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Greek Pension `Time Bomb’ May Be Difficult to Defuse for Unwed Daughters

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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U.K. Budget Deficit Narrower Than Forecast as Growth Improves Tax Revenue

June 18, 2010

By Gonzalo Vina June 18 (Bloomberg) — 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. The 16 billion-pound ($23.8 billion) shortfall compared with 17.4 billion pounds a year earlier, the Office for National Statistics said in London today. The result was below the 18 billion-pound median forecast in a Bloomberg News survey . Osborne is set to outline the deepest spending cuts since at least the 1970s to tame a budget deficit of 11 percent of gross domestic product last fiscal year. U.K. government bond yields have fallen since Prime Minister David Cameron took office six weeks ago on expectations his coalition government will step up the pace of deficit reduction. “The figures are a bit better than expected,” said Philip Shaw, chief European economist at Investec Securities in London. “There are signs that the figures have turned but that doesn’t detract from the need for the big squeeze I am sure we are going to get next week.” The 10-year gilt yield has fallen 37 basis points since May 11 and was trading at 3.512 percent as of 9:37 a.m. in London, up 3 basis points from yesterday. The pound, which has lost 8 percent against the dollar this year, was 0.3 percent higher on the day at $1.4865. Osborne is under pressure from investors and ratings companies to deliver on his pledge to slash the deficit as the sovereign-debt crisis in the euro region escalates. Pressure for Cuts “I think the risk that this economy and the U.S. faces is that unless we get control of our debt burden we could be in line at some point as well,” former Bank of England policy maker DeAnne Julius said in a Bloomberg Television interview June 16. Current receipts rose 7.6 percent in May from a year earlier, boosted by a 19 percent increase in receipts of value- added tax, a 17.5 percent levy on sales of goods and services. Government spending climbed 7.3. percent, with spending on social benefits gaining 3.7 percent. In April, the deficit was 8.3 billion pounds rather than the 10 billion pounds initially reported. The revision was partly due to higher-than-expected receipts from a tax on banker bonuses. The levy, expected to raise 2 billion pounds, generated 2.5 billion pounds, the statistics office said. Revisions The deficit excluding financial-sector interventions in the fiscal year through April was 154.7 billion pounds, revised from 156.1 billion pounds. As a share of GDP, the shortfall was revised to 10.99 percent 11.1 percent. The looming deficit-cutting drive has cast a shadow over prospects for consumer spending as the economy emerges from its worst recession since World War II. Osborne has refused to rule out raising the VAT rate. A measure of cash entering and leaving the public sector showed an 12 billion-pound deficit in May compared with 19.1 billion pounds a year earlier. Economists predicted a 20.5 billion-pound shortfall, according to the median forecast in a Bloomberg survey. Net debt climbed to 903 billion pounds, or 62.2 percent of GDP. Chief Secretary to the Treasury Danny Alexander yesterday pledged to cut the deficit at a faster pace than the previous Labour government planned as he froze or axed projects worth more than 10 billion pounds. While the independent fiscal watchdog set up by Osborne predicts the overall deficit will be 4 percent lower over the next five years than the Treasury forecast in March, it says the structural hole has increased, meaning the new government has more to fill through spending cuts and tax rises. The deficit will be little changed at 155 billion pounds in the fiscal year that began in April, or 10.5 percent of GDP, the Office for Budget Responsibility said earlier this week. In the first two months of the fiscal year, the deficit was 24.3 billion pounds, down from 26.2 billion pounds a year earlier. To contact the reporter on this story: Gonzalo Vina in London at gvina@bloomberg.net .

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Citigroup Looking Past Volcker Seeks $3 Billion for Hedge Fund, LBO Unit

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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Hong Kong’s Tsang Lost TV Debate on Democracy With Audrey Eu, Polls Show

June 17, 2010

By Mark Lee and Frederik Balfour June 18 (Bloomberg) — Hong Kong Chief Executive Donald Tsang lost a televised debate with barrister and opposition leader Audrey Eu on plans to change the city’s electoral system, polls showed. Tsang said the proposal to change the way Hong Kong elects lawmakers and the chief executive in 2012 would move the city along the path to full democracy, and accused Eu’s side of trying to stall the plan. “We’d rather stand still than take a step backward,” Eu replied. Seventy-one percent of respondents in two university surveys said Eu won the debate, according to reports in the South China Mornings Post and Standard newspapers. Forty-five percent of people polled by University of Hong Kong said they were “more opposed” to the government’s proposals after the debate, while 20 percent said they were more supportive, said the Post, which co-sponsored one survey. No margin of error was given. Eu’s pro-democracy group argues the package on offer from the central government in Beijing doesn’t go far enough to deliver full democracy and is stacked in favor of business groups dominating the so-called functional constituencies that make up half the 60 seats in the Legislative Council . Tsang says opposition demands should be addressed after his proposal goes through. “It’s obvious Audrey was the better performer,” said Joseph Cheng , professor of political science at the City University of Hong Kong. Still, the debate probably won’t make the government deliver changes to the proposal demanded by pro- democracy groups, he said. Public Protest The event is also unlikely to win over any of the 23 legislators who vowed to block the proposals, and may have been aimed more at salvaging Tsang’s reputation with the central government in Beijing, Alan Leong , a lawmaker in Eu’s party said before the debate. The package needs a two-thirds majority to pass, unless China makes concessions. LegCo is to vote June 23 on the proposal, which would see the number of lawmakers increased by 10. Five would be directly elected and five would represent functional constituencies. The number of Beijing appointees who elect the chief executive would be increased from 800 to 1,200. Tsang wanted “to let the people have a chance to hear the arguments on both sides and come to an informed decision,” his spokesman Andy Ho said in an e-mail earlier. Tsang’s predecessor Tung Chee-hwa stepped down from his post in 2005, more than two years early, after a botched attempt to push through separate China-sponsored constitutional changes sparked street protests and a deadly virus harmed tourism. Tsang’s Popularity Tsang’s own popularity has been slipping amid the wrangle over elections, polls show. On June 4, about 113,000 people attended a candlelight vigil to mark the 21st anniversary of China’s crackdown on pro- democracy demonstrators in Tiananmen Square, the largest number since 1989 according to police estimates. Several hundred people gathered in a park near yesterday’s debate, cheering for Eu and booing Tsang. Police had set up a visible security presence around nearby streets as a precaution. Chinese President Hu Jintao in December told Tsang to “handle constitutional development issues properly to ensure social harmony.” Premier Wen Jiabao urged him to resolve “deep-rooted contradictions in Hong Kong.” One of those contradictions is the “one country, two systems” formula struck when Britain handed the territory back to China in 1997. While Hong Kong has multiple political parties and more civil liberties than in mainland China, the timetable for greater democracy was set by the National People’s Congress Standing Committee in Beijing. Eu is calling for universal suffrage in 2012, five years earlier than China’s plans for letting the public vote for the chief executive and eight years before planned direct elections of all LegCo members. To contact the reporter on this story: Frederik Balfour in Hong Kong at fbalfour@bloomberg.net

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Australia Utilities Scale Debt Wall as Economy Trumps MBIA Subprime Fall

June 17, 2010

By Sarah McDonald June 18 (Bloomberg) — Bond prices show the pace of Australia’s economic growth may help infrastructure and utility companies to refinance $13 billion of debt without top credit ratings they once bought from insurers such as MBIA Inc. Envestra Ltd. , ElectraNet Ltd. and five more firms raised $2.3 billion from bonds this year, up from $140 million in 2009, according to data compiled by Bloomberg. Brisbane Airport Corp. has A$350 million ($304 million) of MBIA-backed notes due on June 30, while SP AusNet has A$185 million of bonds insured by a unit of Ambac Financial Group Inc. due in September. The nation’s central bank has led Group of 20 policymakers in increasing the benchmark cash rate six times since October on surging Asian demand for commodities and a jobs boom that has pushed down unemployment to around half that of the U.S. and Europe. The extra yield investors demand to own Australian utility debt instead of government bonds has fallen 52 basis points to 206 basis points this year while spreads for firms in the industry widened globally, Bank of America Merrill Lynch indexes show. “Investors are buying into an economy that outperformed the world through the financial crisis,” said Brad Scott , director of debt capital markets at Australia & New Zealand Banking Group Ltd. in Sydney. “Many recognize Australia is a far more attractive place to invest than previously given credit.” Infrastructure and utility firms were Australia’s biggest users of insurers to sell cheaper, longer-dated debt until MBIA and Ambac were stripped of their top ratings in 2008 amid losses on notes backed by subprime mortgages. Since then five straight quarters of growth in the country’s A$1.2 trillion economy have bolstered corporate profits, attracting investors willing to accept lower credit rankings and greater risk. U.S. Placements Investors “show strong appetite for names out of the region,” Lori Pollicino , an executive director of debt capital market private placements at JPMorgan Securities Inc. in New York, said in an e-mailed response to questions. Australian utility companies’ spreads will “modestly tighten throughout the remainder of 2010.” Between 2000 and 2006 Brisbane Airport paid spreads of between 100 basis points and 130 basis points including fees on five bond sales backed by insurers, or so-called monolines, Chief Financial Officer Tim Rothwell said in a telephone interview. While new debt is “certainly going to cost more than it did a few years ago, it’s come down from the very high margins of late 2008 and early 2009” when the airport was told it would have to pay as much as 600 basis points, Rothwell said. Miami Visit The owner of the nation’s third-busiest airport aims to pay about 200 basis points on a sale by early 2011, according to Rothwell, who was “pleasantly surprised” at U.S. interest in Australian bonds when he visited Miami last year. A basis point is 0.01 percentage point. SP AusNet, which manages a A$6.3 billion electricity and gas network and is rated A- by Standard & Poor’s, has sold bonds denominated in Swiss francs, Hong Kong dollars and Australian dollars since February. The company’s Ambac-insured notes yielded 45 basis points more than the bank bill swap rate when they were issued in 2000, according to Bloomberg data, which doesn’t show the insurer’s fee. SP AusNet, based in Melbourne, priced A$300 million of bonds to yield 160 basis points more than the swap rate in March. As companies seek to develop relationships with investors now they’re refinancing without monoline support, Australia’s economic strength is proving to be a “positive factor” in negotiations, SP AusNet Treasurer Alastair Watson said in an interview. Concentration Risk Airports, utilities and infrastructure-related issuers have A$15 billion of debt due by the end of 2011, according to Moody’s Investors Service, while S&P says utilities must refinance a third of their outstanding debt next year. S&P said in a March 5 report that it’s concerned about the concentration of maturing debt, even though companies are arranging refinancing well before their bonds and loans mature. Investors demanded about 60 basis points of extra yield to hold Australian corporate bonds rather than government debt in June 2006, a Bank of America Merrill Lynch index shows. That spread widened to as much as 433 basis points in April 2009 before shrinking to 212 as of yesterday, the index shows. Bond Returns Australia is the world’s biggest exporter of iron ore and coal, and Chinese demand helped the economy expand 2.7 percent in the first quarter of 2010 from a year earlier. Investors have profited from Australian corporate bonds every year for at least the past 13 years, according to Bank of America Merrill Lynch data, and the notes delivered a 4.18 percent return this year. Adelaide Airport Ltd. bought back A$231.5 million of MBIA- insured bonds in April and issued A$235 million of notes without a third-party guarantee. The new bonds yield 255 basis points more than the bank bill swap rate compared with 49 basis points on the insured notes, excluding MBIA’s fee, Bloomberg data show. United Energy Distribution Pty. Ltd. , which provides electricity to more than 600,000 customers in the state of Victoria, sold $435 million of four- and seven-year notes to U.S. investors in April. The bonds were priced to yield 180 basis points more than similar-maturity Treasuries, according to a person familiar with the transaction. The company, rated Baa2 by Moody’s, paid an 83 basis point spread when it sold $260 million of Ambac-insured notes in 2003, according to Bloomberg data which doesn’t show the insurer’s fees. “While these companies are paying more for their debt now than before the crisis, they’re certainly not alone,” said Michael Bush , Melbourne-based head of credit research at National Australia Bank Ltd. “The market’s so different to what it was three years ago, and all borrowers are affected.” To contact the reporter on this story: Sarah McDonald in Sydney at smcdonald23@bloomberg.net .

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Toyota China Supplier’s Output Disrupted as Workers Strike for Higher Pay

June 17, 2010

By Takako Iwatani June 18 (Bloomberg) — Workers at a Toyota Motor Corp. affiliate’s parts factory in China went on strike demanding higher pay, partially shutting the plant, while Honda Motor Co. tried to stop employees at a supplier from resuming a walkout. The Toyoda Gosei Co. factory in Tianjin, China, was partially operating yesterday and today, and talks with employees are continuing, said Shingo Handa, a spokesman for the Aichi prefecture, Japan-based company. Toyota’s car production in the country hasn’t been affected so far, said Ririko Takeuchi , a Tokyo-based spokeswoman for the automaker. The walkout at Toyoda Gosei comes after three strikes at Honda Motor Co. suppliers disrupted the Tokyo-based automaker’s car production and forced it to raise wages in China. A shrinking pool of low-cost labor is putting pressure on overseas manufacturers to increase pay as workers gain bargaining power, threatening to accelerate inflation. “In the short term, a rise in wages is negative but it’s positive in the medium-and long-term,” said Hideo Arimura , who helps oversee $2.2 billion at Mizuho Asset Management Co. in Tokyo. “If wages rise, people will spend more, benefiting the companies eventually.” Employees at another Toyota supplier in China, Tianjin Star Light Rubber and Plastic Co., also struck briefly on June 15, Toyoda Gosei’s Handa said. Taiwanese electronics maker Foxconn Technology Group said this month it will double salaries for its lowest-paid workers after at least 10 Chinese employees killed themselves this year. Toyota fell 2 percent to 3,230 yen as of 9:57 a.m. in Tokyo trading, while the benchmark Nikkei 225 Stock Average rose 0.1 percent. Toyoda Gosei declined 1.5 percent. Honda Lock Management and union leaders at Honda Lock (Guangdong) Co., a supplier to Honda in Zhongshan, Guangdong, aim to reach a wage agreement today to prevent workers from striking for a second time at the facility. Honda last month agreed to raise pay 24 percent to end a strike at a separate supplier in Guangdong. The Honda Lock strike has yet to affect Honda Motor’s car production in the country, the automaker has said. Higher investment and improved wages in western China is deterring workers from migrating, pushing up wages in more industrialized regions like southern Guangdong, David Abrahamson, project manager at the China Center for Labor and Environment, said by phone from Shenzhen. Volkswagen Plant Volkswagen AG, Europe’s largest carmaker, said June 9 it will spend 520 million euros ($622 million) to add a new plant in Guangdong as the country’s car demand booms. The new factory, set to open in 2013, will join similar plants in the area built by other global automakers such as Toyota and Nissan Motor Co. 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 last Wednesday. 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: Takako Iwatani in Tokyo at tiwatani@bloomberg.net

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David Jones CEO McInnes Quits After `Unbecoming Behavior’ to Female Worker

June 17, 2010

By Robert Fenner June 18 (Bloomberg) — Mark McInnes quit as chief executive officer of David Jones Ltd. , ending a seven-year tenure, after behaving in an “unbecoming” manner to a female staff member. David Jones dropped as much as 4.7 percent in Sydney trading, the biggest intraday decline in four months, after Australia’s second-biggest department-store chain said McInnes will leave his role and the board immediately. Paul Zahra , general manager of stores, will assume the chief executive’s role today, Sydney-based David Jones said in a statement. McInnes, 45, had as CEO increased David Jones’ range of designer fashions to attract affluent customers, shut the unprofitable gourmet food business and lowered costs for getting inventory into stores. The stock surged fourfold and was the best performing retailer in the benchmark S&P/ASX 200 index since he assumed the top job in 2003. “He was rated as one of the top business leaders in the country and was seen as having done a really great job with David Jones,” said Cameron Peacock , markets analyst at IG Markets in Melbourne. “He was popular and he did a good job but it’s more than one man that makes a company.” David Jones shares fell 2.4 percent to A$4.40 at 10:50 a.m. in Sydney, extending this year’s decline to 19 percent, after earlier sliding as much as 4.7 percent. Larger rival Myer Holdings Ltd. rose 1 cent to A$3.18. ‘Errors of Judgment’ “At two recent company functions I behaved in a manner unbecoming of the high standard expected of a chief executive officer,” McInnes said in a separate statement. “I have committed serious errors of judgment and have inexcusably let down the female staff member. I have also let down my partner, my family, all my staff, the board and our shareholders.” The statements include no further description of McInnes’s behavior. “This is a bit of an issue short term, but fundamentally nothing has changed,” said Paul Xiradis , chief executive officer of Ausbil Dexia Ltd., David Jones ’ biggest shareholder with an 8 percent stake. “The transformation of the David Jones brand was something that McInnes was very involved in.” The unidentified female staff member made a formal complaint to the board about McInnes’ conduct through a lawyer. “The board has taken and will continue to take steps to ensure that this complaint is appropriately addressed,” Chairman Robert Savage said in the statement. McInnes won’t receive any of his contracted incentive payments, the company said. He will be paid a settlement of A$1.5 million ($1.3 million) and also receive statutory entitlements such as accumulated annual leave worth A$445,000. Zahra, who will also join the board, has 28 years experience in retail, including the past 12 as part of David Jones ’s management team. The company affirmed its forecast for second-half earnings to rise as much as 10 percent and said the first two weeks of its clearance sales have been “pleasing.” To contact the reporter on this story: Robert Fenner in Wellington rfenner@bloomberg.net

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Yen Rises for Fifth Day Versus Dollar as Japan Pledges to Cut Debt Levels

