25 million) trial plant in October that can produce more olefins while emitting less carbon dioxide than current facilities, Koo said. The refiner is also developing technology to use carbon dioxide as a raw material for producing plastics, he said. “The technologies will help SK Energy reach its target of 100 trillion won in revenue before 2020, up from 35 trillion won currently,” Koo said. In energy exploration, the company is seeking rights to overseas projects and may acquire exploration companies, the chief executive said. SK Energy is producing 71,000 barrels of oil equivalent a day currently. The chemicals division may build ethane-based ethylene plants in Latin America, including Peru and Colombia, Koo said at the company’s Daejeon research & development center. SK Energy has a stake in a gas project in Peru. The company’s lubricants unit is in talks with a European company and an Asian company to form joint ventures, he said. To contact the reporter on this story: Shinhye Kang in Seoul at skang24@bloomberg.net

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U.S. Stocks Have Biggest Two-Week Gain Since November on Economic Recovery

June 19, 2010

By Rita Nazareth June 19 (Bloomberg) — U.S. stocks rose, capping the market’s biggest two-week rally since November, after New York- area manufacturing expanded and Europe’s efforts to contain its debt crisis bolstered confidence in the global economy. Caterpillar Inc. and United Technologies Corp. each advanced at least 4.4 percent this week. Apple Inc. jumped 8.1 percent on optimism over the new version of its iPhone. Intel Corp. climbed 3.7 percent to pace gains in semiconductor stocks after Taiwan Semiconductor Manufacturing Co., the world’s largest contract maker of chips, boosted its market forecast. The S&P 500 rose 2.4 percent over the past five days to 1,117.51, adding to the previous week’s 2.5 percent advance. The Dow Jones Industrial Average advanced 239.57 points, or 2.4 percent, to 10,450.64. Both measures erased losses for the year. “The recovery is on track,” said Philip Orlando , the New York-based chief equity market strategist at Federated Investors, which manages about $400 billion. “Investors are now thinking that the global pressures will not be sufficient to derail the economic rebound. The stock market was significantly undervalued. The trend is higher.” The S&P 500, the U.S. equity benchmark , fell as much as 14 percent from a 19-month high in April on concern that widening budget deficits in Europe would curtail global growth. The decline drove the S&P 500’s price-to-earnings ratio to about 15.2 earlier this month, the cheapest valuation since June 2009. The index rebounded 6.4 percent from a seven-month low on June 7 amid speculation the economic rebound will continue. ‘Relief Rally’ Gains in U.S. equities came as the euro rallied 2.3 percent to almost $1.24, its biggest weekly advance against the dollar in more than a year. Increased demand at a Spanish bond sale and an agreement by European Union leaders to disclose how banks perform on stress tests bolstered confidence that European debt crisis is contained “You’ve got a relief rally,” said Kevin Rendino , who manages about $11 billion in Plainsboro, New Jersey, for BlackRock Inc. , the world’s largest asset manager. “Valuations are incredibly attractive, companies are doing well. We applied the right medicine. The economy continues to recover.” All but four of 57 stocks in the S&P 500 Industrials Index gained after the Federal Reserve Bank of New York’s general economic index increased to 19.6, an 11th-straight month of growth. The report helped trigger a 2.4 percent rally on June 15, the biggest gain of the week, which took the S&P 500 above its 200-day moving average for the first time in more than a month. The index remained above the trend line for the rest of the week, a bullish sign to investors who make trading decisions based on chart patterns. Caterpillar, Boeing Caterpillar, the world’s largest maker of bulldozers, surged 9.3 percent to $65.85, leading the gains in the Dow average. United Technologies , the maker of Pratt & Whitney jet engines and Otis elevators, rose 4.5 percent to $69.18. Boeing Co. gained 4 percent to $67.96. The maker of world’s most widely flown jetliner plans to boost production of its best-selling 737 jet by an additional 3 percent, the second increase in as many months as airlines recover from the recession and add to the plane’s $138 billion order backlog. Semiconductor companies had the biggest gain in the S&P 500 among 24 industries, climbing 4.8 percent as a group. Chipmaker Demand Taiwan Semiconductor Manufacturing said global sales will increase almost 30 percent in 2010, up from its April forecast of 22 percent growth. Intel , the world’s largest chipmaker, advanced 3.7 percent to $21.40. Teradyne Inc. rose 12 percent to $11.80. Micron Technology Inc. jumped 12 percent to $10. Apple rallied 8.1 percent to $274.07. Piper Jaffray Cos. analyst Gene Munster raised his 2010 earnings estimate to $13.07 a share from $12.90, citing sales of the company’s new iPhone. He also boosted his forecasts for iPhone sales in the quarters ending in June and September to 9.5 million each. His previous estimates were for sales of 8.5 million and 9 million, respectively. Apple’s share-price estimate was also increased to $348 from $330 at Piper Jaffray. “Technology companies have great business models and they generate a lot of cash,” said Michael Levine , a money manager at New York-based OppenheimerFunds Inc., which oversees about $165 billion. “The replacement cycle in conjunction with better corporate profits will drive higher spending.” M&A Talks M&T Bank Corp. rose the most in the S&P 500, jumping 16 percent to $90.71, on takeover speculation. Banco Santander SA said it has made no decision on whether to combine its business with of the U.S. bank. Matias Inciarte , the Spanish lender’s third vice-chairman, said “it’s been said” that there have been conversations between the two banks. GameStop Corp. and Best Buy Co. had the two biggest declines in the S&P 500, each dropping at least 8.1 percent. Best Buy, the world’s largest consumer-electronics retailer, reported first-quarter profit excluding some items of 36 cents a share, missing the average analyst estimate in a Bloomberg survey by 28 percent. The company said it plans to let customers trade in their used video games at more than 1,000 U.S. stores to grab sales from competitors. A gauge of 12 homebuilders in S&P indexes declined 3.1 percent. Toll Brothers Inc. , the largest U.S. luxury homebuilder, said deposits have been running 20 percent behind the year-earlier period in the past three weeks as the Gulf of Mexico oil spill and European debt crisis hurt buyer confidence. Toll Brothers fell 4.7 percent to $17.95, a third-straight weekly loss. KB Home declined 5.2 percent to $12.30. D.R. Horton Inc. slid 4.5 percent to $10.75. FedEx Slips FedEx Corp. dropped 2.4 percent to $78.70. The world’s largest air-cargo carrier forecast annual profit that trailed analysts’ estimates, citing rising health-care and pension costs in a “moderate” economic recovery. Quarterly reports scheduled for next week include Adobe Systems Inc. , the world’s biggest maker of graphic-design programs, and Oracle Corp. , the world’s second-largest software maker. Walgreen Co., Carnival Corp., Nike Inc., Bed Bath & Beyond Inc., Lennar Corp. , ConAgra Foods Inc. and H&R Block Inc. will also report. Sales of previously-owned homes rose in May while those of new houses fell, reflecting the timing of a tax credit, and a rise in business spending signaled factories are leading the rebound, economists said before reports next week. To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

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Roach, O’Neill Say China Shows Confidence in Recovery With Yuan Decision

June 19, 2010

By Gopal Ratnam and Timothy R. Homan June 19 (Bloomberg) — China’s decision to allow a more flexible yuan shows the country’s leaders are convinced the world economic rebound is durable, said economists Stephen Roach and Jim O’Neill . “This move is a vote of confidence in the global recovery,” Roach , Chairman of Morgan Stanley Asia Ltd. said in a e-mail. “Markets are going to like” the decision, said Jim O’Neill, chief global economist for Goldman Sachs Group Inc. China’s central bank said the decision to “increase the renminbi’s exchange-rate flexibility” was made after the world’s third-largest economy improved. Chinese authorities had prevented the currency from strengthening since July 2008 to help exporters cope with sliding demand triggered by the global financial crisis. The announcement may help restore investor confidence shaken by the European debt crisis, O’Neill said in an interview in St. Petersburg, Russia. “It could be that China is doing its bit to rescue the world markets,” he said. “It may allow for attention to be diverted from the obsession with the European monetary union and the sovereign currencies in Europe.” China’s decision, a week before Group of 20 leaders meet in Toronto to consider ways to safeguard the economic recovery, may deflect criticism that its undervalued currency has added to lopsided global flows of trade and investment. The announcement signals an end to the currency’s two-year-old peg to the dollar. ‘Not a Panacea’ Even so, Roach said the shift “is not a panacea for an unbalanced global economy.” Countries such as China with trade surpluses will have to take steps to stimulate private demand, he said, while countries such as the U.S. “need to show a credible commitment to fiscal consolidation and take actions that would boost personal saving.” The People’s Bank of China ruled out a one-time revaluation, saying there is no basis for “large-scale appreciation,” and kept the yuan’s 0.5 percent daily trading band unchanged. The yuan is a denomination of China’s currency, the renminbi. The currency appreciated 21 percent in the three years after a peg to the dollar was scrapped in July 2005 and replaced by a managed float against a basket of currencies including the euro and the Japanese yen. China’s announcement could be seen as a signal that the “worst of the financial crisis is over, China is growing very strongly, that this is an auspicious time to go back to the policy that had initially been announced,” Nicholas Lardy , a senior fellow at the Peterson Institute for International Economics in Washington, said in a telephone interview with Bloomberg News. Gains Unclear Lardy said it’s unclear how much the currency will be allowed to strengthen. “I think if they had in mind some indication of a specific amount, they might have announced that today. I would not anticipate a second announcement; the markets are just going to see.” O’Neill predicted the yuan will appreciate 1 percent when markets open June 21 and predicts a 5 percent appreciation by year’s end. Chinese exports have helped drive growth in the world’s third-largest economy. China’s overseas sales jumped 48.5 percent in May from a year earlier, the biggest gain in more than six years. Exports exceeded imports by $19.5 billion, from $1.68 billion in April and a deficit of $7.24 billion in March that was the first in six years. Increasingly Confident “The Chinese are increasingly confident they can make this adjustment to a domestic-driven economy rather than the one relying on exporting low-value-added stuff to the rest of the world,” O’Neill said. It remains to be seen if China’s decision is a “symbolic move or a true shift in China’s currency policy that will result in significant currency appreciation,” Eswar Prasad , a senior fellow at the Brookings Institution in Washington and a former IMF economist, said in an e-mail. Still, “this move signifies recognition by Chinese officials that a more flexible exchange rate is in China’s own interest,” Prasad said. Changes in China’s exchange rate may not have an impact on the bilateral trade balance, John Frisbie , president of the U.S. China Business Council said in an e-mail. “Much of what we import from China is stuff that we imported from elsewhere before,” Frisbie said. “If we didn’t import it from China, we’d likely just import it from somewhere else.” To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net Gopal Ratnam in Washington at gratnam1@bloomberg.net .

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Toyota to Reopen Chinese Factory After Strike at Parts Maker Is Called Off

June 19, 2010

By Yuki Hagiwara June 19 (Bloomberg) — Toyota Motor Corp.’s assembly plant in Tianjin, China, closed because of a supplier strike at Toyoda Gosei Co., will reopen on June 21 after the strike was called off today, Mieko Iwasaki, a spokeswoman for the Japan-based carmaker said today. The Toyoda Gosei factory in Tianjin will restart tomorrow, Iwasaki said by telephone. To contact the reporter on this story: 萩原ゆき at yhagiwara1@bloomberg.net

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Toyota to Reopen Chinese Factory After Strike at Parts Maker Is Called Off

June 19, 2010

By Yuki Hagiwara June 19 (Bloomberg) — Toyota Motor Corp.’s assembly plant in Tianjin, China, closed because of a supplier strike at Toyoda Gosei Co., will reopen on June 21 after the strike was called off today, Mieko Iwasaki, a spokeswoman for the Japan-based carmaker said today. The Toyoda Gosei factory in Tianjin will restart tomorrow, Iwasaki said by telephone. To contact the reporter on this story: 萩原ゆき at yhagiwara1@bloomberg.net

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Medvedev Promotes Ruble to Lessen Dollar Dominance

June 19, 2010

By Paul Abelsky June 19 (Bloomberg) — Russia wants the ruble to be one of the world’s reserve currencies as President Dmitry Medvedev renews his push to reduce the dollar’s dominance and make Moscow a global financial hub. “Only three, five years ago it seemed like a fantasy” to create a new reserve currency, Medvedev said yesterday in a speech in St. Petersburg, Russia. “Now we are seriously discussing it.” Medvedev, who has repeatedly called for a supranational currency to match the dollar, said discussions with China are continuing on broadening the global options. Russia sold U.S. Treasuries for a fifth consecutive month in April, the U.S. Treasury Department said June 15. The world may need as many as six reserve currencies, Medvedev said. “It’s something that’s obviously needed,” he said at the St. Petersburg International Economic Forum. “Developing a financial center in Moscow will considerably help to strengthen the ruble’s position as one of the reserve currencies.” Reasserting Power Medvedev’s comments underline Russia’s ambition to reassert its global power following the financial crisis. Gross domestic product shrank 7.9 percent last year, the worst contraction since the fall of communism in 1991, after the credit crunch sent commodity prices plunging. If a country wants to alter the world economic order, including the number of reserve currencies, it must become an international financial center, Bank of Israel Governor Stanley Fischer said in an interview yesterday. “For a currency to be a reserve currency, you have to have capital markets in which you can sell it and buy it very easily,” Fischer said. “New reserve currencies don’t emerge by fiat. They emerge as countries change.” The ruble and the yuan may by 2015 be added to the basket of currencies that set the value of International Monetary Fund units called special drawing rights, Goldman Sachs Group Inc. Chief Global Economist Jim O’Neill said. O’Neill coined the BRIC term in 2001 to describe the four nations — Brazil, Russia, India and China — that he estimates will collectively equal the U.S. in economic size by 2020. Free Float The ruble “has as many reasons to be in it as the pound,” he said today in an interview in St. Petersburg. “If Russia really wants to be in it, it’s got to allow people to use it all over the world.” Allowing the ruble to trade freely is “very important,” O’Neill said. “Inflation targeting is key,” he said. Without a shift to an inflation targeting regime, the ruble “isn’t going to be part of the SDR. You can’t have it both ways, really, unless the Chinese change the rules, which they might do by the end of this decade. China is going to be so big.” Russia may “come very close to floating the ruble” in the course of one year to 18 months, Bank Rossii Chairman Sergei Ignatiev said in April. Even so, the central bank doesn’t need to take on legal obligations to stop intervening in the currency market, he said. Yuan Flexibility The People’s Bank of China today said it will allow more yuan exchange rate flexibility and reform of the exchange-rate mechanism as the nation’s economic recovery has “cemented” after the global financial crisis. Medvedev said he envisages a new economic hierarchy allowing emerging-market giants such as Russia and China to drive the global agenda as the world emerges from the first global recession since the 1930s. “We really live at a unique time, and we should use it to build a modern, prosperous and strong Russia, a Russia that will be a co-founder of the new world economic order,” he said. The BRIC countries were net sellers of U.S. assets in April, driven mainly by Russian divestments, Brown Brothers Harriman & Co. Senior Currency Strategist Win Thin said in a June 15 note. Russia may add the Australian and Canadian dollars to its international reserves as the central bank diversifies the world’s third-largest stockpile away from the greenback, central bank First Deputy Chairman Alexei Ulyukayev said in a June 16 interview. Though Russia is “very carefully monitoring what’s happening in the euro zone,” the emergence of the euro as a currency to rival the dollar’s dominance helped soften the impact of the global crisis, Medvedev said. “If the world depended completely on the dollar, the situation would have been more difficult,” Medvedev said. To contact the reporter on this story: Paul Abelsky in St. Petersburg at pabelsky@bloomberg.net

