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Federal Reserve Must Disclose Bank Bailout Records

by on March 19, 2010

By David Glovin and Bob Van Voris March 19 (Bloomberg) — The Federal Reserve Board must disclose documents identifying financial firms that might have collapsed without the largest ever U.S. government bailout, a federal appeals court said. The U.S. Court of Appeals in Manhattan ruled today that the Fed must release records of the unprecedented $2 trillion U.S. loan program launched primarily after the 2008 collapse of Lehman Brothers Holdings Inc. The ruling upholds a decision of a lower-court judge, who in August ordered that the information be released. The Fed had argued that it could withhold the information under an exemption that allows federal agencies to refuse disclosure of “trade secrets and commercial or financial information obtained from a person and privileged or confidential.” The U.S. Freedom of Information Act , or FOIA, “sets forth no basis for the exemption the Board asks us to read into it,” U.S. Circuit Chief Judge Dennis Jacobs wrote in the opinion. “If the Board believes such an exemption would better serve the national interest, it should ask Congress to amend the statute.” The opinion may not be the final word in the bid for the documents, which was launched by Bloomberg LP, the parent of Bloomberg News, with a November 2008 lawsuit. The Fed may seek a rehearing or appeal to the full appeals court and eventually petition the U.S. Supreme Court . David Skidmore, a Fed spokesman, didn’t immediately return a call seeking comment. Freedom of Information The court was asked to decide whether loan records are covered by FOIA. Historically, the type of government documents sought in the case has been protected from public disclosure because they might reveal competitive trade secrets. The Board of Governors of the Federal Reserve System had argued that disclosure of the documents threatens to stigmatize lenders and cause them “severe and irreparable competitive injury.” Bloomberg, majority-owned by New York Mayor Michael Bloomberg , sued after the Fed refused to name the firms it lent to or disclose loan amounts or assets used as collateral under its lending programs. Most of the loans were made in response to the deepest financial crisis since the Great Depression. Lawyers for Bloomberg argued in court that the public has the right to know basic information about the “unprecedented and highly controversial use” of public money. Wall of Secrecy “Bloomberg has been trying for almost two years to break down a brick wall of secrecy in order to vindicate the public’s right to learn basic information,” Thomas Golden , an attorney for the company with Willkie Farr & Gallagher LLP, wrote in court filings. Banks and the Fed warned that bailed-out lenders may be hurt if the documents are made public, causing a run or a sell- off by investors. Disclosure may hamstring the Fed’s ability to deal with another crisis, they also argued. Much of the debate at the appeals court argument on Jan. 11 centered on the potential harm to banks if it was revealed that they borrowed from the Fed’s so-called discount window. Matthew Collette , a lawyer for the government, said banks don’t do that unless they have liquidity problems. FOIA requires federal agencies to make government documents available to the press and public. An exception to the statute protects trade secrets and privileged or confidential financial data. In her Aug. 24 ruling, U.S. District Judge Loretta Preska in New York said the exception didn’t apply because there’s no proof banks would suffer. Payment Processors The Fed’s balance sheet debt doubled after lending standards were relaxed following Lehman’s failure on Sept. 15, 2008. That year, the Fed began extending credit directly to companies that weren’t banks for the first time since the 1930s. Total central bank lending exceeded $2 trillion for the first time on Nov. 6, 2008, reaching $2.14 trillion on Sept. 23, 2009. The Clearing House Association , which processes payments among banks, joined the case and sided with the Fed. The group includes ABN Amro Bank NV, a unit of Royal Bank of Scotland Plc, Bank of America Corp. , The Bank of New York Mellon Corp., Citigroup Inc. , Deutsche Bank AG, HSBC Holdings Plc, JPMorgan Chase & Co ., US Bancorp and Wells Fargo & Co. More than a dozen other groups or companies filed friend- of-the-court briefs. Those arguing for disclosure of the records included the American Society of News Editors and individual news organizations. The case is Bloomberg LP v. Board of Governors of the Federal Reserve System, 09-04083, U.S. Court of Appeals for the Second Circuit (New York). To contact the reporters on this story: David Glovin in New York at dglovin@bloomberg.net ; Bob Van Voris in New York at vanvoris@bloomberg.net .

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U.K. Jobless Claims Decline at Fastest Pace Since 1997 as Economy Recovers

by on March 17, 2010

By Jennifer Ryan March 17 (Bloomberg) — U.K. jobless claims unexpectedly fell in February at the fastest pace since 1997, suggesting the economic recovery is strengthening as Britons prepare for a general election within weeks. The number of people receiving unemployment benefits dropped 32,300 from January to 1.59 million, the Office for National Statistics said today in London. The median forecast in a Bloomberg News survey of 29 economists was for an increase of 6,000. The jobless rate declined to 4.9 percent from 5 percent. The figures are a boost for Prime Minister Gordon Brown, who is seeking to persuade voters his Labour Party has the best strategy to cement the economic recovery. The Conservatives’ pledge to cut the record budget deficit faster than Brown is planning has cost the party support, raising the specter of a minority government after the election due by June. “We’re at a stabilization point in the level of unemployment,” Ross Walker, an economist at Royal Bank of Scotland Group Plc in London, said in an interview before the report. “Things are still quite fragile. The austerity message isn’t an easy one to sell, and in the short term you’re vulnerable to accusations that unemployment might rise.” The pound rose 0.4 percent after the report and was trading at $1.5280 as of 9:31 a.m. in London. A wider survey-based measure of unemployment based on International Labour Organization counting methods fell by 33,000 to 2.45 million in the three months through January, the biggest drop since the fourth quarter of 2007. The 7.8 percent jobless rate on that basis compares with 9.7 percent in the U.S., 9.9 percent in the euro region and 4.9 percent in Japan. Minority Government In January, the number of jobless claims rose by 5,300 instead of the 23,500 increase originally reported. A March 15 YouGov Plc poll for the Sun newspaper put the Conservatives 5 points ahead of Labour with 37 percent support, compared with a lead of 12 points at the start of the year. Speculation that no party will get an outright majority of the seats in Parliament at the election sent the pound to a 10- month low against the dollar this month. Investors are concerned that a minority administration will find it hard to cut the deficit, which is almost as big as Greece’s at more than 12 percent of economic output. The Bank of England said this week its agents expect businesses to keep staff numbers stable in the coming months. Britain emerged from its deepest recession since World War II in the fourth quarter with growth of 0.3 percent. The statistics office said today growth in weekly pay including bonuses quickened to 0.9 percent in the three months through January from 0.7 percent. Regular pay rose 1.4 percent and bonus pay fell declined 7.1 percent. To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net

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U.K. Jobless Claims Decline at Fastest Pace Since 1997 as Economy Recovers

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Dollar, Yen Weaken as Investors Seek Currencies Linked to Economic Growth

March 12, 2010

By Inyoung Hwang March 13 (Bloomberg) — The dollar and yen fell versus all of their major counterparts as concern eased Greece would default and European and U.S. reports signaled the economic recovery is accelerating, fueling appetite for riskier assets. The euro touched a one-month high versus the greenback as stocks gained for a second week. The yen fell against all 16 of its most-traded peers as Japanese officials said the government is ready to intervene to keep the currency from strengthening. Federal Reserve policy makers are forecast to hold interest rates steady at a meeting next week. “The European problem was seen as a systemic risk problem,” said Joseph Trevisani , chief market analyst at FX Solutions, a currency brokerage in Ridgewood, New Jersey. “It’s become very clear they’re going to pull Greece out of the fire. That’s benefited the bellwether crosses directly.” The dollar slid 1 percent to $1.3769 per euro in New York, from $1.3626 on March 5. It touched $1.3796 yesterday, its weakest level against the 16-nation currency since Feb. 11. The yen depreciated 1.4 percent to 124.69 per euro, from 123 a week ago. The greenback rose 0.3 percent to 90.56 yen, its second weekly gain, and reached 91.09 yen yesterday, its highest level since Feb. 23. European Central Bank President Jean-Claude Trichet said yesterday in an interview with Bloomberg Radio that Greece’s plan to cut the euro-region’s largest budget deficit will win the backing of investors and credit-rating companies. French President Nicolas Sarkozy said March 7 the region is ready to rescue Greece and “fulfill its commitments” if necessary. The Standard & Poor’s 500 Index advanced 1 percent for the week, and the MSCI World Index , a measure of stocks in 23 developed markets, gained 1.4 percent. Swiss Franc The Swiss franc appreciated against the euro, strengthening past 1.46 for the first time in more than a year even after the central bank warned this week it would stem “an excessive appreciation.” Canada’s currency approached C$1 versus its U.S. counterpart after employment climbed in February for a second month, adding to speculation policy makers are moving closer to raising the record-low 0.25 percent target lending rate. The currency touched C$1.0156, the strongest level since July 2008. European industrial output rose in January the most since August 1989, a report showed yesterday. Output in the economy of the nations using the euro jumped 1.7 percent from December, the European Union’s statistics office in Luxembourg said. Sales at U.S. retailers rose for a second month, advancing 0.3 percent after a revised 0.1 percent gain in January, a Commerce Department report showed. The median forecast in a Bloomberg News survey of economists was for a 0.2 percent drop. ‘Risk-Positive’ “The data is certainly risk-positive,” said Alan Ruskin , head of international currency strategy in North America at Royal Bank of Scotland Group Plc in Stamford, Connecticut. “It speaks to the global recovery.” Asian currencies rallied as improving economic data and reduced concern that Greece will default spurred demand for regional assets. The Malaysian ringgit climbed 1.7 percent this week, the most since Oct. 9, to 3.3070 per dollar. The South Korean won rose 1.1 percent to 1,128.20 against the greenback. “Investors are looking at the growth performance of those Asian currencies as a group, they are looking at policy moves that have taken place in some countries, and the judgment is that there is still potential for these currencies to move higher,” said Nick Bennenbroek , head of currency strategy at Wells Fargo & Co. in New York. Carry Trades Rising stock markets spurred carry trades, in which investors buy higher-yielding assets with amounts borrowed in nations with low interest rates. The benchmark of zero to 0.25 percent in the U.S. and 0.1 percent in Japan have made the dollar and yen popular for funding such transactions. Japanese Finance Minister Naoto Kan said in parliament the government is ready to intervene in the foreign-exchange market if yen movements are abrupt. Central banks intervene by purchasing or selling currencies to influence exchange rates. The Bank of Japan is considering expanding loans to banks to extend support to the economy, two central bank officials said on condition of anonymity. Governor Masaaki Shirakawa meets with colleagues for a policy session March 16-17, before the central bank’s unlimited lending program expires. U.S. Rate Bets Traders increased bets the Fed will raise rates. Interest- rate futures on the CME Group Inc. exchange yesterday showed a 48 percent chance U.S. policy makers will raise the benchmark target rate for overnight loans between banks by at least a quarter-percentage point by September, compared with 43 percent odds a week earlier. All of the 87 analysts in a Bloomberg News survey expect the central bank to hold the rate at a record low range of zero to 0.25 percent on March 16. Policy makers have pledged to keep it near zero for an “extended period.” The bank’s policy statement after the meeting “is the main concern for all market participants,” said Hidetoshi Yanagihara , a senior currency trader at Mizuho Corporate Bank in New York. “If the economic assessment is better than the previous one, that might indicate they will erase the ‘extended period’ terminology in the near future,” Yanagihara said. To contact the reporter on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net

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Chrysler in Hibernation Means Marchionne May Have to Wait on Fiat Spinoff

March 11, 2010

By Sara Gay Forden March 11 (Bloomberg) — Fiat SpA , the Italian carmaker that helped Chrysler Group LLC emerge from bankruptcy, may wait to turn around the U.S. business before deciding on a share sale or spinoff for its automotive division. The Italian company’s stock has risen 19 percent this month on speculation that Chief Executive Officer Sergio Marchionne may carve out Fiat’s biggest unit as a new company. Fiat executives have so far sent mixed signals about whether an initial public offering of the division will take place. A separation of the auto manufacturing operations, which generated 56 percent of Fiat’s revenue last year, would give Marchionne an entity to facilitate future alliances, and a share sale would generate cash for international expansion . The maker of Puntos and Ferraris must show progress at Chrysler, of which it owns 20 percent, before convincing investors to buy shares in the unit, said Royal Bank of Scotland analyst Jose Asumendi . “Fiat has too much on its hands right now to think about a possible spinoff,” said London-based Asumendi, who advises holding Fiat’s stock. “The priority is to resurrect Chrysler, make it profitable and repay its government loans.” Fiat Automobile, not including Fiat’s 20 percent stake in Chrysler, is worth about 5.9 billion euros ($8 billion), or 53 percent of Fiat’s market value , said Stephen Pope , chief global equity strategist at Cantor Fitzgerald in London. “Get the U.S. strategy right and in six years time, Fiat Auto could be worth 20 percent more.” Holding Pattern Fiat derives the remainder of its revenue from units including truckmaker Iveco SpA and CNH Global NV , an agricultural and construction machinery maker. Marchionne plans to detail on April 21 in Turin, Italy, how Chrysler, which he also runs, will improve Fiat’s profitability through shared sales efforts and technology. The CEO is trying to shore up both companies as government incentives to buy new cars end in Europe and Chrysler’s U.S. market share lags a 10.5 percent target for 2010. Chrysler is “in a year of hibernation” and talk of a separate Fiat Auto is “premature,” Kristina Church , an analyst at Barclays Capital, wrote in a March 8 note. Barclays upgraded Fiat to “equal weight” from “underweight” in part because the shares may benefit from the speculation. Fiat’s surge this month is more than triple that of the Bloomberg World Auto Manufacturers Index , which includes Fiat and has risen 5.4 percent. Ford Motor Co., the only major U.S. carmaker that didn’t take a government bailout, has jumped sevenfold in 12 months and is up 28 percent since the beginning of the year, compared with a 10 percent decline by Fiat. Partial Sale That recent share gain might persuade executives to press ahead with a share sale sooner rather than later, said Pierre Bergeron , a credit analyst at Societe Generale SA in Paris. The company’s perceived value is unlikely to rise soon because Fiat and Chrysler offer a weak product lineup in a challenging U.S. market, he said. A partial sale or spinoff this year, of a 30 percent stake, could give Fiat additional options for consolidating its debt, Bergeron said. Fiat could also sell more after that, he said. A spinoff “is not dead,” Marchionne told reporters March 3 in Geneva. A day earlier, Chairman Luca Cordero di Montezemolo told Bloomberg News that he didn’t foresee a share sale. ‘Conjecture’ Responding to a request from Italy’s stock market regulator, Fiat said March 6 that media reports about an IPO or spinoff are “conjecture” and that it isn’t planning any “extraordinary transactions.” A company spokesman declined to comment further yesterday. Marchionne said last year that the creation of a separate auto company may take several years. Fiat will be held back this year by declining car sales, pricing pressure and industry overcapacity, Barclays’s Church wrote. Fiat makes about 2 million cars annually, while Chrysler manufactured 1.3 million last year. That’s short of Marchionne’s contention that to survive as a global automaker , a company needs production of at least 5 million vehicles. Last year, the carve-out speculation centered on Fiat’s bid for General Motors Co.’s Opel because a purchase could have given Fiat the scale Marchionne says is necessary to survive. GM eventually decided to keep the European operations. Marchionne needs to show success with current strategic plans before he considers creating one automotive group, analysts at Goldman Sachs Group Inc. led by Stefan Burgstaller said March 8 as they added Fiat to a “conviction buy” list. Dodge Chargers, 300s Fiat acquired the 20 percent stake in Auburn Hills, Michigan-based Chrysler in June as part of a plan to help the U.S. carmaker emerge from bankruptcy. The Italian company can lift the holding to 35 percent in increments by meeting targets such as building an engine in the U.S., and can win control after government loans are repaid. Chrysler is refreshing most models, including the Jeep Grand Cherokee. New Chrysler 300s and Dodge Chargers will use the first platform developed jointly with Fiat, which plans to begin selling its 500 subcompact in the U.S. in early 2011. Marchionne has said Chrysler may have an IPO after 2010. Tesla Motors Inc., the Palo Alto, California-based producer of a $109,000 electric Roadster, filed in January for an initial public offering to raise as much as $100 million. Detroit-based GM, which emerged from bankruptcy July 10, could hold an IPO by late 2010, Chairman Ed Whitacre has said. Fiat may have earnings before interest, taxes, depreciation and amortization of 4.26 billion euros this year, a 14 percent increase from 2009, according to the average estimate of 26 analysts surveyed by Bloomberg. Chrysler had Ebitda of $200 million in 2009’s third quarter and posted a sales gain in February, its first in 26 months. Bondholders One hurdle to a separate Fiat Auto is how the carmaker will apportion its bonds, according to Alessandro Frigerio , a fund manager at RMJ Sgr, which oversees about 100 million euros and owns Fiat shares. Fiat’s bonds totaled 11.4 billion euros at the end of 2009, according to its annual report . “It’s a complicated transaction that has to satisfy both the bondholders and the shareholders,” Frigerio said. “The transaction is also very much tied to how things go at Chrysler, which is still in the preliminary stages of the restructuring.” To contact the reporter on this story: Sara Gay Forden in Milan at sforden@bloomberg.net

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Metals, Oil Fall on China Inflation Surge; Yen, Dollar, Asian Stocks Rise

March 11, 2010

By James Poole and Jonathan Burgos March 11 (Bloomberg) — Metals dropped, while the yen and dollar strengthened, after reports on Chinese inflation , factories and loans raised concerns the government would take steps to brake growth. Asian stocks advanced, led by Japanese shares, on speculation the nation’s economy is recovering. Copper for three-month delivery dropped 0.8 percent to $7,380.75 a metric ton and Standard & Poor’s 500 futures lost 0.3 percent by 4:30 p.m. in Tokyo. Euro Stoxx 50 futures slid 0.6 percent. The MSCI Asia Pacific Index rose 0.3 percent to 122.86. The yen climbed to 123.33 per euro from 123.62 in New York yesterday, and the Australian dollar fell for the first time in five days as Chinese imports may slow. China’s increase in consumer prices hit a 16-month high of 2.7 percent in February, increasing pressure on Premier Wen Jiabao , who vowed to suppress inflation after banks flooded the financial system with money to drive a rebound from the global recession. The gain compared with the 2.5 percent median estimate of 29 economists surveyed by Bloomberg News. “Accelerating inflation in China raises the possibility of an interest-rate hike,” said Terrace Chum , who helps manage over $5 billion for MFC Global Investment Management in Hong Kong. “The government wants to prevent the economy from over- heating. It may slow growth, but the recovery is on track.” Five stocks rose for every four that declined on the MSCI Asia Pacific Index , as commodity-related companies fell on concern China will pare back measures that boosted growth, while Japanese shares gained on speculation the economy is recovering. BHP, Posco BHP Billiton Ltd. , the world’s largest mining company, dropped 0.5 percent in Sydney, and Posco, South Korea’s biggest steelmaker, also lost 0.9 percent in Seoul. Sony Corp. climbed 1.9 percent in Tokyo after the Nikkei newspaper said the Japanese government will boost its economic outlook. Japan’s Nikkei 225 Stock Average added 1 percent to 10,664.95, the biggest advance among major equity benchmarks in the Asia-Pacific region. The yen rose after the Chinese inflation report, which sparked demand for Japan’s currency as a refuge. The Japanese currency also gained on speculation companies repatriated overseas earnings after the yen fell to a two-week low against the euro yesterday. Japan’s currency strengthened against all 16 of its major counterparts amid speculation exporters brought funds home before the fiscal year ends this month. Australia’s dollar fell from a seven-week high after employers added fewer jobs than economists forecast, damping expectations the Reserve Bank of Australia will raise interest rates in April. China, Australia Chinese measures to curb growth may slow Australia’s exports. China is the country’s biggest market, buying 22 percent of its shipments in the seven months to the end of January, a government report showed this month. “Pressure is mounting on China to raise interest rates,” said Hiroaki Muto , a senior economist at Sumitomo Mitsui Asset Management Co., which manages $112 billion. “Developing nations are heading toward the exit ahead of developed ones” in terms of paring back stimulus, Muto said. “Strong inflation data should enhance pressure for tightening in China,” said Minoru Shioiri , chief manager of foreign-exchange trading at Mitsubishi UFJ Securities Co. in Tokyo. “The bias is for the yen to rise.” The yen climbed as high as 123.02 per euro from 123.62 in New York yesterday, when it fell to 124.00, the lowest level since Feb. 23. Japan’s currency advanced to 90.37 per dollar from 90.52. The greenback traded at $1.3645 per euro from $1.3657, and was at $1.4979 per pound from $1.4978. Aussie Weakens The Australian dollar dropped to 91.44 U.S. cents from as much as 91.93 yesterday, the most since Jan. 20. Australia’s currency declined 0.3 percent to 82.63 yen. New Zealand’s dollar fell 0.4 percent to 69.92 U.S. cents. “Japanese exporters may be repatriating yen, given the March fiscal year-end is approaching,” said Masanobu Ishikawa , general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “There’s talk they may be behind their sales of euro-yen.” The Markit iTraxx Asia index of credit-default swaps on 50 investment-grade borrowers outside Japan increased 1 basis point to 93 basis points as of 8:12 a.m. in Singapore today, Royal Bank of Scotland Group Plc prices show. Risk benchmarks for Australia and Japan were little changed. The extra yield investors demand to own corporate bonds rather than government debt fell yesterday to 159 basis points, or 1.59 percentage point, the lowest level this year, the Bank of America Merrill Lynch Global Broad Market Corporate Index shows. Yields averaged 4.035 percent. To contact the reporter for this story: James Poole in Singapore jpoole4@bloomberg.net ;

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Fiat May Need to Convince on Chrysler Before Seeking Automotive Unit IPO

March 11, 2010

By Sara Gay Forden March 11 (Bloomberg) — Fiat SpA , the Italian carmaker that helped Chrysler Group LLC emerge from bankruptcy, may wait to turn around the U.S. business before deciding on a share sale or spinoff for its automotive division. The Italian company’s stock has risen 19 percent this month on speculation that Chief Executive Officer Sergio Marchionne may carve out Fiat’s biggest unit as a new company. Fiat executives have so far sent mixed signals about whether an initial public offering of the division will take place. A separation of the auto manufacturing operations, which generated 56 percent of Fiat’s revenue last year, would give Marchionne an entity to facilitate future alliances, and a share sale would generate cash for international expansion . The maker of Puntos and Ferraris must show progress at Chrysler, of which it owns 20 percent, before convincing investors to buy shares in the unit, said Royal Bank of Scotland analyst Jose Asumendi . “Fiat has too much on its hands right now to think about a possible spinoff,” said London-based Asumendi, who advises holding Fiat’s stock. “The priority is to resurrect Chrysler, make it profitable and repay its government loans.” Fiat Automobile, not including Fiat’s 20 percent stake in Chrysler, is worth about 5.9 billion euros ($8 billion), or 53 percent of Fiat’s market value , said Stephen Pope , chief global equity strategist at Cantor Fitzgerald in London. “Get the U.S. strategy right and in six years time, Fiat Auto could be worth 20 percent more.” Holding Pattern Fiat derives the remainder of its revenue from units including truckmaker Iveco SpA and CNH Global NV , an agricultural and construction machinery maker. Marchionne plans to detail on April 21 in Turin, Italy, how Chrysler, which he also runs, will improve Fiat’s profitability through shared sales efforts and technology. The CEO is trying to shore up both companies as government incentives to buy new cars end in Europe and Chrysler’s U.S. market share lags a 10.5 percent target for 2010. Chrysler is “in a year of hibernation” and talk of a separate Fiat Auto is “premature,” Kristina Church , an analyst at Barclays Capital, wrote in a March 8 note. Barclays upgraded Fiat to “equal weight” from “underweight” in part because the shares may benefit from the speculation. Fiat’s surge this month is more than triple that of the Bloomberg World Auto Manufacturers Index , which includes Fiat and has risen 5.4 percent. Ford Motor Co., the only major U.S. carmaker that didn’t take a government bailout, has jumped sevenfold in 12 months and is up 28 percent since the beginning of the year, compared with a 10 percent decline by Fiat. Partial Sale That recent share gain might persuade executives to press ahead with a share sale sooner rather than later, said Pierre Bergeron , a credit analyst at Societe Generale SA in Paris. The company’s perceived value is unlikely to rise soon because Fiat and Chrysler offer a weak product lineup in a challenging U.S. market, he said. A partial sale or spinoff this year, of a 30 percent stake, could give Fiat additional options for consolidating its debt, Bergeron said. Fiat could also sell more after that, he said. A spinoff “is not dead,” Marchionne told reporters March 3 in Geneva. A day earlier, Chairman Luca Cordero di Montezemolo told Bloomberg News that he didn’t foresee a share sale. ‘Conjecture’ Responding to a request from Italy’s stock market regulator, Fiat said March 6 that media reports about an IPO or spinoff are “conjecture” and that it isn’t planning any “extraordinary transactions.” A company spokesman declined to comment further yesterday. Marchionne said last year that the creation of a separate auto company may take several years. Fiat will be held back this year by declining car sales, pricing pressure and industry overcapacity, Barclays’s Church wrote. Fiat makes about 2 million cars annually, while Chrysler manufactured 1.3 million last year. That’s short of Marchionne’s contention that to survive as a global automaker , a company needs production of at least 5 million vehicles. Last year, the carve-out speculation centered on Fiat’s bid for General Motors Co.’s Opel because a purchase could have given Fiat the scale Marchionne says is necessary to survive. GM eventually decided to keep the European operations. Marchionne needs to show success with current strategic plans before he considers creating one automotive group, analysts at Goldman Sachs Group Inc. led by Stefan Burgstaller said March 8 as they added Fiat to a “conviction buy” list. Dodge Chargers, 300s Fiat acquired the 20 percent stake in Auburn Hills, Michigan-based Chrysler in June as part of a plan to help the U.S. carmaker emerge from bankruptcy. The Italian company can lift the holding to 35 percent in increments by meeting targets such as building an engine in the U.S., and can win control after government loans are repaid. Chrysler is refreshing most models, including the Jeep Grand Cherokee. New Chrysler 300s and Dodge Chargers will use the first platform developed jointly with Fiat, which plans to begin selling its 500 subcompact in the U.S. in early 2011. Marchionne has said Chrysler may have an IPO after 2010. Tesla Motors Inc., the Palo Alto, California-based producer of a $109,000 electric Roadster, filed in January for an initial public offering to raise as much as $100 million. Detroit-based GM, which emerged from bankruptcy July 10, could hold an IPO by late 2010, Chairman Ed Whitacre has said. Fiat may have earnings before interest, taxes, depreciation and amortization of 4.26 billion euros this year, a 14 percent increase from 2009, according to the average estimate of 26 analysts surveyed by Bloomberg. Chrysler had Ebitda of $200 million in 2009’s third quarter and posted a sales gain in February, its first in 26 months. Bondholders One hurdle to a separate Fiat Auto is how the carmaker will apportion its bonds, according to Alessandro Frigerio , a fund manager at RMJ Sgr, which oversees about 100 million euros and owns Fiat shares. Fiat’s bonds totaled 11.4 billion euros at the end of 2009, according to its annual report . “It’s a complicated transaction that has to satisfy both the bondholders and the shareholders,” Frigerio said. “The transaction is also very much tied to how things go at Chrysler, which is still in the preliminary stages of the restructuring.” To contact the reporter on this story: Sara Gay Forden in Milan at sforden@bloomberg.net