June 17, 2010

By Ron Harui June 18 (Bloomberg) — The yen rose for a fifth day against the dollar after Japanese Prime Minister Naoto Kan pledged to cut the world’s largest public debt, saying failure to do so may undermine the country’s sovereignty. Japan’s currency advanced versus 14 of its 16 major counterparts as Kan also said he’d consider the opposition Liberal Democratic Party’s proposal to raise the consumption tax to 10 percent. The euro headed for its biggest weekly advance against the dollar in a year as increased demand at Spain’s bond auction spurred optimism Europe’s debt crisis is easing. “The structural reforms appear to be aimed at securing funding sources” for Japan, said Yuji Saito , director of the foreign-exchange department at Credit Agricole Corporate and Investment Bank in Tokyo. “This is likely to be positive for the yen.” The yen rose to 90.91 per dollar as of 11:15 a.m. in Tokyo from 91.01 in New York yesterday, when it climbed to 90.51, the strongest since May 27. The currency gained 0.2 percent to 112.58 per euro, and advanced 0.2 percent to 78.92 versus the Australian dollar. The euro traded at $1.2388 from $1.2389 yesterday, when it climbed to $1.2413, the highest since May 28. The 16-nation currency has risen 2.3 percent this week, the most since the period ended May 22, 2009. The yen headed for a second weekly gain versus the dollar after the ruling Democratic Party of Japan, in an election document distributed yesterday, called for cross-party talks on raising the country’s 5 percent consumption tax. Economic Plan Japan’s government pledged in its medium-term economic plan today to reduce its corporate tax of 40.7 percent and nurture the environment and healthcare industries as part of a plan to combat deflation and end two decades of economic stagnation. “Unless we work on fiscal rehabilitation, an international organization such as the International Monetary Fund could control our fiscal management,” Kan said yesterday. “We must rehabilitate our finances with our own power without relying on other countries.” The euro traded near a three-week high versus the dollar after Spain sold 3 billion euros ($3.71 billion) of 10-year debt yesterday at an average yield of 4.864 percent, less than the 5.04 percent the bonds traded at yesterday before the sale. The nation also sold 30-year debt at 5.908 percent, with a bid-to-cover ratio of 2.45, higher than the 1.38 at the previous sale on March 18. ‘Boost’ to Euro “The Spanish bond auction was better than expected, providing a boost to risk appetite and allowing the euro-dollar to break the $1.2350 resistance,” analysts led by Hans-Guenter Redeker , London-based global head of currency strategy, wrote in a research note today, referring to a level at which sell orders may be clustered. European Union leaders yesterday agreed to disclose how banks perform on stress tests, seeking to show investors the financial system can withstand financial shocks. South Korea’s won rose, poised for its biggest weekly gain in 13 months, as signs the economic recovery is gathering pace fueled overseas demand for the nation’s assets. Finance Minister Yoon Jeung Hyun said today 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. ‘Pretty Well’ “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. “It will test 1,200 against the dollar today, but will move slowly rather than seeing a quick jump.” The won gained 0.5 percent to 1,207.60 per dollar, boosting this week’s advance to 3.1 percent. Overseas investors bought $723 million more Korean shares than they sold in the first four days of this week, stock exchange figures show. Gains in the euro were tempered after Russian President Dmitry Medvedev said he can’t rule out the collapse of Europe’s common currency as the European Union struggles to contain its sovereign debt crisis. Asked if the emergency could threaten the single currency, Medvedev said, “So far, no. But one cannot rule out this danger because at least a unique situation has emerged,” according to the text of an interview with the Wall Street Journal that was provided by the Russian government. “His comments suggesting concern over the euro appear to be causing the currency to come off,” said Lee Wai Tuck , a foreign-exchange strategist at Forecast Pte in Singapore. “It’s negative for risk.” To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net

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UAW President King Says Union Will Focus on Organizing U.S. Toyota Workers

June 17, 2010

By Keith Naughton June 17 (Bloomberg) — Bob King , elected yesterday as the 10th president of the United Auto Workers union, said organizing the U.S. factory workers of foreign companies such as Toyota Motor Corp. is his “No. 1 priority.” “If we don’t support Toyota, Honda, Nissan, Hyundai, Kia and all the non-union plants by supporting the right to organize, we cannot win back the concessions we have given up,” King said in his first address today to delegates at the UAW’s constitutional convention in Detroit. King, 63, succeeded Ron Gettelfinger , 65, who helped persuade President Barack Obama to organize rescues of General Motors Co. and Chrysler Group LLC last year. King takes over amid calls from workers to restore the wages and benefits they gave up to bolster the industry, and as membership in the union has fallen to 355,000 from 1.5 million in 1979. UAW members who work for U.S. automakers have each given $7,000 to $30,000 in concessions in the past five years, King said last month. The union surrendered raises, bonuses and cost- of-living adjustments at GM, Ford Motor Co. and Chrysler. It agreed to a two-tier wage system, in which new hires earn about $14 an hour, half the amount paid to hourly production workers. “The only way we can get back what we’ve sacrificed is by coming up with a comprehensive strategy to rebuild the power of the UAW,” King said. Toyota’s Mississippi Plant King also criticized Toyota President Akio Toyoda for moving forward with plans to open a non-union factory in Mississippi after closing the assembly plant it had operated in Fremont, California. The Japanese automaker’s joint venture with pre-bankruptcy GM was its only U.S. plant where workers were represented by the UAW. “The only reason they closed that plant is because it was a UAW plant,” King said. “Mr. Toyoda if you care about safety and quality in America, you’ll go back to Fremont and build Corollas there and not in Mississippi.” Toyota, the world’s largest automaker, will begin installing assembly equipment at the facility in Blue Springs, Mississippi, with a goal of starting production of Corolla compact cars by late 2011, the company said today in a statement. The decision reverses earlier plans to use the plant to build Highlander sport-utility vehicles and Prius hybrids. King said the UAW will conduct protests at Toyota dealerships. ‘Crazy’ Decision “We’re going to show these corporations that if they do something unjust to our members, they’ll pay a price,” King said after his speech, calling the California plant closing “a crazy business decision.” After the convention adjourned, King led the 1,200 delegates along with Teamsters President James P. Hoffa on a march on Detroit’s banking district to protest against Wall Street lending practices. The demonstration was part of a new social activism the union will undertake, King said. “We’ve been under attack for eight years and we hunched down and protected the union,” King told the crowd from the back of a flatbed truck. “We will never have the justice we deserve if we’re not part of a much broader social movement.” The recession triggered by the financial crisis that began in 2008 led to a 35 percent industrywide plunge in U.S. auto sales from 2007 to 2009. Sales this year through May rose 17 percent. As auto sales recovered in the first quarter, GM posted net income of $865 million, Chrysler had an operating profit of $143 million and Ford reported earnings of $2.1 billion. The automakers are boosting production, expanding plants and hiring workers. GM said today it will operate 9 of 11 U.S. assembly plants through the customary summer shutdown because flexibility allowed under the new UAW contract allows the automaker to respond to customer demand. The move will boost GM’s output by 56,000 vehicles. To contact the reporter on this story: Keith Naughton in Detroit at Knaughton3@bloomberg.net .

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Beachfront-Property Rights Limited by U.S. Supreme Court in Erosion Case

June 17, 2010

By Greg Stohr June 17 (Bloomberg) — The U.S. Supreme Court upheld a Florida program that fights erosion by adding sand along the shoreline and creating strips of public beach. The justices unanimously ruled against a group of landowners who contended that the program unconstitutionally takes away their private beaches. The ruling centered on the constitutional protection against the taking of private property without compensation. Justice John Paul Stevens , who owns oceanfront property in Florida, didn’t take part in the ruling. The case is Stop the Beach Renourishment v. Florida Department of Environmental Protection, 08-1151. To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net .

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Deutsche Bank’s Peter Babej Said to Leave German Firm to Join Citigroup

June 17, 2010

By Serena Saitto June 17 (Bloomberg) — Citigroup Inc. hired Deutsche Bank AG ’s co-head of financial institutions, Peter Babej , marking at least the seventh departure this year of a senior investment banker from the German firm, a person briefed on the move said. Babej will work in New York, the person said, declining to be identified because the move is not public. He joined the Frankfurt-based bank in 2007 and was a key member of a team that prepared an initial public offering, which was later put on hold, for American International Group Inc. ’s biggest Asian life insurance unit. He previously worked 11 years at Lazard Ltd, where he was a managing director for insurance-industry clients. Deutsche Bank spokesman John Gallagher and Citigroup spokeswoman Danielle Romero-Apsilos said they couldn’t comment. Babej didn’t return a phone call seeking comment. Nomura Holdings Inc., Japan’s largest brokerage, said this week it hired Deutsche Bank’s Mark Epley as co-head of a unit that advises buyout firms. Nomura also recruited Michael Hill and James DeNaut as co-heads of global natural resources, two people familiar with the situation said June 2. Morgan Stanley hired Jonathan Cox and Michael Johnson from Deutsche Bank’s energy group, people briefed on the moves said this month. The departures come amid a shift in leadership at Deutsche Bank’s corporate and investment bank, the company’s biggest money maker . Anshu Jain , co-head of that business since 2004, was appointed this week to be its sole leader, assuming responsibilities for the corporate finance and transaction- banking units on July 1 from Michael Cohrs , who plans to retire. Last year, New York-based AIG picked Deutsche Bank to be co-global coordinator of an IPO for AIA Group Ltd. The offering was put on hold earlier this year in favor of a $35.5 billion sale of the business to Prudential Plc. That deal collapsed, leaving AIG to develop a new plan for divesting the business. To contact the reporter on this story: Serena Saitto in New York at ssaitto@bloomberg.net .

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Jobless Claims in U.S. Unexpectedly Rose Last Week

June 17, 2010

By Courtney Schlisserman June 17 (Bloomberg) — The number of Americans seeking jobless benefits last week unexpectedly rose to a one-month high, indicating firings are staying elevated even as the U.S. economy grows. Initial jobless claims increased by 12,000 to 472,000 in the week ended June 12, Labor Department figures showed today in Washington. Economists surveyed by Bloomberg News projected 450,000 claims, according to the median forecast. The number of people receiving unemployment insurance rose, while those getting extended benefits dropped. Some companies are trimming payrolls to boost or maintain profits at the same time overall employment has grown each month this year. The figures show that bigger job gains needed to spur consumer spending, which accounts for 70 percent of the economy, may be slow in developing, keeping the unemployment rate close to 10 percent. “The labor market is not improving,” said Steven Ricchiuto , chief economist at Mizuho Securities USA Inc. in New York. “If you really are going to have a sustainable recovery, you need the labor market to improve.” Initial jobless claims reflect weekly firings and tend to fall as job growth — measured by the monthly non-farm payrolls report — accelerates. Today’s report coincides with the week the government surveys companies for its monthly employment report. Consumer Prices Separate figures from the Labor Department showed consumer prices fell in May for a second month. The consumer price index dropped 0.2 percent, the biggest decrease since December 2008 and reflecting cheaper gasoline. Stock-index futures pared gains after the report. The contract on the Standard & Poor’s 500 Index rose 0.1 percent to 1,110.7 at 8:42 a.m. in New York. The yield on the 10-year Treasury note dropped to 3.25 percent from 3.26 late yesterday. Economists forecast jobless applications would fall from an initially reported 456,000 for the prior week, according to the median of 42 projections in a Bloomberg survey. Estimates ranged from 440,000 to 475,000. States reporting higher initial claims last week said there were cutbacks in the manufacturing, construction and educational services industries, a Labor Department spokesman said. Claims tend to rise following a holiday and seasonal factors anticipated a smaller gain than what occurred, the spokesman said. Four-Week Average The four-week moving average, a less volatile measure than the weekly figures, fell to 463,500 last week from 464,000, today’s report showed. The number of people continuing to receive jobless benefits increased by 88,000 in the week ended June 5 to 4.57 million. They were forecast to rise to 4.5 million after slumping 234,000 the previous week. The continuing claims figure does not include the number of Americans receiving extended or emergency benefits under federal programs. Those who’ve used up their traditional benefits and are now collecting emergency and extended payments decreased by about 169,000 to 5.22 million in the week ended May 29. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, rose to 3.6 percent in the week ended June 5 from 3.5 percent. States Reporting Thirty-eight states and territories reported a decrease in claims, while 15 reported an increase. These data are also reported with a one-week lag. Claims around 450,000 are consistent with private companies adding about 100,000 jobs a month, JPMorgan Chase & Co. chief economist Bruce Kasman said in a note to clients before today’s report. That is fewer than the 116,000 a month average growth in the five years to December 2007, when the recession began. Initial claims would have to average 425,000 to 430,000 for private payrolls to rise by the 175,000 a month that JPMorgan economists are forecasting for the second half of the year, Kasman said. Dot Hill Systems Corp., a Longmont, Colorado-based software maker, said June 15 it will eliminate about 10 percent of its global workforce and also cut the annual base salaries of its vice president and executive management teams by the same amount. Other employees face a potential 5 percent reduction in annual base pay. To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

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Deutsche Bank’s Peter Babej Said to Join Citigroup Amid Banker Departures

June 17, 2010

By Serena Saitto June 17 (Bloomberg) — Citigroup Inc. hired Deutsche Bank AG ’s co-head of financial institutions, Peter Babej , marking at least the seventh departure this year of a senior investment banker from the German firm, a person briefed on the move said. Babej will work in New York, the person said, declining to be identified because the move is not public. He joined the Frankfurt-based bank in 2007 and was a key member of a team that prepared an initial public offering, which was later put on hold, for American International Group Inc. ’s biggest Asian life insurance unit. He previously worked 11 years at Lazard Ltd, where he was a managing director for insurance-industry clients. Deutsche Bank spokesman John Gallagher and Citigroup spokeswoman Danielle Romero-Apsilos said they couldn’t comment. Babej didn’t return a phone call seeking comment. Nomura Holdings Inc., Japan’s largest brokerage, said this week it hired Deutsche Bank’s Mark Epley as co-head of a unit that advises buyout firms. Nomura also recruited Michael Hill and James DeNaut as co-heads of global natural resources, two people familiar with the situation said June 2. Morgan Stanley hired Jonathan Cox and Michael Johnson from Deutsche Bank’s energy group, people briefed on the moves said this month. The departures come amid a shift in leadership at Deutsche Bank’s corporate and investment bank, the company’s biggest money maker . Anshu Jain , co-head of that business since 2004, was appointed this week to be its sole leader, assuming responsibilities for the corporate finance and transaction- banking units on July 1 from Michael Cohrs , who plans to retire. Last year, New York-based AIG picked Deutsche Bank to be co-global coordinator of an IPO for AIA Group Ltd. The offering was put on hold earlier this year in favor of a $35.5 billion sale of the business to Prudential Plc. That deal collapsed, leaving AIG to develop a new plan for divesting the business. To contact the reporter on this story: Serena Saitto in New York at ssaitto@bloomberg.net .

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Fed Disclosure Measure Proceeds in Negotiations on U.S. Bank-Overhaul Bill

June 17, 2010

By Scott Lanman and Craig Torres June 17 (Bloomberg) — U.S. House and Senate lawmakers took a procedural step toward agreeing to require greater disclosure on actions by the Federal Reserve and drop plans to make the New York Fed president a political appointee. Senate negotiators on an overhaul of financial legislation accepted a House plan to reduce the role of commercial banks in naming Fed presidents in Washington today. Under another change, the central bank, after a two-year delay, would have to identify firms that borrow through its discount window and participate in the Fed’s purchases or sales of assets such as mortgage-backed securities. The Fed successfully lobbied Congress to avoid reducing its political autonomy and bank-supervision powers in the legislation as lawmakers pushed for more public disclosure than Chairman Ben S. Bernanke was willing to provide. Lawmakers are demanding unprecedented transparency after the Fed, often invoking emergency powers, made more than $2 trillion of loans to end the financial crisis. The amendments approved today by senators at the conference would be added to the bill when House conferees sign off on the Senate’s offer. The broader legislation requires approval by the full House and Senate before going to President Barack Obama to be signed into law. Senators in the joint conference today debated making the New York Fed chief a White House appointee subject to Senate approval before voting 10-2 to drop the plan. Senator Jack Reed , a Democrat from Rhode Island, argued for changing the appointment process because the New York Fed president is closely involved in supervising the biggest financial firms and has a permanent vote on interest-rate decisions. ‘Major Complaints’ “I’ve heard the last few days here major complaints about the Federal Reserve in its run-up to the crisis,” Reed said. “And yet at the end of this conclusion we are not making any, I think, fundamental changes in the operation of the Fed.” Senate Banking Committee Chairman Christopher Dodd , who had previously pushed for the New York Fed change, said he changed his mind in part because the confirmation process may result in delays in filling the post. Dodd said lobbying from the chairman of the New York Fed’s board of directors helped persuade him. The legislation doesn’t mean that changes to how regional Fed presidents are appointed are off the table. The Government Accountability Office would be required to complete an audit, within a year, of the system of directors of regional Fed banks, including examining “actual or potential conflicts of interest.” Representative Barney Frank , a Massachusetts Democrat and chairman of the House Financial Services Committee, has said for several years he plans to explore how the regional Fed presidents are selected, this week repeating his concern that the officials tend to favor higher interest rates. “That’s a subject for next year,” Frank said June 15. To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net ; Craig Torres in Washington at ctorres3@bloomberg.net .