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Hedge Fund Marble Bar Is Said to Cut Jobs After Regaining Control From EFG

June 19, 2010

By Tom Cahill and Alexis Xydias June 19 (Bloomberg) — Marble Bar Asset Management LLP , a London-based hedge-fund firm, fired portfolio managers and traders this week after executives regained control from EFG International AG, people with knowledge of the cuts said. The firm trimmed staff to 33 from as many as 65 when owned by EFG, the Swiss bank controlled by Greek billionaire Spiro Latsis and his family, said the people, who asked not to be identified because the firings weren’t publicly disclosed. Marble Bar management including founder Hilton Nathanson last month bought back the firm from Zurich-based EFG in exchange for a portion of its future fees. The firm’s assets declined to about $1 billion from a peak of $6 billion in the first half of 2008 and from $4.4 billion when EFG bought the stake in December 2007, according to EFG statements. Marble Bar’s main hedge fund will focus on European stocks, dropping strategies that had been added since EFG’s purchase, the people said. Nathanson, a 40-year-old Australian, started the firm to trade European equities in 2002. Keith Gapp , a spokesman for EFG, and Andrew Hood, a spokesman for Marble Bar, didn’t return phone calls seeking comment. Marble Bar posted a pretax profit of $9.1 million in 2009, according to EFG’s annual report. To contact the reporter on this story: Tom Cahill in London at tcahill@bloomberg.net ; Alexis Xydias in London at axydias@bloomberg.net

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Hedge Fund Marble Bar Is Said to Cut Jobs After Regaining Control From EFG

June 19, 2010

By Tom Cahill and Alexis Xydias June 19 (Bloomberg) — Marble Bar Asset Management LLP , a London-based hedge-fund firm, fired portfolio managers and traders this week after executives regained control from EFG International AG, people with knowledge of the cuts said. The firm trimmed staff to 33 from as many as 65 when owned by EFG, the Swiss bank controlled by Greek billionaire Spiro Latsis and his family, said the people, who asked not to be identified because the firings weren’t publicly disclosed. Marble Bar management including founder Hilton Nathanson last month bought back the firm from Zurich-based EFG in exchange for a portion of its future fees. The firm’s assets declined to about $1 billion from a peak of $6 billion in the first half of 2008 and from $4.4 billion when EFG bought the stake in December 2007, according to EFG statements. Marble Bar’s main hedge fund will focus on European stocks, dropping strategies that had been added since EFG’s purchase, the people said. Nathanson, a 40-year-old Australian, started the firm to trade European equities in 2002. Keith Gapp , a spokesman for EFG, and Andrew Hood, a spokesman for Marble Bar, didn’t return phone calls seeking comment. Marble Bar posted a pretax profit of $9.1 million in 2009, according to EFG’s annual report. To contact the reporter on this story: Tom Cahill in London at tcahill@bloomberg.net ; Alexis Xydias in London at axydias@bloomberg.net

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Medvedev Pushes Ruble Reserve Currency to Cut Dollar Dominance

June 19, 2010

By Paul Abelsky June 19 (Bloomberg) — Russia wants the ruble to be one of the world’s reserve currencies as President Dmitry Medvedev renews his push to reduce the dollar’s dominance and make Moscow a global financial hub. “Only three, five years ago it seemed like a fantasy” to create a new reserve currency, Medvedev said yesterday in a speech in St. Petersburg, Russia. “Now we are seriously discussing it.” Medvedev, who has repeatedly called for a supranational currency to match the dollar, said discussions with China are continuing on broadening the global options. Russia sold U.S. Treasuries for a fifth consecutive month in April, the U.S. Treasury Department said June 15. The world may need as many as six reserve currencies, Medvedev said. “It’s something that’s obviously needed,” he said at the St. Petersburg International Economic Forum. “Developing a financial center in Moscow will considerably help to strengthen the ruble’s position as one of the reserve currencies.” Medvedev’s comments underline Russia’s ambition to reassert its global power following the financial crisis. Gross domestic product shrank 7.9 percent last year, the worst contraction since the fall of communism in 1991, after the credit crunch sent commodity prices plunging. If a country wants to alter the world economic order, including the number of reserve currencies, it must become an international financial center, Bank of Israel Governor Stanley Fischer said in an interview yesterday. ‘Don’t Emerge by Fiat’ “For a currency to be a reserve currency, you have to have capital markets in which you can sell it and buy it very easily,” Fischer said. “New reserve currencies don’t emerge by fiat. They emerge as countries change.” Medvedev said he envisages a new economic hierarchy allowing emerging-market giants such as Russia and China to drive the global agenda as the world emerges from the first global recession since the 1930s. “We really live at a unique time, and we should use it to build a modern, prosperous and stron Russia, a Russia that will be a co-founder of the new world economic order,” he said. The BRIC countries — Brazil, Russia, India and China — were net sellers of U.S. assets in April, driven mainly by Russian divestments, Brown Brothers Harriman & Co. Senior Currency Strategist Win Thin said in a June 15 note. Russia may add the Australian and Canadian dollars to its international reserves as the central bank diversifies the world’s third-largest stockpile away from the greenback, central bank First Deputy Chairman Alexei Ulyukayev said in a June 16 interview. Though Russia is “very carefully monitoring what’s happening in the euro zone,” the emergence of the euro as a currency to rival the dollar’s dominance helped soften the impact of the global crisis, Medvedev said. “If the world depended completely on the dollar, the situation would have been more difficult,” Medvedev said. To contact the reporter on this story: Paul Abelsky in Moscow at pabelsky@bloomberg.net

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Medvedev Pushes Ruble Reserve Currency to Cut Dollar Dominance

June 19, 2010

By Paul Abelsky June 19 (Bloomberg) — Russia wants the ruble to be one of the world’s reserve currencies as President Dmitry Medvedev renews his push to reduce the dollar’s dominance and make Moscow a global financial hub. “Only three, five years ago it seemed like a fantasy” to create a new reserve currency, Medvedev said yesterday in a speech in St. Petersburg, Russia. “Now we are seriously discussing it.” Medvedev, who has repeatedly called for a supranational currency to match the dollar, said discussions with China are continuing on broadening the global options. Russia sold U.S. Treasuries for a fifth consecutive month in April, the U.S. Treasury Department said June 15. The world may need as many as six reserve currencies, Medvedev said. “It’s something that’s obviously needed,” he said at the St. Petersburg International Economic Forum. “Developing a financial center in Moscow will considerably help to strengthen the ruble’s position as one of the reserve currencies.” Medvedev’s comments underline Russia’s ambition to reassert its global power following the financial crisis. Gross domestic product shrank 7.9 percent last year, the worst contraction since the fall of communism in 1991, after the credit crunch sent commodity prices plunging. If a country wants to alter the world economic order, including the number of reserve currencies, it must become an international financial center, Bank of Israel Governor Stanley Fischer said in an interview yesterday. ‘Don’t Emerge by Fiat’ “For a currency to be a reserve currency, you have to have capital markets in which you can sell it and buy it very easily,” Fischer said. “New reserve currencies don’t emerge by fiat. They emerge as countries change.” Medvedev said he envisages a new economic hierarchy allowing emerging-market giants such as Russia and China to drive the global agenda as the world emerges from the first global recession since the 1930s. “We really live at a unique time, and we should use it to build a modern, prosperous and stron Russia, a Russia that will be a co-founder of the new world economic order,” he said. The BRIC countries — Brazil, Russia, India and China — were net sellers of U.S. assets in April, driven mainly by Russian divestments, Brown Brothers Harriman & Co. Senior Currency Strategist Win Thin said in a June 15 note. Russia may add the Australian and Canadian dollars to its international reserves as the central bank diversifies the world’s third-largest stockpile away from the greenback, central bank First Deputy Chairman Alexei Ulyukayev said in a June 16 interview. Though Russia is “very carefully monitoring what’s happening in the euro zone,” the emergence of the euro as a currency to rival the dollar’s dominance helped soften the impact of the global crisis, Medvedev said. “If the world depended completely on the dollar, the situation would have been more difficult,” Medvedev said. To contact the reporter on this story: Paul Abelsky in Moscow at pabelsky@bloomberg.net

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Medvedev Pushes Ruble Reserve Currency to Cut Dollar Dominance

June 19, 2010

By Paul Abelsky June 19 (Bloomberg) — Russia wants the ruble to be one of the world’s reserve currencies as President Dmitry Medvedev renews his push to reduce the dollar’s dominance and make Moscow a global financial hub. “Only three, five years ago it seemed like a fantasy” to create a new reserve currency, Medvedev said yesterday in a speech in St. Petersburg, Russia. “Now we are seriously discussing it.” Medvedev, who has repeatedly called for a supranational currency to match the dollar, said discussions with China are continuing on broadening the global options. Russia sold U.S. Treasuries for a fifth consecutive month in April, the U.S. Treasury Department said June 15. The world may need as many as six reserve currencies, Medvedev said. “It’s something that’s obviously needed,” he said at the St. Petersburg International Economic Forum. “Developing a financial center in Moscow will considerably help to strengthen the ruble’s position as one of the reserve currencies.” Medvedev’s comments underline Russia’s ambition to reassert its global power following the financial crisis. Gross domestic product shrank 7.9 percent last year, the worst contraction since the fall of communism in 1991, after the credit crunch sent commodity prices plunging. If a country wants to alter the world economic order, including the number of reserve currencies, it must become an international financial center, Bank of Israel Governor Stanley Fischer said in an interview yesterday. ‘Don’t Emerge by Fiat’ “For a currency to be a reserve currency, you have to have capital markets in which you can sell it and buy it very easily,” Fischer said. “New reserve currencies don’t emerge by fiat. They emerge as countries change.” Medvedev said he envisages a new economic hierarchy allowing emerging-market giants such as Russia and China to drive the global agenda as the world emerges from the first global recession since the 1930s. “We really live at a unique time, and we should use it to build a modern, prosperous and stron Russia, a Russia that will be a co-founder of the new world economic order,” he said. The BRIC countries — Brazil, Russia, India and China — were net sellers of U.S. assets in April, driven mainly by Russian divestments, Brown Brothers Harriman & Co. Senior Currency Strategist Win Thin said in a June 15 note. Russia may add the Australian and Canadian dollars to its international reserves as the central bank diversifies the world’s third-largest stockpile away from the greenback, central bank First Deputy Chairman Alexei Ulyukayev said in a June 16 interview. Though Russia is “very carefully monitoring what’s happening in the euro zone,” the emergence of the euro as a currency to rival the dollar’s dominance helped soften the impact of the global crisis, Medvedev said. “If the world depended completely on the dollar, the situation would have been more difficult,” Medvedev said. To contact the reporter on this story: Paul Abelsky in Moscow at pabelsky@bloomberg.net

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Twenty Killed in Turkish Military, PKK Clashes Aircraft Bomb Inside Iraq

June 19, 2010

By Steve Bryant June 19 (Bloomberg) — Eight Turkish soldiers were killed in an attack by the Kurdistan Workers’ Party, or PKK, according to Turkey’s armed forces. The military said 12 PKK members had been killed in subsequent clashes. PKK gunmen attacked a company of soldiers in the Semdinli region close to the border with Iraq, the military said in a statement on their website. The military sent additional forces into the area and aircraft were bombing locations within Iraq, the statement said. Fourteen troops were wounded, it said. The clashes came the day after the Turkish Armed Forces warned of an increase in attacks from the PKK. The militants, which cross into Turkey from camps in northern Iraq, have escalated their attacks in recent weeks, killing nine Turkish soldiers and wounding more than 20 people since May 31. Turkey, the U.S. and the European Union classify the PKK as a terrorist group. The group has been fighting the Turkish state since 1984 in a conflict that has killed at least 40,000 people. To contact the reporter on this story: Steve Bryant in Ankara at sbryant5@bloomberg.net

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Twenty Killed in Turkish Military, PKK Clashes Aircraft Bomb Inside Iraq

June 19, 2010

By Steve Bryant June 19 (Bloomberg) — Eight Turkish soldiers were killed in an attack by the Kurdistan Workers’ Party, or PKK, according to Turkey’s armed forces. The military said 12 PKK members had been killed in subsequent clashes. PKK gunmen attacked a company of soldiers in the Semdinli region close to the border with Iraq, the military said in a statement on their website. The military sent additional forces into the area and aircraft were bombing locations within Iraq, the statement said. Fourteen troops were wounded, it said. The clashes came the day after the Turkish Armed Forces warned of an increase in attacks from the PKK. The militants, which cross into Turkey from camps in northern Iraq, have escalated their attacks in recent weeks, killing nine Turkish soldiers and wounding more than 20 people since May 31. Turkey, the U.S. and the European Union classify the PKK as a terrorist group. The group has been fighting the Turkish state since 1984 in a conflict that has killed at least 40,000 people. To contact the reporter on this story: Steve Bryant in Ankara at sbryant5@bloomberg.net

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Asia’s Currencies Have Strongest Week in Five Months as Inflows Increase