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Yen, Dollar Strengthen on China Inflation; Metals Fall, Stocks Pare Gains

March 11, 2010

By James Poole and Jonathan Burgos March 11 (Bloomberg) — Metals dropped and Asian stocks erased gains, while the yen and dollar strengthened, after reports on Chinese inflation , factories and loans raised concerns the government would take steps to cool the economy. Copper for three-month delivery dropped 0.6 percent to $7,397 a metric ton and Standard & Poor’s 500 futures lost 0.5 percent by 2 p.m. in Tokyo. The MSCI Asia Pacific Index was little changed at 122.64, the yen climbed to 123.28 per euro from 123.62 in New York yesterday, and the Australian dollar fell for the first time in five days. China’s consumer prices hit a 16-month high of 2.7 percent in February, increasing pressure on Premier Wen Jiabao who vowed to suppress inflation after banks flooded the financial system with money to drive a rebound from the global recession. The increase compared with the 2.5 percent median estimate of 29 economists surveyed by Bloomberg News. “Accelerating inflation in China raises the possibility of an interest-rate hike,” said Terrace Chum , who helps manage over $5 billion for MFC Global Investment Management in Hong Kong. “The government wants to prevent the economy from over- heating. It may slow growth, but the recovery is on track.” China’s stocks fell to a one-week low. The Shanghai Composite Index fell 19.53, or 0.6 percent, to 3,029.39 at the 11:30 a.m. local-time break, reversing an earlier 0.7 percent advance. The gauge lost 7.6 percent this year on concern measures to curb property price gains and rein in lending growth will slow the economy. Possible ‘Overheating’ “The market’s reading of the economic data points to overheating and a lot of investors believe an interest-rate increase will come soon,” said Yan Ji , who helps oversee about $1.2 billion at HSBC Jintrust Fund Management Co. in Shanghai. Asian stocks fluctuated as commodity-related companies fell on concern China will pare back measures that boosted growth, while Japanese shares gained on speculation the country’s economy is recovering. BHP Billiton Ltd. , the world’s largest mining company, dropped 1 percent in Sydney, and Posco, South Korea’s biggest steelmaker, retreated 1.3 percent in Seoul after the China inflation data. Sony Corp. climbed 1.5 percent in Tokyo after the Nikkei newspaper said the Japanese government will boost its economic outlook. The yen rose after the Chinese inflation report, which sparked demand for Japan’s currency as a refuge. The Japanese currency also gained on speculation the nation’s companies repatriated overseas earnings after the yen fell to a two-week low against the euro yesterday. Stronger Yen Japan’s currency strengthened against all 16 of its major counterparts amid speculation exporters brought funds home before the fiscal year ends this month. Australia’s dollar fell from a seven-week high after the nation’s employers added fewer jobs than economists forecast, damping expectations the Reserve Bank of Australia will raise interest rates in April. “Strong inflation data should enhance pressure for tightening in China,” said Minoru Shioiri , chief manager of foreign-exchange trading at Mitsubishi UFJ Securities Co. in Tokyo. “The bias is for the yen to rise.” The yen climbed to 123.07 per euro from 123.62 in New York yesterday, when it fell to 124.00, the lowest level since Feb. 23. Japan’s currency advanced to 90.25 per dollar from 90.52. The greenback traded at $1.3637 per euro from $1.3657, and was at $1.4956 per pound from $1.4978. The Australian dollar dropped to 91.20 U.S. cents from as much as 91.93 yesterday, the most since Jan. 20. Australia’s currency declined 0.7 percent to 82.33 yen. New Zealand’s dollar fell 0.5 percent to 69.86 U.S. cents. Repatriating Yen “Japanese exporters may be repatriating yen, given the March fiscal year-end is approaching,” said Masanobu Ishikawa , general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “There’s talk they may be behind their sales of euro-yen.” Australia’s dollar fell after a statistics bureau report today showed employers added 400 jobs in February, the smallest increase in six months. The median estimate of 25 economists surveyed by Bloomberg called for an increase of 15,000. The Markit iTraxx Asia index of credit-default swaps on 50 investment-grade borrowers outside Japan increased 1 basis point to 93 basis points as of 8:12 a.m. in Singapore today, Royal Bank of Scotland Group Plc prices show. Risk benchmarks for Australia and Japan were little changed. The extra yield investors demand to own corporate bonds rather than government debt fell yesterday to 159 basis points, or 1.59 percentage point, the lowest level this year, the Bank of America Merrill Lynch Global Broad Market Corporate Index shows. Yields averaged 4.035 percent. To contact the reporter for this story: James Poole in Singapore jpoole4@bloomberg.net ;

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Emerging-Market Stocks Rise, Erasing 2010 Loss; Metals Gain, Pound Slides

March 10, 2010

By Gavin Serkin March 10 (Bloomberg) — Emerging market stocks rose, erasing their losses for the year, and metal prices gained after China said exports soared by the most in three years. The British pound weakened as U.K. manufacturing contracted. The MSCI Emerging Market Index advanced 0.5 percent to the highest level in seven weeks. The euro fell against higher- yielding currencies including the New Zealand and Australian dollars. Copper for delivery in three months advanced $35, or 0.5 percent, to $7,545 a ton in London. The pound tumbled as much as 0.7 percent to $1.4886 against the U.S. dollar. Investor confidence for emerging markets is improving after China’s exports surged 45.7 percent, the biggest gain since February 2007 and beating the 38.3 percent median estimate of 28 economists surveyed by Bloomberg News. Prospects for Europe worsened as an unexpected slump in German exports ended a four- month streak of gains, according to data released today by the Federal Statistics Office in Wiesbaden. “You’re seeing a significant bounce back, pretty much on trend in emerging Asia, whereas the major economies are still coming from a lower base,” Greg Gibbs , a foreign-exchange strategist at Edinburgh-based Royal Bank of Scotland Group Plc, said in an interview on Bloomberg Television. “Longer-term growth trends are attracting a lot of capital into emerging Asia.” Emerging market gains were led by a 1.7 percent rally in both Ukraine’s PFTS index and Hungary’s BUX Index. Mol Nyrt., Hungary’s largest refiner, jumped 3.8 percent after the company discovered crude oil in the Kurdistan region of northern Iraq. Romania, Turkey Romania’s Bucharest BET Index gained 1.1 percent as the government revived a planned sale of Eurobonds that were postponed in November when the government collapsed. Turkey’s lira weakened 0.3 percent against the dollar after the International Monetary Fund said talks with the country on a new loan program are “no longer taking place.” Metals rose on the improved economic outlook for China, the world’s biggest consumer of copper, nickel and zinc and the only country that had increased demand for gold jewelry last year. Palladium, used in catalytic converters to reduce vehicle emissions, jumped as much as 1.3 percent to $473.25 an ounce, extending its advance this year to 16 percent. Gold for immediate delivery increased 0.5 percent to $1,126.95 an ounce. The pound extended losses after U.K. factory production unexpectedly fell in January for the first time in five months, dropping 0.9 percent from December, the Office for National Statistics said in London. U.K. Prime Minister Gordon Brown said the economic recovery remains fragile and is in its early stages. European Bonds The cost of insuring European government bonds using credit-default swaps tumbled, signaling investors agree with former European Commission President Romano Prodi’s view that the worst of the Greek budget deficit crisis is over. Default swaps tied to Greece fell 11 basis points to 280, down from a record-high 428 basis points on Feb. 4, according to CMA DataVision prices. Contracts on Portugal’s debt dropped 3.5 basis points to 114.5, Italy fell 3 basis points to 91 and Spain slipped 4.5 to 94 basis points, CMA prices show. “For Greece, the problem is completely over,” Prodi, who was also Italian prime minister, said in an interview in Shanghai. Greek Prime Minister George Papandreou said President Barack Obama expressed support for measures being taken to deal with Greece’s financial crisis. German 10-year bunds were little changed, with the yield at 3.14 percent, and the two-year note yield increased 1 basis point to 1 percent. Germany sold 5 billion euros ($6.79 billion) of 1 percent notes due March 2012 for an average yield of 0.98 percent. The Bundesbank retained 16 percent of the amount on offer, compared with 10 percent at the previous sale of the security. Greek Bond Spreads The difference in yield between bunds and 10-year Greek bonds narrowed 6 basis points to 307 basis points, down from 396 basis points on Jan. 28, the highest since the 1999 start of the euro. The 10-year Treasury yield was 3.71 percent, little changed from yesterday, before the U.S. sells $21 billion of the notes today, the second of three auctions this week. The MSCI World Index of 23 developed nations’ stocks slipped less than 0.1 percent while the Stoxx Europe 600 Index advanced 0.2 percent. Fortis rose 2.6 percent in Brussels after the owner of Belgium’s biggest life insurer reported earnings that topped analysts’ estimates. Inchcape Plc slipped 5.5 percent in London after saying sales declined. Tullett Prebon Plc surged 16 percent after saying it’s in early takeover talks while rival ICAP Plc, the world’s biggest broker of transactions between banks, rallied 5.1 percent. The MSCI Asia Pacific Index slipped 0.2 percent. Toyota Motor Corp., the world’s biggest carmaker, retreated 1.4 percent in Tokyo. Telstra Corp., Australia’s largest telephone company, rose 2.8 percent in Sydney amid speculation it will avoid a breakup. A gain in U.S. futures indicated the S&P 500 may extend a seven-week high. The benchmark gauge yesterday advanced 0.2 percent on the anniversary of its 2009 bear-market low. To contact the reporter for this story: Gavin Serkin at gserkin@bloomberg.net

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Australia May Pause on Rate Rises in April to Gauge Inflation, Debt Risks

March 2, 2010

By Jacob Greber and Dan Petrie March 3 (Bloomberg) — Australia’s central bank, the first in the Group of 20 to raise interest rates this year, may pause next month as Governor Glenn Stevens weighs whether inflation is a bigger threat than Europe’s sovereign debt crisis. Reserve Bank of Australia policy makers, who increased the benchmark interest rate to 4 percent from 3.75 percent yesterday, will next boost borrowing costs in May, according to 15 of 22 economists surveyed by Bloomberg News. The rest expect either no change at both meetings or consecutive increases. “The bank no longer feels the need to hike every time it meets now that the cash rate is off its emergency low of 3 percent,” said Kieran Davies , a senior economist at Royal Bank of Scotland Group Plc in Sydney. Stevens’s balancing act reflects the dynamic of an economy that both escaped recession during the global slump and remains tied to the fortunes of its trading partners and financial markets. While growth is accelerating in China, to which Australia is the biggest raw-materials supplier, Stevens said yesterday that growth in other major nations “is still hesitant,” and he flagged international fiscal-deficit woes. The domestic economy is already expanding at or close to its trend rate, the RBA chief said yesterday. “It is appropriate for interest rates to be closer to average,” Stevens said after yesterday’s decision, which was “a further step in that process.” Currency’s Performance Australia’s dollar became the best performer among the most traded currencies in the past year as its economy outperformed other developed nations. Australia’s unemployment rate is almost half America’s and Europe’s rates. The dollar has climbed 42 percent versus its U.S. counterpart since March 2009 and this week hit a 25-year high against Britain’s pound. Yesterday’s statement sent the Australian currency lower as it refrained from revealing any specific intention of raising rates again next month. The Australian dollar traded at 89.78 U.S. cents at 5:57 p.m. in Sydney yesterday from 90 cents just before the announcement. Traders say there is a 20 percent chance of a quarter- percentage-point rate increase when the Reserve Bank of Australia next meets on April 6, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange late yesterday. Economists surveyed by Bloomberg News late yesterday predict Stevens will further boost borrowing costs this year by between 25 and 125 basis points, to reach what the governor has described as a “normal” lending rate. A basis point is 0.01 percentage point. Job Market Investors trying to pick future moves will need to gauge the strength of Australia’s economic rebound, including signs of further declines in the unemployment rate. Employers added 194,600 jobs in the five months through January, the most in more than three years, taking the jobless rate to 5.3 percent. Surging demand for commodities from China threatens to drive up inflation pressures as a skills shortage worsens at companies such as BHP Billiton Ltd. and a group led by Chevron Corp., which this year began construction on their A$43 billion ($38.6 billion) Gorgon natural-gas venture, the country’s single-biggest investment project, which is forecast to generate 10,000 jobs. Inflation reached 2.1 percent in the quarter to December, up from 1.3 percent the previous three months. “If unemployment continues to fall, suggesting that the economy is growing at an above-trend rate, then the debate about interest rates seems likely to shift from getting rates ‘back to neutral’ to ‘having tight policy’,” Davies said. Group of 20 The RBA also led the G-20 last year, presiding over three moves in the fourth quarter. The increases brought the rate up from a half-century low of 3 percent. The group includes the biggest emerging and developed nations. By contrast, U.S. Federal Reserve Chairman Ben S. Bernanke said last week the world’s largest economy is in a “nascent” recovery that still requires low rates. The Fed has kept its benchmark close to zero since late 2008. The European Central Bank’s rate is at a record low of 1 percent. Australia’s economy probably expanded the most in 1 1/2 years in the fourth quarter, boosted by A$22 billion in spending by Prime Minister Kevin Rudd on roads and schools. Gross domestic product rose 0.9 percent from the previous three months, according to the median estimate of 18 economists surveyed by Bloomberg. The figures are due at 11:30 a.m. in Sydney today. A month ago, Governor Stevens cited concern about sovereign debt in Europe and turmoil on global financial markets for keeping the benchmark rate unchanged, a move that confounded the forecasts of all 20 economists surveyed by Bloomberg predicting an increase. The four quarter-point increases in the last six months mark the central bank’s steepest tightening since 2000. Election Campaign Boosting borrowing costs again in coming months may coincide with a federal election campaign due this year between Prime Minister Rudd and the Liberal-National party coalition leader Tony Abbott . “No doubt a rise in rates is a bad thing, but it’s a sign of economic health and wellbeing as well,” said Nick Economou , a lecturer in politics at Monash University in Melbourne. “I don’t think rates have gone up to the level yet where they’ll cause the government a big problem.” Rudd’s satisfaction rating among voters has climbed to 51 percent from 50 percent, while Abbott’s jumped to four points to 48 percent, according to a Newspoll opinion survey published in the Australian newspaper this week. Commonwealth Bank of Australia and Australia & New Zealand Banking Group Ltd. said yesterday they will increase their standard variable home-loan rates by a quarter point to 6.86 percent and 6.91 percent respectively, meaning households with a A$300,000 mortgage will be charged an extra A$50 a month. That’s in addition to the A$150 increase in monthly payments last quarter. Treasurer Wayne Swan said there was no justification for banks to increase rates above the level announced by the Reserve Bank yesterday. Interest rates being paid by most households and businesses “remain lower than average,” Stevens said yesterday. To contact the reporters for this story: Jacob Greber in Sydney at jgreber@bloomberg.net Daniel Petrie in Sydney at dpetrie5@bloomberg.net

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Investment Banks Raise Pay as U.K. Efforts to Cut Compensation Fall Flat

March 2, 2010

By Gavin Finch and Andrew MacAskill March 2 (Bloomberg) — Chancellor of the Exchequer Alistair Darling urged pay restraint and moderation from U.K. banks, and still they raised compensation. Barclays Capital, the investment-banking unit of Barclays Plc, increased its pay and bonuses per employee by about 93 percent in 2009, according to company filings. Royal Bank of Scotland Group Plc , the U.K.’s biggest government-owned bank, raised total compensation per employee by about 73 percent last year. Of the U.K.’s three largest banks, HSBC Holdings Plc was the only one where pay declined slightly in its investment bank. “The banks are just paying lip-service to what they think politicians and the public want to hear while carrying on as normal,” said Chris Roebuck , a visiting professor at Cass Business School in London. “The apparent changes they’ve made to compensation are just an exercise in smoke and mirrors.” Banks are under scrutiny from governments worldwide to reduce compensation amid public anger about trillions of taxpayer dollars used to bail out lenders during the credit crisis. In December, Darling introduced a one-time 50 percent levy on discretionary bank bonuses of more than 25,000 pounds ($37,500) to encourage banks to build up their capital. The Treasury, which initially said the tax would raise 550 million pounds, now estimates it may net as much as 2 billion pounds, according to a government official who declined to be identified. Barclays, HSBC, RBS and Lloyds Banking Group Plc alone said they will pay about 685 million pounds to cover the tax. CEOs Waive Bonuses In an attempt to diffuse anger about the size of bonuses, the chief executive officers of RBS, Lloyds and Barclays waived their bonuses for 2009. HSBC CEO Michael Geoghegan will also forgo his bonus, donating as much as 4 million pounds to educational charities. “From a public relations point of view, the bonus tax has been a partial success because it’s made the government look like it’s cracking down,” said Daniel Naftalin , a partner at law firm Mishcon de Reya in London. “The bonus tax failed in the sense that it doesn’t appear to have significantly reduced the size of the bonuses.” Barclays paid its investment-bank employees about 191,000 pounds each in 2009 compared with an average payout of 99,000 pounds for the previous year, the filings show. RBS set aside about 173,000 pounds last year in total compensation per employee, up from about 100,000 in 2008. HSBC awarded each employee an average of about $166,000 in 2009. The average compensation was calculated as a percentage of investment-bank revenue, or total staff costs at the individual banks, divided by the number of employees. Revenue Increases Pay increased in 2009 as investment-bank revenues rose. Pretax profit at Barclays Capital climbed 89 percent to 2.46 billion pounds after it absorbed 1.8 billion pounds of credit losses, the bank said. “The U.K.’s curbs on bonuses have gone further and faster than any other country,” said a Treasury spokesman, who asked not to be identified in line with departmental policy. “The bonus tax is intended to make banks think twice about paying large bonuses.” RBS CEO Stephen Hester defended the payment of bonuses, saying that his investment bank employees deserved the 1.3 billion pounds of payments, which was the “minimum necessary.” “We are treading an unenviable tightrope walk,” said Hester, who waived his right to a 1.6 million-pound bonus amid public anger about such payments. “We believe that within the context of the industry in which we operate we have been restrained and responsible.” Labour Party Gains Lloyds Chairman Win Bischoff said that while his bank is “sensitive” to the public debate about bankers’ pay, the responsibility for policing remuneration belongs with shareholders, not the government or the media. Executives should be allowed to accept bonuses without feeling pressure to waive them, he said. Lloyds declined to say how much it is paying in bonuses. The ruling Labour Party ’s attack on bankers’ pay has helped narrow the Conservative Party ’s lead in the opinion polls by shoring up the party’s core support, according to Anthony Wells at pollster YouGov Plc. Prime Minister Gordon Brown is on course to lead a minority U.K. administration after this year’s election with the polls the narrowest in more than two years, a YouGov poll found over the weekend. “Banker bashing is an easy crowd pleaser,” Wells said. “It has been an easy way for Labour to shore up their core vote. The polling shows that people don’t like bankers.” Banks including Barclays, Credit Suisse Group AG and UBS AG have raised investment bankers’ base salaries as a percentage of total pay. HSBC plans to increase salaries as a proportion of compensation, the bank said yesterday. Leaders of the Group of 20 nations agreed in September to adopt compensation guidelines for banks that discourage bonus guarantees extending more than one year, encourage companies to defer bonuses for senior executives and other key employees, and permit pay to be clawed back if losses occur later. To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net ; Andrew MacAskill in London at amacaskill@bloomberg.net

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Australia Raises Benchmark Rate to 4% as Recovery Withstands Debt Concerns