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Consumer Prices in U.S. Fall 0.2% as Retailers Cut Prices to Lure Buyers

June 17, 2010

By Timothy R. Homan June 17 (Bloomberg) — The cost of living in the U.S. dropped in May for a second month, signaling the world’s largest economy is recovering without causing prices to flare. The 0.2 percent decline in the consumer price index was the biggest since December 2008 and followed April’s 0.1 percent decrease, figures from the Labor Department showed today in Washington. Excluding food and fuel, the so-called core rate increased 0.1 percent. The figures matched the median forecasts in a Bloomberg News survey. Retailers such as Wal-Mart Stores Inc. are cutting prices to bolster sales as customers face almost 10 percent unemployment and rising foreclosures. The lack of inflation gives Federal Reserve policy makers scope to leave the benchmark interest rate near zero in coming months and help invigorate the economy. “Companies right now really don’t have any pricing power,” said Russell Price , a senior economist at Ameriprise Financial Inc. in Detroit, who accurately forecast the drop in the consumer-price index. “It still provides the Federal Reserve a great deal of leeway.” The Labor Department also reported today that initial jobless claims rose 12,000 last week to 472,000. Economists surveyed by Bloomberg had forecast a decline to 450,000, according to the median estimate. Stock-index futures trimmed their gains following the report on unemployment claims. Futures on the Standard & Poor’s 500 Index were little changed at 1,110.30 as of 8:46 a.m. in New York after climbing as much as 0.7 percent. Current Account A separate government report showed the current-account deficit widened to $109 billion in the first three months of the year, reflecting a bigger trade shortfall as imports climbed. The gap was smaller than the median forecast of economists surveyed by Bloomberg News and followed a revised $100.9 billion deficit in the fourth quarter 2009 that was smaller than previously estimated, figures from the Commerce Department showed today in Washington. Consumer prices were forecast to decline 0.2 percent, according to the median forecast of 79 economists in a Bloomberg survey. Estimates ranged from a drop of 0.4 percent to a gain of 0.1 percent. In the 12 months ended in May, prices rose 2 percent following a 2.2 percent year-over-year gain the prior month. Economists had forecast a 2 percent rise in the 12 months to May, according to the survey median. Core Rate The core rate rose 0.9 percent from May 2009, matching the smallest year-over-year gain since 1966. Compared with a month earlier, energy costs decreased 2.9 percent. Gasoline prices declined 5.2 percent, the biggest drop since December 2008. The debt crisis in Greece that has weighed on the value of the euro may keep damping U.S. inflation in coming months, and American exports to Europe may slow at the same time a stronger dollar holds down the cost of imported goods. Food prices, which account for about 15 percent of the CPI, were unchanged. Fruit and vegetable prices declined, while costs of meats and dairy products increased, today’s report showed. Housing costs remain limited. Owners-equivalent rent, one of the categories designed to track rental prices, was unchanged for a second month and down 0.3 percent from May 2009. The core index was boosted in May by higher costs for clothing and medical care. Sales Growth Procter & Gamble Co. , the world’s largest consumer-products company, said yesterday that price increases may provide a boost to sales growth in the next fiscal year. In the meantime, pricing may be negative for the “next quarter or two,” Chief Financial Officer Jon Moeller said at a meeting with investors in Paris. “We are not expecting strong growth in really any of the developed markets,” Moeller said. Sales in western Europe and the U.S. will increase at rates lower than their historical average, the executive said. The Fed’s long-term forecast for its preferred measure of inflation, the Commerce Department’s index tied to consumer spending and excluding food and fuel, calls for gains in a range of 1.7 percent to 2 percent. That gauge, typically lower than the CPI, was up 1.2 percent in the 12 months through April. ‘In The Recession’ Some lower-income customers in the U.S. are “still deeply in the recession” and are shopping various retailers for the cheapest prices, Jamie Sohosky, senior director of marketing for Wal-Mart’s U.S. stores, said this month. Shoppers at Wal-Mart, the world’s largest retailer, are also using more coupons than a year ago, Sohosky said. They’re worried about losing their jobs and paying mortgages, she said. The CPI is the broadest of three monthly price gauges from Labor, because it includes goods and services. Almost 60 percent of the CPI covers prices consumers pay for services ranging from medical visits to airline fares and movie tickets. To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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Macquarie Loses Head of U.S. Equity Capital Markets

June 17, 2010

By Michael J. Moore June 17 (Bloomberg) — Macquarie Group Ltd. , the Australian bank that bought Fox-Pitt Kelton Cochran Caronia Waller LLC last year, lost U.S. equity capital markets head Jim Rossman and at least four stock-market analysts. Besides Rossman, the departures included analysts David Trone , Robert Stallard , Andrew Marquardt and John Pancari , spokesman Stephen Yan confirmed. Rob Redmond , a vice chairman at Macquarie Capital, will remain responsible for the firm’s equity, debt and private capital businesses, Yan said. Macquarie, Australia’s largest investment bank, paid $146.7 million in 2009 for Fox-Pitt, a 260-person firm that specialized in the financial-services industry, to expand its U.S. research and equities business. Sydney-based Macquarie, which has added to its U.S. equities business this year, generated $1.35 billion of revenue from the Americas for the year ended March 31, more than triple that of a year earlier. “In a business that size you always get churn, but staff turnover is a risk when you buy financial-services businesses,” said Sean Fenton , who helps manage about $1 billion at Tribeca Investment Partners in Sydney. “People are key. That’s the challenge for Macquarie going forward.” Recent Additions Trone, who covered investment banks and brokers, is joining JMP Group Inc. , and Stallard, an aerospace analyst, is set to join RBC Capital Markets, people briefed on the matter said. They declined to be named because the hires haven’t been made public. Victor Sack joined Macquarie from Bank of America Corp. as a managing director in equity capital markets’ financial institutions group, and Steve Mehos was recently promoted to head of debt capital markets from head of leveraged finance, Yan said. Andrew Marquardt , who covered large commercial banks, left Macquarie to join Evercore Partners Inc. , two of the people said. Cowen Group Inc. said in April it hired John Pancari from Macquarie as an analyst covering shares of U.S. banks and thrifts. Macquarie has hired John Moran and Stephen Scinicariello as senior bank analysts, according to an e-mailed statement. Moran, who most recently worked at Value Architects, and Scinicariello, who comes from BlackRock Inc., joined on June 15. Macquarie has added 30 people to its U.S. equities business this year, including research and sales and trading hires, Yan said. ‘Very Confident’ “We’re very confident about the year ahead in our equities platform,” Yan said. He said the firm covers almost 600 stocks, and he cited a Greenwich Associates survey that said Macquarie has climbed to 11th from 24th in rankings of research market share. Trone, Pancari and Marquardt had joined Macquarie as part of the Fox-Pitt Kelton purchase . Rossman joined the firm from HSBC Holdings Plc in 2008, and Stallard joined the same year from Bank of America. Trone, who left Macquarie in April, will join JMP after his non-compete period expires, one of the people said. Trone will help replace Michael Hecht , who left JMP to become a senior vice president of corporate development at Charles Schwab Corp., which Hecht covered. Charles Myers , Fox-Pitt Kelton’s head of equities, joined Evercore in December to start its new cash-equities business. Scott Barishaw and Ned Roseberry , both of whom came to Macquarie from Fox-Pitt Kelton, followed Myers to Evercore earlier this year. To contact the reporter on this story: Michael J. Moore in New York at mmoore55@bloomberg.net .

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BP Rebounds on Agreement to Phase in Oil Spill Fund Payments

June 17, 2010

By Eduard Gismatullin June 17 (Bloomberg) — BP Plc rebounded the most in 19 months and the cost of insuring the company against default fell after an agreement to phase in payments to a $20 billion fund to compensate victims of the worst oil spill in U.S. history. BP scrapped dividends and pledged asset sales yesterday to meet President Barack Obama ’s demand to set up the fund in response to the Gulf of Mexico oil spill. Its shares have slumped 45 percent since the Deepwater Horizon rig exploded on April 20, wiping about 55 billion pounds ($80 billion) off the London-based company’s value. “It brings some clarity, but obviously we still don’t know whether $20 billion will be enough or whether the company will need more,” said Colin Morton , who helps manage about $1.7 billion at Rensburg Fund Management in Leeds, England. “If this is the final cost, it’s more than adequately reflected in the price.” Chief Executive Officer Tony Hayward , who will testify before Congress today, said in prepared testimony that he was “deeply sorry” for the explosion and spill. BP’s Chairman Carl-Henric Svanberg agreed on payments over four years to finance an independent body that will settle claims resulting from the damaged oil well after a meeting with Obama at the White House yesterday. BP jumped as much 9.7 percent, the biggest intraday gain since November 2008, and traded at 361.25 pence as of 10:22 a.m. in London. The shares fell 1.5 percent yesterday to 337 pence, the lowest since April 1997. Halting the dividend , reducing investments in drilling and selling oil and gas fields will do enough to ensure the company’s financial stability, Chief Financial Officer Byron Grote said yesterday. Provides Comfort The deal to phase payments into the fund “allows us to stage our injections in a way that I hope now provides comfort to debt and equity markets,” Grote said. BP had faced increased pressure from U.S. lawmakers to settle damage claims and suspend the dividend in the run-up to yesterday’s meeting at the White House. “A line has been drawn,” said Manoj Ladwa , a London-based senior trader at ETX Capital. “It’s likely that we are going to see less of the aggressive rhetoric that we saw out of the U.S. administration going forward.” The agreement to cut three quarters of dividend payments and set up the fund removed BP from a four-hour stint among companies the bond market labels distressed. BP’s bonds rose, with the spread on its 1 billion euros of 4.5 percent notes due November 2012 narrowing to 555 basis points from 696 basis points yesterday, according to HSBC Holdings Plc prices on Bloomberg. The yield premium on the 500 million pounds of 4 percent bonds due December 2014 was at 410 basis points, from 411 basis points. Bonds, Swaps The company’s bonds were the most active in U.S. trading yesterday. BP’s $750 million of 1.55 percent notes maturing in 2011 increased 2.25 cents to 94.5 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The cost of protecting BP’s debt against default for one year fell 461.5 basis points to 535.5, after climbing as high as 1,075 yesterday, CMA DataVision prices show. BP’s American depositary receipts reversed losses after the White House deal was announced to close up 45 cents, or 1.4 percent, at $31.85 in New York yesterday. “A more normal political atmosphere and measures to address debt concerns will emphasize that the shares have sold off too far,” Jon Rigby , an analyst at UBS AG, wrote in a note to clients. UBS cut its price target on the shares by 10 percent to 525 pence. Low Point BP will raise $10 billion this year selling assets, Grote said in his call with investors, concentrating on oil and gas fields that aren’t central to the company’s business. Share gains may be limited after Obama said the fund won’t cap BP’s liability for cleanup costs or supersede the rights of individuals or states to sue the company. “There seems to be some relief in the United States, but I’m not so sure about some investors, particularly the income funds, will be quite so sanguine about this,” said Peter Hutton , a London-based analyst at NCB Stockbrokers Ltd. BP has spent about $1.6 billion on containing and cleaning up the spill so far. The company’s spending for cleanup and liabilities may reach $40 billion, Standard Chartered Plc estimated last week. The U.S. government this week increased its estimate of the oil leak to 35,000 to 60,000 barrels a day. “Even if the final cost totals $40 billion and BP is liable for 100 percent, the shares look oversold,” Richard Griffith , a London-based analyst at Evolution Securities Ltd., wrote in a report. Still, he urged caution about buying the shares until after the so-called relief wells BP is drilling to plug the bottom of the damaged well are completed in August. To contact the reporter on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net .

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Ambani Must Tap India’s Energy, Communication Needs to Lift Reliance Stock

June 17, 2010

By Rakteem Katakey June 17 (Bloomberg) — Billionaire Mukesh Ambani ’s Reliance Industries Ltd., India’s largest company by market value, must tap the country’s hunger for power and communications to boost the stock that has lagged behind key benchmarks, investors say. The oil refiner and energy explorer has climbed 3.4 percent in Mumbai in the past year compared with a 20 percent gain in India’s Sensitive Index and a 12 percent advance in the MSCI Asia Pacific Energy Index . Investors shied away from the shares as a global recession curbed fuel demand and Mukesh clashed with his younger brother, Anil Ambani , over their business interests. A decision on May 23 by the world’s richest brothers to scrap a non-competition accord removed curbs imposed after they split India’s second-biggest business empire. Reliance on June 11 acquired an Internet services company for $1 billion and fund manager Deven Choksey says more initiatives may be outlined by Mukesh in his annual speech to shareholders tomorrow. “Now there is clarity about them getting into new sectors and investors look forward to the next phase of growth,” said Choksey, chief executive officer of Mumbai-based KR Choksey Shares & Securities, which manages about $123 million for wealthy individuals and owns Reliance shares. “I expect Mukesh Ambani to lay out the road map for new businesses such as telecom and power,” he said in a telephone interview. Family Agreements Under a 2005 agreement that split the Reliance group, Mukesh, 53, kept the petrochemicals, oil and gas units and Anil, 51, got the power, financial services, telecommunications, and entertainment units. The brothers said last month they were scrapping the accord drawn up the following year that barred them from expanding into each other’s businesses. Reliance Industries completed the world’s biggest refinery complex in December 2008 and four months later started pumping gas from India’s largest field. The stock, which accounts for about 14 percent of the benchmark index, rose 1.3 percent to 1,071.15 at 11:18 a.m. in Mumbai. Reliance has lagged behind the Sensex in four of the 10 years ended June 15, according to Bloomberg data. The Mumbai-based company’s first foray in commercial electricity generation may come as early as next month when Reliance plans to bid in a government auction to build at least one power plant in India, two company officials said yesterday. Power Plant Bid Reliance is considering bidding for a coal-fired plant in eastern India that may cost as much as 160 billion rupees ($3.4 billion), said the officials briefed on the plan, who declined to be identified before a decision is taken. India’s government has invited bids for a 4,000-megawatt project in Chhattisgarh state by July 5 and another in the adjoining Orissa state by July 30. Reliance may seek to build the Chhattisgarh plant, one of the officials said. A company spokesman didn’t reply to an e-mail seeking comments. India, Asia’s second-fastest growing major economy, ranks below war-ravaged Ivory Coast, Honduras and Sri Lanka for the quality of its energy, transport and telecommunications infrastructure, according to the World Economic Forum’s Global Competitiveness Index . Prime Minister Manmohan Singh on March 23 asked companies to fund half the country’s planned $1 trillion infrastructure spending for the five years starting April 2012. ‘A Big Market’ “India will remain one of the fastest growing economies and it will remain a big market,” said Juergen Maier , who helps manage the equivalent of $1.4 billion of assets, including Reliance shares, at Raiffeisen Capital Management in Vienna. Investing in power production will help Reliance Industries generate more cash, he said in a telephone interview. The operator of the world’s biggest refining complex and India’s largest natural gas field had outstanding debt of about 625 billion rupees ($13.4 billion) and cash and equivalents of 218.7 billion rupees as of March 31, the company said in April. Reliance is in talks with banks to borrow $1 billion, two people with direct knowledge of the matter said June 4. The company’s net income missed analysts’ estimates in at least three of the last four quarters after profit from turning crude oil into fuels slumped as the worst recession since World War II cut global demand for gasoline and diesel. “Refining and petrochemicals are cyclical businesses that have their ups and downs,” said Philipp Lotter , a Singapore- based analyst at Moody’s Investors Service. “If Reliance were to broaden out into more stable sectors that would stabilize their overall business.” Moody’s on June 14 affirmed its Baa2 debt rating for Reliance, with stable outlook, following its acquisition of Infotel Broadband Services Ltd. three days earlier. The ranking is second lowest investment grade awarded by the rating company. Overseas Acquisitions Even as Mukesh Ambani diversifies his business , investors expect Reliance to continue to buy oil and gas assets overseas and fulfill its ambition of becoming a global energy company. The company bought shale gas assets in the U.S. from Atlas Energy Inc. for $1.7 billion in April after failing to purchase LyondellBasell Industries AF in a deal that would have valued the bankrupt chemicals maker at $14.5 billion, and losing a bid for oil sands assets in Canada owned by Value Creations Inc. Reliance is considering buying a stake in shale gas assets owned by Pioneer Natural Resources Co. in the U.S., two people with knowledge of the matter said June 10. “They can become a significant global player and there is nothing to hold them back,” said Seth Freeman , chief executive officer at San Francisco-based EM Capital Management LLC, which owns Reliance shares. “They have the financial wherewithal to do that and energy would be the way they expand overseas.” To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net .

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Ambani Must Tap India’s Energy, Communication Needs to Lift Reliance Stock

June 17, 2010

By Rakteem Katakey June 17 (Bloomberg) — Billionaire Mukesh Ambani ’s Reliance Industries Ltd., India’s largest company by market value, must tap the country’s hunger for power and communications to boost the stock that has lagged behind key benchmarks, investors say. The oil refiner and energy explorer has climbed 3.4 percent in Mumbai in the past year compared with a 20 percent gain in India’s Sensitive Index and a 12 percent advance in the MSCI Asia Pacific Energy Index . Investors shied away from the shares as a global recession curbed fuel demand and Mukesh clashed with his younger brother, Anil Ambani , over their business interests. A decision on May 23 by the world’s richest brothers to scrap a non-competition accord removed curbs imposed after they split India’s second-biggest business empire. Reliance on June 11 acquired an Internet services company for $1 billion and fund manager Deven Choksey says more initiatives may be outlined by Mukesh in his annual speech to shareholders tomorrow. “Now there is clarity about them getting into new sectors and investors look forward to the next phase of growth,” said Choksey, chief executive officer of Mumbai-based KR Choksey Shares & Securities, which manages about $123 million for wealthy individuals and owns Reliance shares. “I expect Mukesh Ambani to lay out the road map for new businesses such as telecom and power,” he said in a telephone interview. Family Agreements Under a 2005 agreement that split the Reliance group, Mukesh, 53, kept the petrochemicals, oil and gas units and Anil, 51, got the power, financial services, telecommunications, and entertainment units. The brothers said last month they were scrapping the accord drawn up the following year that barred them from expanding into each other’s businesses. Reliance Industries completed the world’s biggest refinery complex in December 2008 and four months later started pumping gas from India’s largest field. The stock, which accounts for about 14 percent of the benchmark index, rose 1.3 percent to 1,071.15 at 11:18 a.m. in Mumbai. Reliance has lagged behind the Sensex in four of the 10 years ended June 15, according to Bloomberg data. The Mumbai-based company’s first foray in commercial electricity generation may come as early as next month when Reliance plans to bid in a government auction to build at least one power plant in India, two company officials said yesterday. Power Plant Bid Reliance is considering bidding for a coal-fired plant in eastern India that may cost as much as 160 billion rupees ($3.4 billion), said the officials briefed on the plan, who declined to be identified before a decision is taken. India’s government has invited bids for a 4,000-megawatt project in Chhattisgarh state by July 5 and another in the adjoining Orissa state by July 30. Reliance may seek to build the Chhattisgarh plant, one of the officials said. A company spokesman didn’t reply to an e-mail seeking comments. India, Asia’s second-fastest growing major economy, ranks below war-ravaged Ivory Coast, Honduras and Sri Lanka for the quality of its energy, transport and telecommunications infrastructure, according to the World Economic Forum’s Global Competitiveness Index . Prime Minister Manmohan Singh on March 23 asked companies to fund half the country’s planned $1 trillion infrastructure spending for the five years starting April 2012. ‘A Big Market’ “India will remain one of the fastest growing economies and it will remain a big market,” said Juergen Maier , who helps manage the equivalent of $1.4 billion of assets, including Reliance shares, at Raiffeisen Capital Management in Vienna. Investing in power production will help Reliance Industries generate more cash, he said in a telephone interview. The operator of the world’s biggest refining complex and India’s largest natural gas field had outstanding debt of about 625 billion rupees ($13.4 billion) and cash and equivalents of 218.7 billion rupees as of March 31, the company said in April. Reliance is in talks with banks to borrow $1 billion, two people with direct knowledge of the matter said June 4. The company’s net income missed analysts’ estimates in at least three of the last four quarters after profit from turning crude oil into fuels slumped as the worst recession since World War II cut global demand for gasoline and diesel. “Refining and petrochemicals are cyclical businesses that have their ups and downs,” said Philipp Lotter , a Singapore- based analyst at Moody’s Investors Service. “If Reliance were to broaden out into more stable sectors that would stabilize their overall business.” Moody’s on June 14 affirmed its Baa2 debt rating for Reliance, with stable outlook, following its acquisition of Infotel Broadband Services Ltd. three days earlier. The ranking is second lowest investment grade awarded by the rating company. Overseas Acquisitions Even as Mukesh Ambani diversifies his business , investors expect Reliance to continue to buy oil and gas assets overseas and fulfill its ambition of becoming a global energy company. The company bought shale gas assets in the U.S. from Atlas Energy Inc. for $1.7 billion in April after failing to purchase LyondellBasell Industries AF in a deal that would have valued the bankrupt chemicals maker at $14.5 billion, and losing a bid for oil sands assets in Canada owned by Value Creations Inc. Reliance is considering buying a stake in shale gas assets owned by Pioneer Natural Resources Co. in the U.S., two people with knowledge of the matter said June 10. “They can become a significant global player and there is nothing to hold them back,” said Seth Freeman , chief executive officer at San Francisco-based EM Capital Management LLC, which owns Reliance shares. “They have the financial wherewithal to do that and energy would be the way they expand overseas.” To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net .