June 19, 2010

By Lilian Karunungan and Yumi Teso June 19 (Bloomberg) — Asian currencies strengthened this week, led by South Korea’s won and the Philippine peso, as signs the global economic recovery will withstand Europe’s debt crisis boosted demand for riskier assets. The Bloomberg-JPMorgan Asia Dollar Index and the MSCI Asia Pacific Index of shares had their biggest gains in at least five months and the won jumped the most in a year. The Conference Board this week said its leading indicator of China’s economy rose by the most in 14 months and the Organization for Economic Cooperation and Development forecast the fastest growth for South Korea since 2002. Thailand yesterday reported its best export growth in almost two years. “There has been optimism that the impact of Europe’s problems on the Asian economy may be limited, supporting the purchase of regional currencies,” said Minori Uchida , a senior analyst in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s biggest bank. “Gains in stocks are also a supporting factor.” The won appreciated 3.6 percent to 1,202.65 per dollar, according to data compiled by Bloomberg. The peso climbed 1.6 percent to 45.905 and the Indian rupee was 1.4 percent stronger at 46.1787. The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-traded currencies excluding the yen, gained 1.0 percent and the MSCI Asia Pacific Index of shares rose 3.3 percent. Stocks in South Korea and Taiwan attracted about $1.9 billion from abroad, according to data compiled by Bloomberg. Stock Inflows Equity funds investing in Asia excluding Japan took in money for the first time in six weeks, drawing the most since April, according to EPFR Global, which tracks firms overseeing $13 trillion of global assets. Emerging-market stock funds attracted $2.5 billion, the second-highest tally this year. Korean Finance Minister Yoon Jeung Hyun said yesterday growth will likely exceed 5 percent this year and a government report showed spending at the three biggest department stores climbed for a 15th month in May. Gross domestic product will increase 5.8 percent this year as exports surge and domestic demand strengthens, the OECD said this week. “The won has been doing pretty well because of the economic fundamentals,” said Yun Suk Cho , a currency dealer at Korea Exchange Bank in Seoul. “There is a big possibility that we will break 1,200 against the dollar next week as the markets stabilize.” Exports, Jobs Thailand’s exports jumped 42 percent from a year earlier in May, the most since July 2008, Commerce Minister Porntiva Nakasai said yesterday. The Philippines on June 15 raised its economic growth target for this year to as much as 6 percent, from a previous goal of 3.6 percent. Taiwan will next week report an eighth straight gain in export orders and the lowest jobless rate since 2008, according to the median estimates of economists surveyed by Bloomberg. Taiwan’s dollar completed its biggest weekly gain in nine months as an improving economy and the prospect of a trade deal with China spurred inflows. Gross domestic product rose at the fastest pace in more than 30 years in the last quarter and China’s government said June 13 a basic agreement has been reached with the island on goods, services and industries chosen for initial tariff cuts in the planned trade pact. “Funds are flowing back as investors seek riskier assets,” said Tigr Cheng, a strategist at Polaris Securities Co. in Taipei. “People have been upbeat about the economy.” The island’s currency climbed 0.8 percent this week to NT$32.190 against the greenback, according to Taipei Forex Inc. Elsewhere, the Malaysian ringgit gained 0.8 percent to 3.2500, the Singapore dollar strengthened 1.2 percent to S$1.3864 and the Indonesian rupiah appreciated 1.2 percent to 9,096. The Thai baht rose 0.2 percent to 32.40. To contact the reporter on this story: Lilian Karunungan in Singapore at at lkarunungan@bloomberg.net ; Yumi Teso in Bangkok at yteso1@bloomberg.net .

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Unwed Daughters in Greece Catch &lsquoTime Bomb&rsquo in Pension Overhaul

June 18, 2010

By Maria Petrakis June 18 (Bloomberg) — Sophia Constantinidou works as a teacher in a private school in Athens. She also has a more lucrative job: remaining unmarried. The 52-year-old gets 400 euros ($496) a month from the Greek government, part of her late mother’s state pension. Under the current system, Constantinidou qualifies to receive the payment for life as the only surviving child of a deceased civil servant, provided she doesn’t tie the knot. “It’s not that I didn’t want to get married,” Constantinidou, whose mother died 20 years ago, said in an interview. “But after I turned 40, I realized I wouldn’t be getting married and that thankfully I had this.” As the European Union, International Monetary Fund and bond investors scrutinize debt-ridden Greece, they need look no further than the pension system for a prime example of how the country is living beyond its means. Greek pensioners on average live on 96 percent of the salary they had when they worked, more than twice the proportion of earnings as Germans, according to the Organization for Economic Cooperation and Development . Greece “is a classic case of entitlements granted by short-sighted governments that didn’t bother to secure financing sources,” said Miranda Xafa , a former director at the IMF and now a senior investment strategist at Geneva-based IJPartners. “The political benefit of pension entitlements granted is immediate, but the cost will be incurred later.” Arduous Jobs The OECD as long as three years ago described Greece’s state pension system as a “fiscal time bomb.” Led by Prime Minister George Papandreou , lawmakers will begin passing legislation this month to overhaul the system, which the EU and IMF say contributed to the country’s debt crisis. Under terms of last month’s 110 billion-euro ($123 billion) bailout agreement, Greece will increase the retirement age to 65 from as early as 58, curtail early retirement and calculate payments over a longer period of employment. The aim is to bring uniformity to a system riddled with exemptions granted over decades by governments yielding to pressure from trade unions and other groups. The bill will be the first enacted by Papandreou’s government since the May 6 package that pledged 30 billion euros of wage and pension cuts and tax increases over the next three years. There’s one pensioner in Greece for every 1.7 workers, compared with one for every four in 1950, according to a government study published on May 12. There are 637 occupations the Greek state deems to be arduous in nature and qualify to stop work earlier. They include hairdressers, car washers, steam-bath attendants and radio technicians. ‘Paramount Reform’ Constantinidou isn’t included because she’s paid by the hour and doesn’t have enough of a private pension to live on when she’s older. She’s reliant upon the stipend she inherited from her mother, who worked at a state hospital. Should the country keep its generous benefits, Greek pension spending will rise to 24 percent of gross domestic product in 2060, double the proportion of 2007, the European Commission estimated last year. Pensions are “going to be the paramount reform in terms of medium-term budgetary perspectives,” EU Monetary and Monetary Commissioner Olli Rehn said on June 11. With unions promising a “storm” of protests, the government is trying to push through the bill before the September deadline set by the EU and IMF and ahead of Greek municipal elections, tentatively scheduled for October. Extending Work Dina Karahali, 47, is waiting to see the final form of the bill to know whether she will be penalized by the new system or manage to escape with the early pension she expected when she began working as a childcare worker 25 years ago. With a 16-year-old son, Karahali said she could take early retirement now on less than a full payment. What she fears is the new law will make her work an extra 13 years. “It’s difficult,” she said by telephone in Athens. “Do I get a pension now and not receive any money until I am 50? Or, will I have to work till I am 60?” About 5,000 state workers, mostly women, have submitted applications for early retirement this year, said Despina Spanou, an official at the civil servants’ labor union, ADEDY . That’s almost double the number filed at the same time last year, she said. Concerns about Greece’s long-term pension finances have long played a part in the wider spread in Greek bonds over those of Germany or Italy, the OECD said in its July 2009 report. That was before the 58-year-old Papandreou revealed the country’s budget shortfall was more than twice the previous government’s estimate, stoking concern about Greece’s ability to avert default and prompting the bailout package. Bonds Collapse Greek 10-year government bond yields were about 1.4 percentage points, or 140 basis points, higher than benchmark German bunds at the beginning of October as Papandreou came to power. The so-called yield spread widened to as much as 965 points on May 7 and yesterday was at 665 points. Generous Greek pensions played prominently in Germany, where public opinion has been largely opposed to the bailout. Germany lifted the retirement age to 67 from 65 in 2007, affecting about half of the nation’s 82 million residents. While Greece has a statutory retirement age of 65, and 60 for women, exemptions and special rules can allow a full pension at 58. Former European Central Bank Chief Economist Otmar Issing said in February that German taxpayers can hardly be expected to support Greek pensions. Bild Zeitung , Germany’s biggest-selling tabloid, ran a front-page headline in April asking: “Why do we have to pay Greece’s luxury pensions?” Best Years Greeks get a pension calculated on the last five years of their working life, which tend to be the highest-paid. German, Italian and Portuguese pensions are based on wages worked over a lifetime. Spain bases them on the best 15 years of work. In the Greek civil service, the so-called replacement rate can be as much as 149 percent, according to a report by the European Commission in October. The rate is a measure of how effectively a pension system provides income during retirement. The EU-IMF agreement states that Greece should move to a system basing earnings on the entire lifetime and introduce a price-based indexation system, used by most OECD countries. Such a system, according to the Paris-based OECD , would allow Greece’s biggest retirement fund to scale back spending by some 20 percent by 2050 to 2055, equal to about 1 percent of GDP. Governments since the end of the military junta in 1974 have struggled to force through reforms the EU has long demanded to the pension system or opening up product and labor markets to make Greece more competitive. ‘Dramatic Worsening’ “The reasons for the dramatic worsening of the pension systems finances are demographic developments, the exhaustion of the abilities of the pay-as-you-go system and decisions of the political system of our country for the past 35 years,” Labor Minister Andreas Loverdos told the International Labor Organization in a June 14 speech. Civil servants didn’t pay anything towards their pensions until 1992. Female civil servants with children under 18 can get early retirement. Unmarried daughters of state workers say the payment became a factor in staying single. Unions argue that going after employers who don’t pay mandatory contributions to pension funds is preferable to cutting benefits and raising the retirement age. Non-payment of contributions to state pension funds, prevalent among the self-employed, is estimated by the OECD at between 20 percent and 30 percent of revenue collected. Constantinidou is one such worker. She never managed to secure a permanent post and doesn’t get state benefits in her job supplementing the studies of high-school students at a central Athens college. “I work in the private sector and would need to work till I’m 65 to get a pension but it’s not going to happen,” she said. “No-one is going to hire a 60- or 65-year-old woman. Thankfully I have this.” To contact the reporter on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net .

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Japanese Bonds Rise on Kan’s Plan to Reduce Public Debt, Global Slowdown

June 18, 2010

By Yasuhiko Seki June 19 (Bloomberg) — Japan’s 10-year bonds completed a second weekly gain after Prime Minister Naoto Kan vowed to reduce the world’s largest public debt and said he will consider increasing the consumption tax. Benchmark bonds rose for a second day yesterday before reports next week economists said will show German business confidence declined and U.S. new home sales dropped, signaling the global economic recovery is losing momentum. Ten-year yields fell to the lowest in a week as credit-default swaps for Japanese government bonds dropped for a second week. “The fiscal consolidation plan helped soothe the anxiety about swelling debt,” said Yuichi Kodama , chief economist in Tokyo at Meiji Yasuda Life Insurance Co., Japan’s third-largest life insurer. “Kan’s stance marked a clear contrast to his predecessor who pushed for a big spending policy.” The yield on the 10-year bond dropped three basis points this week to 1.20 percent at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1.3 percent security due June 2020 rose 0.269 yen to 100.892 yen. The yield dropped to 1.195 percent yesterday, the lowest since June 10. Ten-year bond futures for September delivery climbed 0.27 this week to 140.61 on the Tokyo Stock Exchange. ‘Rehabilitate’ Finances “Unless we work on fiscal rehabilitation, an international organization such as the International Monetary Fund could control our fiscal management,” Kan said on June 17. “We must rehabilitate our finances with our own power without relying on other countries.” The prime minister said he would consider the opposition Liberal Democratic Party ’s proposal to raise the consumption tax to 10 percent. The earliest Japan could increase the tax would be the fall of 2012, DPJ Policy Chief Koichiro Genba said on June 17. “If a tax increase was implemented before Japan can regain the economic strength to achieve autonomous recovery, it would pose serious risks to the economy,” said Seiji Shiraishi , chief economist for Japan at HSBC Holdings Plc. in Tokyo. “The tax plan will support the debt market not only from a viewpoint of supply and demand conditions but also from the economic fundamentals perspective.” Japan’s government also pledged to cut taxes on businesses and nurture the environment and health care industries as part of plans to defeat deflation and end two decades of stagnation. Corporate Tax Cut The government pledged in its medium-term economic plan yesterday to bring the corporate tax rate down to a level “commensurate” with other leading nations. That rate is “about 25 percent,” Yosuke Kondo , parliamentary secretary for the Trade Ministry, said. Firms in Tokyo pay a levy, including local taxes, of 40.7 percent. Japan’s bonds also rose on speculation Europe’s lingering debt crisis is slowing the global recovery, boosting demand for the safety of debt. The Ifo institute ’s German business climate index fell to 101.1 in June from 101.5 the previous month, according to a Bloomberg survey before the June 22 report. Purchases of new U.S. homes slid 14.6 percent in May, according to a separate survey before a June 23 release. “The slew of economic data is beginning to show signs of a slowdown, weighing on risk sentiment,” said Masahide Tanaka , a senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second-largest banking group. “Bonds may continue to fare well.” The cost to protect Japanese government debt from default fell six basis points this week to 89.775, according to prices from CMA DataVision. ‘Risk Premium’ “The risk premium investors demand to hold Japanese debt is likely to decline” on news of the government’s financial plans, said Kazuhiko Sano , chief strategist in Tokyo at Citigroup Global Markets Japan Inc., a unit of New York-based Citigroup Inc. “The market had not prepared for an early increase in the consumption-tax rate.” Credit-default swap indexes are benchmarks for protecting debt against default and traders use them to speculate on credit quality. An increase suggests deteriorating perceptions of creditworthiness and a drop shows improvement. To contact the reporter on this story: Yasuhiko Seki in Tokyo at Yseki5@bloomberg.net .