March 1, 2010

By Jacob Greber March 2 (Bloomberg) — Australia’s central bank resumed raising interest rates after a one-meeting pause, judging that the economy is strong enough to withstand any impact from global investor concerns on sovereign debt risks. Reserve Bank Governor Glenn Stevens increased the benchmark overnight cash rate target to 4 percent from 3.75 percent in Sydney today, as forecast by 14 of 19 economists surveyed by Bloomberg News. The rest predicted no change. Today’s decision may stoke the Australian dollar, the best- performing major currency in the past year, and it reflects the strength of an economy that escaped recession during the global crisis. The biggest jobs boom in more than three years, a jump in house prices and a business-confidence rebound put pressure on Stevens to return rates toward what he calls a “normal” level. “The economy is recovering with much less slack than in past upswings,” Kieran Davies , a senior economist at Royal Bank of Scotland Group Plc in Sydney, said ahead of today’s decision. “The immense mining-led strength of the outlook for business investment should also reinforce the Reserve Bank’s view that China will support growth in Australia despite ongoing troubles in Europe.” Today’s increase by the Reserve Bank widens the gap between Australia’s cash rate target and the U.S. benchmark to 3.75 percentage points, the most since January 2009. The difference between the Australian and U.K. benchmarks is now 350 basis points, the widest since 1990. The announcement came hours after the government reported retail sales climbed 1.2 percent in January from December, exceeding the forecasts of all 19 economists in a Bloomberg News survey. A separate report showed home-building approvals fell in January, affected by the Reserve Bank’s rate increases and a reduction in government grants to first-time buyers. Switch in View Evidence of an accelerating expansion convinced most economists to predict today’s move after a majority in the Bloomberg News survey on Feb. 12 saw no change. Sovereign debt concerns have caused the euro to tumble since the start of the year and emerging stock markets to retreat. Today’s move makes Stevens the first central banker from a Group of 20 economy to boost benchmark rates this year, after leading the way in presiding over three moves last quarter. The increases brought the rate up from a half-century low of 3 percent. Pressure is also mounting on central banks in Canada, India, Malaysia and Indonesia to lift borrowing costs soon. Malaysia’s economy grew a greater-than-forecast 4.5 percent last quarter from a year earlier, and a report yesterday showed Indonesia’s inflation was at a nine-month high. Canada’s expansion is the fastest since 2000, a report showed late yesterday. Fed Standing Pat By contrast, U.S. Federal Reserve Chairman Ben S. Bernanke said last week the world’s largest economy is in a “nascent” recovery that still requires low rates. The Fed has kept its benchmark close to zero since late 2008. The European Central Bank’s rate is at a record low of 1 percent. Australia’s economy probably grew the most in 1 1/2 years in the fourth quarter, boosted by A$22 billion ($20 billion) in spending by Prime Minister Kevin Rudd on roads and schools. Gross domestic product rose 0.9 percent in the fourth quarter from the previous three months, when it gained 0.2 percent, according to the median estimate of 18 economists surveyed by Bloomberg. The figures will be released at 11:30 a.m. tomorrow. Australia has emerged from the global financial crisis “better than most,” helped by a “strong macroeconomic” environment, Governor Stevens said in Melbourne yesterday. GDP growth will quicken to an annual pace of 3.25 percent in the fourth quarter from 2 percent late last year, the Reserve Bank said in February. Pessimism Eased “I argued in February that the Reserve Bank would be unable to pause for any length of time in the face of strong economic data,” said Adam Carr , a senior economist at ICAP Australia Ltd. in Sydney. “Stock markets over the past week have generally been more buoyant, and the news flow less pessimistic than February.” A month ago, Governor Stevens cited concern about sovereign debt in Europe and turmoil on financial markets for keeping the benchmark rate unchanged, a move that confounded the forecasts of all 20 economists surveyed by Bloomberg predicting an increase. Reports published since then suggest inflation pressures may strengthen as a rising skills shortage boosts wages. Employers added 194,600 jobs in the five months through January, the most in more than three years, cutting the unemployment rate to an 11-month low of 5.3 percent. Business investment jumped in the fourth quarter at almost three times the pace predicted by analysts as companies raised forecasts for investment plans to a five-year high, a report showed last week. BHP Plans BHP Billiton Ltd. , the world’s largest mining company, said last month it will increase capital spending on iron-ore mines and oil fields by 63 percent next year to $20.8 billion. Commodity exports may jump next fiscal year by 15 percent to A$187 billion, the second-highest level on record, the Canberra-based Australian Bureau of Agricultural and Resource Economics said today in a report. Chevron, Exxon Mobile Corp. and Royal Dutch Shell Plc have this year begun construction on the A$43 billion Gorgon natural- gas venture, the nation’s single-biggest investment project that is forecast to generate as many as 10,000 jobs. The economy has less scope than previously expected for “robust” growth that doesn’t stoke inflation, Governor Stevens told a parliamentary committee in Canberra on Feb. 19. “Monetary policy must therefore be careful not to overstay a very expansionary setting.” Inflation Measure The central bank’s so-called annual weighted-median gauge of core inflation rose 3.6 percent in the three months through December. The measure has held above the top of the bank’s target range of between 2 percent and 3 percent since the third quarter of 2007. “If anyone is going to boom, surely it’s Australia,” Gerry Harvey , chairman of Australia’s largest electronics retailer Harvey Norman Holdings Ltd. , said in a Feb. 26 interview. “We never really went into a recession at all. Our unemployment rate was projected to reach 7, 8, 9, or 10 percent, but it never even got to 6 percent.” House prices jumped 11.8 percent in the year through January, according to a Feb. 26 report by real-estate monitoring company RP Data-Rismark, whose figures are used by the central bank in its quarterly monetary policy statement. Today’s rate increase means households with a A$300,000 mortgage will be charged an extra A$50 a month, adding to the A$150 increase in monthly payments last quarter. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Australia Raises Benchmark Rate to 4% as Recovery Withstands Debt Concerns

March 1, 2010

By Jacob Greber March 2 (Bloomberg) — Australia’s central bank resumed raising interest rates after a one-meeting pause, judging that the economy is strong enough to withstand any impact from global investor concerns on sovereign debt risks. Reserve Bank Governor Glenn Stevens increased the benchmark overnight cash rate target to 4 percent from 3.75 percent in Sydney today, as forecast by 14 of 19 economists surveyed by Bloomberg News. The rest predicted no change. Today’s decision may stoke the Australian dollar, the best- performing major currency in the past year, and it reflects the strength of an economy that escaped recession during the global crisis. The biggest jobs boom in more than three years, a jump in house prices and a business-confidence rebound put pressure on Stevens to return rates toward what he calls a “normal” level. “The economy is recovering with much less slack than in past upswings,” Kieran Davies , a senior economist at Royal Bank of Scotland Group Plc in Sydney, said ahead of today’s decision. “The immense mining-led strength of the outlook for business investment should also reinforce the Reserve Bank’s view that China will support growth in Australia despite ongoing troubles in Europe.” Today’s increase by the Reserve Bank widens the gap between Australia’s cash rate target and the U.S. benchmark to 3.75 percentage points, the most since January 2009. The difference between the Australian and U.K. benchmarks is now 350 basis points, the widest since 1990. The announcement came hours after the government reported retail sales climbed 1.2 percent in January from December, exceeding the forecasts of all 19 economists in a Bloomberg News survey. A separate report showed home-building approvals fell in January, affected by the Reserve Bank’s rate increases and a reduction in government grants to first-time buyers. Switch in View Evidence of an accelerating expansion convinced most economists to predict today’s move after a majority in the Bloomberg News survey on Feb. 12 saw no change. Sovereign debt concerns have caused the euro to tumble since the start of the year and emerging stock markets to retreat. Today’s move makes Stevens the first central banker from a Group of 20 economy to boost benchmark rates this year, after leading the way in presiding over three moves last quarter. The increases brought the rate up from a half-century low of 3 percent. Pressure is also mounting on central banks in Canada, India, Malaysia and Indonesia to lift borrowing costs soon. Malaysia’s economy grew a greater-than-forecast 4.5 percent last quarter from a year earlier, and a report yesterday showed Indonesia’s inflation was at a nine-month high. Canada’s expansion is the fastest since 2000, a report showed late yesterday. Fed Standing Pat By contrast, U.S. Federal Reserve Chairman Ben S. Bernanke said last week the world’s largest economy is in a “nascent” recovery that still requires low rates. The Fed has kept its benchmark close to zero since late 2008. The European Central Bank’s rate is at a record low of 1 percent. Australia’s economy probably grew the most in 1 1/2 years in the fourth quarter, boosted by A$22 billion ($20 billion) in spending by Prime Minister Kevin Rudd on roads and schools. Gross domestic product rose 0.9 percent in the fourth quarter from the previous three months, when it gained 0.2 percent, according to the median estimate of 18 economists surveyed by Bloomberg. The figures will be released at 11:30 a.m. tomorrow. Australia has emerged from the global financial crisis “better than most,” helped by a “strong macroeconomic” environment, Governor Stevens said in Melbourne yesterday. GDP growth will quicken to an annual pace of 3.25 percent in the fourth quarter from 2 percent late last year, the Reserve Bank said in February. Pessimism Eased “I argued in February that the Reserve Bank would be unable to pause for any length of time in the face of strong economic data,” said Adam Carr , a senior economist at ICAP Australia Ltd. in Sydney. “Stock markets over the past week have generally been more buoyant, and the news flow less pessimistic than February.” A month ago, Governor Stevens cited concern about sovereign debt in Europe and turmoil on financial markets for keeping the benchmark rate unchanged, a move that confounded the forecasts of all 20 economists surveyed by Bloomberg predicting an increase. Reports published since then suggest inflation pressures may strengthen as a rising skills shortage boosts wages. Employers added 194,600 jobs in the five months through January, the most in more than three years, cutting the unemployment rate to an 11-month low of 5.3 percent. Business investment jumped in the fourth quarter at almost three times the pace predicted by analysts as companies raised forecasts for investment plans to a five-year high, a report showed last week. BHP Plans BHP Billiton Ltd. , the world’s largest mining company, said last month it will increase capital spending on iron-ore mines and oil fields by 63 percent next year to $20.8 billion. Commodity exports may jump next fiscal year by 15 percent to A$187 billion, the second-highest level on record, the Canberra-based Australian Bureau of Agricultural and Resource Economics said today in a report. Chevron, Exxon Mobile Corp. and Royal Dutch Shell Plc have this year begun construction on the A$43 billion Gorgon natural- gas venture, the nation’s single-biggest investment project that is forecast to generate as many as 10,000 jobs. The economy has less scope than previously expected for “robust” growth that doesn’t stoke inflation, Governor Stevens told a parliamentary committee in Canberra on Feb. 19. “Monetary policy must therefore be careful not to overstay a very expansionary setting.” Inflation Measure The central bank’s so-called annual weighted-median gauge of core inflation rose 3.6 percent in the three months through December. The measure has held above the top of the bank’s target range of between 2 percent and 3 percent since the third quarter of 2007. “If anyone is going to boom, surely it’s Australia,” Gerry Harvey , chairman of Australia’s largest electronics retailer Harvey Norman Holdings Ltd. , said in a Feb. 26 interview. “We never really went into a recession at all. Our unemployment rate was projected to reach 7, 8, 9, or 10 percent, but it never even got to 6 percent.” House prices jumped 11.8 percent in the year through January, according to a Feb. 26 report by real-estate monitoring company RP Data-Rismark, whose figures are used by the central bank in its quarterly monetary policy statement. Today’s rate increase means households with a A$300,000 mortgage will be charged an extra A$50 a month, adding to the A$150 increase in monthly payments last quarter. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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U.K. Conservatives’ Lead Narrows in Poll, Pointing to Political Deadlock

March 1, 2010

By Thomas Penny March 2 (Bloomberg) — The Conservatives’ lead over Prime Minister Gordon Brown’s Labour Party narrowed to five percentage points in a poll published late yesterday, adding to signs Britain may have its first minority government since 1974. The ComRes Ltd. survey for the Independent newspaper showed David Cameron ’s Conservatives fell one point from a month earlier to 37 percent and Labour gained one point to 32 percent. The Liberal Democrats were unchanged with 19 percent. The pound yesterday slid below $1.50 for the first time in almost 10 months amid speculation that neither Labour nor the Conservatives will get an outright majority of the seats in Parliament at the general election due by June, hampering efforts to cut the country’s record budget deficit . The uneven distribution of votes across districts means if people voted in line with the ComRes poll Labour would get 294 seats to the Conservatives’ 277, with no one party in overall control, John Curtice , professor of politics at Strathclyde University in Scotland, said in an e-mailed statement. The election race has tightened over the past month after the economy emerged from recession and Conservative warnings of years of “austerity” to tackle the deficit frightened some voters. Brown says Cameron’s plans to begin spending cuts this year would plunge the economy into a “double-dip recession.” The poll, which follows a YouGov survey published in the Sunday Times on Feb. 28 that gave the Conservatives 37 percent and Labour 35 percent, puts Brown and Cameron neck and neck on the economy. When asked who had “the right skills to lead Britain back to economic health,” 43 percent said Cameron and 42 percent said Brown. ComRes interviewed 1,005 adults by telephone between Feb. 26 and Feb. 28. No margin of error was given. To contact the reporter on this story: Thomas Penny in London at tpenny@bloomberg.net

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Pound Declines for Sixth Day on Prospect of Political Deadlock; Yen Drops

March 1, 2010

By Yasuhiko Seki and Ron Harui March 2 (Bloomberg) — The pound fell for a sixth day against the dollar amid concern that political uncertainties will hamper efforts to reduce the U.K.’s debt. The U.K. currency weakened against all 16 of its most- active counterparts after polls showed Britain may have its first minority government since 1974 and ahead of a report forecast to show that a recovery in consumer confidence stalled in February. The Australian dollar traded near the strongest in a week versus the greenback after the Reserve Bank of Australia raised its benchmark interest rate to 4 percent. “Concerns over politics and the debt situation in the U.K. are growing,” said Toshiya Yamauchi , manager of foreign- exchange margin trading at Ueda Harlow Ltd. in Tokyo. “If forthcoming data confirms the deterioration in sentiment, the pound may extend its decline.” The pound declined to $1.4928 as of 12:32 p.m. in Tokyo from $1.4991 in New York yesterday when it dropped to $1.4784, the lowest level since May 1. It was at 90.64 pence per euro from 90.47 yesterday after reaching 91.50, the weakest since Dec. 1. Sterling traded at 60.26 pence against the Australian dollar from 60.12 yesterday, when it reached 60.46, the weakest since March 1985. The U.K. currency yesterday had its biggest drop against the dollar since Feb. 2, 2009, as a poll showed the opposition Conservative Party has the smallest lead over the Labour Party in more than two years. Elections must be held by June. The pound has tumbled by 7.6 percent against the dollar and 2.3 percent versus the euro this year. U.K. Sentiment U.S. Prime Minister Gordon Brown is selling a record amount of debt to finance stimulus measures introduced to help the economy recover from its longest recession on record. In December, the government increased gilt sales planned for the fiscal year ending this month to 225.1 billion pounds ($337 billion), up from 220 billion pounds announced in April. “A hung parliament in the U.K. is clearly bearish because the market would not expect them to press ahead with fiscal measures,” said Thomas Harr, a senior currency strategist at Standard Chartered Plc in Singapore, in a Bloomberg News interview. “If this continues and we end up in a hung parliament, the sterling could fall more.” The Nationwide Building Society’s index of U.K. consumer sentiment stood at 73 in February, unchanged from the previous month, according to a Bloomberg News survey before the release of the survey from tomorrow. Australia’s currency traded at 90.06 U.S. cents from 90.09 cents after reaching 90.16 cents, the most since Feb. 23. The Reserve Bank of Australia increased its target rate to 4 percent from 3.75 percent, as predicted by economists in a Bloomberg survey. Plosser Comments The dollar rose for a second day against the yen after Philadelphia Federal Reserve Bank President Charles Plosser told the Wall Street Journal that the central bank should back away from its pledge to keep interest rates low for an “extended period.” “I don’t like that language,” Plosser said in an interview with the newspaper, referring to the “extended period” wording. “What is troubling about the words is that it ties our hands, or people believe that it ties our hands.” Plosser made similar remarks at a speech in Philadelphia last month. Fed presidents rotate in voting on monetary policy, with Plosser voting next year. “Hawkish comments triggered some buy-back of the dollar,” said Masahiro Ito , senior manager of foreign-exchange sales and marketing at Central Tanshi FX Co., a unit of Japan’s largest money broker. “If forthcoming data support his bullish view, the dollar may regain some momentum.” Yen Falls The yen also weakened as Asian stocks followed gains in the U.S. after consumer spending topped economists’ estimates. U.S. consumer spending rose 0.5 percent in January, Commerce Department figures showed yesterday. The median forecast was for an increase of 0.4 percent in a Bloomberg News survey. “Stocks in Asia are rising, taking their cue from gains in U.S. equities,” said Akane Vallery Uchida , a currency strategist at Royal Bank of Scotland Group Plc in Tokyo. “This will likely be good for risk sentiment and will probably lead to selling of the yen.” The Standard & Poor’s 500 Index advanced 1 percent yesterday. The MSCI Asia Pacific Index of regional shares rose 0.6 percent today. To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net ; Ron Harui in Singapore at rharui@bloomberg.net .

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Pound Declines for Sixth Day on Prospect of Political Deadlock; Yen Drops

March 1, 2010

By Yasuhiko Seki and Ron Harui March 2 (Bloomberg) — The pound fell for a sixth day against the dollar amid concern that political uncertainties will hamper efforts to reduce the U.K.’s debt. The U.K. currency weakened against all 16 of its most- active counterparts after polls showed Britain may have its first minority government since 1974 and ahead of a report forecast to show that a recovery in consumer confidence stalled in February. The Australian dollar traded near the strongest in a week versus the greenback after the Reserve Bank of Australia raised its benchmark interest rate to 4 percent. “Concerns over politics and the debt situation in the U.K. are growing,” said Toshiya Yamauchi , manager of foreign- exchange margin trading at Ueda Harlow Ltd. in Tokyo. “If forthcoming data confirms the deterioration in sentiment, the pound may extend its decline.” The pound declined to $1.4928 as of 12:32 p.m. in Tokyo from $1.4991 in New York yesterday when it dropped to $1.4784, the lowest level since May 1. It was at 90.64 pence per euro from 90.47 yesterday after reaching 91.50, the weakest since Dec. 1. Sterling traded at 60.26 pence against the Australian dollar from 60.12 yesterday, when it reached 60.46, the weakest since March 1985. The U.K. currency yesterday had its biggest drop against the dollar since Feb. 2, 2009, as a poll showed the opposition Conservative Party has the smallest lead over the Labour Party in more than two years. Elections must be held by June. The pound has tumbled by 7.6 percent against the dollar and 2.3 percent versus the euro this year. U.K. Sentiment U.S. Prime Minister Gordon Brown is selling a record amount of debt to finance stimulus measures introduced to help the economy recover from its longest recession on record. In December, the government increased gilt sales planned for the fiscal year ending this month to 225.1 billion pounds ($337 billion), up from 220 billion pounds announced in April. “A hung parliament in the U.K. is clearly bearish because the market would not expect them to press ahead with fiscal measures,” said Thomas Harr, a senior currency strategist at Standard Chartered Plc in Singapore, in a Bloomberg News interview. “If this continues and we end up in a hung parliament, the sterling could fall more.” The Nationwide Building Society’s index of U.K. consumer sentiment stood at 73 in February, unchanged from the previous month, according to a Bloomberg News survey before the release of the survey from tomorrow. Australia’s currency traded at 90.06 U.S. cents from 90.09 cents after reaching 90.16 cents, the most since Feb. 23. The Reserve Bank of Australia increased its target rate to 4 percent from 3.75 percent, as predicted by economists in a Bloomberg survey. Plosser Comments The dollar rose for a second day against the yen after Philadelphia Federal Reserve Bank President Charles Plosser told the Wall Street Journal that the central bank should back away from its pledge to keep interest rates low for an “extended period.” “I don’t like that language,” Plosser said in an interview with the newspaper, referring to the “extended period” wording. “What is troubling about the words is that it ties our hands, or people believe that it ties our hands.” Plosser made similar remarks at a speech in Philadelphia last month. Fed presidents rotate in voting on monetary policy, with Plosser voting next year. “Hawkish comments triggered some buy-back of the dollar,” said Masahiro Ito , senior manager of foreign-exchange sales and marketing at Central Tanshi FX Co., a unit of Japan’s largest money broker. “If forthcoming data support his bullish view, the dollar may regain some momentum.” Yen Falls The yen also weakened as Asian stocks followed gains in the U.S. after consumer spending topped economists’ estimates. U.S. consumer spending rose 0.5 percent in January, Commerce Department figures showed yesterday. The median forecast was for an increase of 0.4 percent in a Bloomberg News survey. “Stocks in Asia are rising, taking their cue from gains in U.S. equities,” said Akane Vallery Uchida , a currency strategist at Royal Bank of Scotland Group Plc in Tokyo. “This will likely be good for risk sentiment and will probably lead to selling of the yen.” The Standard & Poor’s 500 Index advanced 1 percent yesterday. The MSCI Asia Pacific Index of regional shares rose 0.6 percent today. To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net ; Ron Harui in Singapore at rharui@bloomberg.net .

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Australia Raises Rates to 4% as Recovery Gathers Pace; Currency Pares Gain

March 1, 2010

By Jacob Greber March 2 (Bloomberg) — Australia’s central bank resumed raising interest rates after a one-meeting pause, judging that the economy is strong enough to withstand any impact from global investor concerns on sovereign debt risks. Reserve Bank Governor Glenn Stevens increased the benchmark overnight cash rate target to 4 percent from 3.75 percent in Sydney today, as forecast by 14 of 19 economists surveyed by Bloomberg News. The rest predicted no change. Today’s decision may support Australia’s dollar, the best- performing major currency in the past year, and it reflects the strength of an economy that escaped recession during the global crisis. The biggest jobs boom in more than three years, a jump in house prices and a business-confidence rebound put pressure on Stevens to return rates toward what he calls a “normal” level. “The economy is recovering with much less slack than in past upswings,” Kieran Davies , a senior economist at Royal Bank of Scotland Group Plc in Sydney, said ahead of today’s decision. “The immense mining-led strength of the outlook for business investment should also reinforce the Reserve Bank’s view that China will support growth in Australia despite ongoing troubles in Europe.” Today’s increase by the Reserve Bank widens the gap between Australia’s cash rate target and the U.S. benchmark to 3.75 percentage points, the most since January 2009. The difference between the Australian and U.K. benchmarks is now 350 basis points, the widest since 1990. The announcement came hours after the government reported retail sales climbed 1.2 percent in January from December, exceeding the forecasts of all 19 economists in a Bloomberg News survey. A separate report showed home-building approvals fell in January, affected by the Reserve Bank’s rate increases and a reduction in government grants to first-time buyers. Switch in View Evidence of an accelerating expansion convinced most economists to predict today’s move after a majority in the Bloomberg News survey on Feb. 12 saw no change. Sovereign debt concerns have caused the euro to tumble since the start of the year and emerging stock markets to retreat. Today’s move makes Stevens the first central banker from a Group of 20 economy to boost benchmark rates this year, after leading the way in presiding over three moves last quarter. The increases brought the rate up from a half-century low of 3 percent. Pressure is also mounting on central banks in Canada, India, Malaysia and Indonesia to lift borrowing costs soon. Malaysia’s economy grew a greater-than-forecast 4.5 percent last quarter from a year earlier, and a report yesterday showed Indonesia’s inflation was at a nine-month high. Canada’s expansion is the fastest since 2000, a report showed late yesterday. Fed Standing Pat By contrast, U.S. Federal Reserve Chairman Ben S. Bernanke said last week the world’s largest economy is in a “nascent” recovery that still requires low rates. The Fed has kept its benchmark close to zero since late 2008. The European Central Bank’s rate is at a record low of 1 percent. Australia’s economy probably grew the most in 1 1/2 years in the fourth quarter, boosted by A$22 billion ($20 billion) in spending by Prime Minister Kevin Rudd on roads and schools. Gross domestic product rose 0.9 percent in the fourth quarter from the previous three months, when it gained 0.2 percent, according to the median estimate of 18 economists surveyed by Bloomberg. The figures will be released at 11:30 a.m. tomorrow. Australia has emerged from the global financial crisis “better than most,” helped by a “strong macroeconomic” environment, Governor Stevens said in Melbourne yesterday. GDP growth will quicken to an annual pace of 3.25 percent in the fourth quarter from 2 percent late last year, the Reserve Bank said in February. Pessimism Eased “I argued in February that the Reserve Bank would be unable to pause for any length of time in the face of strong economic data,” said Adam Carr , a senior economist at ICAP Australia Ltd. in Sydney. “Stock markets over the past week have generally been more buoyant, and the news flow less pessimistic than February.” A month ago, Governor Stevens cited concern about sovereign debt in Europe and turmoil on financial markets for keeping the benchmark rate unchanged, a move that confounded the forecasts of all 20 economists surveyed by Bloomberg predicting an increase. Reports published since then suggest inflation pressures may strengthen as a rising skills shortage boosts wages. Employers added 194,600 jobs in the five months through January, the most in more than three years, cutting the unemployment rate to an 11-month low of 5.3 percent. Business investment jumped in the fourth quarter at almost three times the pace predicted by analysts as companies raised forecasts for investment plans to a five-year high, a report showed last week. BHP Plans BHP Billiton Ltd. , the world’s largest mining company, said last month it will increase capital spending on iron-ore mines and oil fields by 63 percent next year to $20.8 billion. Commodity exports may jump next fiscal year by 15 percent to A$187 billion, the second-highest level on record, the Canberra-based Australian Bureau of Agricultural and Resource Economics said today in a report. Chevron, Exxon Mobile Corp. and Royal Dutch Shell Plc have this year begun construction on the A$43 billion Gorgon natural- gas venture, the nation’s single-biggest investment project that is forecast to generate as many as 10,000 jobs. The economy has less scope than previously expected for “robust” growth that doesn’t stoke inflation, Governor Stevens told a parliamentary committee in Canberra on Feb. 19. “Monetary policy must therefore be careful not to overstay a very expansionary setting.” Inflation Measure The central bank’s so-called annual weighted-median gauge of core inflation rose 3.6 percent in the three months through December. The measure has held above the top of the bank’s target range of between 2 percent and 3 percent since the third quarter of 2007. “If anyone is going to boom, surely it’s Australia,” Gerry Harvey , chairman of Australia’s largest electronics retailer Harvey Norman Holdings Ltd. , said in a Feb. 26 interview. “We never really went into a recession at all. Our unemployment rate was projected to reach 7, 8, 9, or 10 percent, but it never even got to 6 percent.” House prices jumped 11.8 percent in the year through January, according to a Feb. 26 report by real-estate monitoring company RP Data-Rismark, whose figures are used by the central bank in its quarterly monetary policy statement. Today’s rate increase means households with a A$300,000 mortgage will be charged an extra A$50 a month, adding to the A$150 increase in monthly payments last quarter. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Pound Drops on U.K. Political Risks; Aussie Rises Before RBA Rate Meeting

March 1, 2010

By Yasuhiko Seki and Ron Harui March 2 (Bloomberg) — The pound dropped for a sixth day versus the dollar, after falling below $1.50 for the first time in almost 10 months, amid concerns that political uncertainties will hamper efforts to reduce the U.K.’s debt. The British currency weakened after polls showed Britain may have its first minority government since 1974 and ahead of a report forecast to show that a recovery in consumer confidence stalled in February. The Australian dollar traded near the strongest in a week versus the greenback on expectations the Reserve Bank will raise its benchmark interest rate today. “Concerns over politics and the debt situation in the U.K. are growing,” said Toshiya Yamauchi , manager of foreign- exchange margin trading at Ueda Harlow Ltd. in Tokyo. “If forthcoming data confirms the deterioration in sentiment, the pound may extend its decline.” The pound was at $1.4948 as of 9:54 a.m. in Tokyo from $1.4991 in New York yesterday when it dropped to $1.4784, the lowest level since May 1. It was at 90.54 pence per euro from 90.47 pence yesterday after reaching 91.50, the weakest since Dec. 1. Sterling traded at 60.10 pence against the Australian dollar from 60.10 pence yesterday, when it reached 60.46 pence, the weakest since March 1985. Consumer Sentiment Sterling yesterday had its biggest drop against the dollar since Feb. 2, 2009, as a poll showed the opposition Conservative Party has the smallest lead over the Labour Party in more than two years. Elections must be held by June. The pound has tumbled by 7.3 percent against the dollar and 2.2 percent versus the euro this year. Prime Minister Gordon Brown is selling a record amount of debt to finance stimulus measures introduced to help the economy recover from its longest recession on record. In December, the government increased gilt sales planned for the fiscal year ending this month to 225.1 billion pounds ($337 billion), up from 220 billion pounds announced in April. The Nationwide Building Society’s index of U.K. consumer sentiment stood at 73 in February, unchanged from the previous month, according to a Bloomberg News survey before the release of the survey from tomorrow. Stocks Advance The difference in the number of wagers by hedge funds and other large speculators on a decline in the pound compared with those on a gain — so-called net shorts — was 62,884 on Feb. 23, the most since Oct. 13, 2009, compared with net shorts of 56,079 a week earlier, figures from the Washington-based Commodity Futures Trading Commission showed. Australia’s currency traded at 89.88 U.S. cents from 90.09 cents after reaching 90.16 cents, the most since Feb. 23. There’s a 62 percent chance the Reserve Bank of Australia will raise its target rate to 4 percent, based on trading on the Sydney Futures Exchange. Fourteen of 19 economists in a Bloomberg survey forecast an increase. The yen weakened as Asian stocks followed gains in the U.S. after consumer spending topped economists’ estimates. U.S. consumer spending rose 0.5 percent in January, Commerce Department figures showed yesterday. The median forecast was for an increase of 0.4 percent in a Bloomberg News survey. “Stocks in Asia are rising, taking their cue from gains in U.S. equities,” said Akane Vallery Uchida , a currency strategist at Royal Bank of Scotland Group Plc in Tokyo. “This will likely be good for risk sentiment and will probably lead to selling of the yen.” The Standard & Poor’s 500 Index advanced 1 percent yesterday. The MSCI Asia Pacific Index of regional shares rose 0.4 percent today and the Nikkei 225 Stock Average climbed 0.5 percent. To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net ; Ron Harui in Singapore at rharui@bloomberg.net .