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Nokia Sits Out Smartphone Revolution as Customers Flock to Apple IPhone 4

June 17, 2010

By Diana ben-Aaron June 17 (Bloomberg) — As Apple Inc. struggles to meet demand for the latest version of the iPhone, Nokia Oyj is still waiting to ship its only model that may compete. The Finnish company has announced just one handset, the N8, from its new high-end line based on revamped Symbian 3 software, while Apple’s recently unveiled iPhone 4 is flying off virtual shelves with 600,000 pre-orders and other vendors are rolling out models with Google Inc. ’s Android software. “The smartphone revolution has started and Nokia is not there,” said Helena Nordman-Knutson , a Stockholm-based analyst at Oehman. The N8 “will be old when it’s out because everybody has taken the next step.” The world’s largest mobile-phone maker yesterday lowered revenue and margin forecasts, citing competition in the high-end smartphone market and showing that its fortunes in the application-rich iPhone segment may not turn before 2011. Chief Executive Officer Olli-Pekka Kallasvuo has struggled to deliver on a touchscreen model on a par with the Apple device. Nokia said in April that the N8 will be shipped sometime in the third quarter. It is also slated to introduce a second line of high-end devices running the MeeGo operating system developed with Intel Corp. at an unspecified date this year. Investors punished Nokia, sending its shares down 9 percent to 7.22 euros in Helsinki yesterday, the lowest level since March 9, 2009. The stock drop put the market value of Nokia at 27 billion euros ($33.3 billion), below the $34.4 billion of rival Research In Motion Ltd. and Apple’s $240 billion. Margin Forecasts Nokia yesterday said its second-quarter handset revenue and margins will be “at the lower end of or slightly below” its earlier forecast range of 9 to 12 percent. The Espoo, Finland- based company also cut its outlook for 2010 for the second time this year. The full-year adjusted operating margin in handsets could come in below the 11 to 13 percent range forecast earlier, mainly because of its weakness in high-end smartphones, it said. Sales in the devices and services division may fall below 6.7 billion euros in the second quarter, Nokia said. The lowered outlook is “an implicit statement that the Symbian user experience won’t be fixed this year and MeeGo won’t arrive in time to make a difference to 2010 either,” Gartner Inc. analyst Nick Jones said in e-mailed comments. ‘Out of Patience’ The less-than-perfect implementation of the company’s strategy might prompt calls for management changes, he said. “It’s looking now as if 2010 won’t be the year in which Nokia’s problems get fixed and I suspect investors are running out of patience and will want to hold someone accountable,” he said. “That makes me wonder if the recent reorganization may not be the last of the executive changes we’ll see in 2010.” The company never comments on speculation, said Nokia spokeswoman Arja Suominen . On May 11, Nokia said it was promoting Anssi Vanjoki, a 20-year company veteran, to head a new smartphone division. Nokia’s outlook showed that the company’s fortunes are not likely to charge in the immediate future, analysts said. “What this did is crystallize people’s awareness that the portfolio in the third quarter is not going to be that much better than in the second,” said Stuart Jeffrey , an analyst at Nomura Securities. “So it’s all or nothing in the fourth quarter.” The company expects the fourth-quarter margin to rise above the average for the year, Chief Financial Officer Timo Ihamuotila said in a teleconference yesterday. Not About Volumes “The smartphone unit is in trouble and has been for basically two years now,” said Tero Kuittinen , an analyst at Greenwich, Conn.-based MKM Partners. “The question is whether they can stabilize the situation there and I think they have a shot at doing it in the second half of the year. Nokia held on to its smartphone market share of 41 percent in the first quarter as it introduced cheaper models and trimmed prices. It expects its share of industry handset revenue to decline this year, after earlier saying it would increase. It still expects unit market share to be flat. “It’s not about volumes anymore — the competition is taking place over the money,” Nordman-Knutson said. “Of course you can take market share by redefining the smartphone segment and adding volume through massive price reductions.” The market share of Symbian, Nokia’s main smartphone operating system, fell to 44.3 percent in the first quarter from 48.8 percent a year ago, according to market researcher Gartner. Although mostly on Nokia phones, Symbian is also used by Samsung Electronics Co. and Sony Ericsson. IPhone’s share rose to 15.4 percent from 10.5 percent, while Android soared to 9.6 percent from 1.6 percent. Not ‘Fully Baked’ The N8 will enter the market at 370 euros ($443), about a third lower than the 550-euro price tag of the N97, last year’s flagship device. The company has unveiled low-end smartphones phones costing as little as 135 euros this year. CFO Ihamuotila said that the company is aiming for multiple Symbian 3 products in the second half, not just the N8. Nokia allowed some handset reviewers to demo the N8 at events in London and Singapore this week. The events were followed by a spate of blog posts on the device. “Nokia has put together a growling multimedia powerhouse, but the OS is so far from being fully baked; we can still see the dough,” Engadget, a closely followed blog said. SlashGear, another popular blog, said the device was “decently peppy,” adding that it “isn’t perfect yet.” “It doesn’t mean Nokia will never come back, but it does say they will not come back in 2010 or not before the fourth quarter,” said Nordman-Knutson. “We can’t expect one single phone to change the world for them.” To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

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Nomura’s Schiffman Plans Hiring Push for `Full Scale’ U.S. Investment Bank

June 17, 2010

By Serena Saitto June 17 (Bloomberg) — Nomura Holdings Inc. , Japan’s largest brokerage, may hire as many as 35 bankers in the U.S. this year, part of a push to become a global securities firm rivaling Goldman Sachs Group Inc. and Credit Suisse Group AG. The firm plans to have about 100 bankers in the U.S. by the end of 2010, from about 65 currently, Glenn Schiffman , Nomura’s head of Americas investment banking, said in an interview this week at the firm’s New York headquarters at the World Financial Center. It has already recruited 50 bankers, he said. Nomura is investing 250 billion yen ($2.74 billion) to expand in the U.S. after it bought Lehman Brothers Holdings Inc.’s Asian and European units in 2008. Chief Executive Officer Kenichi Watanabe said in April that he aims to transform Nomura, which generates most of its revenue in Japan, into a global financial firm. “We are in the early stages of creating a full scale investment bank in the U.S.,” said Schiffman, 40, a former Lehman banker who helped manage the sale of Lehman’s assets to Nomura and led the integration of the businesses in Asia. Nomura said this week it hired Deutsche Bank AG’s Mark Epley as co-head of a unit that advises on mergers and acquisitions for buyout firms. Earlier this month, it recruited Michael Hill and James DeNaut from Deutsche Bank as co-heads of global natural resources, based in New York, according to two people close to the situation. The firm in May appointed Bank of America Corp.’s Simon Western as a managing director in the financial services institutions group. Competing for Talent “Nomura faces market competition for similar talent, but their advantage is that they are willing to pay attractively,” said Robert Sloan , head of U.S. financial-services recruiting at Egon Zehnder International, an executive search firm. Schiffman started his career in 1991 at Lehman, where he oversaw financings and mergers and acquisitions worth more than $100 billion. He was responsible for Lehman’s cable business from 1996 to 1999 and later ran the global media group. He relocated to Hong Kong in 2007. That experience may help Schiffman win business in the U.S. “Natural resources, financial institutions and industrials are our priority sectors because they represent 65 percent of fees,” said Schiffman. “Consumer, media and technology are the other sectors in which we want to expand.” Cross-Border M&A Nomura ranks 15th among global takeover advisers this year, with $37 billion of deals, up from 19th in the same period a year ago, according to data compiled by Bloomberg. New York- based Goldman Sachs is first, with $156 billion of deals, followed by JPMorgan Chase & Co. and Zurich-based Credit Suisse. Nomura helped advise Spain’s Grifols SA on its $3 billion agreement last week to buy Talecris Biotherapeutics Holdings Corp., together with Deutsche Bank and Banco Bilbao Vizcaya Argentaria SA. It also advised Jupiter Telecommunications Co. on the company’s $1.3 billion joint venture with Sumitomo Corp. As head of investment banking, Schiffman is overseeing Nomura’s U.S. mergers and acquisitions business and predicts that cross-border deals will increase in volume. “Tapping this trend is part of Nomura’s growth strategy,” he said. To contact the reporter on this story: Serena Saitto in New York at ssaitto@bloomberg.net .

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U.S. Consumer Prices Declined 0.2% in May, Rose 0.1% Excluding Food, Fuel

June 17, 2010

By Timothy R. Homan June 17 (Bloomberg) — The cost of living in the U.S. dropped in May for a second month, signaling the world’s largest economy is recovering without causing prices to flare. The 0.2 percent decline in the consumer price index was the biggest since December 2008 and followed April’s 0.1 percent decrease, figures from the Labor Department showed today in Washington. Excluding food and fuel, the so-called core rate increased 0.1 percent. The figures matched the median forecasts in a Bloomberg News survey. Retailers such as Wal-Mart Stores Inc. are cutting prices to bolster sales as customers face almost 10 percent unemployment and rising foreclosures. The lack of inflation gives Federal Reserve policy makers scope to leave the benchmark interest rate near zero in coming months and help invigorate the economy. “Companies right now really don’t have any pricing power,” said Russell Price , a senior economist at Ameriprise Financial Inc. in Detroit, who accurately forecast the drop in the consumer-price index. “It still provides the Federal Reserve a great deal of leeway.” The Labor Department also reported today that initial jobless claims rose 12,000 last week to 472,000. Economists surveyed by Bloomberg had forecast a decline to 450,000, according to the median estimate. Stock-index futures trimmed their gains following the report on unemployment claims. Futures on the Standard & Poor’s 500 Index were little changed at 1,110.30 as of 8:46 a.m. in New York after climbing as much as 0.7 percent. Current Account A separate government report showed the current-account deficit widened to $109 billion in the first three months of the year, reflecting a bigger trade shortfall as imports climbed. The gap was smaller than the median forecast of economists surveyed by Bloomberg News and followed a revised $100.9 billion deficit in the fourth quarter 2009 that was smaller than previously estimated, figures from the Commerce Department showed today in Washington. Consumer prices were forecast to decline 0.2 percent, according to the median forecast of 79 economists in a Bloomberg survey. Estimates ranged from a drop of 0.4 percent to a gain of 0.1 percent. In the 12 months ended in May, prices rose 2 percent following a 2.2 percent year-over-year gain the prior month. Economists had forecast a 2 percent rise in the 12 months to May, according to the survey median. Core Rate The core rate rose 0.9 percent from May 2009, matching the smallest year-over-year gain since 1966. Compared with a month earlier, energy costs decreased 2.9 percent. Gasoline prices declined 5.2 percent, the biggest drop since December 2008. The debt crisis in Greece that has weighed on the value of the euro may keep damping U.S. inflation in coming months, and American exports to Europe may slow at the same time a stronger dollar holds down the cost of imported goods. Food prices, which account for about 15 percent of the CPI, were unchanged. Fruit and vegetable prices declined, while costs of meats and dairy products increased, today’s report showed. Housing costs remain limited. Owners-equivalent rent, one of the categories designed to track rental prices, was unchanged for a second month and down 0.3 percent from May 2009. The core index was boosted in May by higher costs for clothing and medical care. Sales Growth Procter & Gamble Co. , the world’s largest consumer-products company, said yesterday that price increases may provide a boost to sales growth in the next fiscal year. In the meantime, pricing may be negative for the “next quarter or two,” Chief Financial Officer Jon Moeller said at a meeting with investors in Paris. “We are not expecting strong growth in really any of the developed markets,” Moeller said. Sales in western Europe and the U.S. will increase at rates lower than their historical average, the executive said. The Fed’s long-term forecast for its preferred measure of inflation, the Commerce Department’s index tied to consumer spending and excluding food and fuel, calls for gains in a range of 1.7 percent to 2 percent. That gauge, typically lower than the CPI, was up 1.2 percent in the 12 months through April. ‘In The Recession’ Some lower-income customers in the U.S. are “still deeply in the recession” and are shopping various retailers for the cheapest prices, Jamie Sohosky, senior director of marketing for Wal-Mart’s U.S. stores, said this month. Shoppers at Wal-Mart, the world’s largest retailer, are also using more coupons than a year ago, Sohosky said. They’re worried about losing their jobs and paying mortgages, she said. The CPI is the broadest of three monthly price gauges from Labor, because it includes goods and services. Almost 60 percent of the CPI covers prices consumers pay for services ranging from medical visits to airline fares and movie tickets. To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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Jobless Claims in U.S. Unexpectedly Increased 12,000 Last Week to 472,000

June 17, 2010

By Courtney Schlisserman June 17 (Bloomberg) — The number of Americans seeking jobless benefits last week unexpectedly rose to a one-month high, indicating firings are staying elevated even as the U.S. economy grows. Initial jobless claims increased by 12,000 to 472,000 in the week ended June 12, Labor Department figures showed today in Washington. Economists surveyed by Bloomberg News projected 450,000 claims, according to the median forecast. The number of people receiving unemployment insurance rose, while those getting extended benefits dropped. Some companies are trimming payrolls to boost or maintain profits at the same time overall employment has grown each month this year. The figures show that bigger job gains needed to spur consumer spending, which accounts for 70 percent of the economy, may be slow in developing, keeping the unemployment rate close to 10 percent. “The labor market is not improving,” said Steven Ricchiuto , chief economist at Mizuho Securities USA Inc. in New York. “If you really are going to have a sustainable recovery, you need the labor market to improve.” Initial jobless claims reflect weekly firings and tend to fall as job growth — measured by the monthly non-farm payrolls report — accelerates. Today’s report coincides with the week the government surveys companies for its monthly employment report. Consumer Prices Separate figures from the Labor Department showed consumer prices fell in May for a second month. The consumer price index dropped 0.2 percent, the biggest decrease since December 2008 and reflecting cheaper gasoline. Stock-index futures pared gains after the report. The contract on the Standard & Poor’s 500 Index rose 0.1 percent to 1,110.7 at 8:42 a.m. in New York. The yield on the 10-year Treasury note dropped to 3.25 percent from 3.26 late yesterday. Economists forecast jobless applications would fall from an initially reported 456,000 for the prior week, according to the median of 42 projections in a Bloomberg survey. Estimates ranged from 440,000 to 475,000. States reporting higher initial claims last week said there were cutbacks in the manufacturing, construction and educational services industries, a Labor Department spokesman said. Claims tend to rise following a holiday and seasonal factors anticipated a smaller gain than what occurred, the spokesman said. Four-Week Average The four-week moving average, a less volatile measure than the weekly figures, fell to 463,500 last week from 464,000, today’s report showed. The number of people continuing to receive jobless benefits increased by 88,000 in the week ended June 5 to 4.57 million. They were forecast to rise to 4.5 million after slumping 234,000 the previous week. The continuing claims figure does not include the number of Americans receiving extended or emergency benefits under federal programs. Those who’ve used up their traditional benefits and are now collecting emergency and extended payments decreased by about 169,000 to 5.22 million in the week ended May 29. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, rose to 3.6 percent in the week ended June 5 from 3.5 percent. States Reporting Thirty-eight states and territories reported a decrease in claims, while 15 reported an increase. These data are also reported with a one-week lag. Claims around 450,000 are consistent with private companies adding about 100,000 jobs a month, JPMorgan Chase & Co. chief economist Bruce Kasman said in a note to clients before today’s report. That is fewer than the 116,000 a month average growth in the five years to December 2007, when the recession began. Initial claims would have to average 425,000 to 430,000 for private payrolls to rise by the 175,000 a month that JPMorgan economists are forecasting for the second half of the year, Kasman said. Dot Hill Systems Corp., a Longmont, Colorado-based software maker, said June 15 it will eliminate about 10 percent of its global workforce and also cut the annual base salaries of its vice president and executive management teams by the same amount. Other employees face a potential 5 percent reduction in annual base pay. To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

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Japanese Companies Join U.S. in Stockpiling Cash as European Crisis Brews

June 17, 2010

By Aki Ito June 17 (Bloomberg) — Japanese companies accumulated a record amount of cash last quarter and household assets rose to the highest level in almost two years, gains that have yet to spark investment amid concern about the economic outlook. Non-financial companies held 202.7 trillion yen ($2.2 trillion) in currency and deposits as of March 31, the most since quarterly data began in 1997, the Bank of Japan said in Tokyo today. Households’ financial assets climbed 3.1 percent from a year ago to 1,453 trillion yen. Japan’s preference for cash parallels trends in the U.S., where companies boosted their liquid assets by 26 percent in the year through the first quarter, a Federal Reserve report showed last week. Businesses may be waiting for stronger signs of a durable global economic recovery before they’re prepared to step up investment and hiring, said economist Glenn Maguire . “Corporates can have as much cash in the world; if they’re not confident that there’s going to be growth in final demand, they’re not going to add to capacity in labor and capital,” said Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong. Today’s report reinforces the argument that Japanese companies may not need a 3 trillion yen credit program unveiled by the central bank this week. Governor Masaaki Shirakawa and his board developed the plan to encourage lending to companies in 18 areas that could boost the country’s economic growth prospects, such as energy, health and the environment. ‘Swimming in Cash’ “Large firms are just swimming in cash” as they hang onto money borrowed during the 2008-09 global financial crisis and enjoy a rebound in sales from recession levels, said Azusa Kato , an economist at BNP Paribas in Tokyo. “They’re not spending it yet.” Spending on plant and equipment by Japanese companies slid 12.9 percent in the first quarter from a year earlier, a Finance Ministry report showed this month. In the U.S., nonfarm, non-financial companies had $1.84 trillion in cash and other liquid assets at the end of the first quarter, the Fed’s Flow of Funds report showed June 10. Japanese households are also hoarding money because the economic recovery has yet to convince them to step up investment in riskier assets, according to Kato at BNP Paribas. People held 54.9 percent of their assets in cash last quarter, compared with 55.8 percent a year earlier. As recently as the second quarter of 2008, households held only 52.8 percent in cash. Stock Market Last quarter’s increase in household wealth took the value of their financial assets to the highest level since the second quarter of 2008. The gains were driven by a stock market rally that has subsequently stalled because of Europe’s sovereign- debt woes. The Nikkei 225 Stock Average climbed 37 percent in the year ended March 31 as the economy recovered from the worst global financial crisis since the Great Depression. The gauge has since lost 9.8 percent. “Employment and incomes are recovering so it’s unlikely consumer spending will worsen, but we can’t expect further boosts to spending from people’s assets” until stocks resume gaining, Kato said. Japanese government debt owned by foreign investors slumped 16.2 percent in the year ending March, the biggest drop in eight years on an annual basis, according to today’s report. Foreigners held 47 trillion yen of the 834 trillion yen of public debt. To contact the reporter on this story: Aki Ito in Tokyo at aito16@bloomberg.net