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Medvedev Promotes Ruble as World Reserve Currency to Cut Dollar Dominance

June 18, 2010

By Paul Abelsky June 19 (Bloomberg) — Russia wants the ruble to be one of the world’s reserve currencies as President Dmitry Medvedev renews his push to reduce the dollar’s dominance and make Moscow a global financial hub. “Only three, five years ago it seemed like a fantasy” to create a new reserve currency, Medvedev said yesterday in a speech in St. Petersburg, Russia. “Now we are seriously discussing it.” Medvedev, who has repeatedly called for a supranational currency to match the dollar, said discussions with China are continuing on broadening the global options. Russia sold U.S. Treasuries for a fifth consecutive month in April, the U.S. Treasury Department said June 15. The world may need as many as six reserve currencies, Medvedev said. “It’s something that’s obviously needed,” he said at the St. Petersburg International Economic Forum. “Developing a financial center in Moscow will considerably help to strengthen the ruble’s position as one of the reserve currencies.” Medvedev’s comments underline Russia’s ambition to reassert its global power following the financial crisis. Gross domestic product shrank 7.9 percent last year, the worst contraction since the fall of communism in 1991, after the credit crunch sent commodity prices plunging. If a country wants to alter the world economic order, including the number of reserve currencies, it must become an international financial center, Bank of Israel Governor Stanley Fischer said in an interview yesterday. ‘Don’t Emerge by Fiat’ “For a currency to be a reserve currency, you have to have capital markets in which you can sell it and buy it very easily,” Fischer said. “New reserve currencies don’t emerge by fiat. They emerge as countries change.” Medvedev said he envisages a new economic hierarchy allowing emerging-market giants such as Russia and China to drive the global agenda as the world emerges from the first global recession since the 1930s. “We really live at a unique time, and we should use it to build a modern, prosperous and stron Russia, a Russia that will be a co-founder of the new world economic order,” he said. The BRIC countries — Brazil, Russia, India and China — were net sellers of U.S. assets in April, driven mainly by Russian divestments, Brown Brothers Harriman & Co. Senior Currency Strategist Win Thin said in a June 15 note. Russia may add the Australian and Canadian dollars to its international reserves as the central bank diversifies the world’s third-largest stockpile away from the greenback, central bank First Deputy Chairman Alexei Ulyukayev said in a June 16 interview. Though Russia is “very carefully monitoring what’s happening in the euro zone,” the emergence of the euro as a currency to rival the dollar’s dominance helped soften the impact of the global crisis, Medvedev said. “If the world depended completely on the dollar, the situation would have been more difficult,” Medvedev said. To contact the reporter on this story: Paul Abelsky in Moscow at pabelsky@bloomberg.net

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Medvedev Promotes Ruble as World Reserve Currency to Cut Dollar Dominance

June 18, 2010

By Paul Abelsky June 19 (Bloomberg) — Russia wants the ruble to be one of the world’s reserve currencies as President Dmitry Medvedev renews his push to reduce the dollar’s dominance and make Moscow a global financial hub. “Only three, five years ago it seemed like a fantasy” to create a new reserve currency, Medvedev said yesterday in a speech in St. Petersburg, Russia. “Now we are seriously discussing it.” Medvedev, who has repeatedly called for a supranational currency to match the dollar, said discussions with China are continuing on broadening the global options. Russia sold U.S. Treasuries for a fifth consecutive month in April, the U.S. Treasury Department said June 15. The world may need as many as six reserve currencies, Medvedev said. “It’s something that’s obviously needed,” he said at the St. Petersburg International Economic Forum. “Developing a financial center in Moscow will considerably help to strengthen the ruble’s position as one of the reserve currencies.” Medvedev’s comments underline Russia’s ambition to reassert its global power following the financial crisis. Gross domestic product shrank 7.9 percent last year, the worst contraction since the fall of communism in 1991, after the credit crunch sent commodity prices plunging. If a country wants to alter the world economic order, including the number of reserve currencies, it must become an international financial center, Bank of Israel Governor Stanley Fischer said in an interview yesterday. ‘Don’t Emerge by Fiat’ “For a currency to be a reserve currency, you have to have capital markets in which you can sell it and buy it very easily,” Fischer said. “New reserve currencies don’t emerge by fiat. They emerge as countries change.” Medvedev said he envisages a new economic hierarchy allowing emerging-market giants such as Russia and China to drive the global agenda as the world emerges from the first global recession since the 1930s. “We really live at a unique time, and we should use it to build a modern, prosperous and stron Russia, a Russia that will be a co-founder of the new world economic order,” he said. The BRIC countries — Brazil, Russia, India and China — were net sellers of U.S. assets in April, driven mainly by Russian divestments, Brown Brothers Harriman & Co. Senior Currency Strategist Win Thin said in a June 15 note. Russia may add the Australian and Canadian dollars to its international reserves as the central bank diversifies the world’s third-largest stockpile away from the greenback, central bank First Deputy Chairman Alexei Ulyukayev said in a June 16 interview. Though Russia is “very carefully monitoring what’s happening in the euro zone,” the emergence of the euro as a currency to rival the dollar’s dominance helped soften the impact of the global crisis, Medvedev said. “If the world depended completely on the dollar, the situation would have been more difficult,” Medvedev said. To contact the reporter on this story: Paul Abelsky in Moscow at pabelsky@bloomberg.net

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Toyota Shuts China Plant on Supplier Strike as Honda-Unit Workers Return

June 18, 2010

By Liza Lin and Yuki Hagiwara June 19 (Bloomberg) — Toyota Motor Corp. closed a car factory in China because of a supplier strike while workers at a Honda Motor Co. affiliate agreed to return to their jobs with a promise of higher pay. Toyota closed the Tianjin factory at noon yesterday after a strike at supplier Toyoda Gosei Co. in the city, said Mieko Iwasaki , a spokeswoman for the Toyota City, Japan-based carmaker. Walkouts have spread through the industry during the past month as workers express discontent about pay. Strikes at Honda suppliers in China have disrupted the Tokyo-based automaker’s production in the country and forced it to raise wages at three plants, underscoring the shrinking supply of low-cost labor in the world’s fastest-growing major economy. Employees at Honda Lock (Guangdong) Co. agreed last night to return to work after receiving higher wages, said Takayuki Fujii, a Beijing-based spokesman for Honda. Honda is trying to prevent workers at a fourth parts factory from resuming a strike. Nihon Plast Co. shut its plant June 17 in Zhongshan, Guangdong province, after workers walked out demanding higher wages. The workers agreed late yesterday to return to work as negotiations continue, and operations resumed at about 9 p.m. Beijing time, Fujii said. “When strikes are successful, you do see replica strikes, copycat strikes,” said Geoffrey Crothall , a spokesman for Hong Kong-based advocacy group China Labour Bulletin. “I expect you’ll see more strikes in the coming weeks.” $29.30 a Month Workers at Honda Lock, wholly owned by the carmaker, began striking June 9 and suspended action June 15. Two Honda Lock workers, surnamed Li and Luo, said that their basic monthly salary has been increased by 200 yuan ($29.30) plus 80 yuan allowance. “It’s much less than what I expected,” Luo said, adding that there were no talks of more strikes. “I was hoping we would get at least 450 yuan more each month. About 80 percent of the workers in there were very unhappy with the increase.” Liao Li, a worker at Honda Lock for three years, said workers weren’t satisfied with the increase and “a lot of people couldn’t believe the outcome. We have no hope. I might have to find another job.” Both said that should someone decide to start a strike, other workers would probably join because dissatisfaction is so high. Honda’s car production hasn’t been disrupted by the earlier Nihon Plast walkout, Fujii said. Production Unaffected Nihon Plast, based in Shizuoka, Japan, is 21 percent owned by Honda, according to data compiled by Bloomberg. The company also supplies Japanese carmakers Nissan Motor Co. and Suzuki Motor Corp., according to its website. It makes air bags and handles for Honda and Nissan, according to Kyodo News, which reported the strike earlier. Nihon Plast’s Zhongshan factory manufactures steering wheels for all models from Nissan’s Chinese venture, Dongfeng Nissan Passenger Vehicle Co. Nissan’s production in China hasn’t been affected because the company has a sufficient stock of parts, Yoshihisa Jun, a spokesman for the Yokohama-based carmaker in China, said by phone. Assembly car plants in Guangzhou and Hubei province run by Dongfeng Nissan will resume today, said Akihiro Nakanishi, a Guangzhou-based spokesman for the company. Dongfeng Nissan will decide today whether the factories will be open Monday, he said. The factory in Zhongshan is 85 percent owned by Nihon Plast and 15 percent owned by Osaka, Japan-based Itochu Corp. It has 502 employees and was established in 2003, according to the website. Pay Concern A Toyoda Gosei Co. plant in Tianjin has been partially shut since workers went on strike June 17, said Shingo Handa, a spokesman for the Toyota affiliate, based in Japan’s Aichi prefecture. Niu Yu , a Toyota spokesman in China, said the Tianjin FAW Toyota Motor Co. car plant that shut down yesterday is normally closed on Saturday and Sunday. Workers at another Toyota supplier in China, Tianjin Star Light Rubber and Plastic Co., also struck briefly on June 15, Toyoda Gosei’s Handa said. The strike was resolved when the company offered workers a pay increase, said Zhu Hai Feng, a spokesman for the company in Tianjin. He declined to elaborate. Toyota fell 1.7 percent to close at 3,240 yen yesterday in Tokyo trading, while the benchmark Nikkei 225 Stock Average was little changed. Toyoda Gosei declined 0.4 percent and Honda dropped 1.7 percent. Reduced Migration Higher investment and improved wages in western China are deterring workers from migrating, pushing up pay in more industrialized regions like Guangdong in the south, David Abrahamson, project manager at the China Center for Labor and Environment, said by phone from Shenzhen. A factory owned by Xiaotian (Zhongshan) Industrial Co., a maker of gas stoves and electric fans 3 kilometers (1.9 miles) from Honda Lock’s plant, promised workers a monthly increase of at least 250 yuan, excluding overtime, last week. Some factories in China are losing as many as 25 percent of their workers a month, reflecting increased competition among employers to hire staff, said Ian Spaulding, Hong Kong-based managing director at Infact Global Partners, which advises factory owners on China work practices. More than 20 Chinese provinces and cities raised minimum wages this year, the Shenzhen city government said on its website. In Shenzhen, which raised minimum wages an average of 15.8 percent, the government said higher pay will help companies recruit workers and will boost consumption. To contact the reporter on this story: Liza Lin in Singapore at llin15@bloomberg.net

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European Stocks Climb for Fourth Week as Crisis Concerns Wane BSkyB Rises

June 18, 2010

By Adam Haigh June 19 (Bloomberg) — European stocks rose for a fourth week as concern about the region’s sovereign debt crisis waned. Royal Bank of Scotland Group Plc and Societe Generale SA led a rally among bank shares. British Sky Broadcasting Plc soared 19 percent after Rupert Murdoch ’s News Corp. offered to buy the rest of the company for 7.8 billion pounds ($11.5 billion). Nokia Oyj slumped 8.6 percent after cutting its forecasts. BP Plc tumbled for a record ninth week. The Stoxx Europe 600 Index gained 2.4 percent to 255.5, the highest closing level since May 13 and the longest streak of weekly gains since April. The benchmark gauge has rebounded 10 percent from its 2010 low on May 25 after concern about levels of government debt in Europe pushed the index to its cheapest level relative to earnings in more than a year. “Global investors are feeling more hopeful about the outlook for Europe’s stocks,” said Gary Baker , an equity strategist at BofA Merrill Lynch Global Research in London. “Bad news is priced in.” He forecasts the Stoxx 600 to reach 300 by the end of 2010, a 17 percent increase from this week’s close. A Spanish bond auction June 17 eased concern that the nation will struggle to finance looming debt maturities. Spain sold 3.5 billion euros ($4.3 billion) of 10-year and 30-year bonds, the maximum set for the auction. Stress Tests Britain posted a smaller fiscal deficit in May than economists forecast as growth lifted tax receipts, providing a boost for finance minister George Osborne before his June 22 budget. European Union leaders agreed June 17 to disclose how banks perform on stress tests, seeking to show investors that the financial system can withstand shocks. The decision came after Spanish officials unexpectedly pledged to publish results on individual banks, the first European government to do so. European Central Bank President Jean-Claude Trichet said broader regional stress tests will be published in the second half of July “at the latest.” Still, the number of investors forecasting the global economy to strengthen in the next 12 months fell, according to a BofA Merrill Lynch survey of portfolio managers who together manage about $606 billion. Money managers increased their reserves of cash in June to the highest level in more than a year and continued to reduce their holdings in global equities to levels not seen since early 2009, the survey showed. Stimulus Dose “The markets are really worried about economic growth,” said Trevor Greetham , the head of asset allocation at Fidelity International in London. By the end of the year “central banks will be back peddling. We’ll need another dosing” of stimulus, he said at a press briefing to reporters in London June 15. Banks posted the biggest gains among the 19 industry groups in the Stoxx 600, climbing 6 percent. Royal Bank of Scotland, Britain’s biggest government-owned bank, advanced 11 percent. Societe Generale, France’s second-largest bank by market value, rose 13 percent. BSkyB soared 19 percent. The company rejected News Corp.’s offer of 700 pence a share and said it would be prepared to support a bid of more than 800 pence a share. News Corp., owner of the Fox television network, already holds a 39 percent stake. Weir Group Plc surged 22 percent as the world’s biggest maker of pumps for the mining industry forecast second-half profit to be “significantly” greater than last year. Eiffage, Nokia Eiffage SA rose 13 percent after a unit it jointly controls said it’s buying out minority shareholders of a French toll-road operator, shoring up the unit’s finances. This is “a highly accretive transaction” for Eiffage, said Natixis analysts Gregoire Thibault and Rafic El Haddad , who lifted their earnings-per-share estimates for 2010 to 2012 by 16 percent per year on average and raised their rating on the stock to “neutral” from “reduce.” Nokia slumped 8.6 percent. The world’s biggest maker of mobile phones cuts its forecasts for sales and margins, hurt by competition in high-end phones from Apple Inc. ’s iPhone and devices based on Google Inc.’s Android software. Goldman Sachs slashed its price estimate for the shares by 27 percent to 7.70 euros and cut its 2010 earnings estimate by 25 percent to 47 cents per share. BP declined for a ninth week, losing 8.8 percent for the longest streak of weekly losses on record. The London-based oil producer battling with the worst oil spill in U.S. history abandoned a $10 billion-a-year dividend and created a $20 billion escrow fund to compensate victims. To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

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Bank of America Debt Sale Shows Contagion Ebbs Credit Markets