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HSBC 2009 Profit Misses Estimates as Bad-Loan Costs Rise; Shares Decline

March 1, 2010

By Jon Menon and Andrew MacAskill March 1 (Bloomberg) — HSBC Holdings Plc , Britain’s biggest bank, posted full-year net income that missed analyst estimates after costs for bad loans climbed and profit fell for units in Europe, the Middle East and Asia. Earnings increased to $5.83 billion from $5.73 billion a year earlier, the London-based lender said today in a statement. That was less than the $7.76 billion median estimate of analysts surveyed by Bloomberg. The bank dropped in London trading. “These results are disappointing,” said David Crawford , a money manager at Octopus Investment Ltd. who had the best- performing long-short fund in the U.K. last year. “It is the most highly valued bank in Europe, so it needs to deliver on that high valuation. People expect great things from it.” The bank plans to trade its shares in Shanghai and moved Chief Executive Officer Michael Geoghegan to Hong Kong from London last month to sharpen its focus on Asia. HSBC halted consumer finance loans in the U.S. after racking up provisions of at least $70 billion in the past four years following its acquisition of U.S. subprime lender Household International Inc. Impairment charges and other credit risk provisions rose to $26.5 billion in 2009 compared with $24.9 billion the previous year, the company said. Full-year pretax profit fell by 63 percent to $4 billion in Europe, by 9.4 percent to $10.2 billion in Asia and by 74 percent to $455 million in the Middle East from the year-earlier period. Pretax profit at Stuart Gulliver’s investment banking unit more than tripled to $10.5 billion. HSBC fell 4.4 percent to 687.7 pence at 10:55 a.m. in London, the biggest decline in the FTSE 350 Banks Index of five U.K. lenders, which fell 3.6 percent. ‘Slow Recovery’ “Huge challenges and risks remain for all of us,” said Chairman Stephen Green in the statement. “While emerging markets are leading global recovery and seem certain to drive the majority of the world’s growth in the generation ahead, recovery in developed markets has been slow to start.” The bank recorded an accounting loss of $6.3 billion on the fair value of its long-term debt and derivatives, compared with a gain of $6.68 billion a year earlier. Geoghegan plans to give as much as 4 million pounds ($6.1 million) of his bonus to children’s charities, according to a separate e-mailed statement. HSBC set aside 25 percent of investment bank revenue to pay employees at the unit, the lender said. That was less than the 27 percent paid out by Royal Bank of Scotland Group Plc , Britain’s biggest government-owned bank. “In these extraordinary times, remuneration is enormously sensitive, and particularly so when the absolute numbers involved are large by any standards,” Green said in the first statement. “The board expects fixed pay in banking to increase as a proportion of total compensation.” ‘Toughest of Times’ The bank will pay a fourth quarter dividend of 10 cents a share, unchanged from a year earlier. This underlined the bank’s ability “to pay dividends to shareholders in the toughest of times,” Geoghegan said in the statement. Pretax profit at the investment banking unit, led by Stuart Gulliver, more than tripled to $10.5 billion from $3 billion. It was the only one of HSBC ’s divisions to report a gain in profit. The bank’s North American unit posted a loss of $7.74 billion from a loss of $15.53 billion, the bank said. Profit in the Middle East dropped 74 percent to $455 million as performance was “constrained by lower demand” and low interest rates, the bank said. Asia and Europe fell. Net income was $2.49 billion in the six months to Dec. 31 from a loss of $1.99 billion a year earlier, the lender said. That was less than the $4.41 billion median estimate of 12 analysts surveyed by Bloomberg. HSBC raised $17.8 billion in April to shore up capital in a U.K. rights offering second-only to Lloyds Banking Group Plc’s 13.5 billion-pound share sale in December. HSBC, unlike rivals Royal Bank of Scotland Group Plc and Lloyds , didn’t take direct government assistance to bolster capital. HSBC , founded in 1865 as the Hongkong and Shanghai Banking Corp. wants to raise more than $5 billion as China opens the Shanghai exchange to foreign companies, people familiar with the matter said in August. To contact the reporter on this story: Jon Menon in London at jmenon1@bloomberg.net

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Lloyds Has Wider-Than-Estimated Loss as HBOS Takeover Increases Bad Loans

February 26, 2010

By Andrew MacAskill and Jon Menon Feb. 26 (Bloomberg) — Lloyds Banking Group Plc , Britain’s biggest mortgage lender, posted a wider-than-expected full-year loss as loan losses rose “significantly” in 2009 on the bank’s takeover of HBOS Plc . Lloyds’s pretax loss narrowed to 6.3 billion pounds ($9.6 billion) from 6.7 billion pounds in 2008, the London-based bank said in a statement today. That missed the 6.1 billion-pound median loss estimated by 22 analysts surveyed by Bloomberg. Lloyds fell in London trading. Bad loan losses were “significantly higher” at 24 billion pounds, the lender said today. They declined 21 percent in the second half compared with the first six months. “The HBOS legacy still weighs heavily on Lloyds, although these numbers do show some signs of encouragement,” Richard Hunter , Head of UK Equities at Hargreaves Lansdown Stockbrokers, said in a note to clients. “Lloyds remains as something of a U.K. recovery play and therefore hostage to the fortunes of the broader economic picture.” Lloyds completed the U.K.’s biggest rights offering last year to raise 13.5 billion pounds, enabling it to shun a government program capping losses on toxic assets. The bank, which is 41 percent owned by the taxpayer, has taken about 20.5 billion pounds in taxpayer-funded support since buying HBOS in January 2009, a deal that left the bank saddled with bad loans. “We are seeing commercial property impairments and mortgage coming down quite nicely,” Chief Executive Officer Eric Daniels , 58, said in an interview. “Margin, costs and impairments are all heading in the right direction and that gives a strong trajectory.” Loan Impairments Lloyds lost 2.7 percent to 53.40 pence at 9:32 a.m. in London trading for a market value of 35.8 billion pounds. The FTSE 350 Index of U.K. banks gained 1.1 percent. Banking net interest margin improved to 1.83 per cent in the second half of the year, compared to 1.72 per cent in the first half. The bank said it saw “further significant reductions” in impairments in 2010 and beyond, “assuming current economic expectations.” Economic growth in the U.K. will be slow and below trend, the bank said. Lloyds said it had focused on the loan portfolio from HBOS Plc , which it took over in January 2009, with “the greatest attention paid to the over-concentration in real estate related lending and those portfolios that fall outside the Lloyds TSB risk appetite.” That led the bank to “prudent and material impairment charges especially in the first half of the year.” Falling Mortgage Share Lloyds is losing market share of new U.K. mortgages after reducing loans. Gross new mortgage lending in 2009 dropped to 35 billion pounds from 78 billion pounds in 2008. That reduced Lloyds’s share of gross new lending to 24 per cent compared with 31 percent in 2008. Overall, mortgage balances outstanding at 31 December 2009 totaled 345.9 billion pounds, a drop of 3.7 billion pounds in the year. Banco Santander SA , Spain’s biggest bank, increased its gross U.K. market share to 18.6 percent in 2009 from 13.9 per cent a year earlier, the lender said when it announced full-year results this month. Royal Bank of Scotland Group Plc , Britain’s biggest government-owned lender, yesterday reported a narrower-than- expected full-year net loss buoyed by profit at its investment bank and slowing impairments. Barclays Plc, the U.K.’s second biggest bank, more than doubled profit to 7.5 billion pounds the bank said last week. HSBC Holdings Plc reports results March 1. Government Funding At the end of last year, Lloyds said it had gained 157 billion pounds of funding support from the government and central bank. A reduction in the bank’s balance sheet “will avoid the necessity to refinance much of this funding,” Lloyds said. The bank announced about 15,000 job cuts during the year, it said. Daniels is forgoing his 2.3 million pound bonus for 2009 following the lead of executives at Barclays and RBS who are waiving their right to a bonus. The government has pressed banks to cut or defer bonuses amid taxpayer anger over payouts. “I took a very personal decision to forgo bonuses because I thought it was really clouding the view of what Lloyds is accomplishing,” Daniels said. “So I thought I would remove that from the table.” Pretax profit at the bank’s retail unit fell by 1.57 billion pounds to 975 million, reflecting lower income and higher impairments, the bank said. Group net interest income decreased by 15 percent to 12.7 billion. To contact the reporters on this story: Andrew MacAskill in London at amacaskill@bloomberg.net ; Jon Menon in London at jmenon1@bloomberg.net

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Lloyds Full-Year Loss Falls Short of Estimates; Loan Impairments Increase

February 26, 2010

By Andrew MacAskill and Jon Menon Feb. 26 (Bloomberg) — Lloyds Banking Group Plc , Britain’s biggest mortgage lender, posted a full-year loss that missed analyst estimates and said loan impairments rose in 2009. Lloyds’s pretax loss narrowed to 6.3 billion pounds ($9.6 billion) from 6.7 billion pounds in 2008, the London-based bank said in a statement today. That missed the 6.1 billion-pound median loss estimated by 22 analysts surveyed by Bloomberg. Total impairments were “significantly higher” at 24 billion pounds, the lender said today. They declined 21 percent in the second half compared with the first six months. “The financial performance of the group’s continuing businesses is expected to improve significantly in 2010,” Chief Executive Officer Eric Daniels , 58, said in the statement. “Although we are forecasting a slow, below trend, economic recovery, the group is successfully addressing the near term challenges.” Lloyds completed the U.K.’s biggest rights offering last year to raise 13.5 billion pounds, enabling it to shun a government program capping losses on toxic assets. The bank, which is 41 percent owned by the government, has taken about 20.5 billion pounds in taxpayer-funded support since buying HBOS Plc in January 2009, a deal that left the bank saddled with bad loans. “The results were overall positive with an improvement in the net interest margin which is a very important development,” said Joe Dickerson , an analyst at Execution Noble in London who has a “buy” rating on the stock. They are cautious on the economy in respect of their impairment outlook.” Loan Impairments The bank said it saw “further significant reductions” in impairments in 2010 and beyond, “assuming current economic expectations.” Lloyds said it had focused on the loan portfolio from HBOS Plc, which it took over in January 2009, with “the greatest attention paid to the over-concentration in real estate related lending and those portfolios that fall outside the Lloyds TSB risk appetite.” That led the bank to “prudent and material impairment charges especially in the first half of the year.” Royal Bank of Scotland Group Plc , Britain’s biggest government-owned lender, yesterday reported a narrower-than- expected full-year net loss buoyed by profit at its investment bank and slowing impairments. Barclays Plc, the U.K.’s second biggest bank, more than doubled profit to 7.5 billion pounds the bank said last week. HSBC Holdings Plc reports results March 1. At the end of last year, Lloyds said it had gained 157 billion pounds of funding support from the government and central bank. A reduction in the bank’s balance sheet “will avoid the necessity to refinance much of this funding,” Lloyds said. The bank announced about 15,000 job cuts during the year, it said. To contact the reporters on this story: Andrew MacAskill in London at amacaskill@bloomberg.net ; Jon Menon in London at jmenon1@bloomberg.net

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Greece Risks Debt-Rating Downgrade Within Month on Struggle to Trim Budget

February 25, 2010

By Simon Kennedy and Keiko Ujikane Feb. 25 (Bloomberg) — Greece’s debt rating may be cut within a month as it struggles to pare the European Union’s largest budget deficit, driving up borrowing costs and renewing pressure on the euro. Standard & Poor’s said late yesterday it may lower its BBB+ rating by the end of March and Moody’s Investors Service said today it may reduce its A2 grade in a few months. The warnings further complicate the government’s effort to persuade investors that it can slash its fiscal shortfall from last year’s 12.7 percent of gross domestic product. The euro slumped to a one-year low against the yen, Asian stocks dropped and the cost to protect against a default of Greek government bonds climbed on concern that the country may need the EU’s assistance to avoid missing debt payments. Unions yesterday staged a strike to resist Prime Minister George Papandreou ’s drive to slash spending. “It’s getting more difficult than anticipated for the Greek government to implement the spending cuts it promised,” said Susumu Kato , chief economist in Tokyo at Credit Agricole Securities Asia. Further downgrades “may spread sovereign concerns through other European nations,” he said. The country’s willingness to keep funding itself in the commercial bond market is key to S&P’s assessment, the company said. The rating could be pressured by lower profitability at the country’s banks or a decline in public support for the budget plan, it said. EU assistance could help if it was likely to lead to a “sustained reduction” in borrowing costs. Two Notches “We believe that a further downgrade of Greece of one to two notches is possible within a month,” S&P analysts led by Marko Mrsnik in London said in a statement. Pierre Cailleteau, managing director of sovereign risk at Moody’s, said in an interview in Tokyo today it may act “in a few months” if policy makers appear to be deviating from their deficit-reduction plan. At the same time, Moody’s may stabilize its rating if Greece follows through with its austerity measures, he said. “We have to let the government implement its plans,” Cailleteau said. “You can’t expect a government to be able to turn around public finances in a few days.” S&P cut Greece’s rating in December from A- and signaled at the time it may reduce it again from BBB+. Moody’s lowered its rating by one step the same month. ECB Rules If Moody’s cuts its credit rating to the same level as the other major ratings companies, it could exacerbate Greece’s financial distress at the end of this year when the European Central Bank is due to revert to old collateral rules that were loosened during the global recession. Greek government bonds would then no longer be eligible as collateral at the ECB, making it even more difficult for the nation to borrow. The euro dropped to 120.55 yen as of 4:24 p.m. in Tokyo from 122.03 yen in New York yesterday. It earlier touched 120.24 yen, the lowest since Feb. 24, 2009. The single currency has fallen about 6 percent against the dollar this year on concern Greece’s fiscal woes may extend to Spain, Portugal and other European nations seeking to pare budget gaps. Credit-default swaps protecting the debt of Greece were quoted 10 basis points higher at 375 basis points, according to Royal Bank of Scotland Group Plc prices. The contracts have risen 19 basis points this week, according to prices from CMA DataVision in New York. Tear Gas Papandreou’s government is running into opposition at home to its strategy. Air-traffic controllers, customs and tax officials, train drivers, doctors at state-run hospitals and school teachers walked off the job yesterday to protest spending cuts. Police fired tear-gas and clashed with demonstrators in central Athens after a march organized by labor unions. Greek bonds have slumped, driving up borrowing costs, as investors fear the government will fail to meet its pledge to cut its budget gap to 8.7 percent of GDP this year. It aims to cut the deficit below the EU’s 3 percent limit in 2012. The premium investors demand to hold Greece’s 10-year securities instead of Germany’s rose to the most in more than two weeks. The government needs to sell 53 billion euros ($72 billion) of debt this year, the equivalent of 20 percent of GDP. The yield on the country’s two-year note yesterday rose to the most since Feb. 9. EU governments are looking for guarantees that Papandreou will slash spending before they spell out what help they may offer. EU and ECB officials visited Athens this week to verify that budget cuts are being implemented. Additional Measures Under proposals adopted this month by euro-area finance ministers, the Greek government will have to take additional measures to cut its budget gap if it fails to satisfy the European Commission next month that its current strategy is on track. These may include higher value-added tax, a levy on luxury goods, higher energy taxes and spending cuts, they said. “There will be some conditions attached” to European assistance for Greece, Cailleteau said. “I don’t see the evidence that would justify these kinds of assertions that Europe will not help Greece.” German, French and Greek voters are “in denial” about Greece’s ability to get its deficit under control without external aid, Barry Eichengreen , an economics professor at the University of California at Berkeley and author of a 2006 history of the European economy, said in a Bloomberg Television interview yesterday. Finance Minister George Papaconstantinou said Feb. 23 that the government will do “everything it needs to meet” its targets and that any decisions on possible new measures will be announced after talks with European governments. To contact the reporter on this story: Simon Kennedy in Paris at skennedy4@bloomberg.net Keiko Ujikane in Tokyo at kujikane@bloomberg.net

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Euro Weakens, Greek Bonds Decline on Downgrade Concern; U.S. Futures Drop

February 25, 2010

By Stuart Wallace Feb. 25 (Bloomberg) — The euro weakened to a one-year low against the yen and most stocks fell after Moody’s Investors Service and Standard & Poor’s said they may cut Greece’s rating. Bonds rose, driving German two-year yields to a record low. The yen strengthened against all 16 of the most-traded currencies and the dollar gained compared with 13 at 10:34 a.m. in London. The MSCI World Index of 23 developed nations’ stocks and futures on the Standard & Poor’s 500 Index dropped 0.3 percent. The premium on Greek 10-year bonds over German debt widened to the most since Feb. 8. The warnings by Moody’s and S&P rattled investors who had driven the euro down 8.3 percent against the yen in the past two months on concern Greece’s fiscal woes may spread to other nations in the currency group. Federal Reserve Chairman Ben S. Bernanke testifies to Congress today after saying yesterday that the U.S. economy is in a “nascent” recovery and requires low interest rates to feed demand. “Signs of discomfort with sovereign debt are surfacing, with investors putting upward pressure on interest rates in developed nations in Europe,” Tony Crescenzi , a strategist and fund manager at Pacific Investment Management Co. in Newport Beach, California, wrote in a research note. The cost of protecting Greek government debt from default using derivatives rose 10 basis points to 392 basis points, up from 130 at the end of October. The yield on Greek two-year notes rose 35 basis points to 6.05 percent, up from 1.42 percent at the end of October. Greek Turmoil Greece’s ASE Index slumped 1.3 percent, the biggest decline among 18 western European benchmarks. The premium that investors demand to hold Greek 10-year bonds over German debt widened 11 basis points to 350 basis points, more than four times the average over the last five years. Greece has to repay more than 20 billion euros ($27 billion) of maturing bonds and bills by the end of May, according to data compiled by Bloomberg. A Moody’s downgrade may make it harder for the nation’s banks to fund themselves by making Greek government debt ineligible as collateral for European Central Bank loans. The yield on 10-year Treasuries fell 3 basis points to 3.66 percent, the lowest since Feb. 10. The Treasury plans to sell $32 billion of seven-year notes today, the last of four auctions this week totaling a record $126 billion. The two-year German government bond yield dropped 5 basis points to 0.94 percent, the lowest since at least 1990 when Bloomberg began collecting the data. Xstrata, BASF Europe’s Dow Jones Stoxx 600 Index fluctuated between gains and losses. Xstrata Plc led declines in basic-resource shares, falling 1.6 percent in London. British American Tobacco Plc, Europe’s second-largest largest cigarette maker, declined 2 percent after reporting net income that missed forecasts. Declines were limited as BASF SE, the world’s biggest chemical company, gained 4.4 percent in Frankfurt after saying earnings will improve this year. Royal Bank of Scotland Group Plc rallied 6.2 percent after posting a narrower-than-estimated loss. The MSCI Asia Pacific Index fell 0.8 percent. Toll Holdings Ltd. slumped 18 percent in Sydney after the air-freight and logistics company posted lower profit. Hynix Semiconductor Inc., the world’s second-largest computer-memory chipmaker, fell 2.3 percent in Seoul after Yonhap News reported that creditors will sell as much as 13 percent of the company this year. U.S. Futures The decline in U.S. futures indicated the S&P 500 may pare some of yesterday’s 1 percent gain. Orders for durable goods probably rose in January by the most in four months, indicating manufacturing is powering the U.S. recovery, economists said before a report from the Commerce Department due at 8:30 a.m. in Washington. Another report from the Labor Department may show initial claims for unemployment benefits fell last week. Bernanke said slack labor markets and subdued inflation will allow the Federal Open Market Committee to keep the benchmark lending rate, which has been in a range of zero to 0.25 percent for more than a year, low “for an extended period.” He said the Fed will need to start tightening policy “at some point.” The MSCI Emerging Markets Index fell for a third day, sliding 0.8 percent. Stocks in Kazakhstan , owner of 3.2 percent of the world’s oil reserves, dropped 2.3 percent. Russia’s Micex index declined 0.7 percent. South African bonds rallied, cutting yields to a five-month low on the benchmark 13.5 percent bond due September 2015, as smaller-than-expected power-price increases boosted the odds of a cut in interest rates. The rand weakened 0.7 percent against the dollar. Turkey’s ISE National 100 stocks index rose for the first time in four days, climbing 1.4 percent, on optimism a meeting today between Prime Minister Recep Tayyip Erdogan , President Abdullah Gul and army chief Ilker Basbug will ease tensions between the government and the army after police detained about 50 serving and retired officers in nationwide raids this week. Options trading showed investors are betting the lira will weaken more than any other currency, based on a one-month risk- reversal rate of 3 percentage points. The currency was 0.1 percent lower against the dollar today. Copper declined 0.9 percent to $7,085 a metric ton on the London Metal Exchange as the dollar strengthened. Silver fell 1.5 percent in London and April crude oil declined 0.7 percent to $79.48 a barrel on the New York Mercantile Exchange. To contact the reporter on this story: Stuart Wallace in London at swallace6@bloomberg.net

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RBS Said to Win Approval to Pay $2.01 Billion in Investment Banker Bonuses