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U.K. Scraps FSA in Biggest Bank Regulation Overhaul Since 1997

June 17, 2010

By Gonzalo Vina June 17 (Bloomberg) — Chancellor of the Exchequer George Osborne said he will abolish the Financial Services Authority and give most of its power to the Bank of England, undoing the regulatory system set up by Gordon Brown in 1997. In the most sweeping changes to financial regulation since then, the watchdog will be wound down and replaced by three bodies over the next two years, the chancellor said. A Prudential Regulatory Authority will be created as a subsidiary of the central bank. Osborne will also set up a Financial Policy Committee at the bank and establish a consumer protection and markets agency. Osborne, whose Conservative Party took power after the May 6 election, is delivering on a promise made almost a year ago to shake up the way the U.K.’s banks and markets are policed. He’s blamed the system established by former Labour Prime Minister Brown for failing to prevent a financial crisis that saddled taxpayers with liabilities of as much as 1.4 trillion pounds ($2.1 trillion) and plunged the economy into the worst recession since World War II. “At the heart of the crisis was a rapid and unsustainable increase in debt that our macroeconomic and regulatory system utterly failed to identify let alone prevent,” Osborne told bankers at his first Mansion House dinner in London’s financial district last night. Northern Rock Brown’s government had to nationalize Northern Rock Plc , the first U.K. casualty of the credit crunch, in February 2008. The lender nearly collapsed in 2007 after it had to seek emergency funding from the central bank and then suffered a run on its deposits. The government also had to take controlling stakes in Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc . Osborne’s plan scraps Brown’s tripartite system of regulation — in which the central bank, FSA and Treasury shared responsibilities — and places most of the onus on Bank of England Governor Mervyn King . Legislation to replace the FSA will be in place by 2012, Osborne said. Angela Knight , the chief executive of the British Bankers’ Association, a lobby group, said she welcomed steps to make the system “clearer and more effective” and pledged to support the government during the transition. The FSA’s chief executive, Hector Sants , 54, will stay on at the authority while it is wound down and will take up new roles on the bodies that replace it, becoming a deputy governor of the central bank. ‘Macro Issues’ Executive power over financial supervision will go to the Financial Policy Committee at the central bank, which will operate in a similar way to its rate-setting monetary policy panel. The new committee “will have the tools and the responsibility to look across the economy at the macro issues that may threaten economic and financial stability and the tools to take effective action in response,” Osborne said. The committee will be chaired by King and will include Sants among its members. The panel’s work will be scrutinized by Parliament’s Treasury Committee, the chancellor said. The Prudential Regulatory Authority “will carry out the prudential regulation of financial firms, including banks, investment banks, building societies and insurance companies,” Osborne said. Sants will be its chief executive and King its chairman. Andrew Bailey, the head of the central bank unit that deals with failed banks, will be Sants’s deputy. ‘Authority, Knowledge’ “Only independent central banks have the broad macroeconomic understanding, the authority and the knowledge required to make the kind of macro-prudential judgments that are required now and in the future,” Osborne said. “They must also be responsible for day-to-day micro-prudential regulation as well.” The third pillar of Osborne’s regulatory overhaul will come with the creation of a Consumer Protection and Markets Authority. Osborne said the agency will regulate financial firms “providing services to consumers” and maintain the “integrity of the U.K.’s financial markets.” King told the Mansion House dinner that the new framework will assure the stability of the financial system. “A credible macro-prudential regime could help forestall both excessive exuberance and unnecessary caution,” King said. “By altering the pressure on the financial brakes according to circumstances, regulation, far from being an inflexible foe, would become a flexible friend.” FSA Chairman Adair Turner said he welcomed Osborne’s plans. ‘Much Clearer’ “The overall future shape of financial regulation is now much clearer and we are in a strong position to create a future regulatory system which builds on the FSA’s achievements over the last few years of major change,” Turner said in an e-mailed statement. “It is ironic that while in opposition the Tories identified the tripartite system as the root of all regulatory evil, yet here they are as government inventing multiple front- line agencies and creating distracting confusion in the process,” said Ash Saluja, a lawyer at CMS Cameron McKenna in London. Osborne also said he will bring under one roof the handling of “serious economic crime,” which is currently dealt with by a number of organizations. The chancellor also gave the names last night of the people who will work alongside former Bank of England Chief Economist John Vickers when he leads a panel on the future of banking. Martin Wolf of the Financial Times, Bill Winters , the former co-chief executive of JP Morgan’s investment bank, Martin Taylor, formerly of Barclays Plc, and Clare Spottiswoode , the former head of the gas regulator Ofgas, will work with Vickers on the Independent Banking Commission, Osborne said. To contact the reporter on this story: Gonzalo Vina in London at gvina@bloomberg.net .

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China’s `Express Train’ Economy to Sustain Pace of Growth, Aberdeen Says

June 16, 2010

By Shiyin Chen June 17 (Bloomberg) — China’s economy is like a “runaway express train” and may sustain its pace of growth amid the nation’s tightening measures and Europe’s sovereign-debt crisis, Aberdeen Asset Management Plc said. The Conference Board said June 15 a leading economic indicator for the country gained the most in 14 months, following reports last week that showed a surge in exports, industrial production and retail sales that signaled strength in the world’s fastest-growing major economy. China’s domestic stock markets reopen today after a three-day holiday. The MSCI World Index rose 2.8 percent this week, trimming its losses this year to 4.9 percent, as the Chinese leading indicator and gauges tracking New York manufacturing and U.S. consumer confidence helped overshadow a downgrade in Greece’s debt rating by Moody’s Investors Service to junk status. The Shanghai Composite Index has fallen 22 percent this year, Asia’s worst performer. “The Chinese economy is a little bit like a runaway express train,” Peter Elston , a Singapore-based strategist at Aberdeen Asset, said in an interview yesterday. “Even if the West does go through some sort of relapse, I do see China being able to maintain some sort of momentum simply because it has the capital domestically that’s needed to supply its economy.” While the “weakness” in Europe and a possible slowdown in the U.S. may affect China’s exports, the nation’s economy is now less dependent on overseas shipments, according to Elston. The European crisis also suggests that there’s less reason for China’s government to continue tightening measures even amid “signs of overheating” in the nation’s economy, he said. Best-Performing Economy The Conference Board’s measure for the Chinese economy gained 1.7 percent to 147.1 in April, compared with a revised 1.2 percent increase in March. China is among the world’s best- performing economies, according to Bill Adams, resident economist for the New York-based research organization. Foreign direct investment in the country rose 27.5 percent to $8.13 billion in May, advancing for a 10th month in May, the Ministry of Commerce said on June 12. That’s more than the 23.2 percent median forecast of four economists surveyed by Bloomberg News. The economy is unlikely to suffer a “double dip” in its growth rate as the government maintains its moderately loose monetary policies, Ma Jiantang , head of the National Bureau of Statistics, said in an event in London yesterday. “I personally think there’s very little chance China’s economy will have a double dip,” Ma said. “Double dip means the economy will go back to the lowest growth rate last year of 6.2 percent.” Growing Credit Risks China’s banking regulator said this week it sees growing credit risks in the nation’s real-estate industry and warned of increasing pressure from non-performing loans. Risks associated with home mortgages are rising and a “chain effect” may reappear in real-estate development loans, the China Banking Regulatory Commission said in its annual report on June 15. The “bubble” in China’s property market is going to burst very quickly, with prices set to fall as much as 20 percent in the next 12 to 18 months, Nomura Holdings Inc. economist Sun Mingchun said in a Bloomberg Television interview yesterday. Real-estate prices jumped 12.4 percent across 70 cities in May, adding to the 12.8 percent record surge in April. China overtook Hong Kong as the world’s hottest housing market in the first quarter, with prices rising at more than double the rate of anywhere else, property adviser Knight Frank LLP said . Values soared 68 percent in China’s main cities from a year earlier, according to a global index compiled by the London-based broker. Gains for Hong Kong, India, Singapore, Australia, Malaysia and Indonesia helped lift average prices in the Asia-Pacific region by almost 18 percent. Falling Valuations The Shanghai Composite is valued at 15 times estimated profits, down from 24 times at the start of the year, according to data tracked by Bloomberg. A gauge of property shares on the Shanghai Composite slumped the most among five industry groups this year, falling 28 percent as policy makers imposed curbs ranging from a ban on loans for third-home purchases to higher mortgages and downpayments for second homes. While the drop in stocks means valuations in China have become “reasonable,” Elston said Aberdeen, which oversees about $259 billion globally, doesn’t hold any property or bank stocks in China. Scotland’s biggest fund company instead owns shares of PetroChina Co. and China Mobile Ltd. , as well as Hong Kong-based companies that do business in China, according to Elston. “We do think over the longer term, China will be an interesting place to invest,” he said. To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net

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Heebner’s Hold on Top Fund Spot Slips as CGM Focus Slumps for Third Year

June 16, 2010

By Charles Stein June 17 (Bloomberg) — Ken Heebner is mired in his third straight year near the bottom of the mutual-fund return rankings, threatening his status as the top-performing U.S. stock-picker of the new century. The $3 billion CGM Focus Fund , which Heebner runs from Boston, is the only domestic stock fund to trail at least 96 percent of peers in 2008, 2009 and again this year, according to research firm Morningstar Inc. The fund has lost 54 percent since June 30, 2008, compared with the 8.7 percent decline by the Standard & Poor’s 500 Index , a proxy for the U.S. stock market and the fund’s benchmark. “He’s been in all the wrong sectors at all the wrong times,” said Jonathan Rahbar , a fund analyst for Chicago-based Morningstar. The nosedive rivals that of Bill Miller , the Legg Mason Inc. fund manager who beat the S&P 500 for a record 15 consecutive years, then dropped to the back of the pack in 2006 through 2008. Like Miller, Heebner has lost investors, with net withdrawals of $1.8 billion since August 2008, according to Morningstar. Unlike Miller, he lagged behind the rest of the market last year, gaining 10 percent while U.S. stock funds on average rose 33 percent. Miller’s Value Trust was up 41 percent. Even with the losses, CGM Focus returned an average of 17 percent a year in the decade ended May 31, the highest among more than 3,200 U.S. diversified mutual funds, Morningstar’s data show. In second place was Lord Abbett Micro Cap Value , which gained 14 percent. Investors Turn Elsewhere Steven Roge , who buys mutual funds for clients, said the ballooning of Heebner’s assets in 2008, when CGM Focus had net deposits of $3.3 billion through August after soaring 80 percent the previous year, convinced him there were better places to invest. “When a fund attracts assets that quickly, we worry about a manager’s ability to handle it,” said Roge, whose Bohemia, New York-based firm, R.W. Roge & Co., oversees $200 million. Heebner, co-founder of Capital Growth Management LP, wasn’t available to comment, Martha Maguire, a spokeswoman for the firm, said in an e-mail. Capital Growth is part of Natixis Global Asset Management, a unit of French bank Natixis SA . The 69-year-old Heebner is known for making concentrated bets in industries from homebuilding to commodities and for his willingness to shift gears quickly. He also bets on falling stock prices, a technique called short selling that many funds don’t pursue. Hurt by Financials CGM Focus fell 6.3 percent this year through June 15 as the S&P 500 rose 0.9 percent, including dividends, according to data compiled by Bloomberg. The fund was hurt in the period by declines in financial stocks and commodity producers. New York-based Goldman Sachs Group Inc. , its second-largest holding, lost 19 percent. Its third-biggest stake, miner Freeport-McMoRan Copper & Gold Inc . of Phoenix, dropped 16 percent. Ford Motor Co., the Dearborn, Michigan-based automaker and CGM Focus’s top position, was up 16 percent. Heebner in the first quarter bought new stakes in miners including Cleveland, Ohio-based Cliffs Natural Resources Inc . and BHP Billiton Ltd . of Melbourne, according to a May 14 filing with the U.S. Securities and Exchange Commission. He sold holdings in Internet companies Google Inc. of Mountain View, California, and Seattle-based Amazon.com Inc. Metal and mining stocks accounted for 36 percent of his holdings as of March 31, the filing shows. Bank stocks represented 16 percent of the portfolio, the second-largest position. In addition to Goldman Sachs, Heebner held Morgan Stanley and Citigroup Inc., both based in New York, and Pittsburgh-based PNC Financial Services Group Inc. Financial Crisis Returns started to falter in the second half of 2008, when Heebner’s holdings of energy, metals and agriculture stocks began to tumble. After selling the commodity stocks, he bought financials, including insurers such as Hartford, Connecticut- based Hartford Financial Services Group Inc. , according to filings with the SEC. “The escalating financial crisis took its toll on these issues during the fall,” Heebner wrote in the fund’s 2008 annual report. Financial stocks fell 38 percent in the fourth quarter of that year, following the bankruptcy of Lehman Brothers Holdings Inc. in September, Bloomberg data show. CGM Focus dropped 48 percent for the year, compared with a decline of 37 percent by the S&P 500. Missing the Rally Heebner sold his insurance holdings at a loss in the first quarter of 2009, he said in that year’s annual report with the SEC. The timing hurt, as many of those stocks soared after the market reached a 12-year low in March. Hartford almost tripled in the final nine months of 2009. Heebner’s delay in shifting back to stocks that could benefit from the rebounding economy in 2009 “diminished the fund’s overall performance,” he wrote. When CGM Focus didn’t bounce back in 2009, Brian Smith, a financial adviser based in Vienna, Virginia, decided to reduce his holdings. “It was too easy to find things that were moving up,” he said in a telephone interview. Dennis Marin, who also owns the fund for clients, decided to stick with Heebner. “Over the next three to five years our bet is that we will do well with him,” said Marin, president of Erie, Pennsylvania- based Wedgewood Investors Inc., which manages $600 million. Hot to Cold In May 2008, about a month before the fund’s assets peaked at $10.3 billion, Fortune magazine called Heebner “America’s hottest investor.” In the first seven years of the last decade, CGM Focus returned 32 percent annually while the S&P 500 gained less than 2 percent a year. Heebner has run the fund since it was created in 1997. In 2000 and 2001 he profited by betting against technology stocks. At the same time he began buying homebuilders such as Miami-based Lennar Corp . ahead of the boom in construction and home prices. By the start of 2005, before homebuilding stocks began their decline, he had sold them and moved into energy and commodity companies. The price of oil more than tripled between the end of 2004 and the middle of 2008, Bloomberg data show. “Historically he has done phenomenally well knowing when to rotate,” said Rahbar of Morningstar. The fund’s wins and losses are magnified by its concentration. CGM Focus’s top 10 holdings represented 73 percent of assets of as March 31, Morningstar data show. Its turnover ratio — a measure of how much the portfolio changes in a year — is 464 percent, more than four times greater than peers, Morningstar said. The declines since 2008 “don’t indicate Heebner has lost his talent or his expertise,” said Ronald Sugameli , manager of the $130 million New Century Alternative Strategies Portfolio, a mutual fund that invests in other mutual funds. CGM Focus represented about 1.5 percent of Sugameli’s fund as of May 31, Bloomberg data show. While he expects Heebner’s performance to bounce back, Sugameli isn’t planning to boost his holdings of CGM Focus, he said in a telephone interview. Given the fund’s volatility, Sugameli said, “it is best used in small doses.” To contact the reporter on this story: Charles Stein in Boston at cstein@bloomberg.net

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Macquarie Loses Head of U.S. Equity Capital Markets Rossman, Four Analysts

June 16, 2010

By Michael J. Moore June 17 (Bloomberg) — Macquarie Group Ltd. , the Australian bank that bought Fox-Pitt Kelton Cochran Caronia Waller LLC last year, lost U.S. equity capital markets head Jim Rossman and at least four stock-market analysts. Besides Rossman, the departures included analysts David Trone , Robert Stallard , Andrew Marquardt and John Pancari , spokesman Stephen Yan confirmed. Rob Redmond , a vice chairman at Macquarie Capital, will remain responsible for the firm’s equity, debt and private capital businesses, Yan said. Macquarie, Australia’s largest investment bank, paid $146.7 million in 2009 for Fox-Pitt, a 260-person firm that specialized in the financial-services industry, to expand its U.S. research and equities business. Sydney-based Macquarie, which has added to its U.S. equities business this year, generated $1.35 billion of revenue from the Americas for the year ended March 31, more than triple that of a year earlier. “In a business that size you always get churn, but staff turnover is a risk when you buy financial-services businesses,” said Sean Fenton , who helps manage about $1 billion at Tribeca Investment Partners in Sydney. “People are key. That’s the challenge for Macquarie going forward.” Recent Additions Trone, who covered investment banks and brokers, is joining JMP Group Inc. , and Stallard, an aerospace analyst, is set to join RBC Capital Markets, people briefed on the matter said. They declined to be named because the hires haven’t been made public. Victor Sack joined Macquarie from Bank of America Corp. as a managing director in equity capital markets’ financial institutions group, and Steve Mehos was recently promoted to head of debt capital markets from head of leveraged finance, Yan said. Andrew Marquardt , who covered large commercial banks, left Macquarie to join Evercore Partners Inc. , two of the people said. Cowen Group Inc. said in April it hired John Pancari from Macquarie as an analyst covering shares of U.S. banks and thrifts. Macquarie has hired John Moran and Stephen Scinicariello as senior bank analysts, according to an e-mailed statement. Moran, who most recently worked at Value Architects, and Scinicariello, who comes from BlackRock Inc., joined on June 15. Macquarie has added 30 people to its U.S. equities business this year, including research and sales and trading hires, Yan said. ‘Very Confident’ “We’re very confident about the year ahead in our equities platform,” Yan said. He said the firm covers almost 600 stocks, and he cited a Greenwich Associates survey that said Macquarie has climbed to 11th from 24th in rankings of research market share. Trone, Pancari and Marquardt had joined Macquarie as part of the Fox-Pitt Kelton purchase . Rossman joined the firm from HSBC Holdings Plc in 2008, and Stallard joined the same year from Bank of America. Trone, who left Macquarie in April, will join JMP after his non-compete period expires, one of the people said. Trone will help replace Michael Hecht , who left JMP to become a senior vice president of corporate development at Charles Schwab Corp., which Hecht covered. Charles Myers , Fox-Pitt Kelton’s head of equities, joined Evercore in December to start its new cash-equities business. Scott Barishaw and Ned Roseberry , both of whom came to Macquarie from Fox-Pitt Kelton, followed Myers to Evercore earlier this year. To contact the reporter on this story: Michael J. Moore in New York at mmoore55@bloomberg.net .