June 18, 2010

By Tim Catts June 18 (Bloomberg) — Bank of America Corp. , JPMorgan Chase & Co. and HSBC Holdings Plc raised $7.65 billion in the bond market as investors grow more confident Europe’s debt crisis will be contained, averting another credit freeze for lenders. Bank of America’s $3 billion offering was its first benchmark issue of dollar-denominated 10-year notes in a year, according to data compiled by Bloomberg. New York-based JPMorgan boosted its sale by 25 percent to $1.25 billion as relative yields on U.S. bank debt fell for a fourth day, the longest streak since March, while HSBC raised $3.4 billion in the biggest global issue of undated dollar notes since October 2008. The banks’ offerings come as Spain sold 3.5 billion euros ($4.3 billion) of bonds yesterday and announced a plan today to issue new 10-year notes via banks, easing concern the nation will struggle to finance looming debt maturities. Even as potential regulations loom, U.S. banks are taking advantage of “very attractive financing rates and a receptive marketplace,” said Wells Fargo Funds Management’s James Kochan . “There’s a lot less fear among investors than was true a week ago or a month ago,” said Kochan, who helps oversee $179 billion as chief fixed-income strategist for the firm in Menomonee Falls, Wisconsin. “Things are calming down a bit in world markets.” Deutsche Bank AG , Germany’s biggest bank, issued 1 billion euros of so-called lower Tier 2 bonds that were priced to yield 210 basis points, or 2.1 percentage points, over swaps, according to a banker involved in the deal. Credit Suisse Group AG added 550 million euros to its existing 4.75 percent bonds due August 2019, according to data compiled by Bloomberg. The additional notes yield 180 basis points more than similar- maturity German debt. HSBC Sale The 5.625 percent, 10-year issue from Charlotte, North Carolina-based Bank of America priced to yield 248 basis points more than Treasuries, Bloomberg data show. A benchmark offering is typically at least $500 million. JPMorgan’s 3.4 percent, five-year notes pay a spread of 145 basis points. HSBC, Europe’s largest bank, sold the perpetual securities that are callable after 5.5 years with a coupon of 8 percent today, at the lower end of the marketing range of 8 percent to 8.125 percent, according to a person with knowledge of the deal. The issue was the largest of its type since Credit Suisse sold $3.5 billion of 11 percent notes in October 2008, according to data compiled by Bloomberg. Ally Bank Elsewhere in credit markets, the extra yield investors demand to own corporate bonds instead of government debt fell 1 basis point to 197 basis points, Bank of America Merrill Lynch’s Global Broad Market Corporate Index shows. Yields averaged 4.068 percent. GMAC Inc.’s Ally Bank boosted the size of its offering of bonds backed by auto loans to $1.2 billion from $792.3 million, according to a person familiar with the transaction. The largest top-rated portion, a $448 million slice maturing in about 2.2 years, will yield 25 basis points more than the benchmark swap rate, said the person, who declined to be identified because the terms aren’t public. Benchmark indexes of corporate credit risk in the U.S. and Europe fell. 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, fell 3.3 basis points to a mid-price of 110.25 basis points as of 12:06 p.m. in New York, the lowest since May 31, according to Markit Group Ltd. In London, the Markit iTraxx Europe Index of 125 companies with investment-grade ratings decreased 4.7 basis points to 117.4, Markit prices show, the lowest since May 18. Bondholder Protection The indexes typically fall as investor confidence improves and rise as it deteriorates. Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt. Bank of America and JPMorgan’s offerings led $7.35 billion of U.S. corporate bond issuance, the busiest day since April 21, when $12.3 billion was sold, Bloomberg data show. That tally of straight bond sales doesn’t include HSBC’s perpetual notes issue. The offerings from the two largest U.S. banks by assets and Europe’s No. 1 lender follow a $750 million sale by Radnor, Pennsylvania-based Lincoln National Corp. on June 15 and a $1 billion offering June 16 from Prudential Financial Inc. of Newark, New Jersey. ‘Positive Tone’ “Both JPMorgan and Bank of America are coming on the back of a couple good days of a positive tone in the market,” said Brian Machan , a money manager at Aviva Investors North America in Des Moines, Iowa. “Seeing Prudential do well and Lincoln National come earlier this week set the precedent.” Spreads on financial company bonds fell to 277 basis points, the lowest in two weeks, according to Bank of America Merrill Lynch’s U.S. Corporates, Banks index. Relative yields reached 286 basis points on June 11, the highest since October. Banks are making the most of investor demand before regulatory changes that could reduce profitability, said Scott MacDonald , head of credit and economics research at Aladdin Capital Holdings LLC in Stamford, Connecticut, which oversees $12.5 billion. Congress is debating sweeping changes to financial regulations that may hamper bank profits after the collapse of the housing market caused the worst recession since the 1930s and the loss of more than 8 million U.S. jobs. ‘Floodgates Have Opened’ “The floodgates have opened and banks are taking advantage,” MacDonald said. “From a strategic standpoint, they’d rather come in ahead of the curve than play catch up.” Spain sold its debt at an average yield of 4.864 percent, less than the 5.04 percent its 10-year bonds traded at yesterday before the sale. Demand was 1.89 times the amount on offer. It also sold 479.2 million euros of 30-year debt at 5.908 percent, and the bid -to-cover ratio was 2.45, higher than the 1.38 at the previous sale on March 18. Spain’s finance ministry said today the government will sell bonds in the third quarter through a group of banks, without naming the managers of the issue. It also announced auctions of debt with maturities ranging from 2015 to 2041. “The strong demand for Spanish bonds should help restore confidence,” said Ciaran O’Hagan , fixed income strategist at Societe Generale in Paris. “The good demand was only possible after considerable cheapening of Spanish bonds over the past days.” To contact the reporter on this story: Tim Catts in New York at tcatts1@bloomberg.net

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General Motors Director Kresa Said to Retire as Soon as July, Before IPO

June 18, 2010

By David Welch June 18 (Bloomberg) — General Motors Co. board member Kent Kresa , who served as interim chairman during the automaker’s bankruptcy, will retire as a director as soon as July, said two people with direct knowledge of the matter. Kresa, who joined the board in 2003, turned 72 in March and will not stand for re-election, said the people, who asked not to be identified revealing internal discussions. GM added a 13th director, Cynthia Telles , an associate clinical professor at the University of California at Los Angeles, in April and she will take Kresa’s place when he retires, the people said. The departure would leave four directors from the old General Motors Corp. and eight who joined since the new GM emerged from bankruptcy. That may help GM convince potential investors its board has a fresh perspective as it prepares for an initial stock sale, said Charles Elson , director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “New blood would probably make some sense,” said Elson. Kathryn Marinello , another director, tendered her resignation from GM’s board after she left her last job as chairman and CEO of Minneapolis-based human resources firm Ceridian Corp. in January. GM’s corporate governance guidelines state that when a director’s job changes “from the position he or she held when originally invited to join the board, the director will tender a letter of resignation.” Board Reviews The board reviewed Marinello’s situation and decided to keep her as a director, said a company spokeswoman, Renee Rashid-Merem . Kresa’s status is under review, she said, because directors who are 72 or older do not stand for re-election under GM’s guidelines. The board kept Marinello, 53, as a director with the expectation that she will find a new job before GM holds an IPO in the fourth quarter of this year or first quarter of next year, one of the people said. If she does not, she may have her directorship reviewed again and have to resign her seat, the person said. Directors who lose their executive jobs often stay on boards long after leaving employment, said Elson. “It’s rare that the resignation letters are even accepted,” he said. “The value that they bring to the board is not the job that they had. Often they do stay on.” Kresa, a former chairman and CEO of Northrop Grumman Corp., was named GM’s interim chairman in March 2009 by President Barack Obama ’s Automotive Task Force after the government fired Chairman and CEO Rick Wagoner . Kresa helped recruit some of the seven directors who joined when GM emerged from bankruptcy in July. Kresa didn’t immediately return a telephone message about the matter. Marinello wasn’t available for interviews, Rashid- Merem said. GM’s equity is worth $70 billion, based on a return of 47 cents on the dollar for holders of bonds issued by GM’s predecessor, according to Eric Selle , a debt analyst at JPMorgan Chase & Co. The debt will be converted to stock and warrants in the IPO. At current bond prices, GM’s implied equity value is about $51 billion. To contact the reporter on this story: David Welch in Southfield, Michigan, at dwelch12@bloomberg.net .

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Citigroup Seeks $3 Billion for Hedge Fund, Buyouts as Volcker’s Ban Looms

June 18, 2010

By Bradley Keoun June 18 (Bloomberg) — Citigroup Inc. plans to raise more than $3 billion for its private-equity and hedge funds, even as U.S. lawmakers consider banning banks from owning and investing in so-called alternative funds, people with direct knowledge of the plan said. Citi Capital Advisors , which oversees about $14 billion, may seek $1.5 billion for private equity this year and $750 million for hedge funds, said the people, who declined to be identified because the plans aren’t public. An additional $1 billion is targeted next year for hedge funds, the people said. “Citi must be comfortable enough that whatever happens, even in the extreme version, they’ll be able to move ahead with these businesses,” said Steven Kaplan , a professor at the University of Chicago Booth School of Business who studies the private-equity industry. “I don’t think any of these bills envisioned not being able to manage someone else’s money. It’s the bank capital that’s still an open question.” The Volcker rule, named for former Federal Reserve Chairman Paul Volcker , seeks to avoid future bailouts by curbing risk-taking. The Securities Industry and Financial Markets Association , Wall Street’s biggest lobbying group, and the Financial Services Roundtable , a Washington-based trade group, have expressed concerns that the measure restricts banks from businesses that didn’t cause the financial crisis. Lawmakers are reconciling House and Senate bills this month to overhaul regulation of Wall Street. Citigroup’s rivals aren’t waiting for final legislation to move forward with growth plans for their in-house money-management funds. ‘Regardless’ of Reform Last week, Morgan Stanley announced it had raised $4.7 billion for a new global real estate fund, including $400 million of the New York-based securities firm’s own money. Citigroup has about $5 billion of its own money in Citi Capital Advisors funds. “Regardless of the ultimate outcome of financial reform, our priority will always be protecting the interests of our clients, who have selected us to be the fiduciary manager of their assets, and ensuring the soundness of the CCA platform moving forward,” spokeswoman Danielle Romero-Apsilos said. The proposed legislation would restrict banks’ ability to trade financial instruments such as stocks, bonds and commodities on their own account, and bar them from owning or sponsoring hedge funds or private-equity firms. Federal banking agencies would have the power to exempt institutions who do such trading on behalf of a customer or to hedge risk. Seeding New Funds Even if the Volcker rule becomes law, full implementation may take as many as six years. Under the Senate bill , a study would have to be completed within six months of passage. Then, a council of regulators would then have to issue recommendations within nine months. That would be followed by a two-year phase- in periods and three potential one-year extensions on a firm-by- firm basis. Citigroup’s primary reason for investing in the funds is to “seed” new ones, essentially floating them long enough to build a track record that can then be marketed to investors, the people said. Putting in its own money also helps attract investors by signaling the bank has confidence in the management teams , they said. Chief Executive Officer Vikram Pandit , 53, told a Congressional panel in March that the bank is taking steps to scale back its funds business. This year he sold off a $12.5 billion real-estate fund and a $4.2 billion fund of hedge funds. Still, he considers Citi Capital Advisors to be a “core” operation alongside trading, investment-banking, corporate cash- management and branch banking. ‘New Thrust’ Citi Capital Advisors is the former Citi Alternative Investments unit, renamed last year after more than a dozen of its funds with almost $80 billion of assets were shuttered or frozen amid the global financial crisis, causing more than $3 billion of losses for Citigroup. In April 2009, John Havens , 53, head of Citigroup’s trading and investment-banking division, tapped a pair of former Morgan Stanley colleagues, James O’Brien , 50, and Jonathan Dorfman , 48, to rebuild the alternative-investing unit. Of the 16 funds listed in a March 2008 Citi Alternative Investments brochure, 11 have been closed, sold, renamed or merged into other funds. “They basically are presenting a new thrust to the market since the challenges of ‘07 and ‘08,” said Colin Blaydon , director of the Center for Private Equity and Entrepreneurship at Dartmouth College’s Tuck School of Business in Hanover, New Hampshire. “Gathering capital at this point is something they want to do.” Funds Marketed Among six funds now being marketed is the $700 million Emerging Markets Special Opportunities Fund . It was started in 2000 and is led by former Salomon Smith Barney emerging-markets co-head Mark Franklin, returning an average 12 percent a year over the past decade, according to a Citi Capital Advisors marketing brochure dated April. Another fund is the Mortgage/Credit Opportunity Fund , led by Rajesh Kumar. Citigroup lured Kumar and his team from hedge fund Halcyon Asset Management LLC in 2008 and agreed to seed them with $200 million of the bank’s capital, people with direct knowledge of the move said. The fund has gained 24 percent annualized since its May 2008 debut, according to the April brochure. It now stands at about $300 million, the people said. To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net .

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Anadarko Says BP Was `Reckless,’ Looks to Oil Company to Pay Spill Claims

June 18, 2010

By Edward Klump June 18 (Bloomberg) — Anadarko Petroleum Corp. , the Texas oil company that owns 25 percent of the damaged well pouring crude into the Gulf of Mexico, said BP Plc should pay all the damages associated with the disaster because it was caused by the company’s “reckless decisions.” The company was “shocked” by information disclosed publicly that shows BP operated unsafely and didn’t monitor and react to warning signs as the Macondo well was drilled, Anadarko Chief Executive Officer Jim Hackett said today in a statement. The company said a joint-operating agreement provides that BP is responsible for damages under such conditions. “BP’s behavior and actions likely represent gross negligence or willful misconduct and thus affect the obligations of the parties under the operating agreement,” Hackett said in the statement. U.S. Representatives Henry Waxman of California and Bart Stupak of Michigan said in a June 14 letter to BP that “time after time, it appears that BP made decisions that increased the risk of a blowout to save the company time or expense.” If that happened, the lawmakers said, “BP’s carelessness and complacency have inflicted a heavy toll on the Gulf, its inhabitants, and the workers on the rig.” Anadarko also said today that it will donate to Gulf Coast charities or civic agencies any revenue it is entitled to receive from oil recovered in cleanup efforts. Toby Odone , a spokesman for BP, said he couldn’t immediately comment. To contact the reporter on this story: Edward Klump in Houston at eklump@bloomberg.net .