February 24, 2010

By Andrew MacAskill and Gavin Finch Feb. 24 (Bloomberg) — Royal Bank of Scotland Group Plc , Britain’s biggest government-controlled lender, will set aside about 1.3 billion pounds ($2.01 billion) for bonuses at its investment bank for 2009, a person familiar with the situation said. The Edinburgh-based bank received approval from the U.K. Treasury and U.K. Financial Investments, which manages the government’s stakes in RBS, to make the payments, said the person, who asked not be identified because the talks are confidential. This means the investment bank’s compensation-to-revenue ratio will be below 30 percent, the person said, compared with Barclays Plc which said it would pay 38 percent of revenue last week. Michael Strachan, an RBS spokesman, declined to comment. RBS, 84 percent owned by the U.K. government, handed control over its bonus pool to the Treasury in November in return for a second bailout. The percentage of “high achievers” leaving the bank doubled in 2009, Chief Executive Officer Stephen Hester said in December. British financial institutions are under pressure from politicians to reduce compensation amid public anger about the more than 1 trillion pounds of taxpayer money used to support the banking system during the credit crisis. In December, Chancellor of the Exchequer Alistair Darling introduced a one- off 50 percent levy on discretionary bank bonuses of more than 25,000 pounds. The story was reported earlier by Sky News. To contact the reporter on this story: Andrew MacAskill in London at amacaskill@bloomberg.net

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Lloyds Banking’s Daniels Will Waive Bonus, Following Lead of RBS, Barclays

February 22, 2010

By Jon Menon Feb. 22 (Bloomberg) — Lloyds Banking Group Plc Chief Executive Officer Eric Daniels is to waive his 2.3 million pound ($3.6 million) bonus for 2009, following the lead of executives at Barclays Plc and Royal Bank of Scotland Group Plc. “Mr Daniels has taken this action because he believes that the excellent progress the group is making, based on the considerable contribution of many colleagues across the company, is in danger of being obscured by the current debate on executive bonus awards,” Lloyds Chairman Win Bischoff said in an e-mailed statement. “Decisions on pay are a matter for the Lloyds board,” said a Treasury spokesman, who asked not to be identified in line with departmental policy. “We’ve been clear we expect all banks to show restraint on bankers’ pay and we welcome steps to do so.” The government has pressed banks to cut or defer bonuses amid taxpayer anger over payouts. Lloyds, 41 percent government- owned, followed RBS CEO Stephen Hester , Barclays CEO John Varley and President Robert Diamond who decided to forgo their 2009 bonuses in the past week. Daniels, who is paid a base salary of 1.04 million pounds, would have been entitled to a bonus of around 225 percent of his base salary, which will be paid in stock over three years, according to spokesman Shane O’Riordain . To contact the reporter on this story: Jon Menon in London at Jmenon1@bloomberg.net

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RBS Mortgage-Bond Co-Head Scott Eichel to Oversee U.S. Flow-Credit Trading

February 22, 2010

By Jody Shenn Feb. 22 (Bloomberg) — RBS Securities Inc. broadened the responsibilities of Scott Eichel , the global co-head of its mortgage- and asset-backed securities business, to include oversight of its U.S. flow credit trading. The change will allow the Stamford, Connecticut-based unit of Royal Bank of Scotland Group Plc to “take advantage of further opportunities to cross-sell and deliver a top-tier service to our clients,” according to an internal memo today. Michael Geller , an RBS spokesman, confirmed the memo. Eichel, a former co-head of mortgage- and asset-backed trading at Bear Stearns Cos., joined RBS in 2008 with a group of traders after JPMorgan Chase & Co.’s purchase of Bear Stearns following the investment bank’s near-collapse. A flow trader is a market maker. RBS’s credit trading includes corporate debt and related derivatives. Eichel didn’t return a phone message seeking comment. Royal Bank of Scotland is based in Edinburgh. To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net

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RBS Chief Executive Officer Stephen Hester Is Said to Waive Any 2009 Bonus

February 22, 2010

By Simon Packard Feb. 22 (Bloomberg) — Royal Bank of Scotland Group Plc Chief Executive Officer Stephen Hester has decided to forgo any bonus awarded to him for 2009, according to a person familiar with the situation, who declined to be identified before a formal announcement. Hester, 49, is scheduled to release 2009 results for the bank on Feb. 25, the first full-year since he took over as head of the 84 percent state-owned bank in November 2008. Hester joined Edinburgh-based RBS on a package entitling him to as much as 9.74 million pounds ($15 million) if he doubles the bank’s share price. Company spokeswoman Linda Harper declined to comment. The Sunday Times said yesterday that while RBS may report a loss for last year, Hester would be entitled to collect 1.6 million pounds in bonuses. That led U.K. Business Secretary Peter Mandelson to say in a television interview that such a payment would be premature. “If further down the line, in years to come, he has done well and turned around RBS, he deserves something back for it — and I would be the first to say so — but not now,” Mandelson said yesterday in an interview with BBC Television . Hester’s decision follows Barclays Plc Chief Executive Officer John Varley and President Bob Diamond , who refused bonuses the second year in a row. Lloyds CEO The decision by the heads of Barclays and RBS to waive their bonuses increases the pressure on Lloyds Banking Group Plc CEO Eric Daniels to make a similar decision, according to Chris Roebuck , a visiting professor at Cass Business School in London. “If he is fully aware of the anger that it would cause to take a bonus among the general public and the politicians – whether that be right or wrong – he needs to play a diplomatic game” and consider refusing it, Roebuck said. “No decisions have been taken by our independent remuneration about potential bonus awards,” Shane O’Riordain, a Lloyds spokesman, said today. Daniels, who is paid a base salary of 1.04 million pounds, will be entitled to a bonus of around 225 percent of his base salary, which will be paid in stock over three years and subject to clawbacks, O’Riordain said. Hester has an annual salary of 1.2 million pounds. RBS shares must rise to 70 pence and outperform peers for Hester to receive the full amount of shares and options in his pay deal with the company, RBS said last June. RBS rose 2.3 percent to 34.5 pence on Feb. 19 in London trading. The stock climbed 80 percent in the past 12 months, compared with the 89 percent increase of the Bloomberg Europe Banks and Financial Services Index . The bank has a market value of 19.5 billion pounds. In return for a government bailout, RBS accepted that the U.K. Treasury gain oversight of its bonus pool, doubling the number of “high achievers” quitting the company, Hester said in December. To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net

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RBS Chief Executive Officer Stephen Hester Is Said to Waive Any 2009 Bonus

February 22, 2010

By Simon Packard Feb. 22 (Bloomberg) — Royal Bank of Scotland Group Plc Chief Executive Officer Stephen Hester has decided to forgo any bonus awarded to him for 2009, according to a person familiar with the situation, who declined to be identified before a formal announcement. Hester, 49, is scheduled to release 2009 results for the bank on Feb. 25, the first full-year since he took over as head of the 84 percent state-owned bank in November 2008. Hester joined Edinburgh-based RBS on a package entitling him to as much as 9.74 million pounds ($15 million) if he doubles the bank’s share price. Company spokeswoman Linda Harper declined to comment. The Sunday Times said yesterday that while RBS may report a loss for last year, Hester would be entitled to collect 1.6 million pounds in bonuses. That led U.K. Business Secretary Peter Mandelson to say in a television interview that such a payment would be premature. “If further down the line, in years to come, he has done well and turned around RBS, he deserves something back for it — and I would be the first to say so — but not now,” Mandelson said yesterday in an interview with BBC Television . Hester’s decision follows Barclays Plc Chief Executive Officer John Varley and President Bob Diamond , who refused bonuses the second year in a row. Lloyds CEO The decision by the heads of Barclays and RBS to waive their bonuses increases the pressure on Lloyds Banking Group Plc CEO Eric Daniels to make a similar decision, according to Chris Roebuck , a visiting professor at Cass Business School in London. “If he is fully aware of the anger that it would cause to take a bonus among the general public and the politicians – whether that be right or wrong – he needs to play a diplomatic game” and consider refusing it, Roebuck said. “No decisions have been taken by our independent remuneration about potential bonus awards,” Shane O’Riordain, a Lloyds spokesman, said today. Daniels, who is paid a base salary of 1.04 million pounds, will be entitled to a bonus of around 225 percent of his base salary, which will be paid in stock over three years and subject to clawbacks, O’Riordain said. Hester has an annual salary of 1.2 million pounds. RBS shares must rise to 70 pence and outperform peers for Hester to receive the full amount of shares and options in his pay deal with the company, RBS said last June. RBS rose 2.3 percent to 34.5 pence on Feb. 19 in London trading. The stock climbed 80 percent in the past 12 months, compared with the 89 percent increase of the Bloomberg Europe Banks and Financial Services Index . The bank has a market value of 19.5 billion pounds. In return for a government bailout, RBS accepted that the U.K. Treasury gain oversight of its bonus pool, doubling the number of “high achievers” quitting the company, Hester said in December. To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net

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RBS Chief Hester Is Said to Forgo 2009 Bonus After Bailout From Government

February 21, 2010

By Simon Packard Feb. 21 (Bloomberg) — Royal Bank of Scotland Group Plc Chief Executive Officer Stephen Hester has decided to forgo any bonus awarded to him for 2009, according to a person familiar with the situation, who declined to be identified before a formal announcement. RBS spokeswoman Linda Harper declined to comment. Hester, 49, is scheduled to release 2009 results for the bank on Feb. 25, the first full-year since he took over as head of the 84 percent state-owned bank in November 2008. Hester joined Edinburgh-based RBS on a package entitling him to as much as 9.74 million pounds ($15 million) if he doubles the bank’s share price. The Sunday Times said today that while RBS will likely report a narrower loss for last year, Hester would be entitled to collect 1.6 million pounds in bonuses. That led U.K. Business Secretary Peter Mandelson to say in a television interview today that such a payment would be premature. “If further down the line, in years to come, he has done well and turned around RBS, he deserves something back for it — and I would be the first to say so, — but not now,” Mandelson said in an interview with BBC Television . Hester’s decision follows that of Barclays Plc Chief Executive John Varley and President Bob Diamond to refuse bonuses for 2009, the second year in a row. In return for a government bailout, RBS accepted that the U.K. Treasury gain oversight of its bonus pool, doubling the number of “high achievers” quitting the company, Hester said in December. Hester has an annual salary of 1.2 million pounds. RBS shares must rise to 70 pence each and outperform peers for Hester to receive the full amount of shares and options in his pay deal with the company, RBS said last June. RBS rose 2.3 percent to 34.5 pence on Feb. 19 in London trading. The stock has climbed 80 percent in the last 12 months, compared with the 89 percent increase in the Bloomberg Europe Banks and Financial Services Index . The bank has a market value of 19.5 billion pounds. To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net

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Qantas Chief Joyce Predicts Business Market Improvement in the Second Half

February 21, 2010

By James Paton Feb. 21 (Bloomberg) — Qantas Airways Ltd. , Australia’s biggest airline, forecast an increase in business class fares as demand recovers after a global travel slump. “We are seeing the business market demand improve,” Alan Joyce , chief executive officer of Sydney-based Qantas, told Sky News Business today. “The economics will have to change and fares, particularly in business class, will have to increase.” Qantas will scrap first-class cabins on most routes after a slump in demand for its most expensive seats led the company to last week book a 72 percent drop in first-half profit. Revenue is expected to improve in the second half, Joyce said today. “We continue to believe management is being conservative in its revenue outlook, with potential improvements in corporate travel the swing factor we think could drive a better-than- expected result,” Mark Williams and Michael Newbold , analysts at the Royal Bank of Scotland Group Plc in Sydney, wrote in a Feb. 18 report to clients. Qantas shares have dropped 8.4 percent in 2010, closing at A$2.74 on Feb 19, compared with a loss of 4.8 percent for the benchmark S&P/ASX 200 Index. After losing $50 billion over the past decade, the global airline industry may lose another $5.6 billion this year, according to the International Air Transport Association. Qantas forecast annual pretax earnings of A$400 million ($356.4 million), trailing analyst estimates for about A$530 million. Seat Changes The carrier will begin a A$400 million project to change seats and upgrade entertainment systems aboard its planes next year, it said last week. Qantas will reconfigure 29 aircraft, including Airbus SAS A380s and Boeing Co. 747-400 planes. “It’s basic supply and demand,” according to Joyce, who said Feb. 18 that the business has turned. “As you get more demand for that capacity, it brings back pricing power for the airlines.” Net income was A$58 million in the six months ended Dec. 31, the company said Feb. 18. That’s lower than the A$82 million median estimate in a Bloomberg survey of five analysts. “I think the results were excellent considering the problems of the aviation industry globally,” Joyce said today. “The company is moving in the right direction. We are seeing yields improving. We are seeing performance improving.” To contact the reporter on this story: James Paton in Sydney at jpaton4@bloomberg.net

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Brown Kicks Off Campaign With Call to Spurn Conservatives’ Economic Plans

February 20, 2010

By Kitty Donaldson Feb. 20 (Bloomberg) — Prime Minister Gordon Brown , beginning his general-election campaign, called on voters to take a second look at his Labour Party and spurn the opposition Conservatives as a party whose plans would wreck Britain’s economic recovery. Trailing in the opinion polls after 13 years in power and with a record peacetime budget deficit, Brown is seeking to convince voters they will be worse off under David Cameron’s Conservatives if they take power at the election the premier must hold by June. “I know that Labour hasn’t done everything right, and I know — really, I know — that I’m not perfect,” Brown told party supporters in Coventry, central England, today. He urged electors to “take a second look at us and take a long, hard look at them.” Seven polls in the past two weeks have showed the Conservative lead over the Labour Party shrinking after the economy exited recession in the fourth quarter of 2009. That has raised the possibility that Brown may still win the election or deny Cameron an overall parliamentary majority. Brown, who is 59 today, didn’t name the date of the election. Labour Party documents have suggested he will call the vote for May 6, the day of local elections in some parts of the country. By going earlier, he would face voters before economic- growth data for the first quarter of 2010 is published. The U.K. barely exited recession in the final quarter of 2009, with growth of 0.1 percent. ‘Fair for All’ Flanked by Cabinet ministers and under the party’s election slogan, “A future fair for all,” Brown highlighted the differences between the two parties over tackling Britain’s deficit, arguing the Conservatives haven’t budged from the policies they pursued under Margaret Thatcher . “When you peel away the veneer and actually look at what their policies mean, what you see is not the new economics of the future, it’s the same old Conservative economics of the 1980s,” Brown said. “How can they be the party of change, when they haven’t even changed themselves?” The timing and pace of deficit reduction are at the center of the campaign. The premier received a boost yesterday when 67 economists, including Nobel Prize winners Joseph Stiglitz and Robert Solow , backed his argument that it’s too soon to start cutting the deficit. Earlier in the week, the Conservatives seized on a letter signed by 20 economists, four of them former Bank of England policy makers, supporting its position that cuts are needed this year to keep the confidence of the financial markets. Britain’s deficit will top 12 percent of gross domestic product this year, the most in the Group of 20 leading industrial and developed nations. ‘Operation Fightback’ In today’s speech, which Labour strategists dubbed the start of “Operation Fightback,” Brown repeated pledges to “secure the recovery, not put it at risk” and to “protect and not cut front-line services” such as health care. He said he is representative of “Britain’s mainstream majority — from an ordinary family that wants to get on and not simply get by,” a reference to the difference between his background and Cameron’s. Brown’s father was a Church of Scotland minister. Cameron is the son of a stockbroker and was educated at Eton, the same private school that Princes William and Harry attended. In a broadcast on the Conservatives’ Web site, Cameron said Brown does not stand for fairness. The prime minister said “with a straight face that his is the party for the many, not the few,” Cameron said. “I think that is simply untrue.” ‘Simply Untrue’ “We don’t need a fantasy slogan from the Labour Party,” the leader of the opposition Liberal Democrats, Nick Clegg , told Sky News television. It is a “gratuitous insult to claim the Labour Party cares about fairness when it has so spectacularly failed to deliver it over the last decade.” In an interview shown on Channel 4 television this evening, Brown said he has never hit aides, the day before the Observer newspaper is scheduled to publish extracts from a book by Andrew Rawnsley containing allegations about his treatment of officials. “Let me just say absolutely clearly, so that there is no misunderstanding about that, I have never, never hit anybody in my life,” Brown said. “I don’t do these sorts of things.” To contact the reporter on this story: Kitty Donaldson in London at kdonaldson1@bloomberg.net .

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Canada Won’t Support Global Tax on Financial Services, Seeks Tighter Rules

February 19, 2010

By Theophilos Argitis Feb. 19 (Bloomberg) — Canada opposes efforts to impose a new global tax on financial services in the world’s major economies, according to a government document obtained by Bloomberg News. Prime Minister Stephen Harper’s government, which will host a summit of Group of 20 leaders in June, instead is urging countries to adopt sound regulatory practices such as Canada’s, according to an internal document distributed today to lawmakers from the governing Conservative Party. Canada’s decision may undermine efforts by some European leaders, including U.K. Prime Minister Gordon Brown , to rally the G-20 around a levy on banks that would be applied worldwide. With government and central bank support for the global financial industry topping $11 trillion, according to the Organization for Economic Cooperation and Development, policy makers want financial institutions to shoulder more of the costs of future crisis after rescuing banks from New York-based Citigroup Inc . to Royal Bank of Scotland Group Plc in Edinburgh. The International Monetary Fund will recommend to the Group of 20 the best way to proceed in April. Canada’s financial institutions didn’t require a bailout, showcasing the “effectiveness” of the country’s regulatory approach, according to the document. As chair of next June’s G-20 meeting, Canada will urge other group members to take similar regulatory practices, according to the document. To contact the reporters on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net .

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Video: RBS’s Johnson Discusses China Oil Demand, Energy Stocks: Video

February 18, 2010

Feb. 19 (Bloomberg) — David Johnson, an analyst at Royal Bank of Scotland in Hong Kong, talks with Bloomberg’s Susan Li about Chinese demand for oil. Cnooc Ltd. and China Petroleum & Chemical Corp. are among companies weighing bids for a Devon Energy Corp. stake in an Azerbaijan oil field, said four people with knowledge of the matter. (This is an excerpt of the full interview. Source: Bloomberg)

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Dollar’s Gain Disturbs Finance-Chief Slumber With Profit Targets at Risk

February 18, 2010

By Thomas Black Feb. 18 (Bloomberg) — U.S. companies starting to recover from the deepest recession in a lifetime face a new headwind as the dollar strengthens, threatening profit predictions for 2010. The dollar has gained about 10.7 percent against the euro since Dec. 1 as Greece struggles with debt and the rebounding U.S. economy attracts investment. The euro may slump below $1.30 by year-end, according to forecasts at Bank of America Corp., Royal Bank of Scotland Group Plc and Jefferies Group Inc. “With dollar strength like that you would most certainly see some revisions to company guidance,” Deane Dray , an FBR Capital Markets analyst in New York, said in an interview. “The fact is the stronger dollar is a negative impact.” A stronger dollar can make U.S. exports more expensive and lowers overseas sales when euros are translated to dollars. That ultimately may pose risks to profit forecasts for companies such as United Technologies Corp. and Textron Inc. , both of which predicted a euro at $1.41 or more this year. “The one thing that might keep me awake today is the euro,” United Technologies Chief Financial Officer Gregory Hayes said this month. The maker of Pratt & Whitney jet engines and Otis elevators used $1.48 per euro for its 2010 profit and sales forecasts, and while it’s confident in those targets, if the euro reached $1.20, “we’d have to step back and say that would be a problem,” Hayes said. Every penny the dollar gains against the euro knocks 1 cent a share from Hartford, Connecticut-based United Technologies’ earnings on a full-year basis, Hayes said at a Feb. 11 Cowen & Co. conference. A $275 million contingency buffer set when the company made its 2010 forecasts already has shrunk to about $200 million in part because of the stronger dollar, Chief Executive Officer Louis Chenevert said yesterday at a Barclays conference. Chenevert repeated an earnings target of $4.40 to $4.65 a share. A Threat to Recovery “The higher dollar is already hurting some American companies and is going to choke off the recovery,” Robert Mundell , a Columbia University professor and Nobel laureate in economics for his work on exchange rates, said in a Bloomberg Television interview yesterday. The dollar reached $1.51 against the euro on Nov. 25, the most since August 2008, and averaged $1.39 in 2009. The currency of participating European Union countries traded at $1.3625 per dollar at 10:49 a.m. in New York, from $1.3607 yesterday. Before the dollar began to strengthen in December, Goldman Sachs Group Inc. predicted earnings of technology companies would benefit by 200 to 300 basis points from currency. Now earnings may be hurt by 20 to 50 basis points, David Bailey , a New York-based analyst for Goldman Sachs, wrote in a Feb. 12 report. A basis point is equal to 0.01 percentage point. Currency Forecasts The currency outlook already contributed to stock-price declines this year of 13 percent at Google Inc. and Amazon.com Inc., said Mark Mahaney , an analyst for Citigroup Inc. in San Francisco. Google made 53 percent of its $23.7 billion in revenue in 2009 from outside the U.S., while 48 percent of Amazon.com’s $24.5 billion in sales were from outside North America. “Part of the down trend in tech has purely been due to the euro,” Mahaney said. The Nasdaq-100 stock index declined 2.7 percent this year through yesterday, more than the 1.4 percent drop for the Standard & Poor’s 500 stock index. The euro may reach $1.16 by year-end, said Gerry Celaya , a senior currency strategist with Redtower Asset Management in Aberdeen, Scotland. The average of estimates compiled by Bloomberg predicts the euro at $1.41 in the fourth quarter. “U.S. economy data continues to strengthen and if people start paying up for higher yields, we’ll probably see more dollar flows and that should bolster the dollar into the second half of 2010,” Celaya said. ‘Momentum Has Changed Weakness in the dollar last year helped jump-start the U.S. economy by boosting manufacturing exports and importing some inflation, said Ward McCarthy , chief financial economist at Jefferies in New York. Now it’s Europe’s turn, he said. “The momentum has changed,” said McCarthy, who predicts the euro may trade between $1.25 and $1.30 at the end of this year. “EU nations desperately need a weaker currency.” The Obama administration has maintained the U.S. currency policy of the past two presidents. Treasury Secretary Timothy F. Geithner most recently restated the U.S. commitment to a “strong dollar” on Feb. 6 when asked by a reporter about his views on the currency, after talks in Iqaluit, Canada, with his counterparts from the Group of Seven industrial nations. “If the euro starts to go down much more, the U.S. should buy more government bonds,” Mundell told Bloomberg Television. “The Federal Reserve should expand the money supply and let the recovery take off.” Japanese Yen The Japanese yen, which has gained about 2.3 percent on the dollar this year, may also weaken against the dollar and add another headwind for U.S. companies, said Alan Ruskin , chief of currency strategy in North America at Royal Bank of Scotland in Stamford, Connecticut. He said the yen may trade at 100 per dollar by year-end on expectations the U.S. Federal Reserve will begin raising rates and Japan will remain on hold, Ruskin said. Textron, the maker of Cessna airplanes and Bell helicopters, was helped by the euro through the fourth quarter and it now has turned negative, Scott Hall , president of the company’s industrial business, said at a Feb. 9 conference presentation, in response to an analyst’s question. The Providence, Rhode Island-based company based its 2010 forecasts on the euro at $1.41, he said. “As you look out, you can make your own judgment on whether that was wise or not, but that’s kind of what our assumption is going forward,” Hall said. ‘More of a Headwind’ Most large U.S. multinational manufacturers don’t hedge against foreign currencies and are affected by the shift, said FBR Capital’s Dray, who covers companies including United Technologies, 3M Co. and Honeywell International Inc. “We’ve been just at an inflection point where this is transitioning to be a headwind and maybe it becomes more of a headwind than people have factored,” Dray said. One exception is Kraft Foods Inc. , the world’s second- largest foodmaker. Kraft manages the dollar’s strength with hedges and by having earnings in currencies from around the world that offset the euro weakness, Chief Executive Officer Irene Rosenfeld said in an interview. “We’ve got some fundamental hedging policies in place and we will continue to pay attention to those,” said Rosenfeld, whose Northfield, Illinois-based company excludes currency effects from its earnings guidance . Kraft and Emerson Kraft’s sales to Europe, about a fifth of total sales in the third quarter, will rise this year with the $18.7 billion acquisition of Cadbury Plc. The average of 13 analysts’ estimates compiled by Bloomberg predicts Kraft will earn $2.09 a share in 2010. David Farr , CEO of Emerson Electric Co. , said he welcomes the strong dollar even though it will lower sales for the company’s industrial equipment in Europe. St. Louis-based Emerson got about 21 percent of its $20.9 billion in revenue from Europe for the year ended in September 2009. “I fundamentally believe that if you are a strong country with a strong economy and you are going to go create long-term prosperity, you have to have a strong currency,” Farr said in a Feb. 16 interview. “I don’t know of any great country that’s gotten great by having a weak currency.” —-With assistance from Will Daley in Chicago; Tim Mullaney, Matthew Boyle, Sara Eisen and Oliver Biggadike in New York; Duane Stanford in Atlanta; Brendan Murray and Tom Contiliano in Washington; Rachel Layne in Boston; and Marybeth Sandell in Stockholm. Editors: Kevin Miller , Steven Frank , James Langford To contact the reporters on this story: Thomas Black in Monterrey at tblack@bloomberg.net