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BP Cancels Dividend, Plans Asset Sales to Finance Spill Fund

June 16, 2010

By Brian Swint June 17 (Bloomberg) — BP Plc , seen as a rising default risk by credit investors, scrapped dividends and pledged asset sales to meet President Barack Obama ’s demand for a $20 billion fund to help victims of the worst oil spill in U.S. history. BP’s Chairman Carl-Henric Svanberg met Obama at the White House yesterday and agreed on payments over four years to finance an independent body that will settle claims resulting from a damaged oil well that’s spewing as much as 60,000 barrels of crude a day into the Gulf of Mexico. Halting the $10 billion-a-year dividend , reducing investments in drilling and selling oil and gas fields will do enough to ensure the company’s financial stability, Chief Financial Officer Byron Grote said yesterday. Credit swap contracts before the announcement showed investors pricing in a 39 percent risk of default within five years. “It reduces the bankruptcy risk a little bit,” said Philip Weiss , senior energy analyst with Argus Research in New York. “The timing of the payments to the escrow accounts is sufficiently slow” that it increases confidence in the company’s ability to pay, he said. BP probably would have disposed of most of the assets being considered for sale anyway, Weiss said in a telephone interview. It’s unlikely the company would sell assets like the Prudhoe Bay fields in Alaska or Gulf of Mexico holdings that would substantially reduce revenues. The blown-out well wasn’t expected to begin producing until about 2015, he said. Production Impact BP has said production growth may be reduced following the accident and that industry drilling costs will increase because of added safety requirements. BP American depositary receipts reversed losses after the White House deal was announced to close up 45 cents, or 1.4 percent, at $32.85 in New York yesterday. Shares in the London-based company have dropped 49 percent since the Deepwater Horizon rig exploded on April 20, killing 11 workers. That’s wiped about 50 billion pounds ($74 billion) off the value of the company. “This move protects the long-term value of BP and draws a line in the sand for the speculation and wild uncertainty that’s been thrown around,” said Jason Kenney , an analyst at ING Wholesale Banking in Edinburgh. “The hope is that it’s far too much for what is actually going to be required. This doesn’t mean the downfall of BP; it can get through this.” Credit Score Cut BP had come under pressure to reach an agreement with the U.S. Administration this week after Fitch Ratings lowered BP’s credit score by six to BBB, two levels above junk, on concern that costs from the spill would undermine the company’s ability to operate. The board “believes it’s right and prudent to take a conservative financial position,” CFO Grote said on a conference call with investors. The deal to phase payments into the fund “allows us to stage our injections in a way that I hope now provides comfort to debt and equity markets.” Speaking after his meeting with Svanberg, Obama said the fund won’t cap BP’s liability for cleanup costs or supersede the rights of individuals or states to sue the company. BP also will contribute $100 million to a fund to help support unemployed oil rig workers. “This $20 billion will provide substantial assurance that the claims people and businesses have will be honored,” Obama said. “The people of the Gulf have my commitment that BP will meet its obligations to them.” Hayward Apologizes Chief Executive Officer Tony Hayward , who accompanied his chairman to the White House yesterday, will testify before Congress today. In prepared testimony, Hayward said he was “deeply sorry” for the Gulf explosion and oil spill. An “unprecedented combination of failures” led to the accident, he said. “We can expect a lot less political heat going forward,” said Fadel Gheit , an analyst at Oppenheimer & Co. in New York. “BP still has an uphill battle in public opinion. Tony Hayward is walking into the lions’ den in Congress. But this gives BP a breather to regain its footing.” BP will raise $10 billion this year selling assets, Grote said in his call with investors, concentrating on oil and gas fields that aren’t central to the company’s business. A $7 billion deal to buy offshore production assets from Devon Energy Corp. announced in March will go ahead. In addition, the company will cut planned capital spending about 10 percent to $18 billion, Grote said. Most of the savings will come from the Gulf of Mexico, where Obama’s six-month moratorium on deep-water drilling will prevent planned investments, he said. “BP is going to slim down significantly,” said Gheit, rated the most accurate active BP analyst by StarMine. “It’s going to survive this, but it’s going to be smaller.” Dividend Savings The company said in a statement it will cancel the first-quarter dividend, already announced at 14 cents a share in April and due for payment June 21. Dividend payments for the second and third quarters also will be canceled, saving a total of $7.5 billion. The company will review the dividend policy in early 2011, Grote said. BP generated $27.7 billion in cash flow from operations last year and posted profit of $6 billion in the first quarter. BP had $5 billion of cash available, $5.25 billion of credit lines it hadn’t used and another $5.25 billion of stand-by bank facilities, BP said in an investor conference call June 4. “BP is going to have enough money,” said Peter Hitchens , an analyst at Panmure Gordon & Co. in London. “This is the low point now. We’ve drawn a bottom line, got Obama on side and have phased payments. The market will react favorably.” To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net .

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Broad Commits 75% of Wealth to Charity, Takes Buffett Up on Giving Pledge

June 16, 2010

By Katya Kazakina June 16 (Bloomberg) — Eli Broad and his wife, Edythe, have pledged 75 percent of their wealth to charity, the Los Angeles billionaire and philanthropist said in a statement today. The Broads are part of a drive called “The Giving Pledge,” started by Warren Buffett and Bill and Melinda Gates to encourage rich Americans to give at least 50 percent of their wealth to charitable causes. “Philanthropy is much harder than running two Fortune 500 companies,” said Broad, 77, former chairman of SunAmerica Inc. and KB Home, in an e-mailed statement today. “We will pledge in writing to give away 75 percent of our wealth during and/or after our lifetime.” The Broad Foundations have invested more than $2 billion in education, scientific and medical research and the arts. Their largest commitment has been $600 million to establish the Broad Institute of the Massachusetts Institute of Technology and Harvard University, according to the statement. Buffett, the world’s third-richest person and chairman of Berkshire Hathaway Inc., has pledged more than 99 percent of his wealth to philanthropy. The greatest part of his fortune, estimated in March at $47 billion by Forbes magazine, is being given in annual installments to the foundation established by Microsoft Corp. co-founder Bill Gates and his wife, Melinda Gates. To contact the reporter on this story: Katya Kazakina in New York at kkazakina@bloomberg.net .

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Australian Buyout Revival May Stall as TPG, Equity Firms Face Resistance

June 16, 2010

By Angus Whitley June 17 (Bloomberg) — A recovery in Australian buyouts may be curtailed as private-equity firms with as much as A$8 billion ($6.9 billion) of cash to spend grapple with reluctant sellers and scarce credit. “Although it’s a good time to buy, people aren’t choosing to sell,” Katherine Woodthorpe , 53, chief executive officer of the Australian Private Equity & Venture Capital Association Ltd. , said in a June 15 interview in Sydney. “You have to have both those stars in alignment.” Stock valuations in Australia have fallen this year even in an economic recovery, as investors fret over Europe’s debt crisis. Blackstone Group LP, TPG Capital and Carlyle Group last month bid A$1.8 billion for Healthscope Ltd. , attempting the country’s biggest buyout in two years, according to people with knowledge of the matter. That bid may have been the high point of the revival in private-equity takeovers in Australia, said Woodthorpe, whose group represents about 60 foreign and local firms. Some companies, emboldened by improved economic prospects, are resisting overtures from the buyout industry and banks remain reluctant to finance large deals, she said. “The vendors are still not as anxious to sell as you might have thought,” Woodthorpe said. “People are looking at pricing and saying: ‘I don’t necessarily need to sell, so I don’t know that I want to sell at these prices.’” Her organization, known as Avcal, estimates Australian firms like Archer Capital and CHAMP Private Equity have A$5 billion to A$6 billion to deploy between them, while overseas funds have about A$2 billion to spend on local assets. Hoard of Cash That’s still less than the A$11.1 billion buyout offer for Qantas Airways Ltd. in 2007, near the end of the era of cheap credit that preceded the global financial crisis. Shareholders of Australia’s largest carrier rejected the bid. Deprived of financing during the crisis, private-equity firms are returning as economies recover. Buyout companies worldwide plan to invest a record $507 billion in cash raised before the collapse, triple the comparable figure in December 2001, according to London-based researcher Preqin Ltd. Carlyle Group, the world’s second-largest private-equity firm, said in May it had $33.5 billion waiting to be invested at the end of 2009. David Rubenstein , co-founder of the Washington- based firm, said June 4 at a Boston conference that the worst was probably over for the industry. Competition Begins Private equity-led takeovers announced in Australia reached $323.5 million this year excluding the offer for Healthscope, Australia’s second-biggest hospital owner, according to Bloomberg data. That compares with $7.56 million in the same period last year. New York-based Blackstone , Carlyle, and Dallas, Texas-based TPG haven’t made public their bid. Healthscope yesterday declined to comment. “A lot of private equity funds have a large amount of capital still to be deployed,” said Andrew Stuart , chief executive officer of BKK Partners Pty, a Sydney-based corporate advisory firm. “We’re just about to see competition beginning for the deployment of that capital.” With banks reluctant to finance multibillion-dollar deals, buyout firms in Australia will probably focus on targets worth A$500 million or less, said Woodthorpe at Sydney-based Avcal. Banks are unwilling to extend more than A$1 billion for a leveraged buyout even when lending in groups, and the ceiling is more likely to be closer to A$750 million, said Woodthorpe. Credit can take months to obtain, compared with weeks before the financial crisis, she said. More Equity Nineteen banks are financing the A$1.82 billion offer by Blackstone, TPG and Carlyle for Healthscope , the Australian Financial Review reported June 4. A rival A$1.84 billion bid, which Healthscope disclosed without naming the suitor, was made by Kohlberg Kravis Roberts & Co. and CVC Asia Pacific, the newspaper said. Buyout firms will find it tougher to outbid corporate acquirers as they need to finance a larger part of deals with equity than before the crisis, said Bryan Zekulich, Sydney-based private equity managing partner at Ernst & Young LLP. “That does limit the ability to pay significantly higher prices,” he said. “If you are a corporate buyer and have synergies available, than arguably you should be able to outbid the private equity house that’s just trying to leverage.” Debt accounted for as much as 70 percent of the largest buyouts in Australia before the financial crisis, according to Avcal. Now, firms have to stump up half the price in equity, the organization estimates. Shareholders are pressing boards for more detail on private equity approaches, said Zekulich. The wariness stems partly from deals including the failed buyout of Qantas three years ago, when shareholders rejected a board-endorsed bid from a group that included Macquarie Group Ltd. and TPG, he said. “Boards and shareholders are still a little bit uncomfortable giving too much access to private equity players,” Zekulich said. “There’s a slight change in underlying shareholder sentiment.” To contact the reporter on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net

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Osborne Scraps FSA in U.K.’s Biggest Bank Regulation Overhaul Since 1997

June 16, 2010

By Gonzalo Vina June 17 (Bloomberg) — Chancellor of the Exchequer George Osborne said he will abolish the Financial Services Authority and give most of its power to the Bank of England, undoing the regulatory system set up by Gordon Brown in 1997. In the most sweeping changes to financial regulation since then, the watchdog will be wound down and replaced by three bodies over the next two years, the chancellor said. A Prudential Regulatory Authority will be created as a subsidiary of the central bank. Osborne will also set up a Financial Policy Committee at the bank and establish a consumer protection and markets agency. Osborne, whose Conservative Party took power after the May 6 election, is delivering on a promise made almost a year ago to shake up the way the U.K.’s banks and markets are policed. He’s blamed the system established by former Labour Prime Minister Brown for failing to prevent a financial crisis that saddled taxpayers with liabilities of as much as 1.4 trillion pounds ($2.1 trillion) and plunged the economy into the worst recession since World War II. “At the heart of the crisis was a rapid and unsustainable increase in debt that our macroeconomic and regulatory system utterly failed to identify let alone prevent,” Osborne told bankers at his first Mansion House dinner in London’s financial district last night. Northern Rock Brown’s government had to nationalize Northern Rock Plc , the first U.K. casualty of the credit crunch, in February 2008. The lender nearly collapsed in 2007 after it had to seek emergency funding from the central bank and then suffered a run on its deposits. The government also had to take controlling stakes in Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc . Osborne’s plan scraps Brown’s tripartite system of regulation — in which the central bank, FSA and Treasury shared responsibilities — and places most of the onus on Bank of England Governor Mervyn King . Legislation to replace the FSA will be in place by 2012, Osborne said. Angela Knight , the chief executive of the British Bankers’ Association, a lobby group, said she welcomed steps to make the system “clearer and more effective” and pledged to support the government during the transition. The FSA’s chief executive, Hector Sants , 54, will stay on at the authority while it is wound down and will take up new roles on the bodies that replace it, becoming a deputy governor of the central bank. ‘Macro Issues’ Executive power over financial supervision will go to the Financial Policy Committee at the central bank, which will operate in a similar way to its rate-setting monetary policy panel. The new committee “will have the tools and the responsibility to look across the economy at the macro issues that may threaten economic and financial stability and the tools to take effective action in response,” Osborne said. The committee will be chaired by King and will include Sants among its members. The panel’s work will be scrutinized by Parliament’s Treasury Committee, the chancellor said. The Prudential Regulatory Authority “will carry out the prudential regulation of financial firms, including banks, investment banks, building societies and insurance companies,” Osborne said. Sants will be its chief executive and King its chairman. Andrew Bailey, the head of the central bank unit that deals with failed banks, will be Sants’s deputy. ‘Authority, Knowledge’ “Only independent central banks have the broad macroeconomic understanding, the authority and the knowledge required to make the kind of macro-prudential judgments that are required now and in the future,” Osborne said. “They must also be responsible for day-to-day micro-prudential regulation as well.” The third pillar of Osborne’s regulatory overhaul will come with the creation of a Consumer Protection and Markets Authority. Osborne said the agency will regulate financial firms “providing services to consumers” and maintain the “integrity of the U.K.’s financial markets.” King told the Mansion House dinner that the new framework will assure the stability of the financial system. “A credible macro-prudential regime could help forestall both excessive exuberance and unnecessary caution,” King said. “By altering the pressure on the financial brakes according to circumstances, regulation, far from being an inflexible foe, would become a flexible friend.” FSA Chairman Adair Turner said he welcomed Osborne’s plans. ‘Much Clearer’ “The overall future shape of financial regulation is now much clearer and we are in a strong position to create a future regulatory system which builds on the FSA’s achievements over the last few years of major change,” Turner said in an e-mailed statement. “It is ironic that while in opposition the Tories identified the tripartite system as the root of all regulatory evil, yet here they are as government inventing multiple front- line agencies and creating distracting confusion in the process,” said Ash Saluja, a lawyer at CMS Cameron McKenna in London. Osborne also said he will bring under one roof the handling of “serious economic crime,” which is currently dealt with by a number of organizations. The chancellor also gave the names last night of the people who will work alongside former Bank of England Chief Economist John Vickers when he leads a panel on the future of banking. Martin Wolf of the Financial Times, Bill Winters , the former co-chief executive of JP Morgan’s investment bank, Martin Taylor, formerly of Barclays Plc, and Clare Spottiswoode , the former head of the gas regulator Ofgas, will work with Vickers on the Independent Banking Commission, Osborne said. To contact the reporter on this story: Gonzalo Vina in London at gvina@bloomberg.net .

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BP Stops Dividends, Pledges Asset Sales to Finance Obama’s Oil-Spill Fund

June 16, 2010

By Brian Swint June 16 (Bloomberg) — BP Plc canceled three quarterly payments of its $10 billion-a-year dividend after President Barack Obama demanded it put up cash for victims of the Gulf of Mexico spill. BP said it will reduce expenditures and sell more assets than planned to free up cash. The previously announced first-quarter payment due on June 21 will be canceled, it said in a statement today. No dividend will be paid for the second and third quarters, BP said. We “are confident that the agreement announced today will provide greater comfort of the citizens of the Gulf coast and greater clarity to BP and its shareholders,” Chairman Carl- Henric Svanberg said after a meeting with Obama in Washington today. Svanberg and Chief Executive Officer Tony Hayward agreed to set aside $20 billion over several years to compensate victims of the spill after Obama in an Oval Office address yesterday called for the creation of a fund. “We’ve sorted out a lot of the uncertainty, and that’s what the market didn’t like,” Peter Hitchens , an analyst at Panmure Gordon & Co. in London, said in a telephone interview. “This is a painful measure, but the market has got used to the idea.” ‘Not as Bad’ BP’s American depositary receipts were up 45 cents to $31.85 in New York trading. Earlier they touched $33. The shares are down 46 percent since the April 20 explosion aboard the Deepwater Horizon drilling rig that killed 11 workers and triggered the oil spill. “Now that everyone is on the same side, it should restore confidence,” Panmure’s Hitchens said. “BP’s not the winner, but it’s not as bad as some people thought.” BP’s payments accounted for about 14 percent of all dividends in the U.K.’s benchmark FTSE 100 stock index last year. Fitch Ratings yesterday lowered BP’s credit score by six grades to BBB, two levels above junk, on concern costs will escalate. To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net .