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Porsche CEO Macht Said to Be Favored as Next Volkswagen Production Chief

June 18, 2010

By Andreas Cremer June 18 (Bloomberg) — Porsche AG Chief Executive Officer Michael Macht is the favored candidate to succeed Jochem Heizmann as production chief at Volkswagen AG , according to two people familiar with the matter. Macht, 49, is Volkswagen CEO Martin Winterkorn ’s choice to replace Heizmann because of his decade-long experience in running production at Porsche before he was named to head the sports-car maker a year ago, said the people, who asked not to be identified because the discussions are confidential. A final decision hasn’t been made, they said. Matthias Mueller , VW’s chief product strategist, is the frontrunner to succeed Macht as Porsche CEO, the people said. Expanding the line-up of luxury cars is the Stuttgart, Germany- based company’s top priority to reach a target of doubling deliveries to 150,000 vehicles in the medium term. Wolfsburg, Germany-based Volkswagen and Porsche are in talks to carve out future model strategy and share platforms as they seek to complete a merger next year. Porsche SE, the sports-car maker’s holding company, today reported a nine-month loss of about 700 million euros ($868 million) because of costs related to the VW merger. Volkswagen spokesman Stefan Ohletz declined to comment, as did Porsche’s Albrecht Bamler . Macht joined Porsche in 1990 from a research institute where he focused on helping German companies reorganize. In 1993, he was chosen to run a program set up to optimize production by more closely linking suppliers to the process, according to one of Porsche’s Web sites. Toyota Methods A year later, he began running a new subsidiary, Porsche Consulting, which focused on bringing production methods used by Toyota Motor Corp. to Porsche. Macht told the Detroit Free Press in 1999 that he brought in former Toyota engineers to Porsche’s main factory, who helped him reshuffle the operations over the complaints of the factory’s German managers. By the mid-1990s Porsche was profitable again and Macht was rewarded for his role with a promotion to production chief in 1998, where he remained until he became CEO last July. Heizmann, a member of VW’s executive board since February 2007, will quit to take on a new role tightening cooperation between truckmakers Scania AB and MAN SE , two people familiar with the matter said in April. Other possible management changes now being discussed at Volkswagen involve Porsche’s development chief, Wolfgang Duerheimer , who might be replaced by Wolfgang Hatz , head of engine development at Volkswagen, one of the people said. VW, Europe’s biggest carmaker, aims to overtake Toyota as the world’s largest automaker and bought a 19.9 percent stake in Suzuki Motor Corp. in January. To contact the reporter on this story: Andreas Cremer in Berlin at acremer@bloomberg.net .

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Barclays Steps Up Russia Hiring in Bid to Be No. 1 Foreign Investment Bank

June 18, 2010

By Jason Corcoran June 18 (Bloomberg) — Barclays Plc , the U.K.’s third- largest lender, will hire dozens of bankers in Russia as it seeks to become the leading foreign investment bank in two to three years, local chief Bob Foresman said. “We will need to have over 100 people just in the broker dealership,” Foresman, Barclay’s country manager, said in an interview yesterday in St. Petersburg. The former local chairman for Dresdner Kleinwort Wasserstein said he is overseeing “a very aggressive strategy” in Russia. Barclays of London is stepping up hiring as the economy of the world’s biggest energy exporter rebounds from a record 7.9 percent contraction last year, bolstered by higher oil and metals prices. Russian companies may sell 1 trillion rubles ($32 billion) of domestic bonds this year, according to Trust Investment Bank and ING Groep NV. Russian stock sales may total $20 billion, according to UBS AG. Barclays Capital, the bank’s securities unit, was one of the four arrangers of Russia’s first sovereign Eurobond since the government defaulted in 1998. The government sold $5.5 billion of the securities in April, the second-biggest emerging- market debt offering on record. Third-Biggest Underwriter Barclays Capital is expanding into European and emerging- market equities following its acquisition of the North American operations of Lehman Brothers Holdings Inc. Barclays has rebranded Expobank, a Russian retail bank it acquired in 2008 for $745 million. In Russia, Barclays Capital is the third-biggest underwriter of debt this year, according to data compiled by Bloomberg. The U.K. bank aims to be the “top global investment bank in Russia across all products,” said Foresman, who Barclays hired in September from Moscow-based Renaissance Capital, where he was deputy chairman. “We have every intention to set up a sales, trading and research team on the equity side and build our own platform.” Hans-Joerg Rudloff , the chairman of Barclays Capital, said in an interview in May that the bank recently arranged financing for TNK-BP International Ltd., BP Plc’s oil venture with a group of Russian billionaires, along with OAO Lukoil, Russia’s largest non-state oil company, VTB Bank, the country’s second-biggest lender, and Russian Railways. “We are one of the biggest foreign lenders in the country,” Rudloff said. “We just completed many capital market transactions.” To contact the reporter on this story: Jason Corcoran at Jcorcoran13@bloomberg.net

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Treasury, Geithner to Be Given Expanded Powers in U.S. Financial Overhaul

June 18, 2010

By Ian Katz June 18 (Bloomberg) — The U.S. Treasury Department under Secretary Timothy F. Geithner is coming out of the worst economic crisis since the Great Depression with expanded powers to guard against future threats to financial stability. Geithner, who has managed taxpayer bailouts of companies from Citigroup Inc. to General Motors Co. , would lead a council to monitor large financial firms under legislation House and Senate negotiators aim to complete by July 4. Lawmakers confirmed the council’s basic functions yesterday and may approve final language next week. Geithner would also get a research unit that could demand data from banks and regulators and a new national insurance office. The Treasury-led council’s role includes identifying companies that might be shut down because they pose a risk to the financial system. That authority, even if well-intentioned, could be used for political ends, said Phillip Swagel , a former Treasury economist who’s now a professor at Georgetown University in Washington. “It’s such an open-ended grant of power,” said Swagel, who worked for Republican Treasury Secretary Henry Paulson . “Do we really want to give that to every future administration?” Tom Quaadman , vice president of the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness, said the legislation will give Treasury “enormous new powers.” The Treasury would also be required to approve any emergency lending by the Federal Reserve. The Fed used its emergency powers during the crisis to rescue American International Group Inc. and Bear Stearns Cos. The Treasury’s new powers are one element of legislation that Geithner has called “the most sweeping financial reform that we’ve considered in generations.” Council Members The council, which also includes the chairmen of the Fed, Securities and Exchange Commission and the FDIC, would have the authority to recommend that the central bank and other agencies toughen rules to reduce risk at financial institutions. Some of its decisions, such as ruling that a non-bank financial company should be subject to Fed supervision, couldn’t be made without the Treasury secretary’s approval. “While it mostly has powers of recommendation, it clearly has the ability to affect regulation and set the agenda,” said Chuck Muckenfuss , a partner at Gibson, Dunn & Crutcher LLP in Washington who specializes in financial regulation and policy. The council would include, as a non-voting member, the director of a new Treasury financial research office. While the office isn’t intended to “snoop on people,” it would have broad power to ask companies for information, Swagel said. Large Banks The office would obtain data and conduct research on systemic risk and require banks with assets of $50 billion or more to give information not otherwise available about its financial condition and internal systems. The success of the research office depends on how its work is used, said Mark Calabria , director of financial regulation studies at the Cato Institute in Washington and a former aide to Republican Senator Richard Shelby of Alabama. “It’s an open question whether the financial research done at Treasury will end up serving the policy goals of the Treasury secretary, or will they actually build a strong, independent function,” Calabria said. Geithner, 48, will be gaining authority after being the target of a public and political backlash over the $700 billion Troubled Asset Relief Program. Lawmakers including Senator Maria Cantwell , a Democrat from Washington state, and Representative Jeb Hensarling , a Texas Republican, said the Treasury favored Wall Street banks over Main Street. Fed Scrutiny As companies including Citigroup and Bank of America Corp. repaid bailout funds last year, the Treasury escaped the ire of lawmakers debating whether to curb central bank’s independence and increase scrutiny of its actions. Lawmakers yesterday agreed to require greater disclosure by the central bank while rejecting a provision to make the New York Fed chief a political appointee. Geithner met with more than a dozen senators in the weeks before the Senate’s May 20 vote and urged them to support the regulatory changes. The Obama administration’s proposal, released in June 2009, included a financial services oversight council to be led by Treasury. “What’s important is to have true accountability for the responsibilities granted to each government agency,” Treasury spokesman Andrew Williams said. The President’s Working Group on Financial Markets, formed in response to the October 1987 stock market crash, is likely to be supplanted by the council, said Eugene A. Ludwig , chief executive officer of Promontory Financial Group and a former comptroller of the currency. The working group, led by the Treasury secretary, includes the chairmen of the Fed, SEC and Commodity Futures Trading Commission. Insurance Office The Treasury’s authority would also be extended to the insurance industry. A proposed National Office of Insurance, whose director would be appointed by the Treasury secretary, will identify regulatory weaknesses that could contribute to an industry crisis and recommend to the council of regulators that an insurer be supervised by the Fed. The legislation falls short of proposing a so-called optional federal charter for insurance companies that allow firms to choose between the current system of state regulation or a federal overseer. Large insurers such as Allstate Corp. have supported an optional federal supervision while smaller firms and states oppose it. “This is the first toe in the water for federal government into insurance,” said Robert Litan , a senior fellow at the Brookings Institution and a former Office of Management and Budget official. “It could prepare the ground for an optional federal charter.” Inspectors Under the legislation, the Treasury’s inspector general, or internal investigator, would lead a council of IGs from government agencies to share information that could improve financial oversight. “The Treasury Department has been one of the primary battalions in our economic army,” Ludwig said. “In times of war the army grows in strength and authority. The question is, how will this army change in times of peace, or what it will evolve into.” To contact the reporter on this story: Ian Katz in Washington at ikatz2@bloomberg.net .

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Stem Cells From Own Eyes Restore Vision to Blinded Patients, Study Shows

June 18, 2010

By Rob Waters June 18 (Bloomberg) — Patients blinded in one or both eyes by chemical burns regained their vision after healthy stem cells were extracted from their eyes and reimplanted, according to a report by Italian researchers at a scientific meeting. The tissue was drawn from the limbus , an area at the junction of the cornea and white part of the eye. It was grown on a fibrous tissue, then layered onto the damaged eyes. The cells grew into healthy corneal tissue, transforming disfigured, opaque eyes into functioning ones with normal appearance and color, said researchers led by Graziella Pellegrini of the University of Modena’s Center for Regenerative Medicine. The stem-cell treatment restored sight to more than three- quarters of the 112 patients treated, Pellegrini said yesterday in a presentation at the International Society for Stem Cell Research meeting. The patients were followed for an average of three years and some for as long as a decade, Pellegrini said. “The patients, they are happy, even the partial successes,” she said in an interview at the meeting in San Francisco. “We have a couple of patients who were blind in both eyes. Can you imagine for these patients the change in their quality of life?” The work was praised by Ivan Schwab , an ophthalmology professor and stem cell researcher at the University of California, Davis, who has treated patients in clinical trials with a procedure based on Pellegrini’s work. While his patients improved for a time, the benefits didn’t endure, he said in a June 15 telephone interview. Pellegrini’s patients appear to have long-term improvement, he said. ‘Long-Term’ Effect “The powerful part of her work is she has such long-term follow-up,” Schwab said. Many of the patients she treated had been blind for years as result of tissue and blood vessels growing over damaged parts of the eye. Some had been through failed surgeries and alternative treatments. Pellegrini estimated 1,000 to 2,000 patients in Europe suffer from burns with chemicals such as bleach or industrial solvents and may benefit from the procedure. The key to success is to be certain that when the stem cells extracted from the limbus are grown in culture they have the right mix of stem cells and the differentiated cells that form the corneal tissue, Pellegrini said. If there are too few stem cells in the transplant, the improvement won’t last because there will be no reservoir to form the new corneal cells needed with the normal recycling of cells over time, she said. Success Rate The procedure succeeded after a single transplant in 69 percent of cases. A second procedure was performed on some patients, boosting the success rate to 77 percent, she said. The procedure was deemed a partial success in 13 percent of cases and a failure in 10 percent, she said. Depending on the depth of the injury, some patients regained sight in as little as two months, Pellegrini said. Others with deeper injuries needed a second procedure and waited a year before sight was restored, she said. The applications of the work may extend to other organs, Schwab said. “This is bigger than just the surface of the eye,” he said. “She may be making a model for how to regenerate livers or other organs.” To contact the reporter on this story: Rob Waters in San Francisco at rwaters5@bloomberg.net .

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Citigroup Looking Past Volcker May Seek $3 Billion for Funds

June 18, 2010

By Bradley Keoun June 18 (Bloomberg) — Citigroup Inc. plans to raise more than $3 billion for its private-equity and hedge funds, even as U.S. lawmakers consider banning banks from owning and investing in so-called alternative funds, people with direct knowledge of the plan said. Citi Capital Advisors , which oversees about $14 billion, may seek $1.5 billion for private equity this year and $750 million for hedge funds, said the people, who declined to be identified because the plans aren’t public. An additional $1 billion is targeted next year for hedge funds, the people said. “Citi must be comfortable enough that whatever happens, even in the extreme version, they’ll be able to move ahead with these businesses,” said Steven Kaplan , a professor at the University of Chicago Booth School of Business who studies the private-equity industry. “I don’t think any of these bills envisioned not being able to manage someone else’s money. It’s the bank capital that’s still an open question.” The Volcker rule, named for former Federal Reserve Chairman Paul Volcker , seeks to avoid future bailouts by curbing risk-taking. The Securities Industry and Financial Markets Association , Wall Street’s biggest lobbying group, and the Financial Services Roundtable , a Washington-based trade group, have expressed concerns that the measure restricts banks from businesses that didn’t cause the financial crisis. Lawmakers are reconciling House and Senate bills this month to overhaul regulation of Wall Street. Citigroup’s rivals aren’t waiting for final legislation to move forward with growth plans for their in-house money-management funds. ‘Regardless’ of Reform Last week, Morgan Stanley announced it had raised $4.7 billion for a new global real estate fund, including $400 million of the New York-based securities firm’s own money. Citigroup has about $5 billion of its own money in Citi Capital Advisors funds. “Regardless of the ultimate outcome of financial reform, our priority will always be protecting the interests of our clients, who have selected us to be the fiduciary manager of their assets, and ensuring the soundness of the CCA platform moving forward,” spokeswoman Danielle Romero-Apsilos said. The proposed legislation would restrict banks’ ability to trade financial instruments such as stocks, bonds and commodities on their own account, and bar them from owning or sponsoring hedge funds or private-equity firms. Federal banking agencies would have the power to exempt institutions who do such trading on behalf of a customer or to hedge risk. Seeding New Funds Even if the Volcker rule becomes law, full implementation may take as many as six years. Under the Senate bill , a study would have to be completed within six months of passage. Then, a council of regulators would then have to issue recommendations within nine months. That would be followed by a two-year phase- in period and three potential one-year extensions on a firm-by- firm basis. Citigroup’s primary reason for investing in the funds is to “seed” new ones, essentially floating them long enough to build a track record that can then be marketed to investors, the people said. Putting in its own money also helps attract investors by signaling the bank has confidence in the management teams , they said. Chief Executive Officer Vikram Pandit , 53, told a Congressional panel in March that the bank is taking steps to scale back its funds business. This year he sold off a $12.5 billion real-estate fund and a $4.2 billion fund of hedge funds. Still, he considers Citi Capital Advisors to be a “core” operation alongside trading, investment-banking, corporate cash- management and branch banking. ‘New Thrust’ Citi Capital Advisors is the former Citi Alternative Investments unit, renamed last year after more than a dozen of its funds with almost $80 billion of assets were shuttered or frozen amid the global financial crisis, causing more than $3 billion of losses for Citigroup. In April 2009, John Havens , 53, head of Citigroup’s trading and investment-banking division, tapped a pair of former Morgan Stanley colleagues, James O’Brien , 50, and Jonathan Dorfman , 48, to rebuild the alternative-investing unit. Of the 16 funds listed in a March 2008 Citi Alternative Investments brochure, 11 have been closed, sold, renamed or merged into other funds. “They basically are presenting a new thrust to the market since the challenges of ‘07 and ‘08,’’ said Colin Blaydon , director of the Center for Private Equity and Entrepreneurship at Dartmouth College’s Tuck School of Business in Hanover, New Hampshire. ‘‘Gathering capital at this point is something they want to do.’’ Funds Marketed Among six funds now being marketed is the $700 million Emerging Markets Special Opportunities Fund . It was started in 2000 and is led by former Salomon Smith Barney emerging-markets co-head Mark Franklin, returning an average 12 percent a year over the past decade, according to a Citi Capital Advisors marketing brochure dated April. Another fund is the Mortgage/Credit Opportunity Fund , led by Rajesh Kumar. Citigroup lured Kumar and his team from hedge fund Halcyon Asset Management LLC in 2008 and agreed to seed them with $200 million of the bank’s capital, people with direct knowledge of the move said. The fund has gained 24 percent annualized since its May 2008 debut, according to the April brochure. It now stands at about $300 million, the people said. To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net .