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Bond Vigilantes Say EU Needs Better Plan to Control Greece Budget Deficit

February 17, 2010

By Matthew Brown and Anchalee Worrachate Feb. 18 (Bloomberg) — European Union leaders are failing to persuade bond investors that Greece can fix its budget. The yield on Greece two-year notes have remained above 5 percent, the highest in the euro zone, even after officials urged the nation this week to reduce its deficit. The premium investors demand to hold the notes instead of benchmark German securities has held above 4 percentage points, the most since the Mediterranean nation joined the euro and more than 10 times its 35 basis point average the past decade. After driving yields to the highest in 10 years, bond investors are keeping up the pressure on the EU to support Greece. Concern that the nation’s inability to narrow a deficit that is more than four times the EU limit will be replicated in countries such as Portugal and Spain prompted Societe Generale SA’s top-ranked strategist Albert Edwards to predict Feb. 12 that the euro region was poised to break up. “The market has replaced the EU as the chief enforcer of fiscal discipline, and the movement in spreads is testament to that,” said Charles Diebel , senior interest-rate strategist at Nomura International Plc in London. “What the bond markets have done to Greece could be the salvation of Europe.” The euro weakened 0.3 percent to $1.3567 against the dollar, bringing its three-month decline to 9 percent. No Specific Measures Investors who push up debt yields in an effort to alter government policy are known as vigilantes, a term coined in 1984 by economist Edward Yardeni , president of Yardeni Investments Inc. in New York. They were credited with forcing Bill Clinton to cut the U.S. deficit after he came into office in 1993, helping drive 10-year Treasury yields down to about 4 percent by November 1998 from above 8 percent in 1994. “Fiscal rules are only as good as the political will to enforce them, and there hasn’t been much of that, especially during the good times,” said Nick Kounis , chief European economist at Fortis Bank Nederland NV in Amsterdam. Greek two-year yields rose the most in almost three weeks on Feb. 16, when euro-region finance ministers stopped short of announcing specific measures to help the country. EU Economic and Monetary Affairs Commissioner Olli Rehn said after their meeting in Brussels that the bloc has “ways and means” to safeguard stability in the euro area. Greece said last year that the deficit would be 12.7 percent of gross domestic product, compared with the EU ceiling of 3 percent. Prime Minister George Papandreou ’s Dec. 14 pledge to take “radical” action failed to stop Moody’s Investors Service and Standard & Poor’s from cutting the country’s credit ratings. Shrugging of Panandreou Yields rose even after Papandreou announced a plan on Jan. 14 to cut the deficit by 10 billion euros ($13.7 billion), forcing further concessions two weeks later when he promised to boost the retirement age and freeze public sector pay. That reversed a pledge he made in last year’s election. While the vigilantes are punishing fiscal transgressors in Europe today, they were largely silent for much of the past decade as governments flouted the EU’s rules. The spread between Greek and German 10-year yields averaged 19 basis points in 2004 even as the Mediterranean nation’s budget deficit was 7.5 percent of GDP, the biggest in the region. “The experience of the past 10 years shows that markets can be ignoring these issues totally until they suddenly wake up and turn violently against fiscal offenders,” said Jacques Cailloux , chief European economist at Royal Bank of Scotland Group Plc in London. “Market discipline is important and necessary, but sudden shifts in sentiment in the bond market can be equally devastating.” Limits Exceeded Euro-region nations have exceeded the 3 percent limit on their budget deficits 44 times since the currency was introduced in 1999. Greece has been the biggest offender , as its deficit rose above the ceiling in eight of the nine years since it joined the euro in 2001. Italy broke the rule six times. Portugal, France and Germany flouted it five times. All 16 countries that use the euro will post budget deficits above 3 percent for 2009. Ireland will have a 12.5 percent shortfall, and Spain will have an 11.2 percent gap, according to European Commission estimates. Greek “yields seem fair to me,” said Bob Treue , founder of New Jersey-based Barnegat Fund, ranked among the top three hedge-fund performers in fixed income last year with a 132.7 percent return, according to Bloomberg calculations. “We don’t have a position in Greece, long or short.” Rules ‘Appropriate’ Current rules and instruments are “appropriate,” EU Economic and Monetary Affairs spokesman Amadeu Altafaj said in response to questions from Bloomberg News. “The issue at stake is not the rules and the instruments but the non-compliance to these rules.” If the EU fails to convince markets that it can solve Greece’s difficulties, investors may turn their attention to its neighbors, according to Mark Schofield , head of interest-rate strategy at Citigroup Inc. “Spain, Portugal, Italy and Ireland might not be a problem now, but if the market starts pushing their spreads wider, and put them in the situation where they are forced to fund their deficits at much more onerous levels, then you will see a lot more pressure for a pan-European solution to the problem,” he said. Yields on the debt of other peripheral euro-region countries also rose in recent months as investors bet the budget crisis wasn’t limited to Greece. Portuguese two-year yields touched 2.72 percent on Feb. 4, 1.65 percentage points above Germany’s level and an almost 13-year high. To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net ; Anchalee Worrachate in London at aworrachate@bloomberg.net

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Brown Says U.K. Banks Will Repay `Every Last Penny’ of Taxpayer Support

February 13, 2010

By Jon Menon Feb. 14 (Bloomberg) — U.K. Prime Minister Gordon Brown said he will insure “every last penny” of taxpayer support to British banks is paid back, as financial companies prepare to announce employee pay and bonuses for last year. “I’m sure you also share my anger with some of the banks,” Brown said today in a weekly podcast. “It is only fair that those who have contributed to the recession and have now benefited from taxpayers’ support give something to society in return.” The British leader said he will seek to end tax avoidance by financial companies and hold talks with the European Council this week to reach an agreement on a global bank levy. Banks also face tough new rules to defer their bonuses and claw them back if they aren’t deserved, Brown said. The government is seeking greater control over bonuses paid to bankers amid taxpayer anger about the industry’s bailout during the financial crisis. Banks including 84 percent government-owned Royal Bank of Scotland Group Plc and Barclays Plc , which didn’t receive a direct government support, will announce their 2009 employee compensation in the next weeks. The proceeds of a 50 percent tax on bonuses, announced last year, “will go towards alleviating youth unemployment and cutting the deficit,” Brown said. The prime minister’s comments are similar to those of U.S. President Barack Obama, who told leaders of the nation’s biggest banks on Dec. 14 that he’s “determined to recover every last dime for the American taxpayer.” Brown must hold a general election by June. His Labour party trails the opposition Conservative party in polls. To contact the reporter on this story: Jon Menon in London at Jmenon1@bloomberg.net

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EU Demands Greece Fix Budget Deficit, Stops Short of Concrete Aid Measures

February 11, 2010

By James G. Neuger Feb. 11 (Bloomberg) — European leaders ordered Greece to get the bloc’s highest budget deficit under control and said they were prepared to take “determined” action to staunch the worst crisis in the euro currency’s 11-year history. The agreement, brokered by German Chancellor Angela Merkel , Greek Prime Minister George Papandreou and European Central Bank President Jean-Claude Trichet , stopped short of offering concrete measures to help Greece handle a debt load that exceeds its annual economic output. Greek bonds rose and the euro fell after the deal was announced before a European Union summit. “Euro-area member states will take determined and coordinated action if needed to safeguard financial stability in the euro area as a whole,” EU President Herman Van Rompuy told reporters today in Brussels. “We fully support the efforts of the Greek government and their commitment to do whatever is necessary including adopting additional measures.” The accord left open how the EU would respond to a fresh wave of speculative attacks against Greece or countries such as Spain and Portugal, which are also struggling to cut their budget deficits. The statement echoes prior calls for Greece to clean up its accounts and gave the International Monetary Fund a monitoring role. Euro-region leaders were discussing the creation of a lending facility for Greece, an EU official said. States would contribute in proportion to the size of their economies, said the official in Brussels, who spoke on condition of anonymity. The official said it’s “not yet time” for a European bond. ‘Doing Something’ “Markets seem to be happy that they are doing something. The problem is if they come out with an ad hoc temporary solution for Greece then people wonder what happens when the next country comes into trouble,” said Nick Kounis , chief European economist at Fortis Bank Nederland NV in Amsterdam. “This whole thing needs to be institutionalized.” Greek bonds , which have plunged since December on concern about the country’s ability to tackle its deficit, extended a three-day rally, with the yield on the two-year government bond falling 59 basis points to 4.86 as of 3:00 p.m. in Brussels. Leaders are scheduled to brief reporters after the summit and finance ministers meet in Brussels on Feb. 15-16. “I assume they’re going to give us more than this,” said David Mackie , chief Western European economist at JPMorgan Chase & Co. in London. “They have to say more if on a sustained basis spreads are going to be brought in and Greece can get the room to deal with the fiscal tightening.” Euro Weakens The euro weakened 0.3 percent to $1.3701 today. Its slide to a nine-month low of $1.3586 on Feb. 5 forced Greece to the top of the EU agenda out of concern that market turmoil might spread. The pre-summit statement bore the imprint of Merkel, who as head of Europe’s largest economy, pressed for strict conditions on any European financial lifeline for countries that spend too much and save too little. “Greece won’t be left alone but there are rules and these rules must be adhered to,” Merkel told reporters. “On this basis we will agree on a statement.” Greece, representing 2.7 percent of the bloc’s $13 trillion economy, posted a budget deficit of 12.7 percent of gross domestic product in 2009, the highest in the euro’s 11-year history and more than four times the EU’s 3 percent limit. Papandreou’s government needs to sell 53 billion euros ($73 billion) of debt this year, the equivalent of about 20 percent of GDP. Greece’s credit rating was cut by Standard & Poor’s, Moody’s Investors Service and Fitch Ratings in December. Greek Plan Papandreou’s plans to cut public-sector wages, trim welfare provisions and raise taxes have provoked street protests that threaten to throw the government off course. Belt-tightening measures “will be implemented in every detail,” Papandreou told reporters in Paris yesterday. Other officials in the pre-summit crisis session included Van Rompuy, French President Nicolas Sarkozy , Spanish Prime Minister Jose Luis Rodriguez Zapatero and Luxembourg Prime Minister Jean-Claude Juncker , who heads the panel of euro-region finance ministers. U.K. Prime Minister Gordon Brown , in London when the meeting started, said Greece is in the hands of countries using the euro. “The Greek government must take the action they have promised, but this is being discussed in the euro area,” Brown told reporters after arriving in Brussels. EU Options Prime Minister Donald Tusk of Poland, another country outside the currency area, said the EU’s options include bilateral assistance and issuing eurobonds “to raise capital for a special aid fund for countries in crisis.” Called by Van Rompuy to sketch out a 10-year economic strategy, the summit has turned into a crisis-management exercise that tests Europe’s ability to run a common currency with 16 separate national fiscal policies. For that reason, EU officials have resisted putting Greece in the sole hands of the IMF , concerned that recourse to outside assistance would expose Europe’s inability to get its own house in order. The EU needed to act to calm exaggerated fears in the markets, a French official told reporters late yesterday. Spanish Finance Minister Elena Salgado distanced Spain’s fiscal woes from Greece’s, saying “whatever is said today will be very specifically aimed at Greece.” Whether from individual countries or the EU as a whole, a financial lifeline for Greece would open a new chapter in the euro experiment by breaking with the orthodoxy that each country has to steer its own economy. “I don’t think there is any bluff here. This is a very, very serious commitment to back up Greece,” said Jacques Cailloux , chief European economist at Royal Bank of Scotland Plc in London. “This is once in a lifetime moment for monetary union.” To contact the reporter on this story: James G. Neuger in Brussels at jneuger@bloomberg.net

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China May Choose to Increase Wages Over Yuan Gains to Narrow Trade Surplus

February 9, 2010

By Bloomberg News Feb. 10 (Bloomberg) — China, under international pressure to reduce its trade surplus , may choose to shrink it through raising workers’ wages rather than letting the yuan appreciate, Credit Suisse Group AG said. Higher labor costs would cut Chinese export competitiveness while boosting domestic spending power and sustaining economic growth, according to the bank. Premier Wen Jiabao ’s government has been pressed by U.S. and European officials to end a 19- month yuan peg to the dollar to help diminish trade and investment imbalances that contributed to the credit crisis. “Wage increases are a better option because they largely benefit Chinese workers,” Tao Dong , a Credit Suisse economist in Hong Kong who has covered the Chinese and Asian economies for more than 15 years, said in an interview yesterday. “Currency appreciation will only result in Chinese exporters losing out to competitors in countries such as Malaysia and Mexico.” The strategy may limit gains in the yuan to 3 percent this year, according to Tao. This month’s 13 percent increase in minimum wage in eastern China’s Jiangsu province indicates that higher pay will play an important role in officials’ efforts to rebalance growth in the fastest-growing major economy, Tao said. In Jiangsu, which was the nation’s third-largest exporting province in 2008, the government raised the minimum wage to attract workers, the local labor department said. Shanghai, the No. 2 exporter, is following suit from April 1, Mayor Han Zheng said. Beijing, Zhejiang and cities in the southern Guangdong province also plan increases, the China Business News reported Jan. 27, citing labor officials. Yuan Jump Unlikely The wage decision “argues against a large one-off yuan revaluation,” Ben Simpfendorfer , an economist with Royal Bank of Scotland in Hong Kong, wrote in a note this week. China has kept the yuan at about 6.83 per dollar since July 2008 to shield exporters from the global slump after a 21 percent gain in the previous three years. The foreign ministry last week rejected U.S. President Barack Obama’s call for the yuan to appreciate, saying the Chinese currency has little impact on American trade deficit. U.S. and European pressure will only delay appreciation because Chinese officials won’t let themselves be seen as buckling, Tao said. “Beijing will continue to resist pressure from the U.S. and other nations and look for ways that will benefit its own economy when it seeks to contribute to global rebalancing,” Tao said. “Higher wages will aid policy makers’ aim to boost domestic consumption and move away from depending on exports.” ‘No Delay’ President Hu Jintao on Feb. 3 urged “no delay” in efforts to reduce dependence on exports and investment and boost service industries and consumption. China’s current-account surplus fell 35 percent last year to $284.1 billion as exports declined because of the global slump. The government will need to manage inflation expectations as wages climb, Tao said. Consumer prices jumped 1.9 percent on year in December and may have climbed 2.1 percent in January, according to the median estimate of economists in a Bloomberg News survey ahead of a government report scheduled for this week. Improved global trade is boosting demand for labor in China, which overtook Germany last year as the world’s biggest exporter. China’s overseas shipments jumped a more-than-forecast 17.7 percent in December from a year earlier and imports surged to a record. — Li Yanping . Editors: Paul Panckhurst , Chris Anstey To contact Bloomberg News staff for this story: Li Yanping in Beijing at +86-10-6649-7568 or yli16@bloomberg.net

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`Genghis Khan,’ Barings CEO Seek Success in Britain Where Goodwin Failed

February 8, 2010

By Andrew MacAskill and Jon Menon Feb. 9 (Bloomberg) — Peter Norris and Vernon Hill , forced out of the banks they once ran amid scandals, are taking on the U.K.’s biggest lenders to rebuild their reputations in Britain’s new banking gold rush. Norris was banned from being a U.K. director for four years and called a liar by politicians after his 233-year-old bank, Barings Plc, collapsed in a rogue-trading scandal. Hill, who described himself as the “Genghis Khan of banking,” resigned from the New Jersey bank he built from scratch when regulators challenged contracts awarded to his family. Entrepreneurs and companies such as Norris’s Virgin Group Ltd. and Hill’s Metro Bank see an opportunity to create new lenders in the record losses of Britain’s banks. Cracking the U.K. market, dominated by four lenders that control two-thirds of consumer accounts, won’t be easy even as banks are being vilified for their bonuses and bailouts. “It was the career equivalent of a nuclear bomb going off,” said Norris, 54, who was chief executive officer when Barings collapsed in 1995. “Frankly, it all ended in a day. When things like that happen, it is pretty bleak. It has been a long, hard slog to come back.” Chancellor of the Exchequer Alistair Darling says he wants three new entrants into the U.K banking market in the next four years to boost credit for businesses and consumers. Sandy Chen , the Panmure Gordon & Co. analyst who predicted the collapse of bank stocks in 2007, and Tesco Plc , Britain’s biggest retailer, are among those raising funds and locating branches. ‘Negative Stigma’ Norris, who as Virgin chairman is overseeing the company’s push into banking, and Hill, who is planning a bank modeled on his former New Jersey company, may find it hard to shrug off their past as they compete for market share. “History is not on these people’s side,” said Ralph Silva , an analyst at London-based Silva Research Network, which specializes in financial-services firms. “The negative stigma attached to people’s names means they may struggle to improve their reputations even when they try something new.” There is appetite among consumers for new banking services: more than 21 percent of customers surveyed said they changed banks in the last two years because they were dissatisfied, according to a report published in November by YouGov Plc and Deloitte LLP . The biggest problem for new entrants will be raising capital, according to Silva. New banks may struggle to attract sufficient deposits to fund mortgages and other lending, which would force them to turn to the wholesale funding market — a business model that can be risky, he said. Four Big Banks The new lenders will challenge Barclays Plc , HSBC Holdings Plc, Lloyds Banking Group Plc and the Royal Bank of Scotland Group Plc, which together control 66 percent of the 923 billion pounds ($1.4 trillion) of U.K. retail deposits, according to figures compiled by London-based research group Datamonitor Plc and the Bank of England. RBS is reducing its market share to comply with state aid laws after recording the biggest corporate loss in U.K. history under former CEO Fred Goodwin . “Darling’s plan probably won’t work because there are so many significant barriers to entry,” said Chris Roebuck, a visiting professor at Cass Business School in London, who worked at UBS AG and HSBC. “The start-up costs are very expensive, and people’s reluctance to leave their bank will make it difficult. I am not expecting a revolution on the high street.” Norris was appointed in October as chairman of Richard Branson ’s Virgin Group, the same month Virgin Money, the consumer-finance unit of Branson’s group, applied for a banking license. In his management role in the holding company that controls Virgin Atlantic Ltd. and Virgin Rail, Norris will supervise strategy for Virgin Money as it seeks to expand from an Internet lender offering credit-card, savings and insurance products into a full-fledged bank with branches. ‘Enormous Shock’ Virgin Money has hired former Lloyds TSB Chief Executive Officer Brian Pitman as chairman, who will work alongside CEO Jayne-Anne Gadhia and Norris in devising strategy. “The opportunities are straightforward in the sense that there is a marketplace that suffered enormous shock,” Norris said in an interview. “Shock to the institutions, shock to the consumers that used them, and that has presented a clear opportunity for new entrants to do things in a different way.” The U.K.’s Department for Trade and Industry banned Norris as a director for four years for failing to prevent Singapore- based trader Nick Leeson from losing more than 860 million pounds in unauthorized wrong-way bets. Leeson spent 3½ years in a Singapore jail for the crime. Barings’s Long History Barings, whose clients included Queen Elizabeth II, financed Britain’s campaign against Napoleon Bonaparte from 1804 to 1815 and helped fund U.S. President Thomas Jefferson’s Louisiana Purchase of 1803. The bank’s assets were eventually sold to ING Groep NV of the Netherlands for 1 pound. A report by Singapore’s Finance Ministry into the fraud accused Norris of lying to investigators and covering up irregularities in Leeson’s accounts that, if discovered, might have saved what was then Britain’s oldest investment bank. His explanation “totally lacks credibility” and was “implausible,” the report said. At the parliamentary hearing into Barings collapse, U.K. lawmaker Quentin Davies asked Norris if in the history of investment banking there had ever been “such a severe indictment of anybody and such a large number of witnesses called to demonstrate that you were untruthful?” Norris’s View In an interview, Norris called the report’s conclusions unfair. “The thing about these events is they have a dynamic to them afterwards which has very little to do with what actually happened,” he said. At the parliamentary hearing at the time, Norris did say Barings was run like a “Mad Hatters’ Tea Party” because management was so unaware of Leeson’s trading. In the years since, Norris built a corporate finance firm, New Boathouse Capital Ltd., and worked as a consultant for London-based John Brown Publishing, which owns the satirical adult comic magazine Viz, whose characters include the “Fat Slags” and “Sid the Sexist.” Norris sold New Boathouse for 7.4 million pounds in 2007. The same year, Norris advised Branson on a bid for lender Northern Rock Plc months before it was nationalized. Their friendship dates to 1996, a year after the collapse of Barings, when Branson invited Norris to his home in London’s Holland Park district to discuss opportunities to work together. “He is both a highly skilled banker and an experienced entrepreneur, and that is a rare mix,” Branson said in an e- mailed statement. ‘Love Your Bank’ Virgin’s attempts to enter Britain’s banking market faces competition from Hill’s Metro Bank, which plans to open two branches in London this year and as many as 220 around the capital within a decade, a person with knowledge of the matter said. Signs in the windows in the two designated offices in the center of London urge customers to “Love your bank.” Hill, 64, a former real estate developer and owner of Burger King restaurants, founded Commerce Bancorp Inc. in 1973 and built it into the largest bank in New Jersey, with more than 400 branches. His expansion was built on a customer-friendly approach, including longer opening and marketing innovations such as providing dog biscuits for pets at branches. “We are a retailing company that happens to sell bank products,” Hill said in 2002. Contracts With Wife After regulators ordered the bank to stop doing business with companies controlled by Hill’s family, he was forced to resign. The bank paid a firm owned by Hill’s wife, Shirley, $50 million over 10 years to design and furnish branches. Hill said at the time that he gave family-run companies contracts because they did the best job. He sued the bank for $57 million in 2008, according to a complaint filed in federal court. The lawsuit is still pending. He and Metro Bank declined to comment for this story. In 2008, Hill became chairman of the board at Philadelphia- based Petplan USA, which sells insurance for dogs and cats. Hill has also set up a private investment group and joined the executive committee of the Saladworks Inc. restaurant chain, based in Conshohocken, Pennsylvania. He also writes an online banking column that is critical of regulators and other banks. “The banking industry has followed fad after fad for the last 15 years with disastrous results,” Hill wrote in June 2008 on the Bankstocks.com Web site . “The next fad is clearly risk management, the catch phrase for regulators.” Banking License Hill’s Metro Bank has applied for a banking license and has raised about 75 million pounds of funding from institutional and private investors, according to the person with knowledge of the matter. The bank will need an additional 200 million pounds in its third year as part of its business plan, the person said. Both Virgin and Metro Bank will find it difficult to draw deposits away from the existing U.K. banks, a task made even harder by other firms trying to establish themselves as lenders in Britain, according to John Hitchins , head of retail banking at accounting firm PricewaterhouseCoopers. “There are big start-up costs, and I am sure that some will look at it and decide not to do it,” London-based Hitchins said of the new entrants. “You could even see some start and go away again. They will take market share, but I don’t see another big bank emerging.” To contact the reporters on this story: Andrew MacAskill in London at amacaskill@bloomberg.net Jon Menon in London at jmenon1@bloomberg.net

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Udvar-Hazy, Freed From AIG Leasing Unit, Has Shopping Options for New Jets