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Gene Therapy Shows Promise for Blocking HIV, Controlling AIDS, Study Says

June 16, 2010

By Rob Waters June 16 (Bloomberg) — Two cutting-edge medical technologies, stem cell transplantation and gene therapy , were combined in an attack on the AIDS virus that may lead to new strategies for treating people infected with HIV. Researchers at the City of Hope , a nonprofit research institute near Los Angeles, extracted stem cells from the blood of four people with AIDS-related lymphoma, a blood cancer, and modified some of them to carry anti-HIV genes. The altered cells were returned to the patients’ blood without harming them and remained there for two years, a sign that if given in greater number, they might be able to suppress the AIDS virus. The results may help researchers hunting for ways to cure HIV patients or block the AIDS virus without putting people on toxic medicine for the rest of their lives. Potent antiviral drugs suppress the virus and allow those infected to live near- normal lives. Yet the medicines are unaffordable to millions in poor countries and cause side effects that may shorten the lives of people who use them. “One of the problems with antiviral therapy is that it has almost led to the perception that HIV is cured and that’s not true,” said David Schaffer , a professor of bioengineering at the University of California, Berkeley, who co-directs the school’s stem cell center. “If you could develop a therapy to make HIV-proof blood cells, then you could create a true cure for HIV. This is a very promising clinical trial that takes us in that direction.” Schaffer, who was not involved in the research, wrote a commentary accompanying the study. Both were published today in the journal Science Translational Medicine . Current Treatments More than 34 million people worldwide are infected with HIV, the virus that causes AIDS, and about 2 million lost their lives to AIDS in 2008, according to the World Health Organization , based in Geneva. Efforts to develop vaccines to prevent high- risk people from becoming infected have so far failed, leaving the drug cocktails made by companies led by Gilead Sciences Inc. , based in Foster City, California, and London-based GlaxoSmithKline Plc as the method of treating people with HIV. The City of Hope research builds on an experiment reported last year by a German doctor, Gero Hutter, in the only known case of an AIDS patient being cured. The patient, who had AIDS and leukemia, was given a stem-cell transplant from a donor whose rare gene variant caused his immune cells to lack a receptor called CCR5 . Without this receptor, HIV can’t infect immune cells. New Blood Hutter’s patient had his blood-forming stem cells wiped out and replaced by those of the donor. The transplant rebuilt his blood system and cured his leukemia. His immune cells also became resistant to HIV, allowing him to stop the antiviral drugs he’d been taking for 10 years. Three years after the transplant, the patient still has no detectable HIV, Hutter said in a June 5 interview. The City of Hope researchers extracted patients’ blood- forming stem cells, genetically modified some of them and infused them back into the patients after first wiping out their bone marrow and blood system. The modified cells were altered using a harmless virus to carry three different gene sequences into them. This triple- therapy approach was modeled on drug cocktails that attack HIV in multiple ways to overcome drug resistance, study leader John Rossi said in a June 14 telephone interview. One of the molecules cuts the CCR5 sequence in an effort to bar the door to a cell and keep HIV from entering, the second squires away a protein that the virus uses to replicate and the third knocks out a key piece of genetic machinery that HIV needs to maintain itself, Rossi said. Multiple Attacks “The idea is to hit multiple sites of the virus with different types of gene therapy so resistance to one doesn’t make it resist others,” Rossi said. “The three work better than any two together.” The transplant procedure is risky and was only attempted on HIV patients who needed it to treat their cancer. All four patients remain free of their lymphoma about two years after the treatment, Rossi said. The number of gene-modified cells returned to the patients in the study was too small to cure or even improve their HIV infections, Rossi said. The next step is to replace a much larger portion of a patient’s stem cells with gene-modified cells and see if they can substantially reduce their HIV level. Rossi and his colleagues also are exploring ways to alter the transplant procedure to make it less toxic. That may allow the procedure to be used on HIV patients who don’t have cancer. The research was funded in part by Benitec Ltd., a Melbourne, Australia-based biotechnology company that developed one of the gene therapy treatments used in the trial. To contact the reporter on this story: Rob Waters in San Francisco at rwaters5@bloomberg.net .

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Citigroup Suspends Foreclosures in Gulf Coast Area as Spill Threatens Jobs

June 16, 2010

By Jody Shenn June 16 (Bloomberg) — Citigroup Inc. , the recipient of a $45 billion taxpayer bailout, will suspend foreclosures in coastal areas hit by the BP Plc oil spill in the Gulf of Mexico. The three-month halt starts tomorrow and will apply to loans owned by the bank’s mortgage unit, not debt that Citigroup services for other lenders or investors, the company said today in an e-mailed statement. Homeowners within about 25 miles of the coast will be covered and evictions will be halted if properties have already been seized . “We aim to ease the burden on residents of the Gulf states so they can concentrate on the most urgent matters facing them,” Citigroup Chief Executive Officer Vikram Pandit , 53, said in the statement. “We will continue to explore ways to help people avoid foreclosure so they and their families can remain in their homes and have one less thing to worry about.” Fannie Mae, the government-supported mortgage company, today reminded the companies that manage its loans that they can immediately suspended or reduce payments for borrowers for at least three months. Citigroup’s move will protect about 1,200 homeowners, according to Sanjiv Das , head of the New York-based bank’s CitiMortgage unit. The bank has had “very encouraging” discussions with companies for which it services home loans and may expand the moratorium to their borrowers, he said. Fannie, Freddie “We don’t know what the repercussions of the oil spill are going to be,” Das said in a telephone interview today. “But we thought it was important for our borrowers at this time of distress to get their financial bearing.” Freddie Mac, which along with Fannie Mae owns or guarantees more than half of U.S. home loans, hasn’t announced special directions to its servicers for borrowers in the area, as it did after 2005’s Hurricane Katrina. The McLean, Virginia-based company’s guidelines allows them to provide relief where appropriate, according to spokesman Brad German . Washington-based Fannie Mae’s “policy is in place to support those who are experiencing a disaster-related hardship through no fault of their own and are acting in good faith to meet their mortgage obligation,” CEO Michael J. Williams said in an e-mailed statement. Fannie and Freddie plunged today after regulators told them to delist their common and preferred shares from the New York Stock Exchange. To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net

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BP Cancels Dividend to Set Aside $20 Billion for Spill-Compensation Fund

June 16, 2010

By Brian Swint June 16 (Bloomberg) — BP Plc canceled three quarterly payments of its $10 billion-a-year dividend after President Barack Obama demanded it put up cash for victims of the Gulf of Mexico spill. The previously announced first-quarter payment due on June 21 will be canceled, it said in a statement today. No dividend will be paid for the second and third quarters, BP said. We “are confident that the agreement announced today will provide greater comfort of the citizens of the Gulf coast and greater clarity to BP and its shareholders,” Chairman Carl- Henric Svanberg said after a meeting with Obama in Washington today. Svanberg and Chief Executive Officer Tony Hayward agreed to set aside $20 billion over several years to compensate victims of the spill after Obama in an Oval Office address yesterday called for creation of a fund. BP said it will reduce capital expenditure and sell more assets than planned to free up cash. “The dividend is off the table,” said Alastair Syme , an oil and gas analyst at Nomura Holdings Inc. in London, before the announcement. “Until they have some clarity on the costs of the spill, they can’t do anything.” BP’s payments accounted for about 14 percent of all dividends in the U.K.’s benchmark FTSE 100 stock index last year. Fitch Ratings yesterday lowered BP’s credit score by six grades to BBB, two levels above junk, on concern costs will escalate. To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net .

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White House Doesn’t Expect BP to Undermind its Own Financial Viability

June 16, 2010

By Julianna Goldman June 16 (Bloomberg) — The Obama administration doesn’t expect BP Plc to agree to anything that would make the company unviable, including dismantling itself, a senior White House official said today. BP Chief Executive Officer Tony Hayward and Chairman Carl- Henric Svanberg arrived at the White House for a meeting that will include President Barack Obama . The president is scheduled to make a statement on the result at 12:15 p.m. Washington time. The administration official, who spoke on condition of anonymity, said the White House expects “tangible progress” in talks on an escrow fund to cover cleanup costs and claims stemming from the Gulf of Mexico oil spill. Obama plans to attend the meeting for 20 minutes as the administration and oil-company executives try to hammer out an accord on a compensation fund administered by a third party. David Axelrod , Obama’s senior adviser, said today there is no limit on the so-called escrow account. “There’ll be no upward cap there. If they owe more money, they’ll have to pay more money,” Axelrod said on NBC’s “Today” show. “This is not a get-out-of-the-situation-free card.” Legal Authority At issue is the size of the fund, the naming of a person to administer it and whether BP shareholders would have to approve the transfer of money required for the account, according to people familiar with the situation, who asked not to be identified describing the private talks. “We believe we have the authority to compel” creation of a compensation fund administered by a third party, Axelrod said on NBC. Obama said in a nationally televised address yesterday from the Oval Office that he will inform Svanberg “that he is to set aside whatever resources are required to compensate the workers and business owners who have been harmed as a result of his company’s recklessness.” Senate Majority Leader Harry Reid , a Nevada Democrat, has suggested that BP set aside $20 billion for the fund. The White House, for the moment at least, has declined to release a list of administration and BP officials attending the negotiating session, which will be held in the Roosevelt Room across a hallway from the Oval Office. To contact the reporter on this story: Julianna Goldman in Washington at jgoldman6@bloomberg.net Roger Runningen in Washington at rrunningen@bloomberg.net

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Stocks Recover From Early Drop, Oil Rises Treasuries Pare Gain

June 16, 2010

By Michael P. Regan and Esme E. Deprez June 16 (Bloomberg) — U.S. stocks recovered most of an early drop as BP Plc’s plan to put $20 billion into a fund to pay damages from the Gulf of Mexico oil spill eased concern about the company’s future. The dollar and Treasuries pared gains and oil rallied on lower refinery operating rates. The Standard & Poor’s 500 Index was little changed at 1,114.65 at 1:08 p.m. in New York after tumbling 0.7 percent earlier. Oil rose as much as 1.3 percent to a one-month high of $77.90 a barrel. The Dollar Index, which gauges the U.S. currency against six major trading partners, gained 0.1 percent after jumping 0.5 percent earlier. The yield on the 10-year Treasury note slipped 3 basis points to 3.28 percent. BP’s U.S. shares pared losses as people familiar with the White House talks said executives tentatively agreed to pay into the fund over a period of time, easing concern about the company’s prospects as credit investors price in a record 39 percent chance it will default within five years. The earlier drop in stocks came after FedEx Corp.’s earnings forecast trailed estimates and housing starts dropped more than forecast. “It quantifies to some degree the amount that BP is going to set aside,” said Marshall Front , chairman of Front Barnett Associates LLC in Chicago, which manages $500 million. “They earn $4.5 billion a quarter so this is not a staggering amount of money.” 200-Day Average The S&P 500 drifted between gains and losses after a 2.4 percent rally yesterday erased the index’s loss for the year. FedEx, the largest air-cargo carrier, tumbled 3 percent after forecasting annual profit that may trail the average analyst estimates by as much as 13 percent on higher costs for health- care and pensions. U.S. housing starts fell 10 percent, the biggest decline since March 2009, to a 593,000 annual rate, from a revised 659,000 pace in April that was less than previously estimated, Commerce Department figures showed. Building permits, a sign of future construction, unexpectedly fell to a one-year low. Single-family starts suffered the largest drop since 1991. Fannie Mae and Freddie Mac shares tumbled at least 39 percent after their regulator told the two mortgage-finance companies to delist their stock from the New York Stock Exchange. To contact the reporter on this story: Michael P. Regan in New York at mregan12@bloomberg.net ; Esme E. Deprez in New York at edeprez@bloomberg.net .

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BP Is Said to Agree on $20 Billion Escrow Fund for Gulf Oil Spill Damages

June 16, 2010

By Julianna Goldman and Roger Runningen June 16 (Bloomberg) — BP Plc tentatively agreed to put about $20 billion into a fund to pay damages resulting from the Gulf of Mexico oil spill, with claims administered by the lawyer who oversaw executive compensation for the government’s financial bailout, a person familiar with the talks said. The agreement was worked out in a White House meeting between company executives including Chairman Carl-Henric Svanberg and President Barack Obama and his top advisers. Kenneth Feinberg, who also oversaw the fund that paid families of the Sept. 11 attacks, will act as an independent third party to judge claims and authorize payments to Gulf Coast residents affected by the biggest oil spill in U.S. history. To contact the reporter on this story: Julianna Goldman in Washington at jgoldman6@bloomberg.net

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Taylor Bean’s Former CEO Lee Farkas Is Charged in $1.9 Billion TARP Fraud

June 16, 2010

By William McQuillen and Justin Blum June 16 (Bloomberg) — Lee Farkas , the former chairman of Taylor, Bean & Whitaker Mortgage Corp., was accused by the U.S. of helping run a more than $1.9 billion fraud scheme aimed in part at the government’s Troubled Asset Relief Program. An indictment unsealed today in federal court in Alexandria, Virginia, alleges that Farkas, 57, and fellow conspirators sought to deceive financial firms and TARP by covering up shortfalls at his closely held mortgage lending company based in Ocala, Florida. The company filed for bankruptcy in August 2009. Farkas was arrested yesterday by the Federal Bureau of Investigation in Ocala, said Lindsay Godwin, an FBI spokeswoman. The scheme contributed to the failure of Colonial BancGroup Inc., one of the 50 largest U.S. banks in 2009, and closely held Taylor, Bean & Whitaker, once one of the largest privately held mortgage companies in the U.S., the Justice Department said in a news release. Farkas and unnamed co-conspirators are accused by the government of misappropriating more than $400 million from a division of Colonial and about $1.5 billion from Ocala Funding, a mortgage lending facility controlled by Taylor, Bean & Whitaker. The indictment alleges that Farkas and his co- conspirators committed wire and securities fraud by attempting unsuccessfully to persuade the government to provide Colonial with about $553 million in TARP funds. Farkas misappropriated more than $20 million in Taylor, Bean & Whitaker funds for personal use, according to the government’s pretrial detention memo. “To cover up collateral shortfalls, Farkas and co- conspirators caused false information to be sent to the financial services investors,” the indictment said. The case is USA v. Farkas, 10cr200, U.S. District Court for the Eastern District of Virginia (Alexandria). To contact the reporter on this story: William McQuillen in Washington at bmcquillen@bloomberg.net

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Lawmakers Consider Changes to SEC Authority, Brokerages’ Duty to Clients

June 16, 2010

By Alison Vekshin June 16 (Bloomberg) — Congressional negotiators today weighed proposals to strengthen investor protections and the powers of the Securities and Exchange Commission as they sought to merge two versions of regulatory-overhaul legislation. House negotiators agreed to an amendment to create an office at the SEC to respond to whistleblower complaints and offered a plan to require the SEC to impose a fiduciary duty on broker-dealers providing advice to retail customers. “We’re trying to create a standard across the board for both investment advisers and for broker-dealers in dealing with their customers. It seems to me this is long overdue,” Representative Paul Kanjorski , a Pennsylvania Democrat, said at a negotiating session held today in Washington. Lawmakers are resolving differences between the bill the House approved in December and the version the Senate produced last month. Negotiators yesterday agreed to changes dealing with the insurance industry and credit-rating companies. The lawmakers are scheduled today to consider changes to language dealing with executive compensation, including a plan to hold shareholder votes on so-called golden parachute packages. They will also debate changes to a plan to require a congressional audit of the Federal Reserve. The changes offered by House negotiators will have to be approved by their Senate counterparts before they can be added to the bill. To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net .

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U.S. Stocks Fluctuate as BP Oil-Fund Accord Offsets FedEx Profit Forecast

June 16, 2010

By Nikolaj Gammeltoft June 16 (Bloomberg) — U.S. stock fluctuated as BP Plc’s agreement to pay about $20 billion for claims from the Gulf of Mexico oil spill assuaged concern about the company’s future, helping the market recover most of an earlier drop. BP’s U.S. shares erased a loss of as much as 5.8 percent and energy shares in the Standard & Poor’s 500 Index turned higher as a person familiar with the talks said BP tentatively agreed to put the money into a fund to pay damages from the worst spill in U.S. history. FedEx, the largest U.S. air-cargo carrier, slid 2.3 percent as its full-year earnings forecast trailed analyst estimates on higher costs for health-care and pensions. The S&P 500 rose less than 0.1 percent to 1,115.26 at 12:38 p.m. in New York after tumbling as much as 0.7 percent earlier. The Dow Jones Industrial Average slipped 9.22 points, or less than 0.1 percent, to 10,395.55 after sliding 72 points earlier. “If anything it puts hard numbers around quantity,” said Evan Smith , who helps manage $2 billion at U.S. Global Investors Inc., including shares of Anadarko Petroleum Corp., the company that owns a 25 percent stake in BP’s well. “High estimates I’ve seen have been $30 or 40 billion and this is less than that. I’d imagine that’s incrementally positive. It’s putting a number around the liability.” U.S. equities slumped earlier after FedEx’s forecast and a drop in housing starts cast doubt on the economic recovery. The S&P 500 rallied 2.4 percent yesterday to 1,115.23, the highest close since May 18. The advance sent the index about 6.5 points above its average level in the past 200 days, a move considered significant by investors who base trading decisions on chart patterns. Recovery After Tumble The index tumbled 14 percent from a 19-month high on April 23 through June 7 as concern grew that Europe’s debt crisis will derail the economic recovery and BP’s leaking well triggered the worst oil spill in U.S. history. The S&P 500 has since rebounded 6.2 percent as concern over European budget deficits eased and investors speculated growth in China and the U.S. will bolster the global recovery. FedEx fell 2.3 percent to $81.07. The company expects a fiscal 2011 profit of $4.40 to $5 a share. The average estimate of analysts surveyed by Bloomberg was a profit of $5.07 a share. Home Depot lost 0.7 percent to $32.02. Housing starts fell 10 percent to a 593,000 annual rate last month, the lowest level this year, from a revised 659,000 pace in April that was less than previously estimated, Commerce Department figures showed today. Fannie, Freddie Sink Fannie Mae’s shares tumbled 45 percent to 50 cents and Freddie Mac’s plummeted 47 percent to 65 cents after their regulator told the mortgage-finance companies to delist their shares from the New York Stock Exchange. Fannie’s and Freddie’s common and preferred stock will be quoted on the Over-the- Counter Bulletin Board once they’re de-listed from the NYSE, the Federal Housing Finance Agency said in an e-mailed statement. The S&P 500’s Consumer Discretionary Sector Index dropped 0.6 percent for the biggest decline among 10 industry groups in the benchmark index for U.S. equities. General Electric Co. rose 1.5 percent to $16.03 as government data showed industrial production in the U.S. gained 1.2 percent in May, the most since August and beating the median estimate of 0.9 percent based on a survey 82 economists. To contact the reporter on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net .