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Global Stocks Rise as S&ampP 500 Fluctuates Gold Climbs to Record

June 18, 2010

By Stephen Kirkland June 18 (Bloomberg) — The MSCI World Index of stocks rose for the ninth day, the longest rally in 11 months, and Spanish bonds rallied on speculation efforts to contain Europe’s debt crisis will succeed. The yen strengthened against the dollar and gold climbed to a record. The world index increased 0.1 percent at 9:57 a.m. in New York. The Stoxx Europe 600 Index advanced 0.2 percent to its highest level in five weeks. The Standard & Poor’s 500 Index fluctuated as the expiration of U.S. futures and options triggered greater price swings. The MSCI Emerging Markets Index climbed 0.4 percent. The yen strengthened 0.3 percent versus the dollar, and gold rose as high as $1,258.25 an ounce. Oil fell a second day. Spain’s 10-year bond yield lost 17 basis points. Spanish banks rallied as European leaders pledged to publish stress tests to boost transparency in the financial industry. Emerging-market equity and bond funds received net inflows in the week to June 16 as concerns over European deficits eased, boosting appetite for higher-yielding assets, EPFR Global data showed. “Sentiment has changed to the positive after investors saw that the European debt crisis hasn’t spiralled out of control,” said Daphne Roth , Singapore-based head of Asian equity research at ABN Amro Private Banking. European Shares About three stocks rose for every two that fell on Europe’s benchmark Stoxx 600 . Banco Santander SA , Spain’s largest lender, rallied 2.5 percent in Madrid while smaller rival Banco Bilbao Vizcaya Argentaria SA climbed 4.4 percent. Spain’s IBEX 35 Index increased 1.2 percent, the most among 18 western European benchmark gauges. The cost of protecting against a debt default by Banco Santander dropped, with credit-default swaps tumbling 16 basis points to 170, according to CMA DataVision. Spain’s 10-year bond yield dropped 17 basis points to 4.6 percent and the premium investors demand to own the debt instead of benchmark German bunds tumbled by 23 basis points to 188 basis points. European Union leaders agreed yesterday to disclose how banks perform on stress tests, seeking to show investors that the financial system can withstand shocks. The decision came after Spanish officials unexpectedly pledged to publish results on individual banks, the first European government to do so. European Central Bank President Jean-Claude Trichet said broader regional stress tests will be published in the second half of July “at the latest.” Asian Stocks The MSCI Asia Pacific Index gained 0.3 percent. Softbank Corp., the exclusive seller of the iPhone in Japan, climbed 2.7 percent in Tokyo as orders for a new model outstripped supply. Newcrest Mining Ltd., Australia’s biggest gold producer gained 1.7 percent in Sydney. Developing-nation stocks rose for a ninth day, the longest stretch of gains in two months. Hungary’s BUX Index climbed for the first time in four days, rising 0.2 percent, after Templeton Asset Management Ltd.’s Mark Mobius said in his blog that the nation’s stocks are attractive. Emerging-equity funds took in $2.5 billion in the past week, the second-largest inflow this year, while emerging-bond funds received $659 million, EPFR said in a statement. The yen gained for a fifth day to 90.77 per dollar, and appreciated 0.5 percent versus euro after the nation’s leaders pledged to reduce public debt. Japanese Prime Minister Naoto Kan said he would consider an opposition party proposal to raise the consumption tax. The dollar strengthened 0.2 percent to $1.2365 per euro. Default Swaps Credit-default swaps on the Markit iTraxx Crossover Index of 50 mostly junk-rated European companies dropped 6.3 basis points to a one-month low of 537.3, according to Markit Group Ltd. Copper fell 1.1 percent to $6,375 a metric ton on the London Metal Exchange, the third consecutive decline. Crude oil slid for a second day, dropping 0.7 percent to $76.29 in electronic trading on the New York Mercantile Exchange. —-With assistance from Paul Armstrong , Matthew Brown , Claudia Carpenter , David Merritt and Michael Patterson in London. Editors: Stephen Kirkland , Michael P. Regan To contact the reporter on this story: Stephen Kirkland in London at skirkland@bloomberg.net ;

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Fiorina’s Hewlett-Packard Mishaps Prompt Technology Leaders to Back Boxer

June 18, 2010

By Ari Levy June 18 (Bloomberg) — Carly Fiorina , the former head of Hewlett-Packard Co., faces a wall of opposition from her Silicon Valley peers as she campaigns to win one of California’s U.S. Senate seats. Her victory in the Republican primary last week puts Fiorina up against Democrat incumbent Barbara Boxer , a senator since 1993. Boxer has the financial support of local executives, including Cisco Systems Inc.’s John Chambers , Oracle Corp.’s Larry Ellison , Netflix Inc.’s Reed Hastings , and John Doerr from Kleiner Perkins Caufield & Byers. Fiorina’s inability to win the backing of technology leaders contrasts with EBay Inc.’s former chief, Meg Whitman , who’s racking up funding from Silicon Valley in the state’s gubernatorial race. Fiorina’s lack of support, even from executives such as Chambers who are known to back Republicans, may reflect misgivings about her tenure at Hewlett-Packard , which lost half its market value on her watch. It also stiffens the challenge of beating a Democrat in a Democratic state. “It makes it a harder hill to climb for Carly,” said Jim Cunneen , who served as a Republican state assemblyman in Silicon Valley from 1994 to 2000. He’s currently a principal at political consulting firm California Strategies in San Jose. “She has a lot of work to do to reach out to independents and moderates, but also to reach out to this tech community that certainly knows her private-sector experience the best of anybody in the state.” Boxer’s Lead Fiorina, 55, aims to beat a senator who’s spent almost three decades in the house and senate working on legislation to support Silicon Valley. As of May 19, Boxer, 69, had raised $16.3 million in donations for the November election, more than double Fiorina’s $7.4 million, according to the Center for Responsive Politics , a nonpartisan group in Washington. Boxer has received $229,487 from computer and Internet companies, compared with $45,550 for Fiorina, the group found. Among voters, Boxer leads Fiorina 48 percent to 43 percent, a Rasmussen Reports poll found. The June 9 telephone survey of 500 likely voters had an error margin of plus or minus 4.5 percent. With statewide unemployment at almost 13 percent and California having the fourth-highest home-foreclosure rate in the country, the incumbent could face a challenge, Cunneen said. “This election is really about jobs and the economy, and there aren’t many jobs and the economy is still sputtering,” said Cunneen, who previously worked for Fiorina’s primary opponent, former Congressman Tom Campbell . “Despite early returns and contributions, this will still be a very competitive race.” Worker Visas Boxer’s popularity in Silicon Valley is due in part to her role as chairwoman of the Senate Environment and Public Works Committee, where she has focused on creating clean-energy jobs and reducing carbon emissions. She’s also backed policy for the granting of more H-1B visas , which bring technology engineers to the U.S. from overseas. And in 2004 she opposed rules that forced companies to expense stock options for employees, saying it would eliminate an incentive for attracting top talent. “Barbara has worked with our industry on critical issues impacting Silicon Valley, including education, promoting innovation, stock options and tax policies,” Chambers, Cisco ’s chief executive officer and a founding member of Technology Leaders for Boxer, said in an e-mail. Chambers, 60, often backs Republicans, including presidential candidate John McCain in 2008. In that election, Democrat Barack Obama won 61 percent of votes in California to McCain’s 37 percent. Fiorina served with Chambers on Cisco’s board from 2001 to 2003. She also was an economic adviser to McCain’s campaign. Executives’ Support Boxer’s backers for the 2010 election also include EBay CEO John Donahoe , Autodesk Inc. CEO Carl Bass , Symantec Corp. Chairman John Thompson and Yahoo! Inc. co-founder Jerry Yang . “It isn’t surprising that a three-term incumbent senator is supported financially by many in the tech industry,” said Amy Thoma, a spokeswoman for Fiorina. “Carly enjoys a broad range of support both from the Silicon Valley and throughout the state and now that the primary has ended we expect that support to continue to grow.” Fiorina’s most high-profile support so far in Silicon Valley comes from Intel Corp. CEO Paul Otellini and Kleiner Perkins co-founder Tom Perkins . Fiorina joined Palo Alto, California-based Hewlett-Packard as CEO in 1999 after spending 20 years at AT&T Corp. and its spinoff Lucent Technologies Inc. Two years later, she orchestrated the $18.9 billion acquisition of Compaq Computer Corp. to grab a bigger piece of the personal-computer market. The strategy backfired and HP lost its lead in the industry to Dell Inc., leading to Fiorina’s ouster in 2005. ‘Lot of Animus’ “There’s a lot of animus about her business decisions at HP,” said Barbara O’Connor , director of the Institute for the Study of Politics and Media at California State University, Sacramento. “It’s mostly the Compaq decision and how she handled it.” In the governor’s race, Whitman, 53, is having little trouble finding support in Silicon Valley. She’s challenging the state’s Democratic attorney general, Jerry Brown , for the chance to succeed Republican Governor Arnold Schwarzenegger , who is departing because of term limits. The $54 million Whitman has raised this year, through May 22, trumps the $16.7 million brought in by Brown, according to data from the California Secretary of State. Her donors include Chambers, Donahoe, Yang, Otellini, Apple Inc.’s former finance chief Fred Anderson , Intuit Inc. CEO Brad Smith and Microsoft Corp. CEO Steve Ballmer . Record at EBay In Whitman’s decade as CEO of EBay, she took the e-commerce company public and built its market value to about $40 billion, with about $7.5 billion in annual revenue. Her record wasn’t without blemish. In her final years at the helm, she failed to reignite slowing sales. And a bidding war between Google Inc. and Yahoo forced Whitman to pay $2.6 billion for Skype in 2005. EBay wrote down the division’s value by $900 million in 2007 before selling it last year. Whitman is less conservative politically than Fiorina on one key issue: abortion. Fiorina is opposed to it, while Whitman favors abortion rights. California Republicans winning statewide office in recent years — such as Schwarzenegger and Pete Wilson , who was governor in the 1990s — have supported abortion rights. Whitman’s position on abortion is part of what makes her “the kind of Republican who can win in California,” said Thad Kousser, associate professor of political science at the University of California, San Diego. For Fiorina, it’s just one more issue to overcome. To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net

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HSBC Said to Raise $3.4 Billion in Biggest Perpetual Bond Sale Since 2008

June 18, 2010

By Katrina Nicholas June 18 (Bloomberg) — HSBC Holdings Plc , Europe’s largest bank, sold $3.4 billion of undated bonds in the biggest issue of its kind for almost two years, re-opening a market that’s been shut since December. HSBC’s bonds, which have no maturity date and are callable after 5 1/2 years, will pay a coupon of 8 percent, according to a person with knowledge of the transaction, who declined to be identified because the details are private. That’s at the lower end of the marketing range of 8 percent to 8.125 percent. The deal is the biggest U.S. dollar-denominated perpetual note since Credit Suisse Group AG issued $3.5 billion of 11 percent securities in October 2008, according to data compiled by Bloomberg. The last bank to sell perpetual bonds was Paris- based lender BNP Paribas SA in December 2009. “This shows the market is open for high-quality issuers but even they are going to have to pay up,” said Tim Condon , chief Asia economist at ING Groep NV in Singapore. “In this environment the closer you are to a really creditworthy government bond, the better.” HSBC is rated Aa2 by Moody’s Investors Service, the third- highest grade, and one level lower at AA- by Standard & Poor’s. No bank has sold a perpetual bond in dollars with a coupon lower than 7 percent since March 2009, Bloomberg data show. The highest coupon paid by a dollar perpetual note that’s currently outstanding is the 14.95 percent interest of Mizuho Financial Group Inc.’s $850 million of bonds sold in February 2009. Capital Requirements Perpetual bonds are typically sold by banks, which generally retain the right to call them after five years. They rank as Tier 1 capital and help lenders fulfil their capital requirements. HSBC’s sale was the first dollar perpetual bond issue this year, compared with more than $8.3 billion in the same period of 2009, Bloomberg data show. Banks including Zions Bancorporation have sold dollar perpetual preferred stock since January, which is stock with no fixed maturity date. The issue from London-based HSBC followed conventional bond sales from banks including Bank of America Corp. and JPMorgan Chase & Co., the two largest U.S. banks by assets. Bank of America’s $3 billion offering was its first benchmark issue of dollar-denominated 10-year notes in a year, according to data compiled by Bloomberg. New York-based JPMorgan boosted its sale by 25 percent to $1.25 billion. Deutsche Bank AG , Germany’s biggest bank, issued 1 billion euros of so-called lower Tier 2 bonds that were priced to yield 210 basis points, or 2.1 percentage points, over swaps yesterday, according to a banker involved in the deal. Bond Sales Rise Bank bond sales are increasing. Lenders sold $38 billion of bonds this month globally, more than double the $14.4 billion issued in the same period of May, according to data compiled by Bloomberg. “In the last 24 hours, we’ve seen banks in the U.S. and Europe issue over $8 billion of securities, spanning senior, lower Tier two and preferred,” said Krishna Hegde , Asia credit strategist at Barclays Capital in Singapore. “These large transactions with broad-based investor participation are likely to have a positive spillover.” Funds from the sale will be used “in the ordinary course of business,” Hong Kong-based HSBC spokeswoman Vinh Tran said. “This was an issue targeted at U.S. investors and part of our capital planning.” Citigroup Inc., Morgan Stanley, UBS AG and Wells Fargo & Co. helped HSBC to manage its sale, which was reported earlier today by the International Financing Review. The notes are expected to be rated A3, the fourth-lowest investment-grade, by Moody’s Investors Service. To contact the reporter on this story: Katrina Nicholas in Singapore at knicholas2@bloomberg.net