February 5, 2010

By Susanna Ray Feb. 5 (Bloomberg) — Steven Udvar-Hazy , who stepped down as chief executive officer of American International Group Inc .’s plane-leasing unit, has shopping options as lessors around the world seek to sell planes to reduce debt. Udvar-Hazy, 63, had built International Lease Finance Corp. into the world’s biggest plane lessor since founding it 37 years ago and selling it to AIG in 1990. He is leaving the Los Angeles-based company more than a year after losing his usual funding options because of credit downgrades to AIG. Private-equity groups had backed Udvar-Hazy in an attempt to buy as much as a $4.5 billion chunk of ILFC’s fleet to start a firm, people familiar with the matter said in October. If he stays in the business, he could have an opportunity to build a fleet with planes from AIG, CIT Group Inc. and Royal Bank of Scotland Group Plc, which may be trying to sell all or parts of their aircraft-leasing divisions. “It may well be that Steve Hazy, who is intimately acquainted with what’s going on in the market, may perceive there are enough good deals that he’s better off setting up a new organization if he wants to remain in the business,” said George Hamlin , president of Hamlin Transportation Consulting in Fairfax, Virginia. “But then again, maybe Steve has to actually step out and become an outsider before he can step back in to what’s a new, recast organization.” Funding AIG anticipates “selling some ILFC assets in the future” and is reviewing other options, the insurer’s CEO, Robert Benmosche , said in a statement yesterday announcing Udvar-Hazy’s departure. AIG named John Plueger , ILFC’s 55-year-old president and chief operating officer who has been with the leasing company for 23 years, to take over as acting CEO. Udvar-Hazy, Plueger and Mark Herr , a spokesman for New York-based AIG, declined to comment. ILFC, among the biggest customers for both Boeing Co. and Airbus SAS , had to turn to AIG for funding last year, getting a $1.7 billion credit line in March and $2 billion in October. ILFC has more than $4 billion of debt maturing in the first nine months of 2010. It was cut to the lowest investment-grade level by Standard & Poor’s on Jan. 25 on the prospect AIG may take “several years” to sell the business. Moody’s Investors Service cut the company to junk in December on concern that AIG may cut off funding this year. “The factors that were beating up most of ILFC’s portfolio were taking place with or without him,” said Richard Aboulafia , an analyst at the Teal Group, a Fairfax, Virginia-based aviation consulting firm. “What he does next will have an impact on perceptions of ILFC’s value.” Credit-Default Swaps Credit-default swaps protecting against a default by ILFC rose 10 basis points to 841 basis points at 12 p.m. in New York, according to CMA DataVision. That means it would cost the equivalent of $841,000 a year to protect $10 million of ILFC debt against default for five years. Airlines have had to cancel or defer orders over the past year because the global recession constrained funding. Leasing companies such as ILFC, CIT and RBS were unable to increase their pace of buying as they did in prior air-travel slumps. That could provide Udvar-Hazy, if he gets enough financial backing, with an opportunity to take over some of the delivery slots carriers aren’t able to finance. Aircraft prices may fall further if “traffic stays in a slump and new aircraft get built in record numbers,” Aboulafia said. Demand for flights is starting to recover after last year saw the biggest drop since World War II, according to the International Air Transport Association. Private Equity Private-equity firms Onex Corp. and Greenbriar Equity Group LLC backed Udvar-Hazy in last year’s bid to start a company with part of ILFC’s portfolio, the people said in October. ILFC has about 1,000 aircraft in its fleet valued at more than $44 billion. CIT Aerospace, whose New York-based commercial-lender parent emerged from bankruptcy in December, has a fleet of more than 300 planes. CIT may shed businesses like aircraft leasing as part of the company’s plan to shift assets to a regulated deposit-gathering unit, a person with knowledge of the matter said last year. Curt Ritter , a spokesman for CIT, had no immediate comment. Edinburgh-based RBS, which is selling assets after posting the biggest loss in British corporate history in 2008 and receiving the largest taxpayer bailout of any bank, has about 370 aircraft in its fleet and on order. RBS hired Goldman Sachs Group Inc. to advise on options for the aircraft unit, which may include a sale, a person with knowledge of the matter said last year. Piers Townsend , a spokesman for RBS, wasn’t immediately available to comment. When Udvar-Hazy founded ILFC in 1973, he “really enabled a lot of growth in air travel,” Aboulafia said. “He got airlines the jets they didn’t have the capital for, and he made money doing it, and until the credit crisis it worked brilliantly.” To contact the reporter on this story: Susanna Ray in Seattle at sray7@bloomberg.net

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Sempra May Buy Out RBS in Power Venture as JPMorgan Weighs European Unit

February 4, 2010

By Brett Foley and Mark Chediak Feb. 4 (Bloomberg) — Sempra Energy is in talks to buy Royal Bank of Scotland Group Plc’s stake in the North American gas and power trading units of the two companies’ joint venture, three people with knowledge of the matter said. Sempra, owner of the largest U.S. natural gas distributor, is entering the bidding after JPMorgan Chase & Co. reconsidered its plans to acquire the entire trading venture. President Barack Obama said last month he would seek to curb banks’ ability to trade for their own benefit in a bid to end the sort of risk-taking that helped spark the financial crisis. JPMorgan has sought to extend its exclusive negotiations to purchase the energy and metals trader’s European unit, said the people who declined to be identified because the talks are private. RBS, based in Edinburgh, is being forced by the European Union to sell its stake in RBS Sempra after receiving a 45.5 billion-pound ($72 billion) taxpayer-funded bailout during the crisis. The Sempra venture also drew offers from Deutsche Bank AG, Germany’s biggest bank, and Macquarie Group Ltd. of Australia, people familiar with the matter said last month. Officials at RBS in Edinburgh, JPMorgan in London and at Sempra, based in San Diego, declined to comment. JPMorgan received $25 billion under the U.S. Troubled Asset Relief Program in October 2008. The New York-based bank in June became one of the first to return the funds. Expanding Operations The Scottish lender invested $1.7 billion of equity into the venture in return for a 51 percent stake in 2008. Sempra Energy invested about $1.6 billion into the venture and received about $1.2 billion in cash from the 2008 deal. RBS Chief Executive Officer Stephen Hester is selling or closing businesses in two-thirds of the 54 countries in which RBS operates. It agreed to sell part of its fund management unit to Aberdeen Asset Management Plc for 84.7 million pounds this month and it also is shedding branches and its insurance unit. JPMorgan has been expanding its commodities operations, buying Bear Stearns Cos. in 2008 and UBS AG’s global agriculture and Canadian commodities divisions in a deal completed in 2009. The bank in March 2008 bought U.K.-based ClimateCare, which helps customers reduce carbon emissions and trades emissions credits. To contact the reporters on this story: Brett Foley in London at bfoley8@bloomberg.net Mark Chediak in San Francisco at mchediak@bloomberg.net .

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Technip Poised for $835 Million in Orders for German Gas-Storage Site Work

February 2, 2010

By Nicholas Comfort Feb. 2 (Bloomberg) — Technip SA , the oil and gas engineer that posted the best return in France’s benchmark index last year, may win as much as 600 million euros ($835 million) in orders to build three natural-gas storage sites in Germany. “There’s great interest from investors to build these plants,” Samir Abbas, a vice president at Technip, said in an interview. “We’re following up on two to three opportunities in Germany, let’s see if the clients want them to go into development in 2010.” Technip, already building three gas-storage projects in Germany, more than doubled in value last year as the outlook for energy projects improved. German utilities are adding storage capacity as they seek to make fuel sales more profitable by buying gas in summer when prices are low and selling during the winter heating period when demand rises. “The market realizes orders are coming,” said Phil Lindsay , a London-based analyst at Royal Bank of Scotland Group Plc who recommends buying the stock. “As they battle to rebuild the order backlog, what really matters is the pricing.” Technip rose as much as 4 percent to 52.37 euros in Paris trading, the biggest intraday jump in two months, and was at 52.08 euros as of 11:07 a.m. local time. European Storage The company has three other gas-storage contracts spread over Austria, France and Belgium, Abbas said in a Jan. 28 interview in Dusseldorf, where he attended the Gas Storage and Transport Summit . Some 46 German storage sites , able to meet about 25 percent of annual demand, have the largest capacity of any European nation, the Berlin-based BDEW utility association said in January 2009. An above-ground storage facility takes 2 to 2 1/2 years to develop, meaning the Dusseldorf-based unit’s employees could work on the three projects in parallel if they started at different intervals, Abbas said. The price of a so-called turnkey storage facility, where Technip provides all the necessary construction, engineering and equipment procurement services, would amount to as much as 200 million euros, according to Abbas, who is vice president for sales and proposals. Project Returns Revenue from a project can fall to as little as 20 million euros if clients look elsewhere for services, said Abbas, who has worked at Technip Germany GmbH and its predecessor company since 1990. The three German sites Technip has under execution aren’t turnkey facilities, said Johannes Edwin Koch , chief financial officer of the German division. Technip Germany had net income of 4.1 million euros on sales of 82.6 million euros in 2008, Technip’s annual report shows. The Paris-based company is scheduled to release full-year results for 2009 and hold a conference call on Feb. 18. Technip formed its German unit after buying the refinery and petrochemicals division of Mannesmann Demag AG and most of its MDEU energy and environmental operations in 1998. Italy’s Saipem SpA is Europe’s largest oilfield-services provider. To contact the reporter on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net

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Corporate Bonds Beat Stock Returns by Most Since February: Credit Markets

January 28, 2010

By Pierre Paulden and Caroline Salas Jan. 29 (Bloomberg) — Corporate bonds are beating stocks by the biggest margin since February as investors seek the shelter of fixed income amid concern the global recovery is flagging. While the MSCI World Index of stocks in 23 developed countries has lost 3.36 percent including reinvested dividends this month, the Bank of America Merrill Lynch Global Broad Market Corporate index gained 1.64 percentage points. Last month, stocks outperformed bonds by 2.4 percentage points. Corporate borrowing costs fell this month as investors sought securities that offered some protection against a slowing economy and traders pushed back estimates for when central banks would increase interest rates. The extra yield investors demand to own company bonds instead of Treasuries has dropped to 165 basis points, or 1.65 percentage points, from 176 at the end of December, according to the Bank of America index. “Some of the economic data has missed expectations, which has been disconcerting for the equity market,” said Eric Green , director of research at Penn Capital Management in Philadelphia, whose firm manages $4.5 billion. “It’s a short-term panicky mode that people are in.” Elsewhere in credit markets, benchmark gauges of corporate credit risk in the U.S. and Europe reached seven-weeks highs yesterday, as Greece’s prime minister sought to quell speculation his country is seeking loans from other nations to trim its deficit. The rise suggests the rally in company bonds may falter. Corporate bond spreads were unchanged yesterday. Corporate Sales Sales of corporate bonds globally totaled $267.9 billion this month, compared with $332.5 billion in the same period last year, according to data compiled by Bloomberg. Financial company commercial paper outstanding rose this week by the most since the Federal Reserve started its program to buy the debt during the credit crisis in October 2008. Rating upgrades exceeded cuts in the fourth quarter for the first time since the second quarter of 2007 and are outpacing downgrades this month, according to Standard & Poor’s. While credit measures are improving, company sales are growing slowly, said Arthur Tetyevsky , the chief fixed-income strategist at Broadpoint Gleacher Securities Inc. in New York. “If you’re an equity investor, you’re looking at the income statements and if you’re a bond investor, you’re looking at balance sheets,” he said. “You could see why equity investors would be a little bit disappointed on these results but corporate bond guys should be more or less OK.” Revenue growth hasn’t been fast enough to extend the Standard & Poor’s 500 Index’s 60 percent rally since March. While profits among the 188 companies that have reported quarterly results since Jan. 11 beat analysts’ estimates by 13 percent, sales have exceeded forecasts by 1.4 percent, according to data compiled by Bloomberg. Falling Stocks After gaining 3.4 percent through Jan. 14, the MSCI stock index fell 6.6 percent through yesterday. Corporate bonds were bolstered by a 1.3 percent return this month in Treasuries, according to Bank of America Merrill data. Investors remain skittish about the economy’s recovery with the U.S. unemployment rate at 10 percent. Greek bonds fell 4.19 percent in local currency terms this month, the biggest decline in the world. President Barack Obama asked Congress last week to limit the size of banks, curb proprietary trading and prohibit them from investing in hedge and private equity funds to prevent a repeat of the worst credit crisis since the Great Depression. Traders see 49 percent odds that the Fed will leave its target rate unchanged at a range of zero to 0.25 percent through June, according to futures on the Chicago Board of Trade. A month ago, a majority was betting on an increase. ‘Perfect Setup’ “There’s been the introduction of uncertainty in several different ways, including fears of sovereign risk and factors stemming from Washington,” said Stephen Antczak , managing director and the head of corporate strategy for Cantor Fitzgerald & Co. in New York. “Everyone was on the same side of the trade. Boom! Perfect setup for risk premiums to widen across the capital structure.” While corporate bond spreads have narrowed, they are up from the low this month of 160 basis points on Jan. 14. Bonds of real estate companies and insurers led the rally, with gains of 3.26 percent and 2.94 percent, while automaker and telecommunications company debt lagged behind at 0.88 percent and 1.15 percent. Of the top 50 borrowers, debt issued by Paris-based Societe Generale , France’s second-largest bank, rose 3.48 percent and bonds of Edinburgh-based lender Royal Bank of Scotland Group Plc gained 3.24 percent, the month’s leading performers. Financials, Industrials Financial bonds returned 1.82 percent, compared with 1.53 percent for debt sold by industrial companies, Bank of America index data show. Financials have outperformed industrials for all but one of the past seven months. Blackstone Group LP Chief Executive Officer Stephen Schwarzman said yesterday that banks may start to rein in lending, putting the economic recovery at risk, if politicians keep attacking them and regulatory uncertainty persists. “Financial institutions will feel under siege and they will retreat,” Schwarzman said in a Bloomberg Television interview at the World Economic Forum in Davos, Switzerland. “Their entire world is being shaken and they’re being attacked personally,” he said. “We don’t need those financial institutions insecure.” Issuance of financial commercial paper increased 10.5 percent to $601.2 billion for the week ended Jan. 27, the Fed said yesterday on its Web site . It was the biggest percentage jump since the period ended Oct. 29, 2008, when sales rose 12.4 percent, according to data compiled by Bloomberg. Fed Measures Borrowing rose while the Fed steps back from some of its programs to provide liquidity and as borrowers seek new sources of lending, said Adolfo Laurenti , a deputy chief economist at Mesirow Financial Inc. The Federal Open Market Committee repeated this week that it would close four programs supporting money markets and bond dealers in February and will hold its final Term Auction Facility auction on March 8. “I wouldn’t jump to a conclusion about the recovery of the commercial market yet,” Laurenti said in a telephone interview from Chicago. “It will come back when the economy gains steam.” Overall borrowing in commercial paper rose $54.8 billion to $1.15 trillion in the week ended Jan. 27, a 5 percent increase and the biggest jump since the period ended Oct. 7 when it climbed 5.5 percent, Fed data show. Commercial Paper Companies use commercial paper to finance daily expenses such as payroll and rent. The market seized up in September 2008, when Lehman Brothers Holdings Inc. filed for bankruptcy. The Fed started buying 30-day dollar-denominated debt through its Commercial Paper Funding Facility on Oct. 27, 2008, and has said it will stop on Feb. 1. Credit-default swaps on the Markit CDX North America Investment-Grade Index Series 13 rose 0.5 basis point to 96, according to broker Phoenix Partners Group. In London, the Markit iTraxx Europe index climbed 1.5 basis points to 82.75, according to JPMorgan Chase & Co. The indexes typically rise when investor confidence deteriorates. The Markit CDX investment-grade index has jumped 10 basis points this month and is on track for the first monthly increase since October. Credit swaps pay the buyer face value if a borrower defaults in exchange for the underlying securities or the cash equivalent. A basis point is 0.01 percentage point and is equal to $1,000 a year on a contract protecting $10 million of debt. Greek Costs Costs to protect against a default by Greece for five years surged for a second day yesterday, climbing 46 basis points to a record 420 basis points, according to CMA DataVision. Swaps on the Markit iTraxx SovX Western Europe Index, which is linked to 15 governments including Greece, rose 3.5 basis points to a record 90.75, CMA prices show. Rising sovereign risk is spilling over into corporate credit markets as investors speculate on the impact a government funding crisis may have on companies, said Tim Backshall , chief strategist at Credit Derivatives Research in Walnut Creek, California. “If investors are unnerved” by Greece, he said, “then systemic risk should rise across all risky assets.” To contact the reporters on this story: Pierre Paulden in New York at ppaulden@bloomberg.net ; Caroline Salas in New York at csalas1@bloomberg.net

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Cheapest Route to Walmart from Asia May Skip Buffett’s $34 Billion Railway

January 28, 2010

By Kyunghee Park and Eric Sabo Jan. 28 (Bloomberg) — Chinese toys and sneakers headed to Wal-Mart Stores Inc. and Target Corp. on the U.S. East Coast may bypass Warren Buffett’s $33.8 billion railway as the expansion of the Panama Canal slashes the cost of shipping them by sea. The deeper, wider canal will allow A.P. Moeller-Maersk A/S, China Ocean Shipping Group Co. and other lines to ship more cargo directly to New York and Boston instead of unloading it on the West Coast for trains and trucks to finish the journey east. That could save exporters 30 percent, the canal operator said. The $5.25 billion Panama Canal project, scheduled for completion during its centennial in 2014, may take business from ports including Los Angeles and Seattle, and railroads including Berkshire Hathaway Inc.’s Burlington Northern Santa Fe Corp. It costs as much as $1,000 more per cargo container to use trains than ships, said Lee Sokje , a shipbuilding analyst at Mirae Asset Securities Co. in Seoul. “It is inevitable that railways, such as Burlington Northern, will lose some of their cargo once the Panama Canal is expanded,” said Jee Heon Seok , a shipping analyst for NH Investment & Securities Co. in Seoul. “Many more containers can be moved in a single voyage on a ship than going through the West Coast ports.” More Cargo China, poised to overtake Japan this year as the world’s second-biggest economy, may boost exports by 20 percent during the first quarter as the global economy recovers, according to Macquarie Securities Ltd. and Royal Bank of Scotland Group Plc. China Cosco Holdings Co. , Asia’s biggest shipping company by market value, and 14 other container lines said Jan. 14 they expect a “significant” increase in transpacific cargo this year on rising U.S. consumer sentiment. That prospective growth spurred Berkshire to pay $26 billion for the remaining 77.4 percent of Fort Worth, Texas- based Burlington Northern it didn’t already own. Buffett, the Berkshire chairman, said the largest U.S. railroad will benefit from “moving around more and more goods.” The acquisition is pending and expected to be completed by March 31. Burlington Northern customers in Gulf of Mexico ports — including Houston and Galveston, Texas — may benefit from more traffic going through a wider canal. Buffett didn’t respond to a request for comment. A Burlington Northern spokeswoman, Suann Lundsberg, said trains deliver cargo from the West Coast to the East Coast as many as nine days faster than ships using the canal. 30 Percent Savings Rail traffic is expected to continue growing, although probably at a slower rate than in the past, Lundsberg said. “We know he doesn’t make short-term investments,” Art Wong , spokesman for the port in Long Beach, California, said of Buffett. “He must be making it because he thinks it’s a great long-term investment.” About 43 percent of Asian cargo shipped to East Coast ports — including Savannah, Georgia, and Jacksonville, Florida –goes through the Panama Canal, said Rodolfo Sabonge, director of marketing for the Panama Canal Authority. That share may increase to 49 percent by 2025. “It will become less expensive overall to ship through the canal,” Sabonge said. “Savings could go up to 30 percent.” The expansion project , started in 2007, is building locks on both sides of the 50-mile canal, digging a new channel linking the locks and deepening the waterway connecting the Pacific Ocean with the Caribbean Sea. New York Harbor Currently, ships loading fewer than 5,000 20-foot boxes use the canal. The expansion will accommodate vessels carrying about 12,600 containers and may generate cargo growth of about 5 percent a year, Sabonge said. “It will, of course, help reduce costs for exporters to the U.S.,” said Victor Fung , chairman of outsourcer Li & Fung Ltd., the world’s biggest supplier of toys, clothes and furniture to retailers including Walmart, Target, Macy’s Inc. and Marks & Spencer Group Plc. The company reported HK$46.3 billion ($5.96 billion) in sales during the first half of last year, with 61 percent of that coming from the U.S. East Coast ports are readying for the changes. The Port Authority of New York and New Jersey is deepening more channels to 50 feet and considering options for a 78-year-old bridge between New Jersey and New York City that may be too low. “Increasing numbers of big ships are anticipated at our port facilities following an expansion of the Panama Canal,” the agency said in September. Ports, Railroads Collaborate Hanjin Shipping Co. , South Korea’s largest shipping company that operates two California terminals, is building its first East Coast terminal in Jacksonville to handle an increase in cargo through the canal. The facility opens in 2013. The ports around Charleston, South Carolina, are dredging to accommodate vessels carrying more than 8,000 20-foot containers. Six ports on the opposite coast — Los Angeles; Long Beach; Oakland, California; Seattle; Tacoma, Washington; and Portland, Oregon — handle about 70 percent of containerized trade between Asia and the U.S., according to an Oct. 12 statement. They are collaborating with Burlington Northern and Union Pacific Corp. to convince Asian exporters they are better options than the canal for reaching East Coast markets. They cite advantages including deep-water terminals, connections to inland transportation networks, and storage and distribution facilities. Trains also use less fuel, reducing costs and carbon emissions, they said. “We don’t think those alternative gateways will go away,” said Tay Yoshitani , chief executive officer for the Port of Seattle. “If we don’t improve our competitiveness, we could lose a lot of cargo.” To contact the reporters on this story: Kyunghee Park in Hong Kong at kpark3@bloomberg.net ; Eric Sabo in Panama City at esabo1@bloomberg.net .

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U.K. Government’s `Huge’ Bank Sales Will Surpass Thatcher’s Privatizations

January 28, 2010

By Jon Menon Jan. 28 (Bloomberg) — The British government is seeking to raise more cash by selling its 71.5 billion-pound ($116 billion) stake in three crippled banks than Margaret Thatcher generated by disposing of state-owned businesses during her entire 11 years in office. From 1979 to 1990, then-Prime Minister Thatcher’s three administrations privatized more than 20 companies, including British Gas and British Airways. The total raised would now be worth about 68.5 billion pounds, adjusted for inflation, according to accounting firm Ernst & Young. Prime Minister Gordon Brown hasn’t disclosed a timetable for the sale of the U.K.’s stakes in Royal Bank of Scotland Group Plc , Lloyds Banking Group Plc and Northern Rock Plc, making their remuneration and lending practices a political question. “It’s such a huge stake, it will clearly dominate the political agenda,” said Tom Kirchmaier , a fellow at the London School of Economics . “Any government will probably have a substantial stake for a long time.” The U.K. may take as long as seven years to sell the holdings, said Jon Sibson , PricewaterhouseCoopers LLP’s U.K. government and public sector leader. In the meantime, political pressure may distract executives at the lenders, according to Robert Talbut of Royal London Asset Management. RBS Chief Executive Officer Stephen Hester last month attacked the “politicization” of the lender’s bonus payments. Questioned by lawmakers this month, Hester said he should have “kept quiet.” ‘Looking Over Their Shoulder’ “They will be forever looking over their shoulder to see what the government view is,” said Talbut, who helps manage about 32 billion pounds. “It’s going to inhibit the growth prospects of those banks.” The state is likely to sell its stake in a number of stages and over years, Talbut said. The scale of the bank sale leaves David Cameron , one of Thatcher’s successors as Conservative Party leader, with the task of convincing investors to part with more money for nationalized assets than his predecessor if he wins this year’s British election. Britain must hold a vote by June and opinion polls show Cameron as the likeliest victor. The U.K. bought an 84 percent interest in Edinburgh-based RBS for 45.5 billion pounds and 43 percent of Lloyds for about 20.5 billion pounds as part of the taxpayer-funded bailouts in 2007 and 2008. The state has pledged to inject as much as 5.5 billion pounds into Northern Rock , which it nationalized in 2008, according to the Newcastle, England-based lender. TARP Repayments By contrast, about two thirds of the U.S. government’s $700 billion bank rescue plan, the Troubled Asset Relief Program, has already been repaid, according to a report by the U.S. Treasury this month. JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co., Bank of America Corp., Goldman Sachs Group Inc. and Morgan Stanley were among the recipients. The Swiss government handed 6 billion francs ($5.7 billion) to UBS AG to help it spin off assets and sold the investment last year at a 1.2 billion-franc profit. Germany’s Commerzbank AG received 18.2 billion euros ($25.6 billion) from the government, which still holds a 25 percent stake. In Britain the government’s stake in banks “is definitely much higher” than in the rest of Europe, said Jaap Meijer , an analyst at Evolution Securities Ltd. in London. “Government influence is much bigger than in other markets.” A sale of the British bank stakes at today’s prices would leave taxpayers with a 21.9 billion-pound loss. The Treasury bought RBS shares at an average price of about 50 pence against a closing price yesterday of 33 pence. It bought Lloyds shares at 74 pence each, which traded yesterday at 50.8 pence. ‘Make a Profit’ Brown still expects to recoup the money the government ploughed into the three lenders. “We will recoup the money,” he told reporters Jan. 25. “We will in fact make a profit.” “It will be politically unacceptable for the government to contemplate selling down at a loss any time soon,” said Ian Gordon , an analyst at Exane BNP Paribas SA in London who has “outperform” ratings on RBS and Lloyds. Unlike the privatizations of the last century, this time the arguments will revolve around price rather than political principle. Thatcher’s asset sales were attacked by the opposition Labour Party and by some members of her own Conservatives, including former Prime Minister Harold Macmillan , who in November 1985 likened her program to selling off a family’s “Georgian silver.” “This is not political, it’s a question of value,” said Peter Hahn , a senior lecturer at City University’s Cass Business School in London. RBS , which posted the biggest loss in U.K. history in 2008, may take five years to turn around, Hester said. ‘Massive Job’ Changing risk management at the bank is an “absolutely massive job” and may take years, John Kingman , CEO of United Kingdom Financial Investments Ltd. , said in November. UKFI, which manages the government’s bank stakes, has “no projections, no assumptions and no targets to hit” when it comes to selling the holdings. They will most likely be capital markets sales, John Crompton , head of investments, said in September. RBS and Lloyds aren’t expected to make an annual profit before 2011 at the earliest, according to analysts’ estimates compiled by Bloomberg. In the asset sales of the 1980s, Thatcher faced criticism for selling-off monopoly assets without breaking them up to increase competition, said James Foreman-Peck , a professor at Cardiff Business School and former economic adviser to the Treasury. “One of the challenges and trade-offs in the original privatizations was the need to encourage competition while getting a good price for the asset,” Foreman-Peck said. “There will be a similar issue for the banks. It’s taxpayer versus consumer: that’s the conflict.” To contact the reporter on this story: Jon Menon in London at jmenon1@bloomberg.net