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BP Plc Isn’t Expected to Undermine its Financial Viability, Official Says

June 16, 2010

By Julianna Goldman June 16 (Bloomberg) — The Obama administration doesn’t expect BP Plc to agree to anything that would make the company unviable, including dismantling itself, a senior White House official said today. President Barack Obama meets today with BP Chief Executive Officer Tony Hayward and Chairman Carl-Henric Svanberg at the White House. The president is scheduled to make a statement on the result at 12:15 p.m. Washington time. The administration official, who spoke on condition of anonymity, said the White House expects “tangible progress” in talks on an escrow fund to cover cleanup costs and claims stemming from the Gulf of Mexico oil spill. Obama plans to attend the meeting for 20 minutes as the administration and oil-company executives try to hammer out an accord on a compensation fund administered by a third party. David Axelrod , Obama’s senior adviser, said today there’s no limit on the escrow account. “There’ll be no upward cap there. If they owe more money, they’ll have to pay more money,” Axelrod said on NBC’s “Today” show. “This is not a get-out-of-the-situation-free card.” To contact the reporter on this story: Julianna Goldman in Washington at jgoldman6@bloomberg.net

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Nokia Lowers Forecasts Amid IPhone Competition in Smartphones, Weaker Euro

June 16, 2010

By Diana ben-Aaron June 16 (Bloomberg) — Nokia Oyj , the world’s biggest maker of mobile phones, cut its second-quarter and full-year forecasts, citing a lack of high-end devices and a weaker euro. Second-quarter handset revenue and margins will be “at the lower end of or slightly below” the range forecast, the Espoo, Finland-based company said in a statement today. Nokia has struggled to come out with a touchscreen model that meets user expectations raised by Apple Inc. ’s iPhone. The company is losing high-end customers to the iPhone, Research in Motion Ltd.’s BlackBerry, and phones running Google Inc.’s Android software, while increasing sales of cheaper smartphones with smaller profits. Nokia fell as much as 55 cents, or 7 percent, to 7.37 euros, the most in more than a month. It was trading down 6.6 percent at 7.40 euros as of 3:07 p.m. in Helsinki. Sales in the devices and services division may fall below 6.7 billion euros ($8.2 billion) as the company’s product mix shifted toward less-profitable midrange and low end phones, Nokia said. The adjusted operating margin in handsets may fall below 9 percent in the second quarter and 11 percent for the year, it said. The company lowered its devices margins forecasts on April 22 to 9 to 12 percent for the quarter and 11 to 13 percent for the year. To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

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BP Likely to Suspend Dividend as Obama Demands Clean-Up Fund, Analysts Say

June 16, 2010

By Brian Swint June 16 (Bloomberg) — BP Plc will suspend its $10 billion dividend as President Barack Obama ’s demand to set aside cash for the Gulf of Mexico spill stretches the company’s finances, analysts said. “The dividend is off the table,” said Alastair Syme , an oil and gas analyst at Nomura Holdings Inc. in London. “Until they have some clarity on the costs of the spill, they can’t do anything.” BP Chairman Carl-Henric Svanberg will meet Obama at the White House today to discuss how to compensate victims of the spill after Obama in an Oval Office address yesterday called for creation of a fund. Lawmakers, who will question Chief Executive Officer Tony Hayward tomorrow, have said the company should suspend the dividend and put $20 billion in an independently administered escrow account to pay claims. Bloomberg forecasts show that BP is unlikely to pay a cash dividend in the second and third quarters. BP’s payments accounted for about 14 percent of all dividends in the U.K.’s benchmark FTSE 100 stock index last year. Fitch Ratings yesterday lowered BP’s credit score by six grades to BBB, two levels above junk, on concern costs will escalate. “Hayward’s response to the president is very important, and the dividend could be fairly easy to give,” said Gudmund Halle Isfeld , an analyst at DnB NOR ASA in Oslo. “If I were an investor, I would say it’s okay to suspend the dividend for a quarter or two to ensure the company gets through the storm.” BP spokeswoman Sheila Williams said no decision on the second-quarter dividend has been made. Fitch said it would be “surprised” if BP didn’t suspend the quarterly payout until the full costs are known. Cleanup and liabilities may reach $40 billion, Standard Chartered Plc estimated last week. ‘Lack of Access’ “It’s not financially obvious how they could set up an escrow, given their credit rating and lack of access to credit markets,” Nomura’s Syme said. “It’s in the interest of BP to do something rather than nothing but they’re constrained by liquidity.” Credit investors are pricing in a more than 39 percent chance BP will default within five years. The rising risk implied by credit-default swaps is up from 7 percent a month ago, according to CMA DataVision. BP had $5 billion of cash available , $5.25 billion of credit lines it hadn’t used and another $5.25 billion of stand- by bank facilities, BP said in an investor conference call June 4. Fitch said yesterday it expects BP’s lenders to allow the company to use the credit lines if needed. BP generated $27.7 billion in cash flow from operations last year and posted profit of $6 billion in the first quarter. Capital spending will total about $20 billion the company said in this year’s strategy presentation. Cleaning Up The company has spent about $1.6 billion on containing and cleaning up the spill so far. If BP maintains its dividend this year at the 2009 level the dividend yield, or annual payout as a percentage of the current share price, will be more than 10 percent. That compares to 2.8 percent for Exxon Mobil Corp. and 5.9 percent for Royal Dutch Shell Plc. “BP has the strength of balance sheet and free cash flow to sustain dividends at existing levels for now,” Collins Stewart analyst Gordon Gray wrote in a note today. “However, the rising level of public anger in the U.S., including pressure for BP to establish an escrow account for spill compensation, now point to the likelihood that BP will not pay a cash dividend for the second quarter.” To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net .

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Russia to Buy Canadian, Aussie Dollars for First Time

June 16, 2010

By Paul Abelsky and Maria Levitov June 16 (Bloomberg) — Russia may add the Australian and Canadian dollars to its international reserves for the first time after fluctuations in the U.S. dollar and euro. “Adding the Australian dollar is being discussed,” Alexei Ulyukayev , the central bank’s first deputy chairman, said in an interview at an event hosted by Bloomberg in Moscow last night. “There are pros and cons. We have added the Canadian dollar but haven’t yet begun operations” with the currency. U.S. dollars account for 47 percent of Russia’s reserves, while euros make up 41 percent, British pounds 10 percent and Japanese yen 2 percent, Ulyukyaev said in November. The central bank has reduced dollars from 50 percent in 2006, when euros accounted for 40 percent and the remaining 10 percent was in yen and pounds. Russia’s international reserves, the world’s third biggest, reached $458.2 billion on June 4. President Dmitry Medvedev last year suggested Russia would reduce its use of the U.S. dollar as a reserve currency after the greenback lost 34 percent of its value against the euro in 2 ½ years. The euro fell to a four-year low of $1.1877 on June 7 and has dropped 22 percent since Nov. 25 on investor concern policy makers may fail to contain Europe’s debt crisis. Push to Diversify Russia’s push to diversify reserves “is more a result of their desire to do something in response to the extreme volatility of the dollar and the euro,” said Elena Matrosova , a Moscow-based economist at BDO International, the financial consultancy that lists the central bank among its clients. The Canadian or Australian dollar “can’t be truly called international reserve currencies because of their very limited liquidity,” she said. The Australian dollar traded near the strongest level since mid-May, at 86.43 U.S. cents as of 6:40 a.m. in London. The Canadian and Australian dollars have been among the best performers in the past 12 months as investors speculated a recovering global economy would increase demand for the countries’ raw materials. The Canadian dollar has gained 10 percent against the U.S. currency and 23 percent versus the euro during that period. The Australian dollar is up 8.6 percent and 21 percent, respectively. Ruble Gains Medvedev has pushed for the creation of regional reserve currencies and in July produced a prototype coin for a “world currency,” which he said was needed to stabilize the global economy. Central Bank Chairman Sergey Ignatiev said May 27 that Russia hadn’t changed the currency structure of its reserves after year-end figures showed Bank Rossii increased the portion held in dollars. The U.S. dollar may account for more than half of Russia’s foreign currency reserves by the end of this year, Paris-based BNP Paribas estimated last month. The ruble has gained almost 11 percent against the euro and 0.2 percent versus the dollar in the past 12 months. The Russian currency strengthened for a fifth day against the greenback, climbing 0.7 percent to 31.1450 for its longest winning streak in two months. Russia had a net capital inflow of about $3 billion in May after an inflow of between $3 billion and $4 billion in the previous month, said Ulyukayev. “There was a small capital inflow of about $3 billion in May, according to preliminary calculations,” he said. The Russian government forecasts no net capital inflow this year after outflows of $52.4 billion in 2009. To contact the reporter on this story: Paul Abelsky in Moscow at pabelsky@bloomberg.net .

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Merckle Drug Wholesaler Phoenix Said to Be Near $4.4 Billion Funding Deal

June 16, 2010

By Aaron Kirchfeld and Angela Cullen June 16 (Bloomberg) — Phoenix Group , the indebted drug wholesaler started by deceased billionaire Adolf Merckle , is close to obtaining as much as 3.6 billion euros ($4.4 billion) in financing, said two people familiar with the negotiations. Phoenix, based in Mannheim, Germany, may reach an agreement with banks by early next month on 2.6 billion euros in syndicated loans to refinance existing debt, said the people, who spoke on condition of anonymity. The company also has plans to sell as much as 1 billion euros in hybrid bonds, according to these people. The deal marks the final chapter in the downfall of Merckle, who committed suicide in January 2009 after wrong-way bets on the stock market that brought companies spanning the cement and drug industries to the brink of collapse. His death left son and sole heir, Ludwig, to negotiate new loans with the family’s lenders and divest assets. A spokesman for Phoenix, Olaf Teichert, couldn’t be immediately reached for comment by phone or by e-mail. Ludwig Merckle ’s spokeswoman couldn’t immediately comment. Merckle agreed to sell generic-drug maker Ratiopharm GmbH to Teva Pharmaceutical Industries Ltd. in March for 3.63 billion euros. He also sold part of his stake in HeidelbergCement AG and Swiss drugmaker Mepha Gruppe in the last 12 months. As part of the refinancing plan, Ludwig Merckle agreed to inject 500 million euros in cash and repay a loan to Phoenix, they said. Merckle’s VEM Vermoegensverwaltung GmbH investment vehicle borrowed as much as 500 million euros from Phoenix as the family patriarch sought to stem his losses, the people said. The refinancing is aimed at bolstering Phoenix’s credit standing as it considers selling as much as 25 percent of Phoenix in an initial public offering in the next year, one of the people said. Phoenix may also sell smaller assets valued at less than 200 million euros, the other person said. To contact the reporter on this story: Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net ; To contact the reporter on this story: Angela Cullen in Frankfurt at acullen8@bloomberg.net ;

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Fed Officials Might Trim Forecasts for U.S. Growth on European Debt Crisis

June 16, 2010

By Scott Lanman June 16 (Bloomberg) — Federal Reserve officials may trim forecasts for U.S. economic growth when they meet next week to set interest rates as Europe’s debt crisis saps demand for American goods and roils financial markets. Central bankers may reduce their 2010 estimates by “several tenths” of a percentage point and as much as 0.75 point for 2011, said former Fed Governor Lyle Gramley . That would mark a reversal from April, when officials raised their projections for this year to a range of 3.2 percent to 3.7 percent and left 2011 and 2012 forecasts little changed. The new estimates are likely to reinforce the Fed’s pledge, in place since March 2009, that interest rates will stay very low for an “extended period,” said former Fed researcher John Ryding . Some Fed officials are concerned that results of stress tests planned for European banks may further shake confidence in the continent’s financial system. “If you were a policy maker and you were looking at the U.S. picture, you’d say that the downside risks have increased relative to where you thought they were six weeks ago,” said Ryding, chief economist at RDQ Economics LLC in New York. The Federal Open Market Committee meets June 22-23 in Washington. The Fed will release a statement at about 2:15 p.m. on June 23, followed by minutes and forecasts from the meeting on July 14. Ryding predicts the Fed won’t raise its benchmark rate from close to zero until at least March, and he said the odds of a change in that timeframe are “heavily skewed to being later rather than sooner.” Fed Chairman Ben S. Bernanke said June 9 the European crisis would have a “modest” effect on the U.S., assuming financial markets “continue to stabilize.” Most Likely Outcome The “most likely outcome” from Europe for the U.S. economy is shaving “a tenth or two off my growth forecast for this year,” Richmond Fed President Jeffrey Lacker said May 26. “It also raises the profile of some downside risks.” Fed staff economists may outline a most-likely scenario for the next 18 months in which the euro-region economy slows without relapsing into recession as a weaker euro boosts exports and growth in Latin America and Asia stokes the global economy. The crisis has prompted economists at Barclays Capital Inc., Credit Suisse, UBS AG and Deutsche Bank AG to push back by several months their predictions for an increase in the Fed’s benchmark rate. At Barclays, Chief U.S. Economist Dean Maki said in a June 4 research note that the Fed will raise the rate in April of 2011, instead of the third quarter of 2010. The Fed may benefit from the expertise of a visiting European Central Bank economist. Filippo di Mauro, who has headed international economic forecasting for the ECB since 1998, came to the Fed in April for a five-month residency. Recouping Losses Stocks are recouping some of the losses caused by the European debt crisis. The Standard & Poor’s 500 Index yesterday rose 2.4 percent, erasing its decline for the year, as a New York Fed report showed manufacturing in the region accelerated, adding to signs of global economic resilience. The S&P 500 index is down 8 percent from its 2010 high on April 23. The ECB on June 10 raised its euro-region growth forecast for this year to around 1 percent from around 0.8 percent. At the same time, the bank lowered its forecast for 2011 to 1.2 percent from 1.5 percent because of weaker domestic demand. European Union bank regulators are conducting confidential stress tests and may publish results this month after lenders absorbed about $1.8 trillion of losses and writedowns in the global financial crisis. Financial Stability Board chief Mario Draghi this month urged European authorities to publish stress tests on banks to “clear the air.” More Capital Some Fed officials are concerned the test risks undermining investor confidence. In one possible outcome, results could show banks need more capital and there’s no commitment from European governments to provide it, as the U.S. did with the $700 billion Troubled Asset Relief Program. “There is definitely a chance there that some of these banks could be shown to be undercapitalized,” said Jay Bryson , a global economist at Wells Fargo Securities LLC in Charlotte, North Carolina. Other concerns include publicizing test scenarios that include defaults by Greece and Spain and failing to convince investors that the exams accurately reflect banks’ finances. “I don’t think there’s much question” that Fed policy makers should be concerned about potential fallout from stress tests, said Gramley, a senior economic adviser at Potomac Research Group in Washington. “What we’re seeing are increasing signs of credit restraint over there, banks not trusting one another, borrowers having difficulty getting funds.” ‘Very Dangerous’ Deutsche Bank AG Chief Executive Officer Josef Ackermann said last week that publishing stress tests would be “very, very dangerous” if mechanisms to support European banks weren’t in place beforehand. Not everyone is betting Europe will drag down U.S. growth. St. Louis Fed President James Bullard said June 14 in Tokyo that unless Europe deteriorates further, the U.S. is “probably a beneficiary of the crisis” because of lower Treasury yields and cheaper commodities, and that the Fed shouldn’t delay withdrawing record monetary stimulus. To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net .

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BP Escrow-Fund Deal With U.S. Said to Stall Before Obama Meets Executives

June 16, 2010

By Stanley Reed June 16 (Bloomberg) — BP Plc and the Obama administration have failed to agree on an escrow fund covering cleanup costs and claims stemming from the Gulf of Mexico oil spill, people familiar with the negotiations said. The lack of an agreement raises the stakes for a scheduled meeting of President Barack Obama with BP Chief Executive Officer Tony Hayward and Chairman Carl-Henric Svanberg at the White House today. The two sides continue to negotiate over issues including the size of the fund, who would administer it and whether BP shareholders would have to approve the transfer of money required for the account, according to the people, who asked not to be identified describing the private talks. “Tomorrow, I will meet with the chairman of BP and inform him that he is to set aside whatever resources are required to compensate the workers and business owners who have been harmed as a result of his company’s recklessness,” Obama said in a speech from the Oval Office last night. “And this fund will not be controlled by BP,” Obama said. “In order to ensure that all legitimate claims are paid out in a fair and timely manner, the account must and will be administered by an independent, third party,” he said. The president’s tone differed from two days ago, when he said during a visit to the Gulf that the two sides were having a “constructive conversation” and that he hoped progress would be made by today’s meeting. Stopping the Leak In his speech, Obama said he had directed BP to devote additional technology and equipment to stopping the leak, the worst in U.S. history. Those efforts should capture as much as 90 percent of the leaking oil “in the coming weeks and days,” he said. The Gulf well is gushing as much as 60,000 barrels of oil a day, the government said yesterday, raising for the fifth time an official estimate that began at 1,000 barrels a day in April. “We share the president’s goal of shutting off the well as quickly as possible,” BP said in a statement after the speech. “We look forward to meeting with President Obama for a constructive discussion.” How the administrator for the escrow fund would be selected is part of the negotiations with London-based BP, and the president’s aides consider today’s talks crucial to resolving differences, according to an administration official who briefed reporters yesterday on condition of anonymity. First Meeting The meeting will be Obama’s first with the BP executives since a company-leased rig exploded on April 20 and collapsed, killing 11 workers. White House Adviser David Axelrod called on June 13 for BP to establish an escrow account for claims tied to the spill. Lawmakers led by Senate Majority Leader Harry Reid , a Nevada Democrat, have said BP should establish a $20 billion fund. BP has spent about $1.6 billion to stop the leak, clean up the oil, and compensate local businesses and residents. Lamar McKay , president of BP America Inc., told a House committee hearing yesterday that the escrow issue remained unresolved. “I don’t think any decisions have been made on a trust account,” McKay said. “We’re going to pay all legitimate claims, so a decision on whether to do a trust fund or account hasn’t been made yet.” BP shares have dropped 48 percent since the spill. They fell 3.8 percent to 342 pence in London trading yesterday, the lowest price since April 1997. Fitch Ratings cut BP’s credit rating six notches yesterday to two levels above junk on concern over the potential cost of cleaning up the spill and meeting future liabilities. To contact the reporter on this story: Stanley Reed in Washington at sreed13@bloomberg.net .

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U.S. Stock-Index Futures Drop Before Reports on Home Building, Production

June 16, 2010

By Adam Haigh June 16 (Bloomberg) — U.S. stock-index futures dropped, indicating the Standard & Poor’s 500 Index will retreat from a four-week high, before reports on home construction and industrial production. International Game Technology, a maker of computerized casino gaming systems, declined 1.9 percent in German trading after Goldman Sachs Group Inc. advised clients to sell the shares. Coca-Cola Enterprises Inc. dropped 1.2 percent after the world’s largest soft-drink bottler updated shareholders on its earnings forecast. Futures on the S&P 500 expiring in September lost 0.4 percent to 1,104.5 as of 10:07 a.m. in London. Dow Jones Industrial Average futures declined 0.3 percent to 10,299 and Nasdaq-100 Index futures retreated 0.4 percent to 1,885.25. The S&P 500 rallied 2.4 percent yesterday to 1,115.23, the highest close since May 18. The advance sent the index about 6.5 points above its average level in the past 200 days, a move considered significant by investors who base trading decisions on chart patterns. The gauge tumbled 14 percent from a 19-month high on April 23 through June 7 as concern grew that Europe’s debt crisis will derail the economic recovery and BP Plc’s leaking well in the Gulf of Mexico triggered the worst oil spill in U.S. history. The S&P 500 has since rebounded 6.2 percent as concern over European budget deficits eased and investors speculated growth in China and the U.S. will bolster the global recovery. Industrial Production Industrial production probably increased in May by the most in four months, showing U.S. manufacturers are overcoming the fallout from the European debt crisis, economists said before a Federal Reserve report due at 9:15 a.m. in Washington. Output at factories, mines and utilities rose 0.9 percent in May, the biggest gain since January and the 10th increase in the past 11 months, according to the median estimate of 82 economists surveyed by Bloomberg News. Other reports may show wholesale prices and home construction declined last month. International Game declined 1.9 percent to $19.21 in German trading. Goldman Sachs cut its recommendation on the shares to “sell” from “neutral.” Coca-Cola Enterprises retreated 1.2 percent to $26.18 in Germany. The company said it sees full-year earnings per share increasing 10 to 12 percent in 2010, on a comparable and currency neutral basis. The company had seen 2010 comparable earnings per share up 10 percent excluding currency swings. To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net .

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