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Bank of America, JPMorgan Debt Sales Show Contagion Ebbing Credit Markets

June 18, 2010

By Tim Catts June 18 (Bloomberg) — Bank of America Corp. , JPMorgan Chase & Co. and HSBC Holdings Plc raised $7.65 billion in the bond market as investors grow more confident Europe’s debt crisis will be contained, averting another credit freeze for lenders. Bank of America’s $3 billion offering was its first benchmark issue of dollar-denominated 10-year notes in a year, according to data compiled by Bloomberg. New York-based JPMorgan boosted its sale by 25 percent to $1.25 billion as relative yields on U.S. bank debt fell for a fourth day, the longest streak since March, while HSBC raised $3.4 billion in the biggest global issue of undated dollar notes since October 2008. The banks’ offerings come as Spain sold 3.5 billion euros ($4.3 billion) of bonds yesterday and announced a plan today to issue new 10-year notes via banks, easing concern the nation will struggle to finance looming debt maturities. Even as potential regulations loom, U.S. banks are taking advantage of “very attractive financing rates and a receptive marketplace,” said Wells Fargo Funds Management’s James Kochan . “There’s a lot less fear among investors than was true a week ago or a month ago,” said Kochan, who helps oversee $179 billion as chief fixed-income strategist for the firm in Menomonee Falls, Wisconsin. “Things are calming down a bit in world markets.” Deutsche Bank AG , Germany’s biggest bank, issued 1 billion euros of so-called lower Tier 2 bonds that were priced to yield 210 basis points, or 2.1 percentage points, over swaps, according to a banker involved in the deal. Credit Suisse Group AG added 550 million euros to its existing 4.75 percent bonds due August 2019, according to data compiled by Bloomberg. The additional notes yield 180 basis points more than similar- maturity German debt. Spread to Treasuries The 5.625 percent, 10-year issue from Charlotte, North Carolina-based Bank of America priced to yield 248 basis points more than Treasuries, Bloomberg data show. A benchmark offering is typically at least $500 million. JPMorgan’s 3.4 percent, five-year notes pay a spread of 145 basis points. HSBC, Europe’s largest bank, sold the perpetual securities that are callable after 5 1/2 years with a coupon of 8 percent today, at the lower end of the marketing range of 8 percent to 8.125 percent, according to a person with knowledge of the deal. The issue was the largest of its type since Credit Suisse sold $3.5 billion of 11 percent notes in October 2008, according to data compiled by Bloomberg. Corporate Spreads Elsewhere in credit markets, the extra yield investors demand to own corporate bonds instead of government debt fell 1 basis point to 197 basis points, Bank of America Merrill Lynch’s Global Broad Market Corporate Index shows. Yields averaged 4.068 percent. U.S. commercial paper outstanding rose the most in seven weeks. The market for short-term IOUs climbed $18.8 billion to $1.08 trillion in the week ended June 16, the Federal Reserve said yesterday on its website . That’s the biggest increase since the week ended April 28, when commercial paper outstanding gained $32 billion. Foreign financial commercial paper rose for the second week, adding $3.3 billion to $166.8 billion. General Electric Co. ’s finance unit sold $850 million of bonds backed by credit-card payments after boosting the offering’s size from $500 million. The top-rated securities maturing in about three years yield 75 basis points more than the benchmark swap rate, according to a person familiar with the offering, who declined to be identified because the terms aren’t public. Top-Rated Securities Securities rated AAA and backed by credit-card payments yield about 72 basis points more than similar-maturity Treasuries, compared with a low for the year of 53 basis points over benchmarks on April 21, according to a Bank of America Merrill Lynch index. The Federal Home Loan Bank system, the government-chartered cooperatives owned by U.S. financial companies, sold $3 billion of two-year global notes. The securities yield 0.935 percent, or 22.5 basis points more than similar-maturity Treasuries, according to an e-mailed statement yesterday from the system’s finance office in Reston, Virginia. It sold two-year bonds at a spread of 21 basis points in March. Leveraged-loan prices rose for a fourth day, with the S&P/LSTA US Leveraged Loan 100 Index gaining 0.17 cent to 88.67 cents on the dollar, the biggest rise since May 26. The index, which tracks the 100 largest dollar-denominated first-lien leveraged loans, is poised for its first weekly gain since the period ended May 14. ‘Serious’ Losses’ Financial institutions in the U.S. won’t face “serious” losses if speculative-grade borrowers fail to refinance maturing loans, Standard & Poor’s said. High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and lower than BBB- by S&P. Banks reduced the amount of leveraged loans they held beginning in 2007 by selling them to institutional investors and asset management firms, analysts led by David Tesher in New York said yesterday in a report. About $973 billion of high-yield debt will mature between 2011 and 2014, including $521 billion of loans, they said. BP Plc , the target of more than 220 lawsuits over the Gulf of Mexico oil spill, is seeking to borrow at least $5 billion to meet compensation payments, according to two bankers approached by the company. BP Credit Lines BP has asked banks for one-year credit lines, one of the people said. It’s arranging the transactions individually with lenders, said the people, who declined to be identified because the talks are private. The financing is in addition to London- based BP’s $10.5 billion of undrawn lines, they said. BP spokeswoman Sheila Williams declined to comment. The cost of protecting BP debt from default fell for a second day after the company slashed the $10 billion-a-year dividend, agreed to create an escrow fund to pay damages and had Chief Executive Officer Tony Haywood appear before U.S. lawmakers to account for the biggest oil spill in the nation’s history. Swaps insuring BP debt for a year dropped 13 basis points to 618 after climbing to over 1,000 this week, a level considered distressed, according to CMA DataVision. Five-year contracts were little changed at 466.5 basis points. An index that investors use to hedge against losses on corporate debt or to speculate on creditworthiness fell today and in the week. Credit-default swaps on the Markit iTraxx Crossover Index of 50 mostly junk-rated European companies dropped 1.6 basis points to 541.8, according to Markit Group Ltd. That’s the lowest level in a month and down from 597.5 basis points on June 11, JPMorgan prices show. Credit Swaps The index typically falls as investor confidence improves and rises as it deteriorates. Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt. In emerging markets, the extra yield investors demand to own bonds relative to government debt rose for the first time this week. Spreads widened 3 basis points to 317 basis points, according to JPMorgan’s Emerging Market Bond index. Bank of America and JPMorgan’s offerings led $7.35 billion of U.S. corporate bond issuance, the busiest day since April 21, when $12.3 billion was sold, Bloomberg data show. That tally of straight bond sales doesn’t include HSBC’s perpetual notes issue. The offerings from the two largest U.S. banks by assets and Europe’s No. 1 lender follow a $750 million sale by Radnor, Pennsylvania-based Lincoln National Corp. on June 15 and a $1 billion offering June 16 from Prudential Financial Inc. of Newark, New Jersey. ‘Couple Good Days’ “Both JPMorgan and Bank of America are coming on the back of a couple good days of a positive tone in the market,” said Brian Machan , a money manager at Aviva Investors North America in Des Moines, Iowa. “Seeing Prudential do well and Lincoln National come earlier this week set the precedent.” Spreads on financial company bonds fell to 277 basis points, the lowest in two weeks, according to Bank of America Merrill Lynch’s U.S. Corporates, Banks index. Relative yields reached 286 basis points on June 11, the highest since October. Banks are making the most of investor demand before regulatory changes that could reduce profitability, said Scott MacDonald , head of credit and economics research at Aladdin Capital Holdings LLC in Stamford, Connecticut, which oversees $12.5 billion. Bank Regulation Congress is debating sweeping changes to financial regulations that may hamper bank profits after the collapse of the housing market caused the worst recession since the 1930s and the loss of more than 8 million U.S. jobs. “The floodgates have opened and banks are taking advantage,” MacDonald said. “From a strategic standpoint, they’d rather come in ahead of the curve than play catch up.” Spain sold its debt at an average yield of 4.864 percent, less than the 5.04 percent its 10-year bonds traded at yesterday before the sale. Demand was 1.89 times the amount on offer. It also sold 479.2 million euros of 30-year debt at 5.908 percent, and the bid -to-cover ratio was 2.45, higher than the 1.38 at the previous sale on March 18. Spain’s finance ministry said today the government will sell bonds in the third quarter through a group of banks, without naming the managers of the issue. It also announced auctions of debt with maturities ranging from 2015 to 2041. “The strong demand for Spanish bonds should help restore confidence,” said Ciaran O’Hagan , fixed income strategist at Societe Generale in Paris. “The good demand was only possible after considerable cheapening of Spanish bonds over the past days.” To contact the reporter on this story: Tim Catts in New York at tcatts1@bloomberg.net

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AIG’s Benmosche Set to Outlast Predecessors in `Hot Seat’ as Insurer’s CEO

June 18, 2010

By Hugh Son June 18 (Bloomberg) — Robert Benmosche , who said the U.S. will be repaid with interest for American International Group Inc. ’s bailout, is set to become the insurer’s longest-serving chief executive officer since the firm’s near-collapse in 2008. Benmosche, 66, will begin his 12th month leading New York- based AIG in July. That is longer than predecessors Edward Liddy , who retired after about 11 months in August 2009, and Robert Willumstad , who was ousted after fewer than 100 days as a condition of the insurer’s 2008 government rescue. AIG was bailed out after losses on derivatives tied to mortgages. “Given that he survived 12 months, I’d say Benmosche learned very quickly that this is not just another CEO job,” said Phillip Phan , professor at the Johns Hopkins Carey Business School in Baltimore. “He has to create a more sustainable, smaller operation, to move away from derivatives, and he’s having to do it all in the public eye.” Benmosche must balance the demands of regulators and lawmakers while divesting AIG units to repay loans within the insurer’s $182.3 billion rescue, a goal that stymied his predecessor. Liddy, who was twice grilled by Congress over bonuses paid during his tenure, said in a farewell letter to staff that the job left him with “a few bruises.” AIG posted more than $100 billion in net losses driven by soured housing market bets in the six quarters before Benmosche, the former CEO of MetLife Inc. , took control of AIG. Weeks after starting, Benmosche had to apologize for telling staff that New York Attorney General Andrew Cuomo was “unbelievably wrong” for drawing attention to workers who got retention bonuses. Benmosche then drew criticism for vacationing in Croatia in his first month at AIG. ‘Taxpayer Ire’ “The unprecedented amount of taxpayer ire is what made the job such a hot seat, but Benmosche didn’t let himself get pushed around by the New York Fed,” said Clark Troy , an analyst for research firm Aite Group. “He has this presence and force of will that imparts confidence.” The Federal Reserve Bank of New York and Treasury Department have funded AIG’s rescue. AIG has climbed about 39 percent through yesterday on the New York Stock Exchange since Aug. 7, the last trading day before Benmosche replaced Liddy. That compares with the 34 percent decline under Liddy and the approximately 90 percent plunge under Willumstad, who was ousted before he could unveil a plan to restructure AIG. Under Benmosche, AIG halted the auctions of units including a U.S. investment advisory group, a mortgage guarantor and a pair of Japanese life insurers. The CEO told employees in August that he would only sell businesses for adequate prices, and in March announced deals to sell two life insurance divisions. AIG has posted a profit in three of the previous four quarters as investment results improved. ‘You’ll Get Your Money’ “I’m confident you’ll get your money, plus a profit,” Benmosche told the Congressional Oversight Panel in Washington during a May 26 hearing to examine the AIG rescue. Benmosche negotiated a $7 million annual salary compared with $1 a year for Liddy. Benmosche has opted against holding conference calls to discuss quarterly results with investors, instead releasing audio statements . The past four CEOs all hosted calls. AIG will first repay a Fed credit line with proceeds from divesting the non-U.S. life divisions and then turn to Treasury obligations, he said. The company owes about $26 billion on a Fed credit line and $49 billion to the Treasury. Benmosche has been aided by the fact that firms including BP Plc and Goldman Sachs Group Inc. have gotten more negative media attention and congressional criticism this year than AIG, Troy said. Goldman Sachs, BP Lloyd Blankfein , CEO of Goldman Sachs, testified before a Senate investigations panel in April after the New York-based bank was sued by the Securities and Exchange Commission for fraud tied to mortgage-linked assets. BP’s Tony Hayward was denounced yesterday by U.S. lawmakers for failing to answer questions about the causes of the oil well explosion in the Gulf of Mexico that killed 11 people and caused the leaking of as much as 60,000 barrels of oil a day. AIG’s agreement to sell its main Asian unit to Prudential Plc collapsed early this month, after the London-based insurer’s investors balked at the $35.5 billion price. AIG could raise the same amount in an initial public offering, the firm’s bankers have told Treasury. The agreement to sell another non-U.S. unit, American Life Insurance Co., to MetLife for $15.5 billion is expected to be completed by year-end, Benmosche has said. Benmosche said in April that he expects to remain at AIG for another year or two and he’ll help prepare the bailed-out company for his departure. ‘Appropriately Leveraged’ “Each year the demands of the job and the requirements are different as we begin to evolve from a large, giant, overleveraged company to one that is much more appropriately leveraged and a more focused company with less businesses,” Benmosche said in the April 1 interview. Benmosche is winding down the derivatives unit that brought the entire company to the brink of failure in 2008. The portfolio of trades shrank to about $755 billion on March 31 from $941 billion at the end of 2009. AIG was run for almost four decades through March 2005 by Maurice “Hank” Greenberg , who built the company into the world’s largest insurer. Martin Sullivan then held the top post for three years, until subprime-mortgage related losses led to his replacement by Willumstad in June 2008. AIG shares dropped by about half during Sullivan’s tenure. To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

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