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Virgin Money May Name Former Lloyds CEO Pitman as Chairman Amid Expansion

January 27, 2010

By Andrew MacAskill Jan. 27 (Bloomberg) — Virgin Money Holdings U.K. Ltd., Richard Branson’s financial-services division, is in talks with former Lloyds TSB Chief Executive Officer Brian Pitman about taking the post of chairman, a person familiar with the matter said. Pitman, 78, who advised Branson on his bid for Northern Rock Plc , may be named to the post as early as this week, said the person, who declined to be identified because the talks are private. Pitman was credited by analysts with transforming Lloyds TSB into Britain’s most profitable lender before his departure in 2001. Virgin today completed its acquisition of Church House Trust Plc, which will give the firm a banking license. Branson , chairman of Virgin Group Ltd., is one of several people planning to create lenders in the U.K. after the credit crunch led to a series of bank rescues including Royal Bank of Scotland Group Plc , and the departure of some overseas-based lenders. Chancellor of the Exchequer Alistair Darling said he wanted “new people” in the industry. A spokesman for Virgin Money declined to comment. An answer machine message left at Pitman’s office was not immediately returned. The Financial Times reported the news of Pitman’s possible appointment earlier. Both Branson and Pitman have received knighthoods from Queen Elizabeth. Pitman is also a senior adviser to the Financial Services Authority and to Morgan Stanley International . For Related News and Information: More banking news: NI BNK More merger and acquisition news: NI MNA

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Asian Stocks Fall as China Tightening Concerns Deepen; Yen, Dollar Advance

January 25, 2010

By Darren Boey and Kana Nishizawa Jan. 26 (Bloomberg) — Asian stocks declined, while the yen and the dollar strengthened against the euro as concerns deepened China will step up measures to slow the world’s fastest-growing major economy. Treasuries extended gains. The MSCI Asia Pacific Index fell 1.3 percent to 119.92 as of 1:55 p.m. in Tokyo, the lowest since Dec. 30. The Hang Seng Index lost 1.6 percent to 20,269.14, extending its drop from a November high to 12 percent. Standard & Poor 500 Index futures slid 0.9 percent. The yen strengthened to 126.99 per euro from 127.75 in New York yesterday. The dollar advanced to $1.4122 per euro from $1.4151. Concerns about tighter monetary policy in China have dragged the MSCI World Index down for the past five days. Goldman Sachs Group Inc. downgraded Chinese banks today, while Reuters reported that several China lenders will see an additional increase in their reserve ratios take effect. “The market is having trouble rebounding from its slump because of all the uncertainties,” said Koji Toda , chief fund manager at Resona Bank Ltd., which holds about $55 billion. “People are still worried, and yet clinging to the hope that policy support will continue to drive the global recovery.” The Nikkei 225 Stock Average fell 1.1 percent in Japan, where the central bank held interest rates near zero and said it remains committed to fighting deflation. South Korea’s Kospi Index dropped 1.9 percent, while Taiwan’s Taiex Index sank 2.9 percent. Bank Of China Ltd. , the nation’s third-largest lender, declined 2.4 percent to HK$3.72 and Bank of Communications Co. fell 3.4 percent to HK$7.90. Bank of China was cut to “neutral” from “buy,” while BoCom was cut to “sell” from “neutral” at Goldman Sachs. China Bank Downgrades “This potential collateral damage due to policy tightening or GDP slowdown is perhaps the hardest to assess, capping valuations until these overhangs are resolved,” Goldman Sachs analysts led by Ning Ma said in a report today. China is starting to take steps to cool the economy, which grew in the fourth quarter at the fastest pace since 2007. Gross domestic product expanded 10.7 percent while consumer prices rose a higher-than-estimated 1.9 percent in December from a year earlier, according to government data on Jan. 21. Banks have suspended new lending since Jan. 19 across the country, Dong Tao , a Hong Kong-based economist at Credit Suisse Group AG, wrote in a note to clients. The central bank raised the proportion of deposits banks must set aside as reserves on Jan. 12. Several Chinese lenders will see an additional increase in their reserve ratios take effect today, Reuters reported, citing banking sources it didn’t identify. China Interbank Rate Foxconn International Holdings Ltd. , which makes mobile phones, fell 9 percent to HK$8.05 in Hong Kong after saying it expects a “significant” decline in profit for 2009. China’s seven-day repurchase rate, which measures the cost of borrowing money in the country’s interbank market, climbed 30 basis points to 1.64 percent, the biggest increase in a month. Japan’s currency strengthened versus all 16 of its major counterparts. The yen appreciated to 90.02 per dollar from 90.28 in New York yesterday. “The market remains very sensitive to signs of China’s tightening, which revive risk aversion and cause the yen to be bought back,” said Masato Mori , senior manager of the business and marketing department at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “This is part of the Chinese government’s efforts to keep the economy from overheating while securing growth.” The benchmark 10-year note yield fell four basis points to 3.60 percent, according to BG Cantor Market Data. The 3.375 percent security due November 2019 rose 9/32, or $2.81 per $1,000 face amount to 98 6/32. Commodity Prices Commodity prices fell as concerns about tightening in China raised concern raw-materials demand will drop. Copper declined in London for the first time in three days, dropping 1 percent to $7,390 a metric ton. Aluminum fell 0.4 percent to $2,233.75 a ton, nickel declined 0.9 percent to $18,000 and lead lost 0.5 percent to $2,209. Crude oil declined 1 percent to $74.52 a barrel in New York after-hours trading. “China tightening their monetary policy is sending a signal,” said Clarence Chu , a trader with options dealers Hudson Capital Energy in Singapore. “Demand is growing, but not as fast as previously expected.” The cost of protecting Asian bonds from non-payment increased, according to traders of credit-default swaps. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan rose 4 basis points to 105 basis points as of 8:18 a.m. in Singapore, Royal Bank of Scotland Group Plc prices show. The risk benchmark is on track for its highest close since it climbed to 108 basis points on Jan. 22, according to CMA DataVision prices in New York. To contact the reporter for this story: Darren Boey in Hong Kong at dboey@bloomberg.net .

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Asian Stocks Fall as China Tightening Concerns Deepen; Yen, Dollar Advance

January 25, 2010

By Darren Boey and Kana Nishizawa Jan. 26 (Bloomberg) — Asian stocks declined, while the yen and the dollar strengthened against the euro as concerns deepened China will step up measures to slow the world’s fastest-growing major economy. Treasuries extended gains. The MSCI Asia Pacific Index fell 1.3 percent to 119.92 as of 1:55 p.m. in Tokyo, the lowest since Dec. 30. The Hang Seng Index lost 1.6 percent to 20,269.14, extending its drop from a November high to 12 percent. Standard & Poor 500 Index futures slid 0.9 percent. The yen strengthened to 126.99 per euro from 127.75 in New York yesterday. The dollar advanced to $1.4122 per euro from $1.4151. Concerns about tighter monetary policy in China have dragged the MSCI World Index down for the past five days. Goldman Sachs Group Inc. downgraded Chinese banks today, while Reuters reported that several China lenders will see an additional increase in their reserve ratios take effect. “The market is having trouble rebounding from its slump because of all the uncertainties,” said Koji Toda , chief fund manager at Resona Bank Ltd., which holds about $55 billion. “People are still worried, and yet clinging to the hope that policy support will continue to drive the global recovery.” The Nikkei 225 Stock Average fell 1.1 percent in Japan, where the central bank held interest rates near zero and said it remains committed to fighting deflation. South Korea’s Kospi Index dropped 1.9 percent, while Taiwan’s Taiex Index sank 2.9 percent. Bank Of China Ltd. , the nation’s third-largest lender, declined 2.4 percent to HK$3.72 and Bank of Communications Co. fell 3.4 percent to HK$7.90. Bank of China was cut to “neutral” from “buy,” while BoCom was cut to “sell” from “neutral” at Goldman Sachs. China Bank Downgrades “This potential collateral damage due to policy tightening or GDP slowdown is perhaps the hardest to assess, capping valuations until these overhangs are resolved,” Goldman Sachs analysts led by Ning Ma said in a report today. China is starting to take steps to cool the economy, which grew in the fourth quarter at the fastest pace since 2007. Gross domestic product expanded 10.7 percent while consumer prices rose a higher-than-estimated 1.9 percent in December from a year earlier, according to government data on Jan. 21. Banks have suspended new lending since Jan. 19 across the country, Dong Tao , a Hong Kong-based economist at Credit Suisse Group AG, wrote in a note to clients. The central bank raised the proportion of deposits banks must set aside as reserves on Jan. 12. Several Chinese lenders will see an additional increase in their reserve ratios take effect today, Reuters reported, citing banking sources it didn’t identify. China Interbank Rate Foxconn International Holdings Ltd. , which makes mobile phones, fell 9 percent to HK$8.05 in Hong Kong after saying it expects a “significant” decline in profit for 2009. China’s seven-day repurchase rate, which measures the cost of borrowing money in the country’s interbank market, climbed 30 basis points to 1.64 percent, the biggest increase in a month. Japan’s currency strengthened versus all 16 of its major counterparts. The yen appreciated to 90.02 per dollar from 90.28 in New York yesterday. “The market remains very sensitive to signs of China’s tightening, which revive risk aversion and cause the yen to be bought back,” said Masato Mori , senior manager of the business and marketing department at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “This is part of the Chinese government’s efforts to keep the economy from overheating while securing growth.” The benchmark 10-year note yield fell four basis points to 3.60 percent, according to BG Cantor Market Data. The 3.375 percent security due November 2019 rose 9/32, or $2.81 per $1,000 face amount to 98 6/32. Commodity Prices Commodity prices fell as concerns about tightening in China raised concern raw-materials demand will drop. Copper declined in London for the first time in three days, dropping 1 percent to $7,390 a metric ton. Aluminum fell 0.4 percent to $2,233.75 a ton, nickel declined 0.9 percent to $18,000 and lead lost 0.5 percent to $2,209. Crude oil declined 1 percent to $74.52 a barrel in New York after-hours trading. “China tightening their monetary policy is sending a signal,” said Clarence Chu , a trader with options dealers Hudson Capital Energy in Singapore. “Demand is growing, but not as fast as previously expected.” The cost of protecting Asian bonds from non-payment increased, according to traders of credit-default swaps. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan rose 4 basis points to 105 basis points as of 8:18 a.m. in Singapore, Royal Bank of Scotland Group Plc prices show. The risk benchmark is on track for its highest close since it climbed to 108 basis points on Jan. 22, according to CMA DataVision prices in New York. To contact the reporter for this story: Darren Boey in Hong Kong at dboey@bloomberg.net .

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Goldman’s O’Neill, Lifelong Manchester United Fan, Spurns Club’s Bond Sale

January 25, 2010

By Zijing Wu and John Glover Jan. 25 (Bloomberg) — Goldman Sachs Group Inc. Chief Global Economist Jim O’Neill , a former shareholder and board member of Manchester United, said the club has too much debt and its bonds are unattractive. “There’s too much leverage going on with Manchester United,” O’Neill, a lifelong supporter of the 18-times English soccer champions, said in a Jan. 23 interview. “It’s not a good thing. I’m not a buyer of the bond.” The club issued more than 500 million pounds ($807 million) of seven-year bonds in pounds and dollars last week to refinance a similar amount of bank borrowing. The club took on the debt after the U.S. Glazer family bought it in a leveraged buyout in 2005. “I value my long-term support for Manchester United better than anything else,” said O’Neill, who held 1.66 million pounds of the club’s shares in 2005 when he stepped down from the board as the Glazers took the club private. A spokesman for the Glazer family declined to comment. Philip Townsend , a spokesman for the club, couldn’t immediately be reached for comment. The bonds include 250 million pounds of 8.75 percent notes priced at a discount to yield 9.125 percent, according to data compiled by Bloomberg. The $425 million of 8.375 percent notes were priced to yield 8.75 percent. Bonds Decline The pound-denominated bonds declined after the sale and were quoted at 95.5 pence on the pound to yield 9.5 percent, according to HSBC Holdings Plc prices on Bloomberg today. The dollar bonds were bid at 97.5 cents to yield about 8.9 percent, according to HSBC. “I don’t think the yield offers adequate return for the risk,” Jonathan Moore , a high-yield analyst at Evolution Securities Ltd. in London said in a note today. “Given my conversations with institutional investors over the past two weeks, it appears a lot of funds in Europe have similar concerns.” The club paid 54 million pounds to sell the bonds, according to the documentation for the issue. Bank of America- Merrill Lynch, Deutsche Bank AG, Goldman Sachs, JPMorgan Chase & Co., KKR & Co. and Royal Bank of Scotland Group Plc managed the deal. To contact the reporters on this story: Zijing Wu in London zwu17@bloomberg.net ; John Glover in London at johnglover@bloomberg.net

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Asian Stocks, Oil Fall on China Rates Concern, Obama Bank Plan; Yen Rises

January 21, 2010

By James Regan Jan. 22 (Bloomberg) — Stocks in Asia fell for a fifth day and commodities slumped on concern China will raise interest rates and banking curbs proposed by President Barack Obama will dent the U.S. recovery. The yen rose to a nine-month high against the euro and the risk of corporate defaults climbed. The MSCI Asia Pacific Index sank 1.7 percent to 121.69 at 2:05 p.m. in Tokyo, set to complete its longest losing streak in six months. Stock benchmarks in Japan, China, Hong Kong and South Korea fell more than 2 percent, while U.S. futures were little changed after declines in New York. Copper dropped for a third day and crude oil slipped below $76 a barrel. The yen rose against all 16 of the most-traded currencies. Indexes tracking Asian credit-default swaps rose the most in almost two months. Investors are retreating from higher-yielding assets after China’s 10.7 percent growth in the fourth quarter ignited concerns that the nations responsible for leading the world out of a recession will raise borrowing costs to keep their economies from overheating. Obama’s plan to restrict proprietary trading by lenders triggered declines of more than 6 percent in JPMorgan Chase & Co. and Bank of America Corp. yesterday. “There are some worries about the extent of tightening in China,” said Shane Oliver , head of investment strategy in Sydney at AMP Capital Investors, which oversees $90 billion. “I don’t think they’re seeking to crunch their economy, but obviously the market worries that that will be the case.” Stocks Slide Sixteen stocks declined on the MSCI Asia Pacific Index for each one that rose. Japan’s Nikkei 225 Stock Average slumped 2.5 percent, almost erasing this year’s advance. South Korea’s Kospi dropped 2.4 percent, the most since November. Mitsubishi Corp. , which gets 39 percent of its sales from commodities, lost 4.8 percent. Samsung Electronics Corp. , which relies on China for more than 20 percent of its sales, slid 2.7 percent. The Shanghai Composite Index fell 2.5 percent, extending the year’s decline to 5.7 percent. China’s central bank will raise interest rates by the end of June and increase banks’ reserve requirements, according to the median forecasts of 17 economists surveyed by Bloomberg after government reports yesterday on gross domestic product and consumer prices. “We’re looking toward a small correction going forward,” Seth Freeman , chief executive officer at New York-based EM Capital Management, said in a Bloomberg Television interview in Hong Kong. “The change in economic policy should have some impact on the market.” China Sales Investors pulled $348 million from China equity funds in the week ended Jan. 20, the biggest drop in four months, according to EPFR Global, in Cambridge, Massachusetts. Shares of Jiangxi Copper Co. slumped 3.7 percent in Shanghai and Aluminum Corp. of China Ltd. dropped 2.8 percent after they were cut to “sell” from “neutral” at Goldman Sachs Group Inc., which said accelerating inflation has increased risks for the industry. China’s inflation accelerated to 1.9 percent in December, from 0.6 percent the previous month. Copper for May delivery in Shanghai fell for a third day, dropping as much as 3.1 percent to 59,110 yuan ($8,658) per metric ton in Shanghai. Zinc tumbled 4.8 percent. Gold for immediate delivery traded at $1,092.15 an ounce, near the low of $1,088.65 yesterday, a level not seen since Dec. 30. The metal is poised for its biggest weekly decline in seven as the dollar’s rebound curbed investor demand. The Dollar Index , a gauge of the greenback’s strength against the currencies of six major U.S. trading partners, has gained 1.1 percent this week and yesterday reached a four-month high. U.S. Fuel Demand Crude oil dropped for a third day to $75.86 a barrel in New York, after the U.S. Energy Department said refineries ran at 78.4 percent of capacity last week, the lowest rate outside the Atlantic hurricane season since at least 1989. Gasoline stockpiles were the highest since March 2008. Fuel consumption in the past four weeks was 1.8 percent less than a year earlier. The yen advanced to 126.98 per euro in Tokyo from 127.37 in New York yesterday. It earlier reached 126.56, the strongest level since April. Japan’s currency gained to 89.93 per dollar from 90.43 yesterday after reaching 89.79, the highest level since Dec. 18. Korea’s won was the worst performer among the most-traded currencies, falling 1.8 percent against the yen and 1.3 percent versus the dollar. “Weakness across global equity markets is suppressing risk appetite,” said Mike Jones , a currency strategist at Bank of New Zealand Ltd. in Wellington. “Against this backdrop, investors will continue to sell growth-sensitive currencies in favor of safe-haven currencies like the dollar and the yen.” ‘Double-Dip’ Risk Japan’s 10-year bonds rose the most in six weeks, pushing the yield on the 1.3 percent note due December 2019 down three basis points to 1.310 percent. Similar-maturity U.S. Treasuries yielded 3.58 percent, about a quarter percentage point less than at the start of the year. A basis point is 0.01 percentage point. “There’s a possibility of a double-dip recession,” said Hiromasa Nakamura , a Tokyo-based senior investor at Mizuho Asset Management Co., which oversees $21.1 billion. “There is limited room for stocks to rise. Those factors are positive for U.S. Treasuries.” The Asia-Pacific region’s three benchmark indexes for credit-default swaps were on track for their biggest daily increases since Nov. 27, prices from CMA DataVision show. The indicators rise when the credit outlook deteriorates. The Markit iTraxx Japan index jumped 9.5 basis points to 142.5 basis points, according to Morgan Stanley prices. The Markit iTraxx Australia index climbed 9 basis points to 93 basis points, according to Citigroup Inc. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan increased 6 basis points to 108.5 basis points, Royal Bank of Scotland Group Plc prices show. To contact the reporter on this story: James Regan at jregan19@bloomberg.net ;

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Obama’s `Unilateral’ Bank Plan Shows Lack of Global Coordination on Rules

January 21, 2010

By Gavin Finch, Andrew MacAskill and Caroline Binham Jan. 22 (Bloomberg) — President Barack Obama’s plan to curb proprietary trading shows banking regulations are being implemented unilaterally, not on the global scale lenders urged, according to lawyers. Obama proposed yesterday to limit the size of banks and prohibit them from investing in hedge funds and private equity funds as a way to reduce risk-taking and prevent a repeat of the credit crisis. Other countries, including the U.K., are pushing firms to cut risk by boosting their capital reserves instead. “There seems to be an element of governments trying to outbid each other in regulation proposals,” said Michael Wainwright, a London-based partner in financial services at law firm Eversheds LLP. “They are all trying to catch the mood of the moment with the electorate.” Governments are stepping up regulation of banks and insurers after pumping in trillions of dollars to bail out firms from American International Group Inc. to Edinburgh-based Royal Bank of Scotland Group Plc. Deutsche Bank AG Chief Executive Officer Josef Ackermann and Barclays Plc Chairman Marcus Agius said yesterday regulation that wasn’t globally coordinated may threaten both their industry and the economic recovery. “You must eschew the temptation to seek refuge in the alleged safety of national borders,” Ackermann said at a London conference yesterday, before Obama announced details of his plan. “The re-fragmentation of global markets is in nobody’s interests. It will leave us all poor. We need internationally harmonized rules and global and consistent implementation.” Too Big To Fail While lawmakers and policy makers around the world have been grappling with what to do with banks that are deemed too- big-to-fail, measures taken by governments so far have tended to favor surcharges rather than a legal split to make risky trades less economically viable. In the U.S., the Glass-Steagall Act separated retail banking from investment banking until 1999. “This is absolutely unilateral,” said Simon Gleeson , a regulatory lawyer at Clifford Chance LLP in London. “This is Glass-Steagall Mark Two,” he added. “Banks can take just as much risk in commercial lending as they can in proprietary trading as Northern Rock and HBOS show,” he said referring to two lenders bailed out by the U.K. government. Obama’s call “is moving a long way from the existing Basel recommendations on capital charges, which is another way of dealing with this issue,” said David Green, a former Bank of England and U.K. Financial Services Authority official who now advises regulators outside Britain. He was referring to the Switzerland-based Basel Committee on Banking Supervision, which is preparing to raise capital standards for banks. Obama’s Loss Obama’s plan is subject to approval by Congress, where his previous regulatory proposals have hit resistance from some lawmakers and opposition from financial firms. He announced the plan on the day Goldman Sachs Group Inc. , facing criticism from politicians and labor unions for near-record compensation pools, set aside $16.2 billion to pay employees. This week, Republicans won a victory in the race for the U.S. Senate seat in Massachusetts, a state represented by the late Senator Edward M. Kennedy for almost half a century. “The events of the last few days politically with Obama’s loss may be a factor,” said Jonathan Herbst , a former FSA attorney now at London-based Norton Rose LLP. “This is a U.S. solution, which effectively has a historical resonance in the U.S.” he said. “European policy makers have been very skeptical about this as a solution to the problem.” ‘Obama is Right’ Others welcomed Obama’s plan. “If banks engage in very high-risk activities, they can endanger the money of their depositors,” Antonio Borges , chairman of the Hedge Fund Standards Board, said in a telephone interview. “In this sense, Obama is right.” In October, U.K. Chancellor of the Exchequer Alistair Darling ruled out Bank of England Governor Mervyn King’s suggestion to separate investment banks from operations that take deposits from consumers and manage payment systems. Banks conduct proprietary trading for their own benefit, not for that of their clients. Adair Turner, chairman of the U.K.’s FSA, has said he is against splitting banks. Turner is leading a committee at the Financial Stability Board, which sets policy for the Group of 20 nations, on whether banks should be split. The FSB is due to report to the G20 by October. The proposals could affect trading at U.S. firms including New York-based Goldman Sachs, Morgan Stanley and JPMorgan Chase & Co., according to Frederic Dickson , chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon. U.K. Banks U.K. banks with the most to lose under Obama’s plan would be Barclays Plc , RBS and HSBC Holdings Plc , said Simon Maughan , an analyst at MF Global Securities in London. Barclays fell 5.9 percent to 283 pence in London trading yesterday, RBS slid 7 percent to 35.32 pence and HSBC slipped 1.2 percent to 675 pence. The U.K. Treasury will consider proposals, an official said. The British Bankers’ Association, an industry trade group, said it was studying Obama’s plans to see how they align with what has already been discussed in the U.K. and abroad, spokesman Brian Mairs said in an e-mailed statement. Obama’s plan follows a slew of banking regulations proposed since the credit crisis. The U.K. government last month imposed a one-time 50 percent tax on bonuses, to be paid by banks. France’s government also said it will impose a similar levy. Osborne Pledge George Osborne, the Conservative lawmaker that shadows Darling in the U.K. Parliament, said that if elected his party would implement a similar plan to Obama’s in the U.K. A YouGov survey for the Sunday Times this week showed the opposition Conservatives at 40 percent, 9 points ahead of the ruling Labour party, with an election due by June. “The whole process of re-regulating the banks is just starting,” said Florian Esterer , a money manager at Swisscanto Asset Management in Zurich, which oversees about $58 billion. “This is just the early warning shots.” To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net ; Andrew Macaskill in London at amacaskill@bloomberg.net ; Caroline Binham in London cbinham@bloomberg.net